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Capitalism, democratic capitalism, and the pursuit of antitrust laws.

A major global policy development in the last few decades has been the adoption of national antitrust laws by many developing and transition countries. A primarily American creation, antitrust laws have now spread to nearly all corners of the world. This study undertakes a political economy approach to understanding the global adoption of antitrust laws. We focus on the causal connection between a democratic form of capitalism and antitrust adoption. We argue that the interaction of democracy with a pure form of capitalism results in a political economy characterized as "democratic capitalism." On the basis of this understanding, we then develop a theoretically grounded conceptual model and offer multiple testable propositions. Our findings show that democratic capitalism, and not capitalism in its pure form, was instrumental in countries adopting national antitrust laws. We attribute this finding to the greater "transactional congruity" that exists between democratic capitalism and antitrust laws. We conclude by discussing the implications of this finding for future antitrust adoption.

KEY WORDS: antitrust adoption, democratic capitalism, political economy

I. INTRODUCTION

Antitrust laws have historically been associated with countries that possess a free-market capitalist economy, which is understood as an economic system in which competition and the market forces of demand and supply determine economic outcomes. This historical association between capitalism and antitrust laws is evident from the fact that the countries that first adopted national antitrust laws, such as Canada, the United States, and the countries of Western Europe, are countries that have long embraced a market economy. On the contrary, the statist economies of the erstwhile Soviet bloc and many developing countries, for the most part, did not institute antitrust laws of the type associated with free market economies.

Notwithstanding these country examples, which indicate a positive association between a capitalist economic system and antitrust laws, there exist arguments that both support and oppose antitrust laws for a capitalist economy. Arguments in support of antitrust laws for a capitalist economy begin with the fundamental understanding that the most important ingredient of a capitalist system is market competition. The presence of a competitive market is vital to achieving the efficiency levels that a capitalist economy seeks. Therefore, competitive forces need to be protected to discipline the market players, especially the dominant ones. By preventing and punishing anticompetitive practices by market players, an antitrust law protects and promotes market competition. (1)

In the United States, which is commonly understood to be the leading bastion of free-market capitalism and one of the first countries to enact an antitrust law, the role of antitrust legislation in preserving the capitalist character of its economic system is underscored by the near-constitutional status accorded to its antitrust statues by the U.S. Supreme Court. (2) The Court described these statutes as "the Magna Carta of free enterprise" and "as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms." (3) Such a sentiment is appropriate, given that the American antitrust law, the Sherman Act, was passed in 1890 to protect economic competition from rapidly-growing "trusts." (4)

While the social and political zeitgeist has changed considerably since the passing of the Sherman Act, the fact remains that antitrust is perceived as key to "protecting consumers against anticompetitive conduct that raises prices, reduces output, and hinders innovation and economic growth." (5) Moreover, it is understood that "competition is a public good, and society cannot expect the victims of anticompetitive conduct to protect themselves." (6) The implication therefore is that government power, through the enforcement of antitrust statutes, is critical to reining in corporate power in order to protect economic competition and capitalism.

Taking a global perspective, the idea that antitrust laws serve as a legislative bulwark against anticompetitive practices is not exclusive to the regulatory environment of the United States. Many other countries have adopted antitrust laws for the same goal, among others. And for the many developing and transition countries that adopted antitrust laws in recent decades, these laws are viewed as tools to promote economic development as well.

The view that antitrust laws are required to protect and promote competition has, however, been seriously contested, especially since the publication in 1978 of The Antitrust Paradox: A Policy at War with Itself by law professor and federal appellate court judge Robert Bork. (7) The subtitle to Bork's highly influential book sums up the critique commonly leveled against antitrust laws: "[C]ertain of its doctrines preserve competition, while others suppress it, resulting in a policy at war with itself." (8) The fundamental problem stems largely from the difficulty in deciding which values should be ultimately promoted through the application of antitrust laws--consumer welfare or business efficiency? If the answer is both, then how much emphasis should be placed on each? Even if the goals are unambiguously certain and universally agreed upon, the question still remains as to what body of knowledge the courts can use consistently to adjudicate antitrust cases. (9)

Even before Bork wrote against antitrust laws, scholars commenting on the court's verdict in the famous United States v. Alcoa antitrust case of 1945 (10) had observed that in applying the Sherman Act to rule against Alcoa's monopoly status, the court was going against the American society's professed wish to preserve competition, for we "face the anomolous [sic] situation of punishing its most successful practitioners and of destroying those ingredients of competition that make competition possible and desirable." (11) The main argument here was that the Sherman Act was anachronistic in an age when economic concentration resulted from amoral technological innovations rather than from immoral financial machinations. (12) While some of these dilemmas have been resolved since Bork and others (13) wrote against antitrust decades ago, recent literature too questions the capacity of antitrust laws to serve as a tool to protect and promote competition, (14) with arguments centered on the corporate resources wasted on lobbying the government (15) and the courts' discretion in defining the parameters of an antitrust case, most critically that of the "relevant market." (16) The apogee of the recent opposition to antitrust laws occurred in 1999 when 240 U.S.-based economists wrote an open letter to the then-U.S. President Bill Clinton against the "antitrust activism" of the federal government's antitrust authorities, which included the Department of Justice's Antitrust Division, the Federal Trade Commission, and state attorneys general. (17)

If the aforementioned claims and counterclaims are valid, then antitrust has an ambiguous relationship with capitalism. So what then explains the empirical observation of a positive association between capitalist, free-market economies and the prevalence of antitrust laws in these countries? We argue and demonstrate--both theoretically and empirically--that capitalism by itself does not explain the adoption of antitrust laws. Such an explanation would require the incorporation of a key element into the mix: democracy. We show how a capitalist economy interacts with a democratic polity to influence the adoption of national antitrust laws. We examine this association between capitalism and antitrust laws in the context of developing countries, (18) many of which have switched from a statist to a free-market economic system in recent decades.

This research contributes to the emerging literature on global antitrust adoption in multiple ways. First, by examining and demonstrating the interaction effects of the economic and political realms on antitrust adoption, it provides a more comprehensive and integrated political economy explanation of this policy development. Second, it advances our theoretical understanding of the empirical association between democracy and antitrust adoption reported in prior literature (19) by providing an empirically verified conceptual model that shows the causal link connecting democracy with the enactment of an antitrust law. Finally, the findings contain implications for the future of global antitrust adoption and, therefore, will be helpful to policymakers in countries currently without an antitrust law but contemplating the adoption of one.

The rest of this article is organized as follows. Section II provides an examination of capitalism as it relates to markets and competition. Section III presents our theoretical argument and the conceptual model used for the research. The research design is presented in section IV. Section V undertakes the analyses and presents the results of the study. A discussion of the results and findings is given in section VI. Section VII discusses the implications of the findings of the study. Section VIII concludes.

II. CAPITALISM, MARKETS, AND COMPETITION: A CONCEPTUAL EXAMINATION

As a formal practice of market organization, capitalism has its roots in seventeenth and eighteenth century Europe and North America, although it existed in bits and pieces among human societies much earlier than that. (20) Its advent was marked by the emergence of market-oriented households and a commercial society, features that further encouraged commodification, division of labor, specialization, and the pursuit of efficiency. (21) As a historical concept, however, capitalism and its origin remain highly contested in social science scholarship. (22) A detailed evaluation of the literature that has been expended on understanding and defining capitalism is beyond the scope and interest of this article, although we do acknowledge the contestations surrounding this phenomenon.

For the purposes of this article, we adopt the following definition of capitalism that aligns nearly perfectly with the concept's conventional understanding: "[C]apitalism is a system of economic and social relations marked by private property, the exchange of goods and services by free individuals, and the use of market mechanisms to control the production and distribution of those goods and services." (23) This definition contains references, one explicit and the other implicit, to two critical concepts, markets and competition, respectively. Given the significance of these two terms to the present study, we very briefly examine their relationships with capitalism, especially so in the case of competition.

