Crisis and Competition: Explaining the Global Waves of Antitrust Legislation

• In Event: Appetitive States

Abstract

Prior to 1990, 47 countries had enacted antitrust legislation. That number increased to 126 by the end of 2010, a nearly three-fold gain in a mere 20-year span. Despite the history of modern antitrust-style legislation stretching back to 1889, nearly 70% of all global legislative activity around antitrust has occurred between 1990 and 2010. This post-Cold War wave of antitrust legislative activity was not the first of its kind with a significant wave following World War II. The global history of antitrust legislation is punctuated by distinct periods of rapid growth. In this paper, we provide a theory of the origins and diffusion of antitrust law. We argue that the origins of these waves lie in the particular way that the United States resolved conflicts between laissez-faire capitalism and democracy in the late 19th and early 20th century amid financial crises and depression. The legislative waves of the mid and late 20th century are, in turn, driven by the confluence of two forces: US pressure paired with systemic democratic and economic crises.

We first investigate the origins of modern antitrust legislation in the political and economic crises in late 19th century America. We argue that financial crisis and depression increased popular belief in the democratic threat posed by big business and market consolidation. To test this theory, we leverage variation in geographic exposure to industries affected by the “Great Merger Wave” from 1895-1905 to examine the effect of experiences of market consolidation on House votes for the Clayton Act of 1914 as well as local newspaper references to issues related to monopoly and inequality.

Following this, we examine two waves of global antitrust legislative activity. The first of these legislative waves was initiated by the Allied victory in World War II and the US’s rejuvenated antitrust enforcement posture following the abandonment of the National Recovery Administration’s experimentation with cartelization. Cognizant of the political and economic prominence of cartels in Germany and Japan, the US thus emerged from the War committed to promoting its vision of antitrust abroad for what policymakers saw as both economic as well as democratic purposes. The political and economic crises set on by the War provided US policymakers the opportunity to do so throughout Europe and Japan successfully.

We then argue that the second wave in global antitrust legislative activity after 1990 was facilitated by a similar interaction between renewed ideological consensus and crisis brought on by the end of the Cold War and a period of unusually high global financial instability. The collapse of the Soviet Union created both the need for competition law in the set of post-Soviet economies transitioning towards more competitive markets and an ideological lift to pro-competition reformers. As after the War, this paved the way for an international policy consensus—led by the United States and the International Monetary Fund—committed to the promotion of market competition on economic and democratic grounds. This policy vision gained traction where financial crisis created the opportunity for reform.

Authors

• Michael O. Allen, Yale University

• Kenneth F. Scheve, Yale University

• David Stasavage, New York University