Trust the Trustbusters: Why conservatives are wrong about antitrust.

The current debauched state of political discourse is illustrated in microcosm by the debate over antitrust enforcement. Time and again, I have found myself in conversation with conservatives about cases brought by the current administration; the consensus is invariably that the cases against, for instance, Microsoft and Visa/MasterCard are wrongheaded. These folk, to be sure, know very little about antitrust policy or the principles that guide it; what they think they do know is that the Clinton Department of Justice is thoroughly corrupt, and that the Antitrust Division is the most corrupt of all. I have heard and read that Joel Klein, the former division head, was merely advancing his career at the expense of heroes of free enterprise, that the judge who decided against Microsoft (a Reagan appointee, by the way) is a toady for the Justice Department, that the cases are nothing more than payoffs to trial lawyers or to Vernon Jordan, and that the companies that complained of Microsoft's and Visa/ MasterCard's tactics are whining losers in the competitive marketplace. The true conservative position, it appears, is that antitrust is always Big Government trying to crush individual initiative and success.

Now I take a back seat to no one in my detestation of Bill Clinton, who would, in a well-ordered society, long ago have been hung upside down in a dungeon. But uneducated attacks on antitrust-as merely a politics of envy or populism or what have you-are almost equally distasteful.

Sad to say, not even National Review is immune to these fevers. The latest example is Michael Catanzaro's piece, "The Antitrust Club" (Sept. 25), which opens with the sinister fact that Vernon Jordan is a board member of American Express and a friend of Joel Klein's, ergoErgo, what? Well, after all, Jordan tried to get Monica Lewinsky a job at American Express. Of course, she was offered no job, but that is still supposedly probative of influence peddling in the case against Visa/MasterCard. It is not even alleged that Jordan played any role whatever in encouraging that lawsuit, but stillThe bipartisan commission Jordan was on (cochaired by James Rill, antitrust chief in the Bush administration) did not even advise about specific antitrust cases-but so what? Richard Nixon once used antitrust politically against the television networks, which proves .

When he gets past all this unsupported innuendo to the actual cases, Mr. Catanzaro is completely wrong about the issues. He uses the same tactic Visa/MasterCard has employed: changing the subject. Mr. Catanzaro argues that the credit-card industry is "already fiercely competitive" because there are thousands of credit-card issuers. A study-by Visa's public-relations firm-of consumer reactions to the case set out the line Visa has employed ever since. The study found that, to consumers with knowledge of the case, the [Justice Department's] basic case seems fair: banks should be allowed to do whatever they want. Similarly, even some of those who see the industry as competitive are willing to say that there is nothing wrong with it being even more competitive. That is a fundamental problem for Visa, and the main reason we need to keep people from focusing on the specifics of this case. If we cannot keep the topic to the competitiveness of the industry [card issuing, not network competition], and the facts supporting our claims, th[e]n we should divert and put the focus on American Express. We tell many of our clients who are candidates for office, when your arguments get weaker the more people know, never put yourself in a defensive position, divert and attack. The same good advice is applicable here.

Unfortunately for that diversionary tactic, this case is not about competition among bank-card issuers but about the credit-card networks that sell indispensable products and services to the banks. There are four of these networks, and two of them-Visa and MasterCard, which, admittedly, have not competed vigorously with one another-account for 75 percent of the dollar volume. Suppose that a manufacturer held 75 percent of the market and, when accused of monopolization, defended himself by saying he sold to 25,000 retailers. The fatuity of the defense would be apparent at once; so it is with Visa/ MasterCard.

When antitrust enforcers look at a company's exclusionary behavior, they ask: Is the exclusion competitive, in that it creates efficiencies valuable to consumers? Or is it simply harmful to rivals, with anticonsumer results? Visa/ MasterCard's conduct falls in the latter category. They have adopted rules or policies mandating that any bank that deals with American Express, Discover, or any other competitor of Visa/ MasterCard will be expelled from their systems. No bank can afford that. It would have to tell all its cardholders that their Visa and MasterCard cards were suddenly useless.

The Visa/MasterCard policies fit a pattern familiar to antitrust law: They are concerted refusals to deal, or boycotts. All the banks must agree not to deal with any competitor of those networks. This is a horizontal (between competitors) agreement, made and enforced through the central agencies of Visa and MasterCard (on whose boards sit officials from the major banks) not to compete among themselves by dealing with American Express or Discover. The cases condemning such arrangements are numerous and uniform. The market size of the defendant networks is alone sufficient to condemn the agreement. So is the fact that neither Visa nor MasterCard has been able to point to any efficiency created by the agreements, other than the "efficiency" of not having to compete with American Express and Discover.

Suppose that a law firm in a city had 75 percent of the city's clients and then announced that it would cut off any client that dealt with another firm on any matter. The firm would be organizing and compelling an agreement among its clients not to compete with one another by using any lawyer not a member of the firm. The firm could not cite any efficiency gain other than holding all its clients. That would clearly be unlawful, and the analogy to the Visa/ MasterCard policies is exact.

Mr. Catanzaro makes much of the fact that representatives of American Express met with members of the Antitrust Division. He neglects to mention that Visa and MasterCard repeatedly met with those same officials, but failed to convince them of the legality of their boycott. He also neglects to mention that the CEOs of American Express and Netscape were prominent Republicans, who could hardly be expected to exercise a lot of political influence over the Justice Department of a Democratic administration.