The definition of capitalism given above makes evident the central role that markets, and more specifically, markets free from external constraints, play in the successful operation of the capitalist economic system. Although it has been argued that there is a distinction between capitalism and a free market, (24) the two terms are often used interchangeably since free markets are considered an essential component of capitalism. (25) Scholars who view the two as different concepts and practices point out that capitalism requires a government to support the capitalists while a free market, as its constituent terms signify, is free of any external intervention, including that by a government. However, the form of capitalism under which the government and the capitalists are in cahoots has in recent times become known as "crony capitalism." Here, the government and capitalists form a nexus that is, in varying degrees, detrimental to the larger population. (26) To avoid any confusion, the present study retains the idea that capitalism and free markets are near-identical phenomena.

In an implicit sense, the definition of capitalism we adopted points to the key role competition plays in ensuring that such a system, comprising the said attributes and agents, produces outcomes deemed efficient. As pointed out by Makowski and Ostroy: "At least since Adam Smith, the idea that competition could harmonize the pursuit of self-interest with economic efficiency has been an absorbing theme." (27) Therefore, the centrality of competition for a capitalist system has long been acknowledged. From an analytical perspective, the problem, however, has been that economists have failed to adequately define this concept. (28) The conceptual understanding of "competition," among economists, has been evolving over the past few centuries: while Adam Smith's take on competition viewed competition as rivalry between free individuals and included resource allocation and monopoly, later economists in the nineteenth and twentieth centuries produced a more analytical and systematic understanding of competition that led to the development of "perfect competition" as an equilibrium state of markets and economies. (29) Therefore, in contrast to the original and "real" understanding of competition as a process of rivalry characterized by flux, uncertainty, and disequilibrium, the concept had come to denote a state of tranquil equilibrium referred to as "perfect competition." (30) This dichotomy has been the source of economists' inability to provide a clear definition of competition. (31)

Competition, as understood in antitrust practice, and more specifically, American antitrust practice, approximates in its meaning to the idea of perfect competition from the economics literature. (32) Competition is seen "not in terms of rivalry per se, but in terms of market performance.... [A] market is perfectly competitive when firms price their output at marginal cost and costs are minimized by internal efficiency." (33) Put differently, a competitive market does not require a large number of rivals; all it needs is costless market entry and exit. If this is the meaning of competition in antitrust practice, then there is a marked difference in how competition is understood between the American and European antitrust regimes. These two antitrust machineries are among the largest in the world in terms of scope and activities. With respect to defining competition, the European Commission evidently departs from the American perspective: It views competition as a process of rivalry that is not possible without multiple competitors or rivals. (34) This distinction is relevant, although not critical, for the present study since the global embrace of antitrust laws predominantly bears the marks of both the American and European antitrust regimes, more so the latter in the case of developing countries. Overall, this brief examination of competition as conceptually understood and contested in antitrust scholarship and practice points to the centrality of this concept to both the market system and antitrust.

III. DEMOCRATIC CAPITALISM AND ANTITRUST ADOPTION: THE THEORETICAL ARGUMENT

The preceding discussion of competition demonstrates how this concept is understood in the literature and more importantly, high lights the integral role competition plays in connecting capitalism and antitrust laws. In theory and practice, competition--even if understood in different ways--is the core element to both capitalism and antitrust laws. For capitalism, competition is the pivot around which this economic system rotates since the assumption is that "competition would automatically lead to the sufficient production of commodities of the type wanted and of the type demanded." (35) Preserving economic competition is the raison d'etre of antitrust laws because these laws, first and foremost, seek to restrain monopoly and promote competition. (36) In a theoretical sense, the "transactional" nature of this connection is therefore evident: Antitrust supplies the competition that capitalism demands. So it is only reasonable to expect that capitalist countries would adopt antitrust laws. In line with this reasoning, there is immediate evidence that suggests that more capitalistic countries do possess antitrust legislation. Every member of the Organisation for Economic Co-operation and Development (OECD), which is the club of rich countries with free-market economic systems, has enacted national antitrust laws. (37)

We, however, argue that although there are compelling reasons for capitalist economies to adopt antitrust laws, this policy development does not result automatically. Using the transaction analogy above, even if capitalism and antitrust match up well as "buyer" and "seller," respectively, the "trade" still needs a "marketplace," which in this case is the policymaking arena. And public policymaking, including the adoption of antitrust laws, does not occur in a vacuum. It is often executed in a policy space dominated by political self-interest and incentives. (38) More importantly, it is undertaken by legislators who care about policy only in terms of its consequences for their political futures? (39) In a democratic polity, this would mean politicians' electoral futures. What this contextualization means for the relationship between capitalism and antitrust is that while capitalism demands competition and antitrust seeks to supply it, the political environment becomes a critical aspect of this relationship. We contend that it is not capitalism per se that encourages capitalistic countries to adopt a national antitrust law. Rather, it is the political economy that emerges when capitalism interacts with democracy and its ideals that leads to countries instituting an antitrust law. We call such a political economy "democratic capitalism."

Democratic capitalism is defined as a system of political economy that merges a polity characterized by competitive elections, civil liberties, and rule of law with an economy in which the dominant mode of economic decision making is based upon a free, private-enterprise, competitive market system. (40) Even though democratic capitalism is a system of political economy and not one of pure capitalism, there is a "good deal of independence of political power from economic power, and vice versa." (41) This independence does not, however, mean that the political has no effect on the economic. As stated by Michael Novak, "democratic capitalism is not a free enterprise system merely. Its political system has many legitimate roles to play in economic life, from protecting the soundness of the currency to regulating international trade and internal competition." (42)

Therefore, under a system of democratic capitalism, "voters can also act to collectively provide public goods ... by ... regulating private sector activities." (43) Substantively relevant for this discussion is the observation by Meltzer that "[d]emocratic capitalism tends to deal with the Kantian problem by cracking down on excesses by owners or managers of capital assets with regulations that seek to deter socially undesirable behaviors or to tax behaviors or outcomes that majorities dislike." (44) This connection between democratic capitalism and the regulation of internal competition and capital owners is shown in figure 1.

Our conceptual model begins by denoting the interaction between capitalism and democracy, with the latter being understood as the existence in a country of freedom of political choice and expression, institutional constraints on executive power, and the guarantee of civil liberties. (45) A capitalist economy interacts with democracy to produce a special type of political economy called democratic capitalism. This economic system is "democratic" for a reason. Democratization signifies a shift towards majority rule, and as a country democratizes, it accords increasing representation to its citizens. But more notably, democratization produces the following two changes: it increases the size of the selectorate, which is "the group of actors who participate in the selection of political leaders" and it expands the winning coalition, which is "the minimal set of individuals in the selectorate whose support an incumbent needs to remain in office." (46) According to Bueno de Mesquita et al.'s path-breaking selectorate theory of how democratic institutions affect policy outcomes, "as the size of the (winning) coalition increases, leaders are expected to shift their effort to the provision of public goods that benefit all in society." (47) That is, an increase in the size of the winning coalition changes public policy from one that previously provided private benefits to supporters to one that provides public goods to the masses. (48)

In other words, there emerges a more "democratic" form of capitalism that "combines freedom, opportunity, growth, progress, and competition with restrictions on less desirable behavior." (49) It therefore follows that, in contrast to a pure form of capitalism, democratic capitalism is a type of political economy that would be conducive to the adoption of economic policies, such as antitrust laws, that limit the power of capital and protect the "little guys," that is, small and mid-sized firms and the average consumer. This is the effect of the working of democracy on capitalism that incentivizes the political economy to provide public goods rather than private benefits. But apart from elections and the rational, self-interested politician, a complementary mechanism by which democracy works on capitalism is through the effects of democratic norms. In general, norms signify standards of conduct and represent expectations of human behavior. (50) The extant literature on norms in political science and international relations focuses on the ways in which norms affect social political, and economic outcomes, including the initiation of public policies. (51) When understood within a democratic political milieu, norms would be the expected standards of political behavior and performance in a democratic polity. And in a democratic polity, it is expected that elected leaders represent the interests of the totality of the citizens and not just that of the economically or socially more powerful sections. This understanding connects with antitrust adoption because of the particular nature of antitrust laws, which we discuss below.

