What can late 19th and early 20th century antitrust efforts against Standard Oil and US Steel teach us about how Google, Amazon, and other tech giants should be regulated today?
A lot, according to economic historian Naomi Lamoreaux, the Stanley B. Resor Professor of Economics and History. In her view, economic history is integral to the study and analysis of business, economics, and economic development.
“Economic historians look at how economies developed in the past, but not just for antiquarian reasons,” she said. “Some of those lessons are relevant to development in the present. That’s really what economic historians care about.”
Initially interested in math, Lamoreaux was drawn to economic history as a graduate student because of how it applied quantitative thinking to real-world issues. “At the time, a new style of economic history was blossoming that brought economic theory and econometric techniques to bear on historical problems,” she explained. “I found that very exciting.”
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Lamoreaux became interested in late 19th-century monopolies while completing her PhD at Johns Hopkins University. Her dissertation culminated in her first book, The Great Merger Movement in American Business: 1895–1904. She has since become a leading expert on a broad range of topics in US business and economic history, from finance to intellectual property rights and corporate governance. More recently she returned to her roots in US antitrust history.
In a 2019 paper titled “The Problem of Bigness: from Standard Oil to Google,'' Lamoreaux described how US policy makers have struggled to deal with monopoly power for more than a century. As early as the 1880s, concerns emerged over how dominant companies like Standard Oil used their size to create barriers of entry for new firms. The US government responded by enacting the Sherman Antitrust Act in 1890, and beginning in 1911 the Supreme Court broke up Standard Oil and other major companies for violating the act. Although during the 1920s and early 1930s antitrust efforts slackened, the federal government stepped up enforcement again in in the late 1930s, penalizing large firms for dominating their industries.
Believing that antitrust enforcement had grown excessive, a group of thinkers led by economists at the University of Chicago – the Chicago School – argued in the 1950s and 60s that big firms were useful because they efficiently provided goods that consumers desired. The Chicago School believed that firms should only be penalized if they can be shown to have hurt consumer welfare, rather than simply for being too big. US policymakers relaxed antitrust regulations in the decades that followed, allowing some firms to grow and use their size to maintain market power – paving the way, as some would say, for the emergence of today’s corporate giants. The emergence of large firms with market power in the tech sector has in turn led a new group of scholars to call for a return to the stricter policies of the late 1930s. Members of this group call themselves the New Brandeisians, after Louis Brandeis, an early twentieth century polemicist (and later Supreme Court justice) who wrote a famous essay called “A Curse of Bigness.”
Economic historians look at how economies developed in the past, but not just for antiquarian reasons. Some of those lessons are relevant to development in the present. – Naomi Lamoreaux
Lamoreaux thinks both groups of policymakers are overly focused on size. The US Steel Company, for example, got around antitrust scrutiny for decades by reducing its market share but finding new ways to suppress competitors, such as by purchasing or leasing most of the country’s ore land. As a result, the US steel industry enjoyed a tight oligopoly until its decline in the face of low prices from foreign competitors.
Amid the US Justice Department’s recent antitrust lawsuits against Google, Amazon, and other big tech companies, Lamoreaux notes that Chicago School proponents and Neo-Brandeisians continue to argue over how much to regulate big business. In her view, it is important to look beyond concerns over prices and consumer welfare.
“Even efficient firms doing wonderful things want to prevent competitors from entering markets,” she observes. “We should worry whether today’s big tech companies are not just innovative and exciting, but are also keeping out new players who could push the innovation frontier even further.”
Since regulation could help more new firms and ideas enter the market, Lamoreaux thinks the current scrutiny facing tech giants is potentially good for long-run economic growth. But her study of economic history reminds her that finding the right balance can be difficult.
“Policy can go too far,” she says. “Sometimes regulation is too lax, and sometimes it’s overly burdensome. Throughout history, one extreme tends to lead to the other.”