The Antitrust Division is, in fact, alerted to most of the cases it eventually brings by injured competitors or customers; in a huge and complex economy, there is no other equally useful source of information. But the division is very careful to winnow valid concerns from mere attempts to hobble rivals.

Mr. Catanzaro likens the Visa/ MasterCard case to that against Microsoft, the supposed point of similarity being that other companies "encouraged" the Justice Department to proceed with its investigation. Of course, it is equally true that Microsoft and its allies encouraged the Justice Department to give the company a pass. I have made the case against Microsoft in this magazine ("Against Microsoft," Feb. 7) and the trial court's findings amply bear out the conclusion that Microsoft has indeed been guilty of monopolization.

Visa/MasterCard, Microsoft, and their various apologists commonly make the argument that the government has not proven consumer harm from the practices attacked as illegal. This reflects a fundamental misunderstanding. Consumer harm is not an element of a Sherman Act offense that must be proved independently of the law violation. Antitrust conclusively presumes consumer harm when unlawful behavior is shown. If a plaintiff proves, for example, that defendants have fixed prices, that is enough; there is no need to prove that prices would have been lower but for the agreement. If, in a monopolization case, the defendant is shown to have employed exclusionary tactics that did not create efficiency, consumer harm is also conclusively presumed. In both the Microsoft and Visa/MasterCard cases, it is clear, in any event, that innovation has been stifled and price competition softened or eliminated.

Neither is it useful to compare the raw figures for numbers of mergers investigated and turned down, or approved with modifications, from one time period to another. Mergers often come in waves and enforcement activity increases as a result. Nor is it helpful to lump together the activities of the Justice Department, the Federal Trade Commission, and the Federal Communications Commission in an effort to prove something about the cases against Visa/MasterCard and Microsoft. These are very different agencies with differing views. Some are more prone to unjustified activism than others. The Antitrust Division of the Justice Department, while by no means infallible, is, in my opinion, the best of the three.

No one would contend that antitrust enforcers and courts never make mistakes. The history of the policy is replete with economic fiascos, but as better economic analysis has been brought to bear over the past three decades, the law has steadily improved. Mistakes are still made, particularly in private antitrust actions, but mistakes are not the general rule. Contrary to the belief apparently common among conservatives and liberals alike, there is an intellectual structure underlying antitrust. It would be better to understand that structure and evaluate each case individually, instead of relying upon a scandal theory to account for every prosecution.

MICHAEL CATANZARO RESPONDS: Rather than debate Mr. Bork at length about the wisdom of a particular antitrust case, I will concentrate in this response on the thesis of my original article: that antitrust enforcement has become thoroughly politicized under this administration.

Mr. Bork denies that American Express and Microsoft's competitors were the motivating forces behind the government's antitrust cases. In 1998, Mr. Bork told the Washington Post that he "thought in the past [antitrust enforcement] was overdone and politicized." Therefore, what he is asking us to believe is that the antitrust process has somehow become less politicized under the Clinton-Gore administration than it had been in Republican administrations. While not logically impossible, this proposition is-at the very least-counterintuitive, for anyone who has been following and reporting on the politicization of the executive branch in general in the Clinton years.

Now to specifics. It is entirely legitimate to ask why American Express, as part of its corporate battle plan, included pursuing an antitrust case against Visa and MasterCard. And, further, if the case was being investigated on the merits, why did Mr. Bork have to lobby the Justice Department on behalf of American Express? And how does he account for ProComp, an industry conglomerate opposed to Microsoft, which sought to-and did-in its own words, "encourage [the Justice Department] to proceed promptly with its longstanding investigation concerning Microsoft"?

Mr. Bork says this lobbying effort was entirely appropriate, because, well, the other side did it too. Microsoft and Visa/MasterCard, he writes, tried to convince government officials that the antitrust suits against them were unwarranted. But what company wouldn't do so, when facing the prospect of a costly, protracted, and potentially devastating antitrust suit?

With regard to Vernon Jordan, Mr. Bork writes that the committee of which Jordan was a member, the International Competitiveness Advisory Committee, "did not even advise about specific antitrust cases." But I did not suggest that Jordan himself drove the case, but merely that his proximity to Klein in this capacity was a bit unseemly-considering that Jordan was a board member of a corporation that was lobbying Klein to prosecute another corporation.

Mr. Bork wrongly accuses me of lumping together "the activities of the Justice Department, the Federal Trade Commission, and the Federal Communications Commission in an effort to prove something about the cases against Visa/MasterCard and Microsoft." I did nothing of the kind. I was merely calling attention-as an entirely separate point-to the Clinton administration's deliberate effort to erect extensive regulatory obstacles disguised as antitrust enforcement.

Just a final word, on the underlying antitrust issues. Mr. Bork asserts that the Visa/MasterCard network is "harmful to rivals," particularly American Express, with "anticonsumer results." But American Express, over the last two quarters, has had record profits; and it has consistently met its annual goal of 12 to 15 percent earnings growth and 8 percent revenue growth. It's truly hard to see any harm to consumers in the fact that Visa/MasterCard offers them a choice among 20,000 different credit cards, including deals on, among other things, gas, groceries, and air travel-a situation that seems also to rebut Mr. Bork's unsupported assertion that, in the Visa/MasterCard case, "innovation has been stifled and price competition softened or eliminated."