The character and content of an antitrust law provide the final pieces in the theoretical link that flows from democratic capitalism to antitrust adoption in figure 1. An antitrust law primarily addresses three major competition-related issues: market-entry barriers and anticompetitive monopoly agreements; abuse by firms of their dominant positions in the market; and mergers and acquisitions among large firms. (52) The first of these measures--reducing market-entry barriers, such as collusion among firms--seeks to keep markets competitive by making it easier for new firms to enter markets. The second measure--preventing the abuse of dominant positions by firms--is designed to keep large firms from either attaining monopoly status or to stop them from abusing such a status to the detriment of their competitors and consumers. Finally, a competition law addresses mergers and acquisitions among firms with significant market shares to prevent the concentration of market power that might lead to lower levels of market competition. This description of a national antitrust law demonstrates that this law is primarily intended to restrain large firms from engaging in anticompetitive behavior that is not only detrimental to other firms but for the most part deleterious to the interests of consumers across the economy. (53) What democratic capitalism does is to enable the adoption of an antitrust law that provides a democratic face (54) to the economy while maintaining and promoting its capitalistic or free market attributes. (55)

Nowhere has the system of democratic capitalism manifested itself so well than in the Nordic countries, with apparent national variations among them due to different local contexts. In these countries, civil servants and politicians believe that markets exist, not so much for their own sake, but to promote wealth and welfare in their societies. (56) Among the Nordic countries, the system of democratic capitalism is best exemplified in Norway where the pure form of capitalism, characterized by private capital and corporate power, had to accord considerable concessions to democracy and yield to the demands and challenges of democratic norms. (57) Quite significantly, from a democratic perspective, what was found incompatible, or undemocratic, was not capitalism per se but the idea of "big business." (58) Needless to say, this understanding is highly pertinent for the present study since it demonstrates an empirical prior for how a capitalistic economy, infused with democratic norms, would be inclined to adopt legislation that deters the formation and operation of big businesses and corporate monopolies.

The discussion in this section provides us with enough theoretical support to propose a causal link between a democratic form of capitalism and the global adoption of antitrust laws. The interaction between democracy and capitalism is critical here since it is this fusion that creates a political economy that at once values competition and free markets, is imbued with democratic norms, and possesses politicians rationally interested in providing public goods and institutions. With specific regard to developing countries, which are the focus of our empirical analysis, the positive impact of democratic capitalism on antitrust adoption becomes even more plausible since anticompetitive business practices have a disproportionate impact on the poor who make up the greater percentage of the population and whose numbers increasingly swell the ranks of the selectorate as these countries become more democratic. We therefore offer the following two testable propositions:

Proposition 1: Capitalism, by itself, does not positively influence the adoption of antitrust laws.

Proposition 2: Democratic capitalism positively influences the adoption of antitrust laws.

In presenting these two propositions, we do not assume that it is possible to completely disentangle capitalism from democratic capitalism. In fact, this disentangling is both impossible and undesired because capitalism is an integral part of democratic capitalism and provides the economic background for antitrust adoption. In the next section on the research design, we discuss our construction of democratic capitalism as an interaction variable, thus fully acknowledging the presence of capitalism in democratic capitalism. Given this complication, we have designed the econometric framework to reflect this underlying reality and to also ensure the scientific validity of the results.

IV. RESEARCH DESIGN

As part of the empirical analysis of the causal connection between democratic capitalism and antitrust adoption, we focus on developing countries. First, compared to economically advanced countries, developing countries are at various stages of democratic capitalism and antitrust adoption. This offers the variability essential for empirical testing. Second, in comparison to the small set of developed countries, the group of developing countries represents a much larger sample. Third, and perhaps most importantly, unlike developing countries, most of the developed countries enacted their first antitrust laws many decades ago, with some having done so more than 100 years ago. Data for some of the variables included in the analysis do not exist that far back. For all of these reasons, we focus our attention on developing countries. (59)

Our dataset consists of a sample of seventy-two developing countries for a total data period ranging from 1990 to 2008. (60) Although all non-OECD countries were considered as part of the developing world, our final sample included only those developing countries for which antitrust law information and data on capitalism and democracy were available. The list of countries is given in appendix A. In terms of data availability for all countries and years, the panel data is unbalanced. (61) We developed the dataset by carefully tracking the process of antitrust law adoption for the seventy-two countries included in this study. Since none of the seventy-two countries in the sample possessed a national antitrust law (62) at the beginning of the data period, we were able to track their divergent trajectories in terms of adoption versus nonadoption.

The dependent variable, antitrust adoption, takes a binary form for every year in the data period: Countries with a national antitrust law are coded 1 while those without are given a score of 0. (63) This information was primarily sourced from the recent empirical work by Parakkal. (64) Among the seventy-two countries in the sample, forty-three changed their antitrust law status during the data period by adopting a new national antitrust law, while twenty-nine did not.

The two explanatory variables that we include in testing propositions 1 and 2, respectively, are capitalism and democratic capitalism. Capitalism was operationalized using the 11-point Economic Freedom of the World (EFW) Index, which provides a composite measure of the extent to which a country's economy embraces a free market economy on five different economic dimensions. (65) To our knowledge, there is no available dataset that directly measures the democratic capitalism of countries. However, since we have conceptualized democratic capitalism as an outcome of the interaction between capitalism and democracy, we maintain that consistency for the empirical analysis as well. We therefore measure democratic capitalism as an interaction variable mathematically calculated as a product of a country's EFW Index score and its democracy score on the 21-point democracy scale from the Polity IV dataset. (66) These are the two most popularly used datasets to measure national levels of capitalism and democracy, respectively. Furthermore, these two datasets are appropriate since they define and measure capitalism and democracy in a manner almost identical to the present study.

We retain most of the relevant control variables from Kronthaler and Stephan (67) and Parakkal. (68) Namely, we use economic development, economic size, industry share, trade liberalization, and state influence. Appendix B describes the variables and provides details of the data sources and the exact measures used to operationalize all of the variables used in the study. The summary statistics are given in table 1, with the variable abbreviations given in parentheses after each variable.

The entire process of antitrust adoption is substantially influenced by the politico-economic environment that prevails during the years leading up to the year when the law is enacted. To capture this causal effect, we lagged our set of regressors, including DemCap. The lag period had to be carefully chosen because the administrative and legislative lag that accompanies the adoption of a national competition law varies among countries. Moreover, any choice of the lag period had to be without prejudice to the data availability for the analyses. Finally, the impact of the politico-economic context closer to the year of enactment would be more relevant than what existed in years far removed. Given all of these considerations, we lagged the explanatory variables by a period of two years. While the lagging avoided any issues of endogeneity and gave us a causal framework, it also led to a loss of observations and transformed the effective data period from 1990-2008 to 2000-08 because there were only two annual observations in the 1990s.

V. EMPIRICAL ANALYSIS: WHAT BETTER EXPLAINS ANTITRUST ADOPTION--CAPITALISM OR DEMOCRATIC CAPITALISM?

We dedicate the first part of the empirical analyses to testing our first proposition that capitalism, as an economic system, does not independently explain the adoption of antitrust laws. Since the dependent variable is binary, we employed panel data logistic regressions to perform our empirical analyses. Many countries in the sample did not change their antitrust law status during the period under study, which necessitated our use of random effects logistic regression models as opposed to fixed effects models. This is identical to the methodological approaches adopted by both Kronthaler and Stephan (69) and Parakkal. (70)

As is standard practice, we began our analysis by running a simple model with the capitalism variable, Cap, as the only regressor. This is model 1 given in table 2. The simple estimate shows that capitalism does not explain the adoption of antitrust laws because the Cap coefficient is not statistically significant. We augmented this simple model by adding our control variables in models 2, 3, 4, and 5. In none of these models did the Cap coefficient return any acceptable level of statistical significance. Some of the control variables, notably ES and ED, take the expected signs and are statistically significant. We finally ran our full model, which included all the control variables. The estimates of this regression given under model 6 also indicate that capitalism is not a factor that can explain why countries around the world adopt antitrust laws.

