The Antitrust Club: A weapon in Bill Clinton's hands

National Review, Sept 25, 2000 by Michael Catanzaro

Vernon Jordan, the consummate Washington insider, is a board member of American Express, which helped initiate the government's antitrust lawsuit against Visa and MasterCard. He is also a close friend of Joel Klein, who heads the antitrust division of the Justice Department. Klein was responsible for getting Jordan appointed to a committee that advises the department on antitrust cases. On February 26, 1997, after being introduced at a meeting of that committee by Klein, Jordan said, "I'm here very simply because Joel sent for me. Having said that, I want to say I'm happy to be here. I'm glad that he sent for me."

That Jordan, the same man who tried to get Monica Lewinsky a job at American Express to protect President Clinton, has not recused himself from the advisory committee is typical of the Clinton administration generally, and its antitrust regime in particular. Nixonian ethics prevail, and antitrust law is now a political weapon. When Nixon wanted more favorable coverage from the three major TV networks, he raised the threat of an antitrust suit. On a recently released tape, Nixon told aide Chuck Colson: "Our gain is more important than the economic gain. . . . Our game here is solely political. . . . As far as screwing [the networks] is concerned, I'm very glad to do it."

In the Clinton era, not much has changed. Consider the administration's reaction to criticism of a gun-control deal it reached with Smith & Wesson. The company's competitors strongly objected to the deal, ridiculing it as a "sellout." Some gun manufacturers vowed to pull advertisements in magazines that accept advertising from Smith & Wesson. Then Andrew Cuomo, the secretary of housing and urban development, threatened to pursue antitrust litigation against these gun manufacturers. Shortly afterward, the Justice Department launched a full-scale investigation of whether this vow constitutes illegal collusion.

When antitrust enforcement is politicized, it becomes a way for politically connected companies to hobble rivals they can't beat in the marketplace. The Visa-MasterCard case nicely illustrates the point. The credit-card giants forbid their member banks to offer cards other than Visa or MasterCard. Nearly two years ago, the Justice Department filed a suit claiming that these exclusive networks unfairly shut out American Express, and thus hinder competition.

Yet-by all accounts other than those of American Express and the Justice Department-the credit-card industry is in fact already fiercely competitive. According to CardWeb.com, consumers have over 25,000 different credit-card products to choose from. It's hard to maintain that collusion has kept this market from developing and hurt consumers. Kelly Presta, vice president of Visa USA, says that consumers received over 4 billion credit-card solicitations in the mail last year. Almost anyone, including bankrupts, can get a card.

American Express trails Visa and MasterCard in the credit-card market not because of a conspiracy, but because of its own mistakes. Harvey Golub, chairman and CEO of American Express, admits that he underestimated credit-card diversification in the 1980s. "In the early days," he told the New York Times in 1995, "our view of the bank card was that it was a local shopping card that would never be a significant factor on a world scale. We looked down on it. Big mistake." Another big mistake was the company's decision in the mid 1980s to reject an American Airlines proposal to offer a joint credit card with frequent-flier miles. Relishing the opportunity, Citibank stepped in and closed the deal.

American Express has turned to the administration to save it from its own poor decisions. In a 1996 memo, the company described the Justice Department as a tool for undermining its two biggest rivals. Under the heading "Changing the Rules-Finding Allies," the memo suggested that the Justice Department could "accelerate the process" of beating them.

The company, of course, denies lobbying the department or influencing the case in any way. But court testimony suggests that American Express officials enjoyed a cozy relationship with Klein and his subordinates. The CEO, Golub, admitted that he met with department officials "several times," while Stephen McCurdy, a vice president of American Express, met with them twice. John Elliot, an American Express consultant paid $504,000 for his services, had eight to ten meetings with Justice officials.

The American Express memo said that "Visa is the Microsoft of credit cards." Too true. In the Microsoft case, struggling competitors used the government's antitrust enforcers to gain advantage. In the fall of 1997, Netscape's Jim Barksdale invited Klein to his home for breakfast to discuss the case. The Project to Promote Competition in the Digital Age-known as "ProComp" and funded by Netscape, Sun Microsystems, and Oracle, among others-has written that the best way to seek "relief" from Bill Gates was to "encourage DOJ to proceed promptly with its longstanding investigation concerning Microsoft."