In remarks today to the American Bar Association, Carl Shapiro of the Justice Department’s Antitrust Division opened by declaring, “Cartels are anathema to properly functioning free markets.” I find this amusing given that Mr. Shapiro was addressing … a cartel. Indeed, the Antitrust Division once sued the ABA over “anticompetitive practices” related to the cartel’s stranglehold over law school accreditation. Sadly, the Division only imposed some limits on the ABA’s monopoly; it didn’t end it.
Of course, when Mr. Shapiro refers to “cartels,” he doesn’t mean government-backed organizations that use aggression to compromise the free market. He means private, voluntary exchanges of information between firms that did not seek advance permission from the government to speak to one another. Every “cartel” prosecuted by the DOJ — at least, every one I’ve ever reviewed — involved no aggression or violence. These so-called cartels were simply meetings where price information may have been exchanged among competitors. These weren’t even binding contracts (as the law wouldn’t recognize them anyways) and the DOJ has never, to my knowledge, even suggested that people were threatened with any violation of their rights for failure to participate in these meetings.
Antitrust “cartels” are nothing more than a natural extension of private property rights. If I own a firm that produces widgets, I have every right to consult with anyone about the best way to market my widgets, including conversations with other widget manufacturers. Any agreement we might reach regarding price or other aspects of our product is completely within our rights as property owners — and customers are free to react accordingly. There is, however, no “right” to a certain level or type of competition, just as there is no right to purchase a product at a price the seller is unwilling to agree to.
Now as for Mr. Shapiro, he talks of “rooting out and prosecuting cartels and other collusive agreements.” That is a fraudulent statement. What he really does is impose illegal taxes on companies and impose unconstitutional prison sentences on individuals who exercise their constitutionally protected right to free speech. Indeed, the opening of his ABA remarks are littered with statistics showing the depth and breadth of the government’s aggression against non-aggressive “cartels”:
A quick look at the criminal enforcement statistics tells this story persuasively. During Fiscal Year 2010, which ended September 30, the Division filed 60 criminal cases and obtained fines in excess of roughly $550 million. In these cases, 84 corporate and individual defendants were charged. Of the individual defendants sentenced, 76% were sentenced to imprisonment. The average sentence was 30 months and total jail time for all defendants was about 26,000 days. Foreign nationals were sentenced to an average of 10 months in prison. The incarceration of foreign nationals who participated in cartels that were detrimental to the United States and its consumers continues to be a priority of the Division, despite the additional challenges that can arise in such cases.
The first question I would have for Mr. Shapiro is, How does putting people in prison and removing capital from the market make firms more competitive? There’s no consumer benefit to sentencing corporate middle managers — and the DOJ rarely goes after CEOs — to average prison sentences of two-and-a-half years. There’s certainly no value in deliberately targeting foreigners (which some folks, myself included, deem racism). And for all the talk of consumer benefit, none of that $550 million paid to the government will be used to compensate the supposedly injured consumers; the Antitrust Division tells customers they have to file their own lawsuits, which means hiring expensive antitrust lawyers — often ex-DOJ prosecutors — who end up claiming the lion’s share of any civil “damages” for themselves.
The $550 million that Mr. Shapiro refers to is neither a “fine” nor redress for injury. It’s simply a tax on businesses whose revenues the DOJ deemed excessive during a given period of time. Mr. Shapiro and his colleagues decided that companies should have charged less for their products, so his solution is to impose a tax (without legislative consent) on these “windfall profits” for the benefit of the US Treasury.
As for the 26,000 days of prison sentences, these amount to imprisoning people for … overcharging customers. Even assuming that was true — and it’s not — when did it become socially acceptable to deprive a man of his life and liberty for overcharging someone in a commercial transaction? Mr. Shapiro would argue that this is really a form of theft, since the “cartel” set prices above market levels, so the difference between the “cartel” price and the “competitive” price was effectively stolen. But once again, if that’s the case then why doesn’t the DOJ use its “fine” collections to compensate consumers rather than itself?
If you accept the premise of imprisoning a person for overcharging a customer, then why not bring back debtor’s prisons? At least there you can bring a cognizable case of fraud, particularly when a debtor runs up a credit card bill he knows he can’t pay. Yet bankruptcy law recognizes that a lender must assume some risk in a transaction — and the right to redress does not include the right to lock the debtor in a cage. The antitrust world, in contrast, assumes no due diligence on the part of the consumer and places the government’s needs — for tax revenue and political prisoners to make official like Mr. Shapiro look good — ahead of any real concern for consumers or the integrity of the free market.
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“Antitrust “cartels” are nothing more than a natural extension of private property rights. If I own a firm that produces widgets, I have every right to consult with anyone about the best way to market my widgets, including conversations with other widget manufacturers.”
This is exactly right. I had an argument with colleagues a few days ago about the “Bread Cartel” – the South African government’s “Competition Commission” has recently imposed huge fines on the big (successful, profitable, high profile) industrial bread baker companies. The firms were judged to have colluded to synchronise their prices and raise them by 15% !!!!
But 15% above what? Above the market price? The price at which the market clears? The price at which suppliers supply as much as consumers are willing to consume?
I argued that if the price really was unfairly high, that the poor bread consumers were struggling under the cruelty of the Bread Cartel, why were other bakers ‘rising’ to the challenge? Surely they could recognise the market ‘knead’? If the Bread Cartel really is making an obscenely unfair profit, isn’t there a great deal of ‘dough’ to be made by undercutting their prices?
I was told that, if a cartel keeps their prices at only 15 – 20 % above market price, it is much too costly for a startup to take the risk of building a huge factory (to get the same economies of scale the Bread Cartel is using to reduce its cost), when the expected profits are so small relative to the costs. Talk about a half-baked notion!
If 15-20 % profit margins can be seen as both obscenely large when the Bread Cartel earns them, yet too small to be worth undercutting, you have introduced a logical inconsistency. What is the magic profit margin that is large enough for a small firm to grow and survive, but small enough that it is not obscene? 14% ? 14.82346% ?
There is no “right” profit margin, like there is no “correct” price, other than what clever business owners can attain for themselves, and what the market determines via free voluntary mutual agreements to trade.
Don’t worry about the bakeries. Just elect someone like Michael Bloomberg and pretty soon he will launch a campaign to denounce and then ban bread from the country because of the huge amounts of unhealthy starch it contains. No more cartel problem.
BTW has Bloomberg heavily shorted salt futures or something, or is just that he has high blood pressure and he’s the kind of egomaniacal tyrant who mixes up HIS life and death with his subjects’ ?
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