Recession lessons of history

Feb 3 2009 by Neil Warwick, The Journal

IN September 1999 John Jay ran a headline in The Sunday Times entitled “It couldn’t happen again?” comparing the Wall Street Crash in 1929 to the dot.com bubble bursting.

However, history has shown that conflict tends to go hand in hand with recessionary times.

Another prominent trend during recessionary times is the presence of serious competition law investigations. For example, in the late 1960s and early 1970s the US intervened in the Bell Corporation which was perceived to have a monopoly in the US market for the supply of telephone services. At the same time, the world was waking up to the oil crisis of the 1970s, the collapse of British fringe banking and conflict in the Middle East.

Similar links or coincidences follow in the 1980s, 1990s and the millennium. In the 1980s and 1990s, the European Commission took on Tetrapak for textbook abuse of competition law and levied the highest fine ever at the time against the company. Of course, 1987 was also the year of the UK stock market crash.

The early part of the 1990s brought another stock market crash at the same time that VW/Audi was overtaking Tetrapak in the highest-fines-for-breach-of- competition-law table. As the new millennium dawned and the dot.com bubble burst, there was unprecedented intervention in competition law prosecutions.

Does this mean regulators should not intervene or is it the intervention that causes the market adjustment? Alternatively, does competition law enforcement act as a traffic light warning for a riskier time in the financial markets?

The answer is probably slightly more basic and less prosaic. Monopoly and cartel behaviour tends to be based on greed and desire for higher profits and/or market share. Market corrections are usually as a result of greed. Whenever there is insufficient regulation, there will be imprudent actions either at a corporate or market level.

If competition law enforcement acts as a catalyst for a market correction, then the authorities coming back for a second bite at Microsoft might be a sign that a sense of responsibility is returning.

Neil Warwick is a partner at Dickinson Dees.