These findings do not however mean that capitalism has no role in countries choosing to enact a national antitrust law. Quite the opposite, for we could consider the two extremes of an economic system--capitalism and socialism--and ask a rather rhetorical question: Under which of the two systems is there a higher probability of an antitrust law being enacted? Most definitely and quite obviously, it's the former. What we argue and show here is that a capitalist system provides itself with an antitrust law when it interacts with the political force of democracy and its attendant norms. The second part of the empirical analysis undertakes the examination of this proposition.

As mentioned in the previous section, we refer to the interaction between capitalism and democracy as democratic capitalism and use the abbreviated notation, DemCap. The models that we ran to test the second proposition were identical to the ones given in table 2 except that the variable Cap was replaced by DemCap, representing democratic capitalism. The regression results testing proposition 2 are presented in table 3. Model 1 is a simple estimate with the DemCap coefficient being significant at the 5% alpha level, thereby signifying that democratic capitalism has a statistically significant impact on the global adoption of antitrust laws. To further test for the strength of this relationship, we added variables to control for the influences of other factors. The results from these tests are presented under the augmented models 2 to 6, with model 6 being the full model. In all of these models, including in the full model, DemCap retains its statistical significance. Moreover, the coefficient values for DemCap display only marginal variations across models, which is evidence of an absence of multicollinearity. The statistical significance for DemCap does drop a little in the full model, with the Wald test (71) too not displaying significance. However, we suspect these outcomes to be the result of a reduced number of observations in the full model.

Furthermore, a comparison of the Wald test results between tables 2 and 3 shows that except for the full model, all the models are statistically significant from table 3, while only half of the six models from table 2 are significant. More importantly, the models in table 2 acquire their significance only with the inclusion of additional variables, which does not augur well for an argument that capitalism is a good indicator of antitrust adoption. This comparative analysis of model significance demonstrates that replacing capitalism with democratic capitalism better explains antitrust adoption. This is further evidence of the positive impact that democratic capitalism, unlike capitalism by itself, has on antitrust adoption.

We have to account, however, for the possibility that the results observed for the models in table 3 might have been due to the dominant effect of democracy, and not that of democratic capitalism, on antitrust adoption. After all, democracy scores are a part of the mathematically constructed interaction variable, democratic capitalism, and capitalism was found to have had no effect on the policy outcome in the models in table 2. More importantly, democracy has been previously reported to have had a statistically significant effect by itself on antitrust enactment. (72) Therefore, we need to insure that the statistically significant result reported for the DemCap coefficient is not an effect solely of Dem but of the interaction variable, DemCap.

To identify the exclusive effect of DemCap on antitrust adoption, we need to control for the separate effect of democracy on antitrust adoption by including Dem in the models. Even though this serves as a robustness check of our main results, this is methodologically problematic since there is the possibility of multicollinearity as DemCap is an interaction variable that includes the Dem scores from the Polity IV dataset. (73) To circumvent this problem and yet control for democracy, we used a different measure for the democracy component in DemCap. We replaced the Polity IV measure of democracy with another widely used measure of democracy, the Political Rights and Civil Liberties dataset from Freedom House. (74) Given that both the Polity IV and the Freedom House datasets quantify the same phenomenon, that is, democracy, we expect a high level of correlation between the two measures. The estimate of the Pearson correlation coefficient between the two measures was 0.84, thereby signifying the expected high level of correlation. However, the key methodological issue here is multicollinearity between DemCap and Dem. At this point, we retitle the notation DemCap to FHDemCap to signify that we are now using the democracy scores from Freedom House as the democracy component in democratic capitalism. To test for multicollinearity between FHDemCap and Dem, with Dem still being measured by the Polity IV dataset, we estimated the Variance Inflation Factor (VIF) between FHDemCap and Dem. The test produced a VIF of 3.02, well below the standard cut-off of 10. This therefore satisfies our requirement that we control for democracy but without violating any methodological assumptions. We ran the same models in table 3, but with FHDemCap instead of DemCap and with democracy as an additional control variable. The results of these tests are presented in table 4.

The results strongly support our conceptual model under which democratic capitalism was theorized to positively impact the adoption of antitrust. In all the six models in table 4, the democratic capitalism coefficient is statistically significant even after controlling for the possible influence of democracy and the other variables. Interestingly, democracy does not appear to be statistically significant as a causal factor in any of the models. (75) This is further endorsement of our model where the influence of democracy on antitrust enactment is manifested through its interaction with capitalism. (76)

Before concluding our empirical analyses and discussing the results, we add a procedural detail to our understanding of the connection between democratic capitalism and antitrust adoption by also focusing on the time element involved in the policy adoption process. We pause to check whether the presence of democratic capitalism made the policy adoption easier--in terms of the time taken--for the countries in our sample. More specifically, we examine whether countries that are higher on the democratic capitalism scale required less time to enact their antitrust laws."

Figure 2 is a scatterplot of the seventy-two countries in the sample, with the time taken for each country to enact its national antitrust law given on the horizontal axis and each country's average democratic capitalism score on the vertical axis. (78) The linear fit shows a negative relationship between the time taken to adopt an antitrust law and the country's average democratic capitalism score. Therefore, there appears to be prima facie evidence that countries with higher degrees of democratic capitalism in their political economy experience a shorter time to adopt a national antitrust law. In the following sections we provide a discussion of our overall results and their implications for antitrust adoption in countries that presently do not possess a national antitrust law.

VI. DEMOCRATIC CAPITALISM AND ANTITRUST ADOPTION: IT TAKES TWO TO TANGO

In an overall sense, the results from our tests provide us with two findings. First, capitalism does not individually account for the action by countries to adopt antitrust laws. Second, democratic capitalism is a better and robust explanatory factor in the decision by countries to enact a national antitrust law. These findings are in agreement with the two propositions that we advanced for empirical testing. Putting these two findings together, we arrive at the understanding that the interaction between capitalism and democracy provides the political-economic environment that is critical to this policy outcome. In this context, capitalism provides the economic foundation while democracy supplies the political motivation.

Why didn't capitalism explain the adoption of antitrust laws the world over? And why was a democratic form of capitalism so robustly influential in antitrust adoption? As theorized earlier, capitalism is an economic system while policy developments take place in a political space, characterized in this case by the effects of democracy. An antitrust law is a legislative outcome of the interactions between various actors in the political economy, and therefore, the polity does matter.

An equally important reason why capitalism per se did not matter for antitrust adoption is that--notwithstanding some of their obvious links--capitalism and antitrust are "transactionally incongruent." Capitalism demands freedom of trade and commerce. For its part, antitrust does seek to supply this freedom; however, antitrust goes further than that, and hence, the incongruity. Antitrust also aspires to create an equitable marketplace and to protect the less-empowered sections of society, typically the consumers and small and medium-sized businesses. The incongruity matters because these additional goals of antitrust are seemingly incompatible with a pure form of capitalism and therefore negate the possibility of a direct and automatic causal link between capitalism and antitrust. However, these additional goals that antitrust supplies--equity in the marketplace and protection of the weaker actors--unmistakably satisfy the demands of a democratic society. And that is why a democratic form of capitalism demonstrates a strong and positive impact on the adoption of antitrust laws.

