In Antitrust We (Do Not) Trust

British economists on competition policy (1890-1920)

By Nicola Giocoli (giocoli@mail.jus.unipi.it), University of Pisa

URL: http://econpapers.repec.org/paper/pramprapa/39245.htm

Abstract

Most late 19th-century US economists gave a rather cool welcome to the Sherman Act (1890) and, though less harshly, to the Clayton and FTC Acts (1914). A large literature has identified several explanations for this surprising attitude, calling into play the relation between big business and competition, a non-neoclassical notion of competition and a weak understanding of anti-competitive practices. Much less investigated is the reaction of British economists to the passing of antitrust statutes in the U.S. What we know is simply that none of them (including the top dog, Alfred Marshall) championed the adoption of a law-based competition policy during the three decades (1890-1920) of most intense antitrust debates in the U.S. The position of three prominent British economists will be examined in this paper: H.S. Foxwell, D.H. MacGregor, and, of course, Alfred Marshall – the latter in two moments at the extremes of our period, 1890 and 1919. It will turn out that they all shared with their American colleagues a theoretical and operational skepticism about the government and judiciary interference with the free working of markets. They also believed that British industrial structure and business habits were so different from those in the U.S. that the urge of interfering with markets in order to preserve competition was much weaker. Among the paper’s insights is that Marshall’s key concept of “defending a competitor’s right to compete” foreran the modern characterization of the goal of competition policy as “the protection of the competitive process”. Yet Marshall developed his concept without making recourse to the post-1930s neoclassical notion of competition as a static market structure which lies at the foundation of most contemporary antitrust policy: a useful lesson from the history of economic thought for those IO economists who still claim that the classical dynamic view of competition is unsuited as a foundation for an effective competition policy.

Review by Chris Colvin

I will be teaching industrial organisation (IO) to undergraduates next year. It is a brand new course, and so I have been trawling though the websites of IO teachers around the world for inspiration. Overall, I have been quite perplexed with what I have found: undergraduates seem to be fed material that is very theoretical and computational, with little or no context or application. Perhaps this prepares students well for graduate programmes in economics, but the vast majority of economics undergraduates aren’t going to be doing a PhD. And even those that do will require exposure to some empirical research.

I want my students to use their microeconomics, to get them to appreciate that real life is dirtier than in the models. And I want them to understand that economic ideas aren’t fixed in time and space, that a log-run perspective can yield interesting insights about human behaviour. I plan to do so by limiting the use of textbooks and instead delving into academic papers and antitrust cases. I feel economic history should play centre stage in an economics degree, not relegated to an obscure field study. So, when teaching sunk costs and market structure, I will look at the decline of Europe’s film industry in the early twentieth century; when covering collusion, I will set them the US sugar cartel of the 1930s; when teaching natural monopolies, I will examine Victorian railways; and when looking at the efficacy of patents, I will do nineteenth century alternatives.

I am also keen to find something accessible that students can use to appreciate the origins and evolution of competition policy – including why it differs by place, and how legal decisions based on economic arguments made long ago still have resonance today. I want to teach them some history of economic thought. One paper that I hope to discuss in this context is Nicola Giocoli‘s working paper distributed by NEP-HIS on 2012-06-13. Giocoli looks at the reaction in the UK to the advent of antitrust in the US. He finds that influential British economists like Foxwell, McGregor and Marshall were dead against US-style anti-monopoly legislation. They believed it would be difficult to implement, run counter to the ideals of a free market, and be inappropriate in the UK industrial context. The UK had to wait until the 1970s for a pukka competition policy to be introduced.

Alfred Marshall, whose ideas about antitrust policy are explored by Nicola Giocoli

What is particularly interesting about Giocoli’s paper is his description of a transformation in what economists thought competition entailed. For classical economist, competition was about firm conduct; they adopted a dynamic process-based view of competition. For the neoclassical economists that followed, competition was more about market structure, the market condition; this static view was more concerned with business size and the number of competitors. For someone teaching modern IO theory, this is fascinating. Over the last two (or three) decades, IO has seen a paradigm shift from the old structure-conduct-performance view of competition – which primarily concerned itself with measuring market structure – to the so-called New Industrial Organisation view – which, apparently much like the economists described by Giocoli, is far more concerned with figuring out firm conduct and doesn’t necessarily draw a causal link between structure and performance. In short, it appears we have come full circle.

