The less the government can give away, the less a private business could ask from it

See Do we need more antitrust? by Alberto Mingardi of EconLog.

"Do we need more antitrust enforcement? The Economist presents a number of interesting research papers. Among the most striking insights, the authors find that income inequality is "explained by a growing dispersion in average wages paid by firms," as opposed to increasing inequality within businesses ("where managers are well paid, so are janitors"). This, it would appear, is mainly due to the lack of competition among corporations, which would necessitate an aggressive bout of trust-busting.

For The Economist, this divergence between private business profits could be explained by some companies acquiring more "market power" than others. Other explanations (including growth of red tape negatively affecting a big chunk of the private sector and creating innumerable opportunities for rent-seeking and gaming the system) are airily dismissed.

The British newspaper presents an elegant story, which is by and large shared by self-anointed "elites" all over the world. Yes, "the dismantling of barriers to the free flow of commerce, such as state monopolies, trade unions and restrictive practices" have "produced some clear successes". But now deregulation is under political attack and thus action is needed to secure support for "liberal" policies. Here antitrust comes in handy.

Market power is supposed to be policed by competition agencies, but they have lost some of their vim, particularly in America, where competition cases are fought out in the courts. A landmark Supreme Court judgment in 2004 said monopoly profits were the just reward for innovation. That has made it harder for trustbusters to root out rent-seeking or block mergers. Most big firms got where they are by being good at what they do, not because of coddling by regulators. But if firms can hold onto their market share for years, they create distortions in the rest of the economy. Incumbent firms are powerful lobbyists.

These are very different arguments. On the one hand, The Economist insinuates that competition agencies are less willing to challenge big firms - particularly in high tech sector. On the other hand, The Economist points out that incumbent firms tend to be better lobbyists.

There are plenty of reasons to believe the second argument is closer to the truth. First of all, for newcomers to argue their case as lobbyist is naturally more difficult: they are "new", they can't claim in the face of legislators they need to protect "jobs", or shareholders. At most, they can claim protection for their right to innovate, which typically comes with no constituency attached. Second, older companies tend to become entrenched in the system - when the system allows this to happen.

Companies engage in lobbying vis-à-vis other activities either because they sense government action can be threatening for them, or because they sense government action can give them special privileges. We are back to the original argument: "liberalising" policies, that go in the direction of decreasing government powers, are in a sense the best competition policy. The less the government can give away, the least a private business could ask from it.

But when it comes to the first argument, we may have some doubt. Antitrust has traditionally been very eager to tinker with high tech sectors: think of Microsoft's browser wars. These interventions haven't been particularly successful, not least because these are "new" business sectors, in which entrepreneurial creativity is working at full speed and forecasting future market scenarios is very difficult indeed. Antitrust should care about "consumer welfare", and it would be difficult to argue that the rise of Internet giants such as Google or Amazon has gone against consumer welfare so far: and The Economist doesn't either.

My impression is that The Economist is using an old argument in favour of stronger antitrust. We need stronger antitrust to spread the idea that we care about the market economy being "fair", and bigness just doesn't look very "fair" at all. But do regulators, or The Economist for that matter, have a right to impose their vision of "fairness" on market participants?"