If we continue on this line of thought and analysis, we observe that an antitrust law truly embodies the goals of both capitalism and democracy by seeking to promote competition and free enterprise (largely a capitalistic goal) and protect society's "little guys" (largely a democratic goal). (79) Therefore the synergistic nature of the relationship between capitalism and democracy easily manifests itself in an antitrust law. This synergy stems from their shared emphases on personal freedom and individual choice. It is due to this synergy that these two dominant systems can interact to produce a new kind of political economy that is called democratic capitalism. And that is the reason antitrust laws connect more intrinsically with democratic capitalism rather than with a pure form of capitalism. An antitrust law is not only compatible but it is also commensurate in its "normativity" with a political economy of democratic capitalism.

The fact that antitrust laws go beyond the demands of capitalism and that democratic capitalism better explains antitrust adoption is evident from a closer examination of the national antitrust laws of some of the countries in the sample. For illustrative purposes, we focus on the competition laws enacted by India and South Africa. The Competition Act of 2002 (80) enacted by India is an excellent illustration of the capitalism-democracy tango as reflected in its new antitrust law. Due to its above-average scores for both capitalism and democracy, India has a relatively high democratic capitalism score in the dataset used for this study. It therefore follows from the findings of this study that India would adopt an antitrust law that sought to promote the twin goals of both capitalism and democracy as discussed above. And that's exactly what India did. In 2002, India enacted a new antitrust law that unequivocally states at the outset that its objectives are "to provide ... for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets". (81) Promoting and sustaining competition and freedom of trade are clearly capitalistic goals while protecting the interests of consumers and other market participants satisfy the democratic aspirations of equity and fairness. The repeated emphases on the protection and promotion of competition, consumers, freedom of trade, and other market participants point to how a democratically capitalistic society adopts an antitrust law that seeks to supply the society with the demands of both capitalism and democracy.

South Africa is another developing country in our sample with a high democratic capitalism score that enacted a new antitrust law during the period under study. Although worded differently and tailored to the country's historical context, South Africa's Competition Act of 1998 (82) echoes the same underlying principles as India's. The preamble reads thus:

   The people of South Africa recognise:

   That apartheid and other discriminatory laws and practices of the
   past resulted in excessive concentrations of ownership and control
   within the national economy, inadequate restraints against
   anticompetitive trade practices, and unjust restrictions on full
   and free participation in the economy by all South Africans.

   That the economy must be open to greater ownership by a greater
   number of South Africans.

   That credible competition law, and effective structures to
   administer that law, are necessary for an efficient functioning
   economy.

   That an efficient, competitive economic environment, balancing the
   interests of workers, owners and consumers and focused on
   development, will benefit all South Africans. (83)



The extensive and repeated emphases on both capitalistic and democratic ideals in South Africa's national antitrust law come through clearly in the preamble. "All South Africans" is a repeated theme. There is also equal emphasis on combating anticompetitive business practices and creating a more level playing field. Together, the examples provided by the national antitrust laws of India and South Africa perfectly underscore how democratic capitalism relates to antitrust adoption: A pro-free-market economy that is infused with democratic norms and expectations from the political realm creates conditions that incentivize political leaders to undertake the necessary policy actions to adopt an antitrust law. It is a highly tenable argument that in its intrinsic connection with democratic capitalism an antitrust law is unique in comparison to other forms of government legislation.

VII. IMPLICATIONS

The few quantitative studies that have previously explored the adoption of antitrust laws by countries around the world have reported many variables to be positively associated with this policy development. (84) The present study used many of the same variables but focused its attention on a very important causal factor--the interactive effect of the economic and political systems of a country. This effect is extremely significant for policymaking in any area, and antitrust is no exception. If anything, this study has demonstrated that there might be a special relationship between democratic capitalism and antitrust policy since antitrust truly reflects the philosophical ideals of democratic capitalism.

If this conclusion is valid, what are the implications of this understanding for the future of antitrust adoption around the world? And especially so in light of our finding that there is an inverse relationship between the extent of democratic capitalism and the time taken by countries to adopt their antitrust laws. We would point out that, since antitrust adoption appears to be an "organic" outcome of a country's level of democratic capitalism--controlling for other factors--as the extent of democratic capitalism increases in countries presently without a national antitrust law, we can witness the birth of newer national antitrust legislation. The implication of this understanding is that countries that are not further along on their degree of democratic capitalism must ideally refrain from imposing this law on themselves.

In this regard, China and Vietnam are excellent examples for closer observation. Although China's economy has transitioned from a closed and socialist to more open, its political system is still characterized as communist and not as a democracy. A similar understanding applies in the case of Vietnam. As figure 3 shows, these two countries score quite low on their levels of democratic capitalism. But both of these countries enacted national antitrust laws recently, with China doing so in 2007 and Vietnam in 2004. (85) However, there are serious issues with the laws themselves and with their implementation in each of these countries. In the case of China's Anti-Monopoly Law, recent scholarship has highlighted several problems, especially regarding its inconsistency with the goals of antitrust. (86) As regards Vietnam, its Law on Competition and its enforcement have been evaluated and commented on for their general inadequacies. (87)

Evidently, countries such as China and Vietnam are the anomalies in the present study that adopted national antitrust laws despite their political economy not being "primed" for such a piece of legislation. In the case of China, both the economic and the political dimensions are well short of desired levels. Although the country embraced free-market reforms over three decades ago, the vestiges of state socialism still rule and are reflected in the Anti-Monopoly Law. And politically, there has not been a wave of democratization in this staunchly one-party polity. With regard to Vietnam, Nguyen emphatically cites institutional deterrents such as the lack of a competition culture and the prevalence of a "socialist-oriented market economy." (88) Inconsistencies and conflicting goals can be found in the antitrust laws of any country, including ones with relatively higher democratic capitalism scores. However, we believe that the chances that they will be less harmful in their effects and will be quickly and efficiently corrected are arguably greater for countries that boast higher levels of democratic capitalism.

Our policy advice should not be taken to mean that countries with low levels of democratic capitalism should never enact an antitrust law. Our emphasis is on the need for countries to first understand the state of their own political economy, what this political economy demands, and most importantly, whether there exists a "transactional congruity" between the political economy and the antitrust law. We do not advocate that antitrust law be modified to be congruent with the nature of the political economy, which is what seems to have happened in China and Vietnam. While some tweaking exists currently in all national antitrust laws to conform to the particularities of the political, economic, and cultural contexts, (89) care must be taken to avoid both a fundamental departure from the essence of antitrust and the antitrust law being an "imposition" on the society. With particular reference to the latter, a law that has not been democratically informed reflects a top-down imposition rather than a bottom-up demand. To the extent that these two outcomes do not come to fruition, we believe that subsequent adjustments to the antitrust laws of China and Vietnam might not be as harmful as we fear. Given the political and economic contexts of countries like China and Vietnam, it is possible that the true harmful effects of a premature adoption of antitrust laws by such countries might even be undetectable, and at the moment, difficult to delineate.

Before we proceed to the final section of this article, we wish to highlight some of the limitations of this study. Our intention in providing this discussion is also to emphasize some of the areas that future studies can improve upon in this particular line of research. First, there is a complex relationship between capitalism and democracy. (90) In terms of its implications, this complexity is relevant not only to this particular line of research; however, the fact that we had to choose one out of the four relationships between capitalism and democracy--albeit chosen for its conceptual appropriateness for this study--implies that there could be dimensions and effects of the capitalism-democracy relationship that should possibly have been incorporated in the study. Second, and this partly follows from the previous point, the absence of a direct measure of democratic capitalism forced us to adopt a mathematically constructed interactive variable to operationalize this variable. While this is a commonly used practice in the relevant scholarship, we feel that a direct measure would have provided more conceptual validity to the research design and the resulting findings. Finally, the presence of undemocratic countries like China and Vietnam in the group of countries that adopted national antitrust laws detract from a complete generalizability of the results. A few anomalies are common in most quantitative work and we note these two countries as among the outliers in this study.