I like Giocoli’s paper because he tries to marry his history of economic thought with up-to-date research in economic history. Instead of seeing the US as a success and Britain as a failure – a view that business historian Alfred Chandler made a living out of – Giocoli argues instead that competition law was unnecessary because Britain was largely still a success, still ahead of everyone else terms of total factor productivity – it didn’t require government intervention. I would encourage Giocoli to further develop this argument by looking at some of the work of Leslie Hannah, whose career has been devoted to debunking Chandler. His work (including in the JEH) shows that the Chandlerian corporation was actually far more a thing of Europe than America. A monopolist like Standard Oil – the company whose breakup is central to any history of antitrust – was the exception rather than the rule. US capitalism is a story of small family-run enterprise, not big business. How does this revision of the business history affect Giocoli’s argument?

Business and Accounting History of Religious Organizations

Awareness to Accounting and Role of Accounting at Religious Organizations: The Case of Brotherhoods of Seville at the Last Decade of 16th Century

by
Jesus Damian Lopez-Manjon (jdlopman@upo.es), Juan Baños Sanchez-Matamoros (jbasan@upo.es) & Maria Concepcion Alvarez-Dardet Espejo (mcalvesp@upo.es) (all at Universidad Pablo de Olavide)

URL http://econpapers.repec.org/paper/pabwpbsad/12.06.htm

Abstract

This work questions if religious organizations with common shared beliefs and sacred objectives, but which members had a different level of awareness to accounting, should show a different behaviour concerning: a) the status of accounting in their internal organisations; and b) the permeability of such organizations to new accounting techniques. To reach our aim, we have analysed the content of 6 rules of brotherhoods located in the city of Seville (Spain), and enacted at the last decade of the 16th century. We have split the brotherhoods depending on its link or not with a guild or professional group. We can conclude that the awareness to accounting of its members and the perception of the belief system are explanations to cover the dissimilar behaviour of the brotherhoods in relation to accounting.

Review by Masayoshi Noguchi

This paper is a new instalment of the most interesting work on accounting of religious orders that is emanating from Seville and was distributed by NEP-HIS on 2012-05-22. As the authors point out, the analysis of accounting function in religious organisations is currently one of the most important topics in accounting history research. It has successfully provided a reinterpretation of the past whether at monasteries or cathedrals. Institution that came to dominate everyday life in Europe during the middle ages.

Brootherhood of the Holy Cross – Seville

The basic research question of the paper is: ‘if religious organizations with common shared beliefs and sacred objectives, but which [sic] members had a diverse level of awareness to accounting, should show a different behaviour concerning: a) the status of accounting in their internal organisations; and b) the permeability of such organizations to new accounting techniques’ (p. 3). Through the analysis, the authors argue how the combination of the ledger control system; the context in which the organisations were placed; and, more importantly, the awareness of the members to accounting techniques, all came together to forge a unique link between professional guilds. This link could play an important role in explaining why accounting in religious organisations adopted specific features (p.9). As a result, they argue, a categorisation of accounting between sacred and profane over simplifies the operational context of religious organisations.

As the analytical object the authors choose the rules of six brotherhoods located in the city of Seville and which established in the second half of the 16th century. An important element of this study is the relation of the brotherhoods with closed craft groups called ‘guilds’. Specifically, the authors argue that the guilds exercised significant influence on accounting procedures prescribed in the rules adopted by some of the brotherhoods. Seville was the most active city in terms of the activities of the guilds, because of the recognized monopoly of the commerce with the Spanish American colonies (p. 4). Also the location within the city played an important part in the story: ‘Traders and craftsmen dedicated to the same profession used to live in the same neighbourhood and, therefore, attend to same parish or convent’ (p. 12). So, guild members would normally belong to the same brotherhood (p.12)

Processions are typical of Holy Week in Seville

The main conclusion of this paper is as follows: the three brotherhoods linked to guilds tended to use more advanced accounting devices and terminology than those not linked. Those most closely connected with specific guilds (i.e. the Santiago and the Buen Viaje), their rules contained more advanced technical terms and accounting jargon than the others. However, the categorization based on the linkage with the guilds could explain difference in the rules concerning the submission of accounts to a body of members for approval.

This study has some limitation, as the authors themselves recognise. Namely, it only analyzed the rules but not the practices of the brotherhoods. So it is not clear the extent to which they actually adopted accounting practices. Indeed, as has been documented by Bátiz-Lazo and others, a common shortcoming of Spanish accounting historiography has been its inference based on text books and rule books. Nothing definite can be said about the technical level of accounting adopted unless actual practices are analysed. It is quite normal that every day practice is carried out in completely different way from that prescribed in rules or regulations. Probably, establishing this link between rules and actual practices in the religious orders explored is the next research task.

