The only tangible result of the government's policy of restrictionism, protectionism, and subsidization was to entrench the control of the multinational oil giants, and to enable them to run the industry as a government-sanctioned cartel.

This type of governmental intervention in the market mechanism, however, is only part of the explanation for the industry's structure, conduct, and performance. Private action played a quite significant role. Thus, not content with the storm shelters built by the government to protect them from competition, the major oil companies have used their government-subsidized cash flows (roughly $10 billion annually) as a war chest to finance an aggressive horizontal, vertical, and conglomerate acquisition program. Between 1956 and 1968, the 20 majors negotiated a total of 226 mergers to solidify their dominance over crude, refining, and natural gas; to acquire control over such substitute fuels as coal and atomic energy; to integrate vertically into such fields as fertilizers, plastics, and other chemicals; and to expand in purely conglomerate directions such as crushed stone, sand and gravel, foods, paper, brooms and brushes, and automatic vending machines. Most dramatic, perhaps, were the mergers between fully integrated majors — each representing hundreds of millions of dollars in assets consummated during the last decade (see Table 28). Consolidation of control proceeded undisturbed by the entry of newcomers, the threat of potential entry, or serious efforts by the government to attack along the antitrust front. Indeed, throughout this period, the government seemed to be a policeman looking the other way.3

31

In addition to outright mergers, the major oil companies have used joint ventures as a convenient and expedient method for implementing their market control. Table 29 shows the prevalence of joint ventures in bidding for federal

• Partial acquisition involving less than 100 percent of acquired firm's total assets.

31. See the testimony of Mark J. Green before the Senate Subcommittee, supra n. 30 (November 29, 1973), detailing the futility of antitrust action against the petroleum industry.

offshore lease sales. Their effect on competition, as Walter Mead has demonstrated, is tantamount to rigging bids:

In any given sale, it is obvious that when four firms..., each able to bid independently, combine to submit a single bid, three interested, potential bidders have been eliminated; i.e., the combination has restrained trade. This situation does not differ materially from one of explicit collusion in which four firms meet in advance of a given sale and decide who among them should bid (which three should refrain from bidding) for specific leases and, instead of competing among themselves, attempt to rotate the winning bids. The principal difference is that explicit collusion is illegal.32

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Similar joint ventures are employed by the major oil companies in their control of interstate pipelines (see Table 30) and their overseas dominion (see Table 31). Reinforced by top-level financial interlocks, and apparently immune from successful antitrust attack, they are the cement which binds together a loose-knit cartel into a cozy system of mutual interdependence.

In short, as the case of the petroleum industry so dramatically illustrates,

32. Walter J. Mead, "The Competitive Significance of Joint Ventures," Antitrust Bulletin, 12 (Fall 1967), p. 839. One would suppose that this practice is clearly proscribed by the per se rule under Section 1 of the Sherman Act, as articulated by the Supreme Court in United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 n. 59. (1940).

33. Stanley H. Ruttenberg, The American Oil Industry: A Failure of Antitrust Policy (Marine Engineers' Beneficial Assn. 1973).

public policy must come to grips with private action to restrain trade and to entrench power as well as with governmental policies of restrictionism, protectionism, and subsidization. It is not an either/or choice. If the ultimate objective is free markets and a decentralized economic power structure, we have no alternative but to attack on both fronts.

PUBLIC POLICY RECOMMENDATIONS

If it is our objective to control the behavior and performance of large corporations through a system of competitive markets and a decentralized power structure, our agenda for action should include the following public policies:

First, and probably most important, the government must refrain from intervening in markets which, in the absence of such interference, would be workably competitive. In the words of Adam Smith, it may be difficult to "prevent people of the same trade from sometimes assembling together," but government "ought to do nothing to facilitate such assemblies; much less to render them necessary." Government should abjure the role of the mercantilist state in sanctioning and legitimizing private privilege.

An initial step might be to reexamine the role of the so-called independent

regulatory commissions, which probably represent the least felicitous experiment in American economic statecraft. The history of these commissions shows that what starts as regulation almost inevitably winds up as protection. The power to license becomes the power to exclude;, the regulation of rates, a system of price supports; the surveillance of mergers, an instrument of concentration; and the supervision of business practices, a pretext for harassing the weak, unorganized, and politically underprivileged.34

In some industries which are inherently competitive and where there are no substantial economies of scale (e.g., trucking), gradual but total deregulation is both feasible and desirable. In other industries (e.g., airlines, television, communications) where competition cannot be allowed full sway or where government cannot avoid active participation in the economic game, the basic

34. See, e.g., W. Adams, "The Role of Competition in the Regulated Industries, American Economic Review Proceedings, 48 (May 1958), pp. 527-543.

guidelines should militate toward maximum possible decentralization. In most cases, the technological constraints are so broad as to permit infinitely more competition than the regulatory bureaucracies have shown a willingness to tolerate. Congress should compel them by legislative mandate to utilize competition and diversification, wherever possible, as the paramount instrument for promoting the public interest, and the Antitrust Division should continue to wage its unceasing battle against the neomercantilist restrictionism which is the hallmark of these commissions.

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Another step forward would be the repeal of tariffs, import quotas (mandatory and "voluntary"), "anti-dumping" statutes, "Buy American" regulations, and similar devices to exclude foreign competition. Not only are they a tax on domestic consumers and a subsidy to the sheltered industries, but the capstone of any policy to protect entrenched economic power. It is time to recognize the wisdom of Gottfried Haberler's observation that "free international trade is probably the best anti-monopoly policy.“

These examples are merely suggestive of the many areas in which a reorientation in the role of government can contribute mightily to a deconcentration of economic power. They illustrate how a government can govern best by governing least.

Second, as a short-run alternative to a comprehensive restructuring of major concentrated industries, Congress should enact a new antitrust law to control the conduct of giant firms — especially those types of conduct which entail serious structural consequences. Under this law, drafted along lines suggested by Louis B. Schwartz,36 any corporation with assets in excess of $250 million, or any corporation which ranks among the top eight producers in an industry where the eight-firm concentration ratio is 70 percent or higher, shall be prohibited from:

35. In Mclean Trucking Co. v. United States, 321 U.S. 67 (1944), which involved a trucking merger under Section 5 of the Transportation Act, Mr. Justice Douglas stated the proper standard for accommodating antitrust policy and regulatory policy: "[S]ince the public interest' includes the principles of free enterprise, which have long distinguished our economy, I can hardly believe that Congress intended them to be swept aside unless they were in fact obstacles to the realization of the national transportation policy. But so far as we know from the present record that policy may be as readily achieved on a competitive basis as through the present type of consolidation. At least such a powerful combination of competitors as is presently projected is not shown to be necessary for that purpose. . . . [A]dministrative authority to replace the competitive system with a cartel should be strictly construed. I would read 5 of the Transportation Act so as to make for the greatest possible accommodation between the principles of competition and the national transportation policy. The occasions for the exercise of the administrative authority to grant exemptions from the anti-trust laws should be closely confined to those where the transportation need is clear." Id. at 94 (dissenting opinion).

36. Louis B. Schwartz, "Monopoly, Monopolizing, and Concentration of Market Power: A Proposal," in A. Phillips, ed., Perspectives on Antitrust Policy (Princeton Univ. Press 1965), pp. 117-128.