VIII. CONCLUSION

This study examined the impact of capitalism and democratic capitalism on antitrust adoption. Our analyses show that the former, on its own, does not matter for antitrust adoption but when combined with the incentivizing and normative forces of democracy, the resulting political-economic structure--democratic capitalism--has a significant influence on global antitrust adoption. We also found that countries that were higher on the scale of democratic capitalism generally took fewer years to enact their national antitrust laws. Our discussion of the implications of these findings in the previous section point to the readiness, or lack thereof, of countries for a national antitrust law. This leads us to make the following conclusion concerning global antitrust adoption: Countries in which the domestic political economy has not reached a certain desirable degree of democratic capitalism must be extremely careful in adopting a national antitrust law. An antitrust law is a powerful piece of legislation that can make or mar national economies. (91) For it to do the former, it has to be adopted for a political economy that is primed for it.

APPENDIX B
Variables, Measures, and Data Sources

Variable             Description/Measure      Data Source(s)

Democracy            The existence in a       (1) Polity IV
                     country of freedom       (Polity 2 Indicator)
                     of political             (2) Freedom House
                     choice and               (2010 Release)
                     expression,
                     institutional
                     constraints on
                     executive power,
                     and guarantee of
                     civil liberties.

Capitalism           The existence of         Economic Freedom
                     economic freedom         Network (Fraser
                     to undertake trade       Institute)
                     and commerce.

Economic             GDP per capita           World Bank World
Development          (constant 2000           Development
                     US$)                     Indicators

Economic Size        GDP (constant 2000       World Bank World
                     US$)                     Development
                                              Indicators

Industry Share       Share of                 World Bank World
                     industrial sector        Development
                     in an economy (%         Indicators
                     of GDP)

Trade                Imports of goods         World Bank World
Liberalization       and services (% of       Development
                     GDP)                     Indicators

State Influence      General government       World Bank World
                     final consumption        Development
                     expenditure (% of        Indicators
                     GDP)


(1) Mark Armstrong & David E. M. Sappington, Regulation, Competition, and Liberalization, 44 J. ECON. LITERATURE 359 (2006).

(2) Jonathan B. Baker, The Case for Antitrust Enforcement, 17 J. ECON. PERSPECTIVES 27 (2003).

(3) United States v. Topco Assoc., Inc., 405 U.S. 596, 610 (1972).

(4) Michael S. Lewis-Beck, Maintaining Economic Competition: The Causes and Consequences of Antitrust, 41 J. POLITICS 169 (1979).

(5) Baker, supra note 2, at 27.

(6) Id.

(7) ROBERT BORK, THE ANTITRUST PARADOX: a POLICY AT WAR WITH ITSELF (1978).

(8) Id. at 7.

(9) Id. at 79-89.

(10) United States v. Aluminum Co. of Am., 148 F.2d 416 (2d Cir. 1945). For a short historical perspective on this landmark case, see George David Smith, Alcoa v. U.S.: A Historical Perspective (2006), http://www.ftc.gov/os/ sectiontwohearings/docs/alcoacasecorGDSpresentationHP.pdf

(11) Theodore Levitt, The Dilemma of Antitrust Aims: Comment, 42 AM. ECON. REV. 894 (1952).

(12) Id.

(13) See, e.g., DOMINICK T. ARMENTANO, THE MYTHS OF ANTITRUST: ECONOMIC THEORY AND LEGAL CASES (1972).

(14) See, e.g., DOMINICK T. ARMENTANO, ANTITRUST POLICY: THE CASE FOR REPEAL (2d ed. 1999); EDWIN S. ROCKEFELLER, THE ANTITRUST RELIGION (2007).

(15) Maurice E. Stucke, Crony Capitalism and Antitrust 1-3 (Univ. Tenn. Research Paper No. 164, 2011, available at http://ssrn.com/abstract=1942045.

(16) David Mayer, Ohio Should Abandon Microsoft Case, COLUMBUS BUS. FIRST (Mar. 6, 2000), http://www.bizjournals.com/columbus/stories/2000/03/06/editorial1html?page=all.

(17) An Open Letter to President Clinton from 240 Economists on Antitrust Protectionism, available at http://www.independent.org/pdf/open_letters/antitrust.pdf.

(18) We explain our reasons for focusing on developing countries in section IV, which is dedicated to the research design.

(19) Raju Parakkal, Political Characteristics and Competition Law Enactment: A Cross-Country Empirical Analysis, 56 ANTITRUST BULL. 626-27 (2011).

(20) Jerry Z. Muller, Capitalism and Inequality: What the Right and the Left Get Wrong, 92 FOREIGN AFF. 31 (2013).

(21) Id. at 31-32.

(22) For a recent evaluation, see ELLEN M. WOOD, THE ORIGIN OF CAPITALISM: A LONGER VIEW (2002).

(23) Muller, supra note 20, at 31.

(24) See, e.g., KEVIN CARSON, STUDIES IN MUTUALIST POLITICAL ECONOMY (2007).

(25) JOHN DOUGLAS BISHOP, ETHICS AND CAPITALISM 4 (2000).

(26) Popular, contemporary country examples for state capitalism and crony capitalism are China and Russia, respectively. For a recent conceptual and theoretical examination of crony capitalism, see Randall G. Holcome, Crony Capitalism: By-Product of Big Government, 17 INDEP. REV. 541 (2013).

(27) Louis Makowski & Joseph M. Ostroy, Perfect Competition and the Creativity of the Market, 39 J. ECON. LITERATURE 480 (2001).

(28) Paul J. McNulty, Economic Theory and the Meaning of Competition, 82 Q.J. ECON. 639 (1949).

(29) John Vickers, Concepts of Competition, 47 OXFORD ECON. PAPERS 4-7 (1995).

(30) Id. at 7 (emphasis added).

(31) McNulty, supra note 28, at 641. In this widely cited article, McNulty adds the following famous sentence that is relevant for this discussion: "[I]t is one of the great paradoxes of economic science that every act of competition on the part of a businessman is evidence, in economic theory, of some degree of monopoly power, while the concepts of monopoly and perfect competition have this important common feature: both are situations in which the possibility of any competitive behavior has been ruled out by definition." Id.

(32) This is evidently the influence of Chicago school economics on antitrust analysis. For a critical take on this influence and an argument for a post-Chicago school perspective, see How THE CHICAGO SCHOOL OVERSHOT THE MARK: THE EFFECT OF CONSERVATIVE ECONOMIC ANALYSIS ON U.S. ANTITRUST (Robert Pitofsky ed., 2008). For a detailed, critical review of Overshot the Mark, see Joshua D. Wright, Overshot the Mark? A Simple Explanation of the Chicago School's Influence on Antitrust (George Mason Law & Econ. Research Paper No. 09-23, 2009), available at http://ssm.com/abstract_id=1370641.

(33) William Kolasky, What is Competition? A Comparison of U.S. and European Perspectives, 49 ANTITRUST BULL. 31 (2004).

(34) Id. at 30.

(35) Frank T. Carlton, Capitalism and Competition, 8 AM. J. ECON. & Soc. 253 (1949).

(36) McNulty, supra note 28, at 640.

(37) For the list of the thirty-four OECD countries with antitrust laws, see Parakkal, supra note 19, at 629.

(38) A new line of research also focuses on how public policy is influenced by ideas and identities. See John L. Campbell, Ideas, Politics, and Public Policy, 28 ANN. REV. SOC. 21 (2002).

(39) David Austen-Smith, Information and Influence: Lobbying for Agendas and Votes, 37 AM. J. POL. SCI. 799 (1993).

(40) ROBERT BENNE, THE ETHIC OF DEMOCRATIC CAPITALISM: A MORAL REASSESSMENT 96 (1981). (41) Id.

(42) MICHAEL NOVAK, THE SPIRIT OF DEMOCRATIC CAPITALISM 57-58 (1991) (emphasis added).

(43) ALLAN H. MELTZER, WHY CAPITALISM? 9-10 (2012).

