Critics say Justice Department has become too lax on antitrust

When lawyers for the nation's seven regional telephone companies went into court in Washington, D.C., last week, they had a strange but potentially powerful ally - the US Justice Department's antitrust division. It was the same division that had argued successfully for what eventually became the breakup of Ma Bell's nationwide monopoly into regional companies in 1984. This time, though, antitrust lawyers were arguing hard in favor of loosening restraints on the Bells.

But US District Judge Harold Greene, who oversees the consent decree governing the Bell operating companies, was hard-nosed. In court last week, Mr. Greene grilled Justice Department lawyers.

``I sat here for 11 months in 1982 listening to the Justice Department argue the exact opposite of what you're saying today,'' Greene said. ``Was that a different Justice Department back then? What has changed so dramatically in the telecommunications industry to bring about such a change of attitude?''

Observers say the about-face has less to do with advances in telecommunications technology than with the changing philosophy of the Justice Department's antitrust division. In backing the Bells' in their bid to toss off restrictions it earlier advocated, the antitrust division is reportedly going against its own economic advisers and the President's Council of Economic Advisers.

``There's plenty of room for interpretation and progress,'' in the realm of antitrust law, says Robert Harris, a professor of business at the University of California at Berkeley.

``But the degree of change, the radicalness of the change and the acceptance of the opinions of a very narrow and extremely libertarian school of economics as the sole basis for antitrust enforcement decisions and policy is completely uncalled for.''

Professor Harris, who specializes in antitrust, calls the Reagan administration ``the most anti-enforcement administration we have seen in the history of the antitrust laws. There's no close second by comparison.''

The shift in antitrust enforcement under Reagan is generally characterized as occurring in two waves. The first was the washing away of the Justice Department's traditional adversarial, prosecutorial role.

In its place came ``Chicago School'' thinking - an antitrust philosophy, developed at the University of Chicago, that stresses market competition and economic efficiency and is generally more tolerant of big mergers. In the past six years, the antitrust division has challenged only 29 mergers of more than 8,000 merger notifications it has received.

Within the last few years, a more politicized wave has occurred.

Recent cases handled by the antitrust division show some distinct victories of political power over economic theory, says Timothy Brennan, an associate professor of public policy and economics at George Washington University.

One such case is the ongoing saga of the telephone divestiture.

``This radical restructuring of the telephone industry [was] a product of the economic approach to antitrust, but it was widely opposed throughout the rest of the Reagan administration,'' writes Dr. Brennan.

Since the success of then-antitrust chief William Baxter in breaking up AT&T, there have been ``a number of decisions by the division that give the impression of heightened political awareness,'' Brennan writes.

Critics charge that the Justice Department has simply become more accommodative towards business interests.

A Justice Department official, however, says allegations that politics are playing a bigger role are nonsense.

``The misrepresentation is, I think, that political appointees are holding down the number of merger cases,'' says Roger Andewelt, deputy assistant attorney general with the antitrust division. ``Our focus is always on consumers, and mergers or other actions that tend to harm consumers we will attack under the antitrust laws.''

But instead of merely enforcing the Sherman and Clayton antitrust acts, the Justice Department is passing mergers through a screen of economic theory. These theories have been criticized as simplistic and easily manipulated for political ends.

Replacing traditional modes of judging market power, an economic formula called the Herfindahl-Hirschman Index has become one the primary instruments in determining whether or not mergers are anticompetitive - and whether enforcement actions will follow.

Conservative economists say this index is more empirical and less subjective, reducing what Supreme Court nominee Robert Bork calls ``antitrust atrocities'' that were committed under previous administration.

But Walter Adams, a professor of economics at Michigan State University, says there is no proof that these measurements work and that to rely on a belief in untrammeled market forces is to assume ``the world is perfectly rational.''

In court last week, Judge Greene was not assuming the world was rational and was even less disposed toward the neoconservative economic theory he was hearing.

``The court will not be swayed by political or economic power or by public relations campaigns,'' Greene said. ``I heard the Department of Justice argue four years ago that the court should listen to consumer interests. Now you're saying consumer interests have no place in antitrust law.''

A ruling on the Bell appeal to modify the original divestiture guidelines is expected sometime this fall.

First of two parts. Next: States take up the slack.