6 Colum. J. Eur. L. 259 (2000)
reviewed by Petros C. Mavroidis. Professor of Law, University of Neuchâtel and Institut d’Études Européennes, Université Libre de Bruxelles.
What do Adolf Menzel and regulation of market failures have in common? And how much of the European Court of Justice (ECJ) Wood Pulp judgements in the eighties can you trace back to the Saxon Wood Pulp experience dating from the prewar era? Is it true that the Ordoliberals from the “Freiburg School” provide the major impetus for a definitively new approach in antitrust issues in Europe? How true is the assertion that the European Community (EC) model is based on the German experience? To what extent is history responsible for the modem face of EC antitrust? And where do we go from here?
The book by David J. Gerber is about all of the above. It is a comprehensive historical document describing the birth and the evolution of European antitrust thinking: I insist on the term “thinking,” since the author does not provide a mere “positivist” account of legislative changes throughout Europe. He goes much further than that. He delves into writings of sociologists, economists, lawyers and historians (indeed, the first thing I noticed in this book is the impressive, truly inter- disciplinary bibliography on which the author relied) to make his case about influences which have shaped both antitrust laws and practice in Europe.
With the gradual acceptance of the so-called “Chicago School,” modem antitrust legal analysis has become over time economics-friendly. By using consumer welfare as proxy to ensure that rivalry will be guaranteed in various markets, antitrust authorities (some more and some less) move to a new era of policy interventions where “first do no harm” is the leitmotiv. Modem experience of antitrust practices is a good illustration of the social benefit, which results from the openness of national administrations to scientific research.
At the same time, it is still not the case (at least not in most national systems) that regulatory instruments are exclusively used for their stated objective function. Antitrust is a very good example in that regard. Very often claims by various lobbies to the effect that antitrust has become “pro big business” or that antitrust authorities are “heartless” have disoriented antitrust practice from its original objective (to guarantee rivalry among competitors) to industrial policy-type experiences. Antitrust is sometimes portrayed as one of the regulatory instruments at the disposal of national administrations: antitrust statutes are part of a wider spectrum. Following this logic, to what extent antitrust practice will be confined exclusively to its objective function largely depends on the availability and efficiency of other instruments. Hence, to treat antitrust for industrial policy purposes is not by in essence bad, goes the argument, since sometimes it is necessary to move from the standard of an “injury to competition” to that of an “injury to competitors.” On the other hand, keeping small businesses in place will guarantee a wider choice for consumers.
How persuasive such arguments are essentially depends on two factors: who participates in the policy dialogue and how (intellectually) well-prepared are incumbents (that is, administrators) to listen to “exogenous” sources of information. Both the first and the second factors have to do with the functioning of modem democracy. The functioning of modem democracy is to a large extent experimental. Experience occurs within the confines of the policy dialogue and away from it. History is a good account anyway, since it teaches us how experience (accumulated both within and away from the policy dialogue) has been treated so far. It does not necessarily provide solutions for the post-modem experience. It does however on many occasions help us understand how successful and responsive society has been with respect to particular “recipes.”
I believe that this is the context within which one can fully appreciate the remarkable work of the author: it is a guide that explains the route followed in European antitrust so far; it is also a road-map, a compass, which, if used properly, will help us avoid mistakes we have already committed.
The author starts with a lengthy but very useful introduction explaining what follows. Useful, because critics of the European antitrust approach often forget the market-integration aspect of EC antitrust. Contrary to the experience in the United States, the EC had to build its antitrust practice on segmented national markets. And markets can (and indeed, often are) segmented not only through state but through private barriers as well. After all, has this reality not been institutionally acknowledged in Chapter V of the Havana Charter, which specifically dealt with an institutional response to private restraints to trade? And if there is any merit in the ongoing discussions in the WTO on Trade and Competition, it has to do with the optimal way the market reacts to impediments resulting from private restraints.
On the other hand, the market integration aspect of antitrust enforcement should not be exaggerated. Indeed, sometimes restraints to competition are necessary to ensure market penetration. The Commission of the EC and more specifically its DG IV (the closest to a pan-European antitrust agency) was often caught in this dilemma. Hence, during the first twentyfive years of antitrust enforcement, the DG IV focused on vertical restraints. The recently issued White Paper and the ensuing regulations are to some extent a marked departure from the past, in that a presumption of legality for vertical restraints is now acknowledged. The substantial market unification of the EC undoubtedly helped move us towards that direction.
The book is divided into eleven chapters. To my mind, it is divided into three parts: the first part, deals with an account of antitrust thinking and practice in the late nineteenth and early twenty century in Europe. The second part explains the evolution of antitrust thinking in Germany. In the third part, the author, on the one hand, takes us through the evolution of antitrust practice in the major EC Member States and, on the other hand, reflects his own assessment of the influence national systems exercised on the shaping of the EC antitrust policy and vice-versa.