(44) Id. at 10 (emphasis added). The Kantian problem that Meltzer refers to here is the statement by Immanuel Kant, the eighteenth century German philosopher, about the moral imperfection of humans, which is reflected in the institutions that humans create, including capitalism. Id. at 5.

(45) There are multiple definitions of democracy in the political science literature. Most scholars begin with Schumpeter's minimalist definition that is based on the prevalence of free and competitive elections. See JOSEPH SCHUMPETER, CAPITALISM, SOCIALISM AND DEMOCRACY (1947). Later scholars have augmented this definition to include civil liberties as a defining feature of democracy. We therefore combine these two broad and commonly agreed upon aspects of democracy in our definition, which also approximates to the one used in the Polity IV dataset for their democracy indicator.

(46) Helen V. Milner & Keiko Kubota, Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries, 59 INT'L ORG. 115 (2005).

(47) BRUCE BUENO DE MESQUITA, ALASTAIR SMITH, RANDOLPH M. SIVERSON & JAMES D. MORROW, THE LOGIC OF POLITICAL SURVIVAL 8 (2003) (emphasis added). This work was a major breakthrough in democratic theorizing. However, it does have its share of detractors. See e.g., Kevin A. Clarke & Randall W. Stone, Democracy and the Logic of Political Survival, 102 AM. POL. SCI. REV. 387 (2008).

(48) Clarke & Stone, supra note 48, at 387.

(49) Meltzer, supra note 43, at 18 (emphasis added).

(50) See THE CULTURE OF NATIONAL SECURITY: NORMS AND IDENTITY IN WORLD POLITICS 5 (Peter J. Katzenstein ed., 1996) (defining norms as the "collective expectations for the proper behavior of actors with a given identity").

(51) The literature on norms and its role in influencing policy outcomes worldwide is rich and varied. See, e.g., Michael Barnett, The United Nations and Global Security: The Norm Is Mightier Than the Sword, 9 ETHICS & INT'L AFF. 37 (1995); Martha Finnemore & Kathryn Sikkink, International Norm Dynamics and Political Change, 52 INT'L ORG. 887 (1998); and Andrew P. Cortell & James W. Davis, Jr., How Do International Institutions Matter? The Domestic Impact of International Rules and Norms, 40 INT'L STUD. Q. 451 (1996).

(52) UNCTAD, MODEL LAW ON COMPETITION (2007), available at http://unctad.org /en/docs/tdrbpconfSd7rev3_en.pdf.

(53) Youri Devuyst, Toward a Multilateral Competition Policy Regime? 6 GLOBAL GOVERNANCE 319 (2000).

(54) The idea that competition laws reflect democratic principles is attested to by none other than Nobel Prize-winning economist, Joseph Stiglitz: "Strong competition policy is not just a luxury to be enjoyed by rich countries, but a real necessity for those striving to create democratic market economies." OECD, IMPLEMENTING COMPETITION POLICY IN DEVELOPING COUNTRIES 41 (2006), available at http://www.oecd.org / development/povertyreduction /36563626.pdf.

(55) It would be pertinent to mention here that the literature has traditionally understood multiple forms of the relationship between capitalism and democracy. As explained by Gabriel Almond, the relation between capitalism and democracy has dominated the political theory of the last two centuries, with four different forms of relationship posited: capitalism supporting democracy, capitalism subverting democracy, democracy subverting capitalism, and democracy fostering capitalism. See Gabriel A. Almond, Capitalism and Democracy, 24 PS: POL. SCI. & POL. 467 (1991). The first form of the relationship is a major supporting piece in modernization theory that believes that capitalist industrialization leads to political democracy, a thesis that is most exemplified in the 1959 work by Seymour Martin Lipset. See Seymour Martin Lipset, Some Social Requisites of Democracy, 53 AM. POL. SCI. REV. 69 (1959). The type of relationship that is closest to the one argued and employed in the present study is the one in which democracy subverts capitalism, as argued most famously by Mancur Olson. See MANCUR OLSON, THE RISE AND DECLINE OF NATIONS (1982). However, we do not understand this impact as "subversive" so much as "modifying" capitalism. This is because, as Almond explains, "Olson has hopes that a public educated to the harmful consequences of special interests to economic growth, full employment, coherent government, equal opportunity, and social mobility will resist special interest behavior, and enact legislation imposing anti-trust and antimonopoly controls to mitigate and contain these threats. It is somewhat of an irony that the solution to this special interest disease of democracy, according to Olson, is a democratic state with sufficient regulatory authority to control the growth of special interest organizations." Almond, supra, at 472 (emphasis added). Moreover, as Almond says, empirical research that tested Olson's subversive thesis has produced only mixed results. Id. We therefore consider it appropriate to use a modified version of Olson's subversive theory.

(56) THE DEMOCRATIC CHALLENGE TO CAPITALISM: MANAGEMENT AND DEMOCRACY IN THE NORDIC COUNTRIES 9 (Haldor Byrkjeflot, Sissel Myklebust, Christine Myrvang & Francis Sejersted eds., 2001).

(57) Francis Sejersted, Capitalism and Democracy: A Comparison between Norway and Sweden, in THE DEMOCRATIC CHALLENGE TO CAPITALISM, supra note 56, at 89.

(58) Id. at 90.

(59) Even though most developing countries were traditionally not capitalistic, we focus on this group of countries since our study focuses on a time period (1990 to 2008) when a large number of developing countries were transitioning or had transitioned--in varying degrees--to a free-market economic system. This is reflected in the data that we used for this study: the mean and median scores on the extent of capitalism among the countries in the sample were both 6.18 on an increasing scale from 1 to 10. Since the average scores were closer to 10 than to 1, the countries in the sample, on average, were more rather than less capitalistic. It would, therefore, be safe to use the term "capitalism" while referring to the economic side of this phenomenon in these countries.

(60) For the capitalism variable, data for the 1990s were available only for the years 1990 and 1995. Given the criticality of capitalism to this study, the data usage for other variables had to be restricted to just these two years for the 1990s.

(61) The xtlogit command in Stata, the statistical software package used for the empirical analyses, is equipped to handle unbalanced data.

(62) The character and content of a modern antitrust law presented in the previous section is used as the benchmark to judge whether a country's antitrust law can be considered to be one. This provides consistency across the cross-section of countries.

(63) For the purposes of this study, we follow the UNCTAD understanding of a national antitrust law. See UNCTAD, supra note 52.

(64) Parakkal, supra note 19.

(65) ECONOMIC FREEDOM NETWORK, ECONOMIC FREEDOM OF THE WORLD: 2011 ANNUAL REPORT, http://www.freetheworld.com/release_2011.html.

(66) Polity IV Project, Political Regime Characteristics and Transitions, 1800-2012, http://www.systemicpeace.org/inscr/p4v2012.xls. Although extremely useful and commonly used in social scientific research, interaction variables need to be carefully constructed, especially if they involve complex interactions. For the present study, we have adopted the most popular approach to analyzing the interaction effect by creating a product term that is mathematically consistent with its conceptualization. For more on interaction effects, see JAMES JACCARD & ROBERT TURRISI, INTERACTION EFFECTS IN MULTIPLE REGRESSION (2003).

(67) Franz Kronthaler & Johannes Stephan, Factors Accounting for the Enactment of a Competition Law--An Empirical Analysis, 52 ANTITRUST BULL. 137 (2007).

(68) Parakkal, supra note 19.

(69) Kronthaler & Stephan, supra note 67.

(70) Parakkal, supra note 19.

(71) The Wald test is a test of the joint significance of all the variables, that is, a test of the goodness-of-fit of a model.

(72) See Parakkal, supra note 19.

(73) A test of the Variance Inflation Factor (VIF) for multicollinearity between DemCap and Dem returned a score of 57.64. A VIF score above 10 is widely considered to be evidence of multicollinearity.

(74) FREEDOM HOUSE, FREEDOM IN THE WORLD 2010, available at http://www .freedomhouse.org/report-types/freedom-world.

