Robber baron Rockefeller

THAT August day, John D. Rockefeller did his habitual nine holes in his lowest score ever, despite being interrupted with news of an antitrust judgment fining his company, Standard Oil, about a third of its $100m market value. The penalty was later thrown out. But a little under four years later, on May 15th 1911, Rockefeller, again out on the golf course, was told that the Supreme Court had found the firm guilty of antitrust violations, and ordered it to be broken up. “Buy Standard Oil,” he advised his playing partner. A good tip: its pieces proved to be worth far more apart than together.

The break-up of Standard Oil into 34 companies, among them those that became Exxon, Amoco, Mobil and Chevron, marked the birth of strong antitrust policy, in the United States and beyond. The Sherman Antitrust Act dated from 1890, but had so far proved largely toothless against America's “robber barons” (Rockefeller, Andrew Carnegie, Cornelius Vanderbilt and the like). In the 1890s the law had forced Standard Oil to alter some of its worst practices, and to move many operations from Ohio to New Jersey; but this had little real impact on the oil giant. By 1900, it controlled over 90% of the refined oil in the United States. The Sherman act came of age with that victory over Standard Oil in 1911. Notable wins followed: against American Tobacco (also in 1911), Alcoa (1945) and AT&T (1982), before the challenge to Microsoft during the 1990s.

What gave the Sherman act the power to blow Standard Oil apart was an explosive mixture of economics and politics that has accompanied antitrust policy ever since. The law sounds decisive, making it illegal to “monopolise, or attempt to monopolise, any part of the trade or commerce” among American states or with foreign countries. Yet on how to apply that in practice, Sherman is vague, leaving it to the courts to decide. The same is true of antitrust law elsewhere. European Union law bars “abuse of a dominant position”; Britain forbids acts contrary to the “public interest”. In each case, it is left to courts and policymakers to decide what action, if any, these words require.

Politics weighed more than economics in the Standard Oil case. The company might have escaped, as others with more political savvy, like US Steel, did, had it played its cards better. President Theodore Roosevelt had launched the antitrust suit; offering to support his re-election if he dropped it was not smart. Later moguls—ask Bill Gates—have paid a price for underestimating the politics of antitrust.

The economic case against Standard Oil was far from proven. Economists still argue whether its aggressive buying of rivals and cut-throat pricing accelerated or retarded the growth of the industry and the ready availability of cheap fuel. It was already being challenged by oil from Texas and Persia. Economic issues are often even trickier today: it is usually easy, with the aid of modern developments in economic theory, to make a plausible case both for and against any alleged monopoly. Little wonder that antitrust has become a lucrative job-creation scheme for economists, as each side hires an army of dismal scientists to prove its point.

Joseph Schumpeter's theory of “creative destruction”, now back in vogue, suggests that, in some circumstances, monopoly may stimulate innovation and thus boost economic growth. His notion is that an innovative firm that wins a monopoly then becomes complacent, and is displaced by a sharper rival, and so on. That, broadly, is what happened to IBM. Today Microsoft argues that its dominance in PC operating systems could be wiped out fast by a rival with a better technology. Another theory, of “contestable markets”, allows some, rather extreme, economists to claim that even a firm with a 100% market share is not a nasty monopolist: if it is the least bit inefficient or over-pricing, a more efficient rival will contest the market and may drive it out.

And then what is “the market” at issue? Is Coca-Cola, say, in the market for colas, for carbonated soft drinks, or for all liquid refreshments? In Europe, Formula One has a 100% monopoly of its kind of motor-racing; but viewers can always watch some other kind, or racehorses, or porn videos. There can be no clear-cut answer to that sort of argument. One thing, though, is clear. Many markets now stretch outside any one country. Increasingly, global antitrust regulation would make sense. Yet that may be far away. Witness even the EU, in theory a single market: it has an antitrust arm—but so do its member states. How many national politicians will readily hand over to some international body the chance to cut the local Rockefeller down to size?