This Monday President Bush proposed a $2.2 trillion federal budget to Congress. Momentarily setting aside the sheer outrage over the destruction of such vast wealth in the pursuit of unconstitutional government programs, two items are of particular interest to those of us concerned with antitrust matters. These are the respective budget proposals for the Federal Trade Commission and the Justice Department’s Antitrust Division.
The FTC requested $191,132,000 in funding for the Fiscal Year 2004, while the Antitrust Division seeks $141,898,000. Neither agency received a substantial increase over their 2003 funding.
What’s notable about these budgets, however, is not how much money is spent, but how the money is earned. At first glance, you might say “well the money isn’t earned–it’s taxpayer funds!” But you be essentially wrong to say that. In fact, all but $14,132,000 of the combined funding for the FTC and Antitrust Division are expected to come from the U.S. Treasury. The bulk of antitrust enforcement funding–more than $330 million–will come from the very businesses subject to antitrust persecution.
In 1977, Congress passed the Hart-Scott-Rodino Act, a law intended to make life easier for FTC and Antitrust Division officials in deciding which mergers to prosecute and stop. Under HSR, all mergers worth at least a certain value (approximately $50 million under the current law) must be reported to the government prior to consummation. This “pre-merger notification” grants the government a waiting period to decide whether they wish to act against the merger. In most cases, the waiting period is terminated early, and no official action is taken. In a handful of cases–less than 2%–the FTC or Antitrust Division will seek conditions to allow the merger or attempt to stop it outright. Such official action generally results in a “consent agreement,” where the merging companies agree to surrender a portion of their assets to a third-party chosen by the government.
Every Hart-Scott-Rodino “notification” must be accompanied by a filing fee. For mergers valued at less than $100 million, the fee is $45,000; for mergers of more than $500 million, the price is $280,000. The fee is non-refundable, and the monies collected from said fees are what finance the $330-plus million of the FTC and Antitrust Division budgets not financed by direct appropriation.
In other words, the government is forcing businesses to pay for the very antitrust enforcement that is targeted directly against their interests. This is a classic racketeering scheme. A business is forced to pay protection money to a thug who could turn against them at any time. This is not the same thing as paying for police, military, or fire services. Those are necessary protections against threats to individual rights. Here, the government is the threat to individual rights, acting under the arbitrary authority of antitrust.
The government can intervene to stop a merger for essentially any reason. And once they decide to act, most businesses simply sign a consent order and give the government whatever they want–after all, it’s cheaper than fighting. And why wouldn’t a businessmen reach that conclusion? The government is using money stolen from businesses to finance their operations. Antagonizing antitrust authorities will only make things worse–and more costly–in any future dealings. Thus, most businesses rationalize that antitrust enforcement is a cost of doing business.
It’s one thing to finance government services through user fees. Nobody objects to purchasing stamps in order to use the Postal Service, or even paying a toll to use a bridge. But those are useful services that people can voluntarily choose not to use, thus avoiding fees. Here, the government is forcing businesses to pay for a service they don’t want. Indeed, aside from antitrust lawyers, it’s not clear that anyone wants antitrust enforcement services. You could argue that businessmen could avoid Hart-Scott-Rodino fees by never acquiring another business, but such a policy would grind the entire American economy to a halt. Telling businesses not to merger would be like telling humans not to breathe; we’re dealing with an essential element of capitalism here, not an optional appendage.
And the Hart-Scott-Rodino Act is hardly the limit. This year, the FTC plans to implement a national “Do Not Call” registry. This is a shakedown scheme for telemarketing companies. The FTC will setup a list of consumers that don’t wish to be bothered by telemarketers. The telemarketers, in turn, are required to use this list and pay a fee for using it. This will add approximately $19 million in new fees to the FTC budget. The fact that the telemarketing industry itself–not to mention numerous state governments–already maintain “do not call” lists does not faze the FTC in the least. So long as there’s money to be made, government officials are more than willing to do the private sector’s job for them.
One effect of this victim-based financing model is to completely disassociate antitrust from the political oversight process. You rarely hear much in the way of congressional criticism of FTC and Antitrust Division activities (aside from the rare high profile case, like Microsoft.) And one likely reason for this is the fact that “taxpayer funds” are not directly supporting either agency. There’s no incentive to probe for waste, excess, and abuse, because even if such things do take place–and they do–at least it’s budget neutral.
This forced-self-financing scheme also perpetuates the key antitrust premise: all businessmen must be guilty of something, just by virtue of the fact they’re in business to begin with. By preemptively fining businessmen for crimes they didn’t commit, the message sent is: your merger probably broke some law, but rather than waste time investigating you, just give us some money now and we’ll call it even. Those cases that are prosecuted simply serve as a justification for collecting the money in the first place. After all, Congress probably would take notice if antitrust lawyers simply sat around all day without even attempting to look busy.
The use of Hart-Scott-Rodino fees to finance antitrust operations is perverse and unethical. Honest businesses should not be victims of a government shakedown scheme designed to line the pockets of antitrust lawyers and useless bureaucrats at the FTC and Antitrust Division. Congress should rectify this situation immediately by abolishing the Hart-Scott-Rodino Act, refunding all fees collected, and reducing the FTC and Antitrust Division’s budget authority for next year to a nice round number–zero.