(75) This should not be confused with the statistically significant coefficients of democracy reported in Parakkal, supra note 19, which was an exploratory study that focused on examining the extent of empirical association between various political economy variables and a country possessing a national antitrust law. By using a theoretically informed conceptual model and lagging the variables, the present study assigns and confirms a causal character to the explanatory variables.

(76) To further confirm this understanding, we ran the full model in table 4 (model 6) without including the democratic capitalism variable. The results did not show any statistical significance for the Dem variable.

(77) We adopted a graphical approach, instead of a regression technique, for this brief examination due to the limited sample size for this particular analysis.

(78) These are average democratic capitalism scores for each country until it enacted its national antitrust law. For the twenty-nine countries that did not adopt an antitrust law by 2008, we right-censored them by assigning the complete data period of eighteen years as the time taken for each of these countries.

(79) We emphasize the aspirational aspect of adopting antitrust laws and do not claim that antitrust laws protect and promote these goals in reality. Whether antitrust laws do in fact achieve their goals is a separate line of extremely interesting and pertinent research.

(80) The Competition Act, No. 12 of 2003, INDIA CODE (2003), available at http://www.cci.gov.in/images/media/competition_act/act2002.pdf?phpMyAdmin=QuqXb-8V2yTtoq617iR6-k2VA8d. The bill for the Competition Act was passed by the Indian Parliament in 2002, signed into law by the President in January 2003, and amended in 2007.

(81) Id. pmbl. (emphasis added).

(82) Competition Act of 1998 (as amended in 1999, 2000, and 2009), available at http://www.compcom.co.za/assets/Files/pocket-book-2005-R.pdf.

(83) Id. pmbl. (emphasis added).

(84) See Mark R.A. Palim, The Worldwide Growth of Competition Laws: An Empirical Analysis, 43 ANTITRUST BULL. 105 (1998); Kronthaler & Stephan, supra note 67; and Parakkal, supra note 19.

(85) As a relevant aside, note that both China and Vietnam are also excellent examples of countries with lower democratic capitalism scores taking a longer time to enact their antitrust laws. This is in line with the interpretation derived from the scatterplot in figure 2. China's antitrust adoption process began in the early 1990s but it wasn't until late 2007 that the Anti-Monopoly Law was passed. While the enactment of the Vietnamese Law on Competition in 2004 was not as dramatic as that in China, the drafting process still took over four years, with the entire process being deterred by a few institutional factors.

(86) For an observation that the Anti-Monopoly Law reflects industrial policy, see Xiaoye Wang, The New Chinese Anti-Monopoly Law: A Survey of a Work in Progress, 54 ANTITRUST BULL. 586 (2009). For an argument that the Anti-Monopoly Law accords greater rather than less state control of the economy, see Parakkal, supra note 19, at 628. For an evaluation of the enforcement mechanism contained in the Anti-Monopoly Law, see Angela Huyue Zhang, The Enforcement of the Anti-Monopoly Law in China: An Institutional Design Perspective, 56 ANTITRUST BULL. 631 (2011).

(87) See Tu Thanh Nguyen, Competition Law in Vietnam: A Paper or Young Tiger? 417 ANTITRUST BULL. 57 (2012).

(88) Nguyen, supra note 87, at415-18.

(89) For more on global convergence, or lack thereof, in international antitrust, see RESEARCH HANDBOOK ON INTERNATIONAL COMPETITION LAW (Ariel Ezrachi ed., 2012).

(90) See supra note 55.

(91) India's Monopolies and Restrictive Trade Practices Act of 1969 immediately springs to mind as an example of a premodern era antitrust law that has received significant criticism for having shackled a national economy for decades.

AUTHORS' NOTE: We thank Bill Curran for his very helpful feedback on earlier versions of this article. We also gratefully acknowledge the research assistance provided by Luke Van Meter and Marisha Marsh, both students of Philadelphia University. All remaining errors are ours.

BY RAJU PARAKKAL, Assistant Professor of International Relations, Philadelphia University.

SHERRY BARTZ-MARVEZ, Visiting Assistant Professor, Department of Economics, University of Miami.

Table 1
Summary Statistics

                                        Std.
Variable                Obs.   Mean     Dev.     Min.      Max.

Democratic
Capitalism (DemCap)      474   19.70    37.89   -65.49     73.90
  Democracy (Dem)        474    2.98     5.89       -9        10
  Capitalism (Cap)       474    6.18     0.80     3.24      7.63
Economic
  Development * (ED)     467    2.88     5.13     0.14     35.31
Economic Size ** (ES)    467   78.08   225.00     0.71   2151.20
Industry Share (IS)      445   31.97    12.94     9.69     75.50
Trade
  Liberalization (TL)    457   41.25    20.52     0.12    120.86
State
  Influence *** (SI)     457   13.69     4.98     4.50     36.69

* Values for Mean, Min., and Max. are in thousands
of constant 2000 U.S. dollars.

** Values for Mean, Min., and Max. are in billions
of constant 2000 U.S. dollars.

*** Original values presented here were reverse-coded
for the analyses by multiplying by--1.

Table 2
Logit Results for Capitalism and Antitrust Adoption

Variable                Model 1    Model 2   Model 3

Capitalism               .808       .252       .545
Economic Development     -.087     .475 **   .382 ***
Economic Size                      .007 *     .010 *
Industry Share                                -.045
Trade Liberalization
State Influence
Countries                 72         71         70
Observations              474        467       440
Log Likelihood          -147.67    -143.23   -141.08
Wald Test                1.00       6.18     20.4 ***
Rho                     .95 ***    .95 ***   .97 ***

Variable                Model 4    Model 5   Model 6

Capitalism               -.385      .532      -.294
Economic Development     .083      .332 **
Economic Size          .011 ***    .009 *    .010 **
Industry Share                                 .012
Trade Liberalization     .081#                .071 *
State Influence                     -.032      .017
Countries                 70         70         68
Observations              452        457       421
Log Likelihood          -140.22    -142.03   -137.72
Wald Test              27.61 ***    6.47     20.14 **
Rho                     .97 ***    .96 ***   .97 ***

Note: (#) p < 0.10, * p < 0.05, ** p < 0.01, *** p < 0.001.

Table 4
Robustness Checks for Democratic Capitalism and Antitrust Adoption

Variable                Model 1     Model 2     Model 3

FH Dem Cap              .171 **     .149 **    .189 ***
Democracy                            .140        .106
Economic Development                           .484 ***
Economic Size                                   .012 **
Industry Share                                   -.080
Trade Liberalization
State Influence

Countries                 72          72          70
Observations              474         474         440
Log Likelihood          -142.48     -142.13     -133.14
Wald Test              10.55 **    13.15 **    31.13 ***
Rho                     .95 ***     .95 ***     .96 ***

Variable                Model 4     Model 5     Model 6

FH Dem Cap             .224 ***    .196 ***    .199 ***
Democracy                .096        .137        .027
Economic Development     .187        .133       .299 *
Economic Size           .014 **     .012 **     .012 **
Industry Share                                   -.013
Trade Liberalization    .074 *                   .085#
State Influence                      -.010       -.024

Countries                 70          70          68
Observations              452         457         421
Log Likelihood          -132.28     -134.33     -129.85
Wald Test              46.29 ***   35.65 ***   27.23 ***
Rho                     .97 ***     .96 ***     .96 ***

Note: (#) p < 0.10, * p < 0.05, ** p< 0.01, .*** p < 0.001.

Figure 3 National Democratic Capitalism Scores for Select Countries

(Index Range = -100 to +100)

Mauritius (Highest); 68.59

AVERAGE 12.07

China: -40.96

Vietnam: -39.90

Oman (Lowest): -59.15

Note: Values are national averages until enactment or 2008,
whichever occurred earlier.

Note: Table made from bar graph.
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Author:Parakkal, Raju; Bartz-Marvez, Sherry
Publication:Antitrust Bulletin
Date:Dec 22, 2013
Words:11818
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