'COMPETITION POLICY IN ITS BROADEST SENSE': MICHAEL PERTSCHUK'S CHAIRMANSHIP OF THE FEDERAL TRADE COMMISSION 1977-1981.

• Author: Kovacic, William E.
• Position: Special Issue on Antitrust Law

TABLE OF CONTENTS INTRODUCTION 1271 I. MAKEOVER: THE FTC FROM 1969 TO THE PERTSCHUK CHAIRMANSHIP 1274 A. The Nader and ABA Reports 1275 1. Institutional Implications of the Suggested Reforms 1278 2. Deconcentration: A Focal Point for Expanded Enforcement 1279 B. The FTC's Antitrust Agenda Before the Pertschuk 1282 Chairmanship 1. Concentrated Industries: Dominant Firms and Collective 1283 Dominance 2. Horizontal Conduct 1285 3. Distribution Practices 1285 4. Notable Qualitative Features 1286 C. The Consumer Protection Agenda 1288 D. The Administrative and Human Resources Infrastructure 1291 II. Two SPEECHES 1292 A. Boston: "Competition Policy in Its Broadest Sense" 1293 1. The Cures 1295 B. Atlanta: "The Unchartered Territory of Competition Law" 1298 III. THE PERTSCHUK PROGRAM 1303 IV. A CRITICAL ASSESSMENT 1307 A. Poor Historical Awareness 1311 B. Lack of Political Awareness 1315 C. Poor Awareness of Policy Implementation Prerequisites 1317 V. POSSIBLE IMPLICATIONS FOR A MAJOR REDIRECTION OF ANTITRUST 1325 ENFORCEMENT CONCLUSION: IMPLICATIONS FOR A NEW OVERHAUL OF U.S. COMPETITION POLICY 1332 INTRODUCTION

Among competition and consumer protection regulators, the U.S. Federal Trade Commission (FTC) is perhaps the most intriguing. The FTC's extraordinarily elastic mandate--including the power to ban "unfair methods of competition" (1) and "unfair or deceptive acts or practices," (2) and its diverse portfolio of policy making tools' (3)--gives the FTC a seemingly unmatched capacity to study and remedy a multitude of economic problems. (4) Since the FTC's creation in 1914, these institutional features have placed the agency in the center of debates about the future of U.S. competition and consumer protection policy. (5)

Today the FTC is again in the spotlight. Various commentators have urged that the FTC dramatically expand its efforts to apply its distinctive powers. (6) The suggested agenda for the FTC includes measures to reduce excessive levels of industrial concentration, to arrest abusive behavior by dominant enterprises, to protect the interests of small and medium enterprises, and to achieve a range of social policy objectives beyond the promotion of economic efficiency. (7) To some observers, the FTC's scalable mandate makes it the preferred vehicle for a fundamental reorientation of competition and consumer protection policy. (8)

In the late 1960s and in the 1970s, similar calls for action helped spur ambitious applications of the FTC's competition and consumer protection powers. (9) As the FTC's chairman from May 1977 to February 1981, Michael Pertschuk exemplified the FTC's determination to exercise the full potential inherent in its mandate. (10) Pertschuk came to the FTC after a long, influential career as a congressional staffer. (11) As FTC chairman, he urged the Commission to embrace a view of "competition... in its broadest sense" and to apply the agency's powers expansively. (12)

The program conceived by Pertschuk and his predecessors at the FTC in the late 1960s and in the 1970s was breathtaking in its aims and means. The agency achieved some litigation and rulemaking successes, and introduced policies that have had enduring value. (13) At the same time, the FTC's program of the 1970s generated many failed cases and rules. (14) FTC efforts to explore the outer limits of its powers elicited powerful political backlash that threatened a major curtailment of the agency's jurisdiction. (15)

This Article examines Michael Pertschuk's leadership of the FTC for several purposes. This Article uses this era to consider the policy implementation difficulties that an "independent" regulatory agency faces when it seeks to apply a powerful, flexible policy mandate. (16) This Article also studies the institutional prerequisites for such an agency to apply this mandate effectively. (17) These predicates include an awareness of the broader political and economic context in which the agency operates, the development of sound methods to set priorities and choose specific projects, and the establishment of effective processes to match an agency's commitments to its capabilities. (18) In doing these things, the Article suggests implications of the FTC's 1970s experience for modern proposals that would have the FTC undertake a far-reaching expansion of its existing law enforcement and regulatory programs. (19)

The Article proceeds as follows. Part I describes the FTC policymaking status quo when Pertschuk became chair in 1977. This Part traces the causes and content of the sweeping redirection of FTC programs that began in the late 1960s and carried forward until Pertschuk came to the agency in May 1977.

