Organized Crime

The “Luddites” were early nineteen century British textile workers who protested the introduction of mechanized looms by destroying them and issuing proclamations denouncing the new technology in the name of the mythical King Ludd of Sherwood Forest. What the Luddites failed to understand—and what today’s neo-Luddites fail to understand—is that “labor-saving technology” that reduces production costs and prices increase consumer demand for the product being produced, which in turn generates more jobs in the industry, not less.

In 2011 neo-Luddism was on display when the Obama administration blocked a proposed merger between AT&T and T-Mobile USA. According to the New York Times on August 31, 2011, stopping the merger would supposedly “help save jobs of American workers.” “The view that [the Obama] administration has is that through innovation and through competition, we create jobs,” Deputy Attorney General for Antitrust James M. Cole was quoted as saying. Mergers usually reduce job creation “through the elimination of redundancies,” said Cole. “So we see this as a move that will help protect jobs in the economy,” he added. The formula for job creation in the American economy, according to the Obama administration, was the protection and expansion, if need be, of cost-increasing “redundancies.” American industries’ foreign competitors must have been cheering on the Obama administration.

In reality, as opposed to the Obama administration’s “economic analysis,” the reduction of “redundancies” in business is another way of saying “cutting costs to become more competitive in international markets.” When a company succeeds in becoming more competitive in this way its market share expands and more jobs are created in that company.

It is true that “innovation” can create jobs. What the Obama administration didn’t understand is that a merger like the AT&T/T-Mobile alliance is an innovation. It was a proposed innovative way to reduce the cost of providing cell phone services. Constant innovation is a necessity in an industry as hyper-competitive as the cell phone industry.

The Obama administration’s position on the proposed merger was a combination of Luddism and mercantilism. The mercantilists of the eighteenth century believed in the superstition that wealth was created not by production but by the hoarding of gold. The Obama mercantilists apparently believed that existing jobs, not gold, must be hoarded. They failed to recognize that the economy is dynamic, with jobs constantly being created and destroyed as new-and-improved industries and business practices replace the older and less efficient ones (efficient in serving consumers, that is).

As usual in antitrust cases, the Obama administration defended its blocking of the merger by arguing that the merger would somehow reduce competition. But how, exactly, could that happen? At the time there were more than 180 cell-phone companies in the U.S, with hundreds more around the world posing as potential competitors in the U.S. market. AT&T and T-Mobile would never have been able to raise prices at all, let alone raise them to monopolistic levels, with hundreds of competitors waiting in the wings to take advantage of their foolish pricing decision.

The obvious objective of the proposed merger was to reduce prices in order to make more profit. This is not to say that they would have succeeded in doing so, for there is no such thing as a sure thing in business. What is certain, however, is that the blocking of the proposed merger by the Obama administration prohibited these two companies from trying to become more competitive and even bigger job generators than they already were.