All the author’s choices are to my mind legitimate. Rudiments of antitrust thinking can of course be found in Adam Smith (who notoriously expressed his disliking of trade unions). Antitrust thinking originated in Germany. Germany is credited not only with a series of intellectual work on antitrust but also with the first comprehensive statutes on antitrust in Europe. It is further Germany that opted for an “independent” antitrust authority, thereby creating the risk that antitrust would move away from its original mandate. Furthermore, it is Germany that most influenced the shaping of antitrust at the EC level. At least so far.
In this first part (according to my division of the logical entities of the book), the author focuses on the antitrust experience in Austria. Why Austria? As the author points out (Chapter III) for a number of very good reasons: Austria (maybe unwillingly so) provides the setting for the formation of cartels. At the same time, Austria was the setting for a wide intellectual dialogue ranging from psychology (with the notable presence of Freud) to philosophy (Wittgenstein) to music (Mahler and Schoenberg). It is not by some form of historical accident therefore that Adolf Menzel presents a comprehensive proposal on how to deal with cartel-related problems at the Viennese Verein für Sozialpolitik. After all, as the author notes, the latter was the intellectual vanguard of economic and social policy in Europe.
Menzel consistently with modem economic theory, realizes that cartels are welfare reducing (although he phrases it differently) and proposes some form of legislation necessary to address the harm caused by cartels. He does not believe that in practice cartels are that important in practice (does this ring a bell?) but at the same time does not believe that markets are always self-correcting. Hence, he recommends a legislative response.
At the legislative level, for the reasons explained in the book, nothing much happened in Austria. The ides expressed there, particularly in the context of the Viennese Verein für Sozialpolitik, provided the seeds for the development of the European competition law tradition. Germany “fashioned” the discourse (Chapter IV). At their own Verein für Sozialpolitik, a series of schools of thought found the appropriate forum to express their ideas in antitrust analysis. Originally, the German historical school believed that there was too much competition in the market. As a result, according to the school, cartels helped regulate output. The “ethical” school, which essentially followed the historical school, advocated a pro-cartel attitude since cooperation (cartel-like behavior) was, viewed from an ethical angle, a socially superior stance than “egoistic individualism.” Proponents of free markets arguably promoted this theory.
The preceding views were dominant in the German society at the time and were sanctioned by the Court in the Saxon Wood Pulp case, where the Court essentially upheld the proposition that cartel agreements are in principle valid and enforceable agreements under German law. In the wake of this decision though, voices of discontent rose from various comers. The fact that cartels, by using their power, can raise prices and coerce membership became public awareness. The fact that such actions were an incentive-compatible structure for cartels came to light. As the author notes, the rift between industry and policy-minded intellectuals would continue to grow.
The rest followed almost naturally. Legislation was enacted, and institutions came in place. In the years following World War II, a number of EC States enacted antitrust legislation. Reasons for doing so ranged from intellectual persuasion that a legislative response to address market failures was necessary in this respect to international legal compulsion (stemming from the aforementioned negotiation of the Havana Charter).
The author then succinctly presents the antitrust experience at the state level of the various EC Member States (Chapter VI). What is fascinating, and indeed utterly persuasive, about this part of the book is the way the author aims at capturing the “quintessence” of the various national systems. And, as it is well known among antitrust experts, antitrust is about enforcement. In this context, I found extremely wise his choice to place the emphasis on not only the institutions but also the individuals who “man” those institutions.
The author presents a brief but highly condense description of the French dirigiste model; the United Kingdom sui generis two-tier experience; the fairly recent (illustrated by the absence of a critical mass of cases, which does not provide an appropriate benchmark for detailed examination) Italian and Iberian experiences;’ the often underestimated Nordic experience, where economists have had quite an impact in antitrust enforcement.
In Chapter VII, the author presents the new intellectual framework (to his view) for competition law, the Ordoliberalism. Born in the “Freiburg School,” the idea of a Sozialmarktwirtschafi is in fact the product of a fruitful intellectual encounter among lawyers (B6hm and Grossman-Doerth) and economists (Eucken). Their interlocutors (von Hayek), regardless of whether they should be classified as members of the “Freiburg School” (most classifications know of such problems) added new dimensions to the work of the original members. The author’s description of the working and the eventual postulates of the “Freiburg School” is very satisfactory. His explanation of the “Freiburg’s” economic constitution (administrators should not intervene in the market except in order to enforce the agreed principles of economic conduct within which market forces should operate) made me think about the origins of what has been termed as the antitrust paradox.
