Business

Saturday November 28, 2009

Maintaining competition

Review by ERROL OH


Free the Market!: Why Only the Government Can Keep the Marketplace Competitive

Author: Gary L. Reback

Publisher: Portfolio

SOME books are just not meant for casual reading. This is one of them. Not that it’s dreary or esoteric. In fact, it covers a topic that’s highly relevant to all of us – how competition among businesses, or the lack thereof, affects consumers.

And it’s pretty easy to digest the book once you get your bearings amid the expositions and arguments on law, economics and technology.

That’s the thing about Free the Market! – it demands significant upfront investment in time and concentration because it takes a while for antitrust lawyer Gary L. Reback to lay the book’s foundation. At the start, you have to endure clunky, legalese-strewn writing that could have done with tighter editing.

Try decoding this sentence from Chapter 3: “When the Supreme Court approved rule of reason treatment for vertical nonprice restraints, it gave little guidance as to how lower courts, in making reasonableness determinations, were to balance the consumer harm from less competition among the dealers of the manufacturer enforcing the restraint against the potential consumer benefit of more vigorous competition among manufacturers themselves.”

If you persevere, though, you’ll be rewarded with a thought-provoking and insightful journey through recent major developments in the United States’ competition policy as implemented in high-technology industries.

In the first two chapters, the author dwells on the doctrinal and economic views that underpin antitrust laws in the US.

A turning point was Washington’s embrace of the so-called Chicago School approach about three decades ago. Named after the University of Chicago, whose economics department had spawned much of the research that backs up the theories, the Chicago School is devoted to laissez faire policies.

Reback explains, “The Chicago School’s antitrust enforcement philosophy drew on the study of perfect competition and monopoly to argue that the free market, if left alone, will optimally allocate resources according to consumers’ needs and desires.”

Competition policy is supposed to achieve a delicate combination of pro-people benefits and economic efficiency, but according to Reback, the widening influence of the Chicago School has tilted the balance in favour of the businessmen.

Coupled with this is the fact that the antitrust rules, which had largely been formulated to regulate Old Economy industries, have been slow to adapt to the rise of ICT (information and communications technology).

These two elements form the basis of the book’s thrust – that government has to play a bigger role today in maintaining market competition.

“Consumers can’t depend on the good offices or kindly demeanour of any particular company to protect them from exploitation by businesses,” Reback argues.

“Competition is what protects consumers. Competition begets innovation, while monopoly begets sloth. And innovation helps consumers in ways far more important than increasing product output.”

He pushes this viewpoint by focusing on several high-profile legal sagas – involving the likes of Apple, Microsoft, IBM, Oracle and AT&T – that he had participated in. It’s this insider’s perspective that really enriches and livens up the book.

His account of the proceedings of the antitrust cases is often detailed and intimate, right down to the quirky conduct of a judge and the weak courtroom performances of fellow lawyers.

He is harsh when writing about those with whom he has crossed swords. At times, his portrayal of certain personalities verges on character assassination, and those who receive this treatment include Larry Ellison of Oracle, Bill Gates of Microsoft and Anne Bingaman, the former head of the US Justice Department’s Antitrust Division.

This does make the book more colourful, but it also means Reback’s opinions are not those of an objective observer, especially when you consider that he tends to cast his clients in a positive light.

All businesses seek to dominate, to capture as much market share as they can. Does it mean Netscape, one of his clients, would have done differently if it were in Microsoft’s shoes? It’s unfair to paint scenarios in black and white. Then again, that’s what lawyers do; they don’t win by filling in the blanks with shades of grey.

Part memoirs and part treatise, Free the Market! ought to be taken as what it is – a long-serving antitrust combatant’s meditations on the state of competition policy in the United States.

In the local context, the book can be fodder for a national dialogue on competition policy in Malaysia, a long outstanding issue.

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