The Evolution of Clayton Section 7 Enforcement and the Beginnings of U.S. Industrial Policy

• Date: 01 June 1986
• Published date: 01 June 1986
• Author: Bruce M. Owen
• DOI: 10.1177/0003603X8603100208
• Subject Matter: Article

The Antitrust Bulletin/Summer 1986

The evolution

of

Clayton section 7

enforcement and the beginnings

of

U

.8.

industrial policy

BY BRUCE M. OWEN*

409

The ascendancy of Chicago school philosophy! in the enforce-

ment

of

merger policy has had and continues to have unforeseen

and ironic effects.

It

is the purpose of this article to review recent

trends in merger enforcement policy and to speculate about the

•Economists Incorporated, Washington,

D.C.;

former Director

of

the Antitrust Division's Economic Policy Office.

AUTHOR'S NOTE: Useful suggestions from my colleaguesand from Hugh

P. Morrison, Jr., George

A.

Hay, Steven C. Salop, and Lawrence J.

White are gratefully acknowledged.

The term "Chicago school,"

of

course has many meanings. As

used herein, "Chicago school economics" refers principally to the

following ideas:

that

the competitive market model is an appropriate

and useful basis for the analysis of proposed policies or changes in

market structure; that the central goal of government in economic

affairs is, or ought to be, to maximize the efficiency with which

resources are allocated, or equivalently to maximize consumer welfare;

and

that,

in general, governmental intervention in the marketplace

should be minimized because it is less likely in practice to lead to

efficient resource allocation

than

private markets, even somewhat im-

perfect ones. There is also a tendency for unsophisticated proponents

of

this view to focus on equilibrium states, and to minimize the disequi-

librium process. Most economists and antitrust practitioners have

adopted significant elements

of

the Chicago view, marking its success as

410 The antitrust bulletin

likely future directions of that policy. This article reviews the

history

of

economists and economic analysis in Department

of

Justice and Federal Trade Commission merger investigations,

discusses the role and style

of

economic analysis in current

decisions, and projects current trends into the future. The article

points out that, because

of

the efficiency defense in merger

investigations and for other reasons, the antitrust enforcement

agencies are already engaged in making industrial policy. This

development is the natural outcome

of

along-term historical

trend in the intellectual basis for antitrust enforcement policy.

Moreover, it is argued that, because the skills presently employed

to make antitrust enforcement decisions are

of

more general

applicability, and because

of

the underlying evolution

of

confi-

dence in the reliability

of

microeconomic analysis in policy

making, it would be logical to expect a movement toward an

integration

of

antitrust, trade, tax, and other policies affecting

U.S. industrial structure.

A. The reform movement

There has been a 25-year trend toward increased use

of

microeconomic analysis in government policy making. Leaving

aside a brief period

of

interest in microeconomics by analysts

during World War

11,2

the governmental fascination with this

discipline dates from the Pentagon "whiz kids"

of

Robert

McNamara. The whiz kids were interested primarily in improving

an intellectual revolution. Just as President Nixon announced that "We

are all Keynesians now," so is it true that we are all, to some extent,

Chicagoans. As a result, the reader would not go far wrong in substitut-

ing the term "economic analysis" for "Chicago school" in characteriz-

ing current enforcement

policy.

2The wartime analysts were academic economists and mathemati-

cians who were interested in what is today called operations research.

See Operations Research, 13

NEW

ENCYCLOPAEDIA BRITANNICA 594

(1982), for a brief history.