The importance of the influence exercised by Ordoliberals to the shaping of antitrust policy in Germany cannot be over-estimated. Even at the most down-to- earth level, Erhard, often portrayed as the “father” of the post-war “German miracle” was an adept of the “Freiburg School.” The German Bundeskartellamt was entrusted with the mandate to give flesh and bone to the idea of Sozialmarktwirtschafl, the latter not being contested by either of the big German political parties as an intellectually meritorious institution. To shield off potentially harmful attacks against the model, the Bundeskartellamt was entrusted with considerable independence.
Often I have thought about the parallels between the Bundeskartellamt and the Bundesbank. Although I find it a futile exercise to “quantify” the degree of independence entrusted with each of these institutions, I think Gerber’s book made me realize that the most important aspect of this debate is the fact that modem German democracy accepts the notion that institutions with limited democratic accountability (precisely because of their independence) are perfectly compatible with democracy as such.
Independent institutions are more “prone” to (at least) engage in a discussion on new ideas in antitrust and (eventually) accept such ideas, if persuaded by the merits of the argument at hand. Such institutions, in other words, are not “immune” from the democratic dialogue (if the latter is conceived as comprising all segments of\ society and not only those participating in some form of “institutional” dialogue). They themselves can provide the “widening” of the democratic dialogue.
In this sense it is not accidental that the German authority was the first among its European counterparts to move to a more economics-friendly approach. To illustrate with an example, the distinction between Ausbeutungsmißbracuch (exploitation abuse) and Behinderungsmißbrauch (impediment abuse), with the subsequent placing of the accent on the latter (since this is the one impeding competition), as the terms indicate, were crafted in Germany.
It is therefore only natural that Germans influenced more than anybody else did the directions of EC antitrust. In a discussion among six, nine and ten and eventually twelve and fifteen partners, intellectual arguments will at the end of the day get the better of micro-political interests. The author however, in another display of how well researched his book is, explains how a German attorney drafted (Chapter IX) Regulation 17, the procedural “vehicle” of Arts. 81 and 82 of the EC Treaty. In the inimitable words of the author, the said attorney managed to persuade his colleagues to make EC antitrust both “juridical and important.”
Moving to the inter-play between the various EC institutions (which, as the author has previously established, function influenced by German ideas on both substantive and procedural law), the author provides an insightful account of the strenuous relationship between the Commission of the EC and the ECJ. As he explains, the original activism of the ECJ gave way to enhanced legislative activities by the Commission. As a result, specific market-oriented legislation was enacted which pre-empted (to the extent possible, of course) the ECJ discretion. Such regulatory interventions can be efficient and, viewed from a democratic accountability perspective, also more legitimate. The author however does not explain here whether, in his view, “segmentation” of antitrust is necessary (especially, since “regulatory capture” is an eventual downside of market specific- regulatory interventions).
The last chapter of the book is a look ahead. At this point, I should note that the book was published in 1998, that is one year before the appearance of the Commission’s White Paper. In a sense, this part of the book (the very final chapter) is outdated since we now have an idea about how the Commission at least understands the evolution of EC antitrust. The book’s legacy however is worth reflecting upon. The author essentially states his belief that the EC system “will necessarily be Community-centered,” pointing out though that jurisdictional battles will be brought to the forefront.
Indeed, the White paper seems to justify so far the author. Although in the context of antitrust we are away from the “subsidiarity” context (since the Community has exclusive competence over EC competition law) the boundaries between national and EC antitrust have never been determined. In a sense, when we are away from the applicability of EC antitrust law, EC member States act “on their own.” Whether they will behave as good international citizens (by promoting horizontal cooperation among themselves) is currently an open issue on which one can only speculate. How much the EC Commission will help in this perspective, by enforcing/promoting the vertical angle of cooperation, is also an open issue.
Cooperation however is greatly facilitated when the players “speak the same language.” And this is where I see Gerber’s message: he helps us de-codify the language that various national competition authorities speak. And understanding their language is crucial for our understanding of how the EC edifice was shaped. After all, the EC model evolved on the basis of and not independently of the experience of various member states.
The author’s book is to my mind necessary reading for all antitrust practitioners. It will provide them with a good “contextual” argument when they will interpret antitrust statutes. But the book is good reading for the public at large as well. Antitrust enforcement is one of the cornerstones of European integration. As stated above, the shaping of antitrust can only benefit from the widening of the antitrust dialogue beyond the institutional players.
Reading this remarkable book, I could not help thinking about the modem parallelism to the Verein für Sozialpolitik, a platform for ideas as Gerber explains. If I understand the author correctly the dialogue between academic community and policy makers was an important aspect of social integration. It is my hope that history will start repeating itself more intensely in this respect.
