Competition Policy at the Intersection of Equity and Efficiency: The Developed and Developing Worlds

In the last quarter of the last century in matters of economic law, it was common cause that we could pursue either efficiency or equity but not both; the twain would not meet. I never believed it. The gospel of efficiency was ushered into US antitrust by the Chicago School, whose beautiful proofs, dating at least from the 1960s, were resisted by US law and policymakers until the early 1980s. They gained traction with the presidential election of Ronald Reagan (1980), validating national sentiment that government had wormed its way too deeply into the business of business; that business was essentially efficient, and that if we simply let business free to do the work of business we would all be better off. Pursuit of equity was regarded as wrong-headed. If we pursued equity, we would undermine efficiency. The pie would shrink and we would all be worse off. Arthur Okun’s book, Equality and Efficiency: The Big Tradeoff, laid a foundation for this thesis. In the book, which itself was a gospel until the early twenty-first century, Okun concluded from theory that as we equalize the distribution of income we decrease the efficiency of the economy and that therefor society should forgo greater equality for a healthier economy. Empirical research indicated the contrary, e.g. Lane Kenworthy, Equality and Efficiency: The Illusory Tradeoff, but seems to have attracted little attention in the United States. At least in the US antitrust community, since the third quarter of the twentieth century, there has been a widely shared belief that efficiency is the holy grail, and moreover, that US antitrust precedents in the 1960s to the mid 1970s (which constructed an antitrust of the underdog and equated antitrust with economic democracy) was erroneous if not also contemptible. There was in any event a missing link. The literature on equality and efficiency normally referred to income equality, which is equality of outcome, and the equality (or equity) embedded in 1960s US antitrust was equality of opportunity and inclusiveness. This seemed an unimportant distinction to the Chicagoans of the 1970s–1980s, who adopted a line taken out of context from the Brown Shoe opinion of the Supreme Court in 1962 enjoining what today we would call a trivial merger: “It is competition, not competitors, which the Act protects.” The epithet was and is commonly used as an iteration of the equity–efficiency trade-off: do not give weight to the position of (smaller) competitors or you will harm efficiency. Equity, equality, opportunity, fairness—don’t go there. The science of antitrust economics is about efficiency. Equity undermines efficiency. The break did not come until the turn of the twentieth century, both through experience and research. The experience was a harsh one; it was the brutal recession of 2007–8. Alan Greenspan, who was chairman of the Federal Reserve Board and thus the leader of monetary policy for the United States, had to admit that there was “a flaw [in my] model.” Some blame was laid at the feet of the economists, who were so sure that the market would work that they opposed regulation of new financial instruments derived from mortgages sold to low-income home buyers who could afford the mortgage only so long as house prices continued to rise. Theory had outrun reality. One might have thought that US antitrust jurisprudence (which by then was extremely laissez-faire with respect to the monopoly violation) would take on board the lesson of too much trust in the market. But it did not.

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