Part II sets out how Pertschuk defined his agenda in 1977. Pertschuk presented the basic ingredients of his program in two speeches delivered late in 1977. (20) The speeches provide essential foundations for understanding the evolution of modern U.S. competition and consumer protection policy.

Part III describes how the FTC sought to realize Pertschuk's vision from 1977 until March 1981, when President Ronald Reagan appointed David Clanton to serve as the agency's acting chairman.

Part IV critically assesses the FTC's experience in the 1970s. The Article does not evaluate the economic effects of the agency's program during this period. Instead, it focuses on the quality of the FTC's program from an institutional perspective. It emphasizes two institutional flaws: a failure to ensure that the agency had the capacity to successfully carry out its ambitious agenda, and a failure to account for how the FTC's projects would land in an increasingly hostile political environment. Among other developments, this discussion also recounts congressional moves from 1979 through the early 1980s to curb the FTC's antitrust and consumer protection authority.

Part V turns to the potential implications of the FTC's experience in the 1970s for modern debates about possible adjustments to antitrust law and policy. Drawing upon modern commentary, Part V sketches what a far-reaching program to reorient and expand the FTC's antitrust and consumer protection programs might look like. Part V does not assess the substantive wisdom of proposals for FTC policy reforms. Instead, it uses the institutional perspective set out in Part IV to consider how the agency might fare in seeking to implement a bolder program of enforcement, notably measures to break up concentrated industries.

The story of the FTC in the 1970s reveals phenomena that ought to inform contemporary discussions about the purposes and content of U.S. competition and consumer protection policy. This Article chiefly examines the FTC's experience, but it also notes parallel developments in the antitrust progam of the Department of Justice (DOJ). Despite its U.S.-centric orientation, the story has things for other jurisdictions to ponder, as well.

1. MAKEOVER: THE FTC FROM 1969 TO THE PERTSCHUK CHAIRMANSHIP

   In the late 1960s and through the 1970s, the FTC undertook a sweeping overhaul of its competition and consumer protection programs. Two highly critical studies of the agency set the reforms in motion. In early 1969, Ralph Nader's organization published a caustic evaluation of the agency, focusing chiefly on its consumer protection programs. (21) Publication of the Nader study led President Richard Nixon to request the American Bar Association (ABA) to carry out its own inquiry. (22) Later in 1969, an ABA-sponsored blue ribbon panel issued a report that largely echoed the Nader study's dismal assessment, albeit in less flamboyant terms. (23) The following Section reviews the Nader and ABA studies and discusses their significance for the FTC's work in the 1970s. (24)

   1. The Nader and ABA Reports

      Taken together, four aspects of the Nader and ABA studies stand out, because they shaped expectations about what the FTC had to do to redeem itself and justify its continued existence. First, both studies depicted the agency as being an appallingly bad institution. The Nader study relentlessly criticized the FTC's work, suggesting that only by chance did the FTC occasionally stumble into doing something that advanced consumer interests. (25) The ABA panel more generously recognized positive FTC accomplishments, (26) but suggested that these appeared as rare oases in a desert of ineptitude, sloth, and timidity. (27)

      Second, both reports blamed several causes; chief among them the FTC's obsession with trivial cases. (28) Both groups scolded the agency for spending massive consumer protection resources on policing the labeling requirements for furs and textiles. (29) On the antitrust side, the ABA damned the FTC for its preoccupation with Robinson-Patman enforcement to the exclusion of other, more worthy pursuits, such as challenges to vertical contractual restraints. (30) The preoccupation with the trivial stemmed from a basic failure to devise internal policy planning and priority setting mechanisms to focus resources on matters of true economic significance. (31) Grave weaknesses in senior leadership and the professional staff likewise denied the FTC the talent it needed to function effectively. (32)

      Third, both reports featured a notably scathing tone. The Nader report dripped with contempt. In a chapter titled "The Cancer," the Nader report observed: "Misguided leadership is the malignant cancer that has already assumed control of the Commission, that has been silently destroying it, and that has spread its contagion on the growing crisis of the American consumer." (33) In another passage, the Nader report used words such as "corruption" and "collusion" to describe the agency's relationship with businesses under its supervision. (34) In his preface to the study, Nader said the FTC was "a self-parody of bureaucracy, fat with cronyism, torpid through an inbreeding unusual even for Washington, manipulated by the agents of commercial predators, impervious to governmental and...