Greenspan - Leave Most Huge Corporate Monopolies Alone
By David Lawsky
WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan said Tuesday that U.S. regulators should leave most monopolies alone because they could not survive long in a world of rapidly advancing technology and global competition.
While Greenspan did not mention U.S. antitrust action against computer giants Microsoft Corp. and Intel Corp., his comments seemed to question the whole philosophy underlying U.S. antitrust policy.
The government should not interfere with monopolies that maintain dominance through cost efficiencies and low prices, the Fed chief said in testimony to a Senate Judiciary Committee hearing on the current wave of corporate mergers.
"By the measure of what benefits consumers, such enterprises should not be discouraged," Greenspan said.
He called on antitrust authorities to exercise a "higher degree of humility" before acting.
But Justice Department antitrust chief Joel Klein lobbed the metaphor back at Greenspan, his sometime tennis doubles opponent.
"I hope when he sets the discount rate he exercises a great deal of humility," Klein told reporters after the hearing. "Humility is not a prescription for abdicating responsibilities."
Klein said antitrust enforcement is based on combing through millions of documents and interviewing dozens or hundreds of people to seek out specific, illegal behavior.
In his testimony, Greenspan said antitrust remedies were applied mainly to firms dominant in their industries, "yet the evidence of sustained dominance where markets are generally open are few."
U.S. Steel, General Motors Corp., and International Business Machines Corp. were prominent examples where market share had eroded after early dominance was achieved, he said.
Greenspan said banking and other regulated industries were an exception, and monopolies could flourish in these environments without appropriate care.
But he said technology was increasingly reducing the incidence of "natural monopolies," making it easier for competitors to enter markets that previously had high entry costs.
Finally, Greenspan said the increasing size of very large companies relative to any one nation's economy illustrated the importance of free trade.
"In some industries, free trade may be essentially the only way to maintain truly competitive markets to the benefit of consumers in all of the nations involved," he said.
However, antitrust experts noted that, for example, aluminum giant Alcoa, was a monopoly for 50 years before antitrust action in the 1940s and Standard Oil held a 90 percent share of the market for 25 years before its breakup in 1911.
Federal Trade Commission Chairman Robert Pitofsky said Greenspan was advocating letting all mergers proceed and then wait and see if action was necessary. "I don't agree with that," Pitofsky said.
"If you challenge the merger before it happens, it's not very expensive to remedy it," Pitofsky said. "After the merger, after the assets are scrambled, the employees have been fired, the management has gone elsewhere, the factories have been sold for junk in some other country, then putting the company back in business is enormously expensive."
Judiciary Committee Chairman Orrin Hatch opened the hearing saying "mega-mergers" were rippling through the economy at what seemed to be fever pitch.
Although there had been previous merger waves -- notably in the 1890s, 1920s, 1960s and 1980s -- the current merger wave dwarfed its predecessors, the Utah Republican said.
While the 1980s had seen worldwide mergers worth $500 billion, this year the figure could surpass $2 trillion, Hatch said.
Trustbusters at the Department of Justice and the Federal Trade Commission are in the middle of several battles against mergers they feel will not serve the public interest.
In the defense sector, the Justice Department has gone to court to challenge Lockheed Martin Corp.'s proposed $9 billion purchase of Northrop Grumman Corp.. Both companies are the product of previous mergers, and the government believes consolidation has gone far enough.
The FTC has made a similar analysis regarding further concentration in the wholesale drug industry, where four of the largest players want to combine into two companies.
Regulators in the United States and Europe are taking a tough line on a huge communications deal, insisting MCI Communications Corp. sell the bulk of its Internet businesses as a condition of its $37 billion merger with Worldcom Inc.
While the banking and financial services sectors have seen a flurry of mergers announced this year, Greenspan was relaxed.
"To be sure, recent bank mergers have led to a substantial rise in national concentration measures. Nonetheless, they have had little or no evident impact on average concentration measured at the more relevant local market level," he said.

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