wealth, crime, and capital accumulation

Contemporary Crises 3 (1979) 171-186 171 © Elsevier Scientific Publishing Company, Amsterdam. Printed in the Netherlands

WEALTH, CRIME, AND CAPITAL ACCUMULATION*

HAROLD BARNETT

Introduction

The holders of concentrated wealth possess a potential for generating illegal income which exceeds that of any other group within capitalist society. This potential results from their dominant ownership of the capital which supports production in the monopoly sector of the United States economy. The degree to which such potential is realized will depend in part on the extent to which state antitrust powers are used to constrain unlawful use and acquisition of monopoly sector capital. The purpose of this article is to analyze and expand upon these relationships of wealth, crime and law enforcement. In particular, we will examine the economic basis for inequality in the distribution of illegal potential; we will consider why antitrust and related monopoly sector enforcement does not significantly constrain monopoly sector potential; and we will consider the impact of such limited enforcement on the distribution of illegal incomes.

We begin by discussing illegal potential in terms of the characteristics of production in the competitive and monopoly sectors of the U.S. economy. The structure of monopoly sector production is seen to allow illegal returns to monopoly sector capital which exceed those available to competitive sector firms. It consequently yields a significant illegal potential to the owners of monopoly sector capital.

State promotion of social harmony requires that the illegal potential of monopoly sector wealth holders be constrained. At the same time, moder- ation is required lest law and enforcement inhibit economically productive monopoly sector accumulation. The next step in our analysis is then to consider how monopoly sector enforcement is structured so as to yield a

University of Rhode Island, Kingston, R.L, U.S.A.

*I wish to thank James Starkey, Richard Quinney, and William Chambliss for their criticisms and suggestions on earlier versions of this article.

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resolution of this conflict between state promotion of social harmony and state support of monopoly sector accumulation.

Toward this end we first examine the actions of Congress, the Judiciary and Federal law enforcement agencies as they affect the use of antitrust powers to prosecute monopoly sector violations. We then consider the extent to which other state regulatory agencies use their police powers to

promote or retard such enforcement. We find that monopoly sector enforcement is limited. We also find that limited monopoly sector enforcement is associated with increased competitive sector crime and is legitimized through increased competitive sector enforcement.

Combining these results with our initial obsevations regarding illegal potential, we draw the conclusion that the structure of law and enforcement allows a disproportionate percentage of illegal income to accrue to the holders of concentrated wealth [ 1 ].

Wealth and the Generation of Illegal Income

Illegal potential may be thought of as the limit of one's ability to generate an illegal income. While labor power is relevant for defining the illegal potential possessed by the majority of the population, our concern here is with illegal potential as related to wealth. In particular we are concerned with the illegal potential associated with that majority of privately-held wealth which represents ownership of capital. The illegal potential possessed by the owners of this wealth reflects capital's ability to illegally appropriate income. In this section we will show that there is a basic inequality in illegal potential among groups defined as competitive and monopoly sector wealth holders. This inequality will be seen to reflect the characteristics of competitive and monopoly sector production and the fact that there is a highly concentrated ownership of monopoly sector capital. We begin with a con- sideration of competitive and monopoly sector production [2].

Competitive sector production is organized around a large number of small firms. Some 98 percent of the total number of corporations may be defined as competitive sector. These corporations account for 15 percent of total corporate assets and for a minority share of total manufacturing output. The presence of intra-industry competition in this sector enhances price flexibility and, thus, contributes to low profit margins and average or below average returns to invested capital. Output is generally expanded through additions of labor.

In contrast, monopoly sector production is organized around a relatively small number of large corporations. Accounting for 85 percent of all corp-

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orate assets, these corporations appear as monopolistic or oligopolistic enti- ties in the markets for manufactures, transportation, communications, energy and finance. In the absence of competition, the administration of price yields average or above average rates of return to invested capital. Expansion in output occurs mainly through technological innovation and additions to the stock of capital.

Because monopoly sector corporations are both large in absolute size and large relative to the markets in which they operate, they are distinguished by their ability to exercise market power, i.e., the power to control economic events or the power to act without the constraint imposed by the market forces of competition. Market power may be used to generate illegal income in violation of the extra-market constraint imposed by antitrust law [3]. Specifically, firms possessing such power have the potential to illegally expand or segment markets, create barriers to entry, eliminate competitors and control wages, other costs and prices. When corporate market power is so used, monopoly sector capital receives rates of return greater than those resulting from economies of large scale production, patents or innovative activity.

Competitive sector corporations may also attempt to acquire or protect a degree of market power through collusive activities prohibited by antitrust statutes. Such violations are motivated by a desire to reduce the impact of competition on profits. However, the absolute and relative size of these firms will often frustrate any sustained attainment of this goal.

Market power represents the ability to exclude others from a share of profits (legally or illegally generated) and the ability to avoid the incidence of harm, eg., the harm associated with effective sanction. Therefore, while market power may be used to violate antitrust statutes, it may also be expected to increase the gains associated with illegal activities unrelated to antitrust. (We will return to this point in the last section.) Since market power emerges from the structure of monopoly sector production, monopoly sector corporations should have the potential to receive long run illegal rates of return greater then those available to competitive sector firms. And since the stock of monopoly sector capital exceeds the stock of capital invested in competitive sector production, it is apparent that monopoly sector corporations as a group have a potential to generated illegal income far in excess of that which may be generated by the aggregate of competitive sector firms [41.

One can conceive of distributional systems in which the social gains and losses associated with monopoly sector violations would be spread evenly over the entire population. However, a brief examination of data on the distribution and characteristics of wealth holdings indicates that the gains associated with monopoly sector violations accrue to a limited group of

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monopoly sector wealth holders. And, as we will argue below, the losses tend to be borne by the larger population of competitive sector wealth holders.