Although there are issues, this paper is quite enjoyable to read but as noted, further development is expected.

A Natural Experiment in Chinese Villages

The Effects of Democratization on Public Goods and Redistribution: Evidence from China

Monica Martinez-Bravo (Johns Hopkins University) (mmb@jhu.edu)

Gerard Padro i Miquel (STICERD LSE) (g.padro@lse.ac.uk)

Nancy Qian (Yale University) (nancy.qian@yale.edu)

Yang Yao (China Center for Economic Research Peking University) (yyao@ccer.pku.edu.cn)

URL http://d.repec.org/n?u=RePEc:nbr:nberwo:18101&r=his

Abstract
This study investigates the effects of introducing elections on public goods and redistribution in rural China. We collect a large and unique survey to document the history of political reforms and economic policies and exploit the staggered timing of the introduction of elections for causal identification. We find that elections significantly increase public goods expenditure, the increase corresponds to demand and is paralleled by an increase in public goods provision and local taxes. We also find that elections cause significant income redistribution within villages. The results support the basic assumptions of recent theories of democratization (Acemoglu and Robinson, 2000; Lizzeri and Persico, 2004). In addition, we show that the main mechanism underlying the effect of elections is increased leader incentives.

Keywords: China; Democratization and Public Goods

Review by Anna Missiaia

This paper was circulated by NEP-HIS on 2012-05-29. If you have a taste for historical natural experiments, the work of Martinez-Bravo, Padro i Miquel, Qian and Yao is going to be of your interest. This NBER working paper describes the effects of the introduction of elections in Chinese villages on the provision of public goods and on redistribution in rural China starting from the 1980s. Villages are the lowest administrative units in China. They are in charge of the provision of public goods at local level, the allocation of land and also have the power to impose local taxes. The authors exploit the fairly fast and exogenous introduction of elections in villages. This is to study the impact of democratization on decisions over public goods expenditure. The reform started in the early 1980s and was progressively completed over about 15 years. The pace of the reform allows using a difference-in-difference approach, comparing the performance of the democratized villages to the non-democratized ones.

This work represents a significant contribution in terms of data gathering. In particular, the retrospective Village Democracy Survey conducted by the authors on the characteristics of village leaders is new. This was done on the same 217 villages included into the NFS Survey conducted by the Chinese Ministry of Agriculture on villages’ characteristics. The two surveys together allow testing a model that explains a policy outcome using province-year trends, village and year fixed effects and a dummy variable that takes value 1 when the village has experienced an election.

The main result of this paper is that the introduction of elections leads to a substantial increase on public goods expenditure (27%) and to income redistribution. The latter result is not surprising in any transition from a democratic to a non democratic decision system. The former result is more interesting: the authors find that before the reform there was under provision of public goods. The increase in expenditure is essentially financed by an increase in taxes. This result is far from being obvious: a vast literature in political economics shows how elected leaders can fail to provide the policies preferred by the majority. The paper also shows that this increase in public goods expenditure is a response to an actual demand. The increase in a given type of good is different in villages with different characteristic. For example, in villages with more farming, irrigation is increased more; in villages with more school-age children, schooling is increased more.

This study is particularly solid thank to the comprehensive database used and to the various robustness checks and the complementary insights provided to support the results (i.e. the study of the demand for public goods). However, one question that is not fully addressed is what the incentives of the local representatives were before the elections were introduced. The paper proves that they were not concerned with providing the optimal level of public goods to the local population, which turned out to be willing to pay more taxes to receive it. The historical reasons for this mismatch prior the reform are not clear. Also, the results here are very strong in terms of the effect of these particular reform. However, it is not clear how much this result is due to the previous decision mechanism that was in place before. The increase could be very idiosyncratic with respect to the Chinese political experience. Can these results be generalized to other local elections in other parts of the world or to elections at different administrative level? Lastly, the increase in the provision of public goods financed by taxes happened in this case for a given level of per capita income, however the demand for public goods might change at different income levels, leading to different consequences of democratization. To conclude, this paper is an excellent piece of research applying political economics models to a novel dataset for Chinese villages. Hopefully it will stimulate further studies of decision making over public goods provision in China. This might be useful to develop further the historical perspective on this topic.