An overall inequality in the distribution of wealth holdings is indicated by the fact that the top 8 percent of families hold over 60 percent of total wealth while the bottom 25 percent hold no wealth. In addition, the top 1 percent of wealth holders are estimated to account for over 75 percent of all privately held corporate securities. Therefore, the assets held by this group of monopoly sector wealth holders may be taken to represent near total ownership or effective control of the capital which provides the basis for monopoly sector production. By way of contrast, wecan identify the vast

ajority of the population as those whose lninority share of total wealth is held in the form of housing, pensions, insurance and minor equity [5]. This competitive sector wealth holding population includes the organizers and owners of competitive sector business, the unskilled, skilled and white-collar employees of competitive, monopoly and government enterprise, and the unemployed.

To summarize, it can be seen that monopoly sector wealth holders possess an inordinate potential to generate illegal incomes. This potential reflects their claim over the income which can be appropriated through the illegal use of monopoly sector capital and market power. Wealth holders who are the organizers of competitive sector business possess a lesser potential as a consequence of their minor capital ownership and their limited ability to benefit from the exercise of market power. And those members of the competitive sector wealth holding population whose assets are minimal, non-existant or otherwise yield no individual influence over economic affairs are limited to the illegal returns which can be generated through an applica- tion of labor power to the illegal acquisition of transferable wealth.

The degree of realization of these unequal potentials will depend on the manner in which state police powers are used to constrain violations by competitive and monopoly sector wealth holders. Since monopoly sector potential exceeds competitive sector potential, we can expect that a relatively limited monopoly sector enforcement will result in a disproportionate percentage of total illegal income accruing to the owners of monopoly sector wealth.

Monopoly Sector Enforcement and the State

Of central importance to the realization of monopoly sector illegal potential is the manner in which state antitrust powers are used to constrain the unlawful use and acquisition of capital and market power. Like law enforce-

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ment in general, antitrust enforcement is a means through which the state promotes social harmony and creates conditions conducive to the profitable accumulation of capital [6].

Active antitrust enforcement is necessary for state promotion of social harmony. The state must appear ready to punish monopoly as well as competitive sector violators lest it be perceived as an administrative arm of the corporation. Enforcement is also necessary given the justification of a market economy in terms of benefits which derive from competition and the historic public reaction to the real and imagined effects of monopoly. At the same time, active antitrust may be perceived as in opposition to state support of capital accumulation. There is a symbiotic structural relationship between the state and the monopoly sector which involves, among other things, the dominant role of the monopoly sector in generating profits (or surplus) and in bringing about the transformation of profits into new capital creation. Such additions to the stock of capital are necessary for the implementation of new technology, the maintenance of economic growth, and for expansion in employment opportunities. Consequently, these activities must occur in the private sector in general, and in the monopoly sector in particular, if the state is to maintain desirable levels of economic activity without totally socializing the process of savings and investment. Therefore, since antitrust violations may contribute to monopoly sector profits and expansion (or may be a means through which these results are achieved), non-enforcement is consistent with state promotion of capital accumulation in the monopoly sector. In the extreme, it has been argued that the speculative nature of the data upon which evidence of violations is based is a reason for weak laws, since strong laws would increase the damage to industrial efficiency resulting from a misapplication of enforcement powers [7]. This implies that state support for accumulation in the monopoly sector may require not only limitations on the use of antitrust, but also limitations on the potential for these statutes to be applied to monopoly sector corporations.

To understand how monopoly sector enforcement is structured so as to yield resolution of these conflicting demands on state police power, we will consider actions of Congress, the Judiciary, and Federal law enforcement agencies as they affect the use of antitrust powers to prosecute monopoly sector violations. We will then consider some general implications for monopoly sector enforcement of the existing allocation of police powers over various state agencies, given the manner in which agency function relates to the promotion of capital accumulation and social harmony.

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The Impact of Antitrust Enforcement

The legislative basis for legal controls over the acquisition and abuse of market power are the Sherman Act, the Clayton Act, the Federal Trade Commission Act and their subsequent amendments. While the Sherman Act prohibits agreements related to restraint of trade and monopolization, the Clayton Act limits the dynamic process of concentration through merger and outlaws specific practices not covered by the Sherman Act. The Federal Trade Commission Act outlaws "unfair methods of competition" [8].

Given the common law basis for these statutes, they could be widely applied to the promotion of social harmony in t-he face of market and extra market conflicts as well as to the elimination of structural constraints on the efficient allocation of social resources.

Antitrust laws have been seen to have several inherent weaknesses. First, their orientation is toward conduct rather than structure. Conceived as a means to promote competition, they emphasize overt anti-competitive acts such as trade boycotts, price conspiracies, allocation of markets and ex- clusive buying arrangements. These actions are more likely to occur in relatively unconcentrated markets where such conduct is necessary to hinder competition. Consequently, they do not apply as directly to the situation in oligopolistic markets where a recognition of interdependence allows tacit understandings to limit competitive behavior and the entry of new firms. Since economic efficiency is not emphasized, the law does not challenge the basic structural characteristics of monopoly sector production which allows monopoly profits to be gained at the expense of efficient resource alloca- tions [9].

Although restricting the use of antitrust sanctions to alter the structure of monopoly sector production, a conduct orientation does make the state an adjudicator of disputes among monopoly sector producers. However, these disputes generally relate to the distribution as opposed to the level of monopoly sector profits. Consequently, resolution yields little public benefit.

Further, antitrust law prohibitions have generally lagged behind practice. For example, given restrictions on merger through the acquisition of a competitor's stock, corporations, until 1955, have merged through asset acquisition. Given restrictions on horizontal and vertical mergers, market power has been augmented through conglomerate mergers [10].

Congress has stipulated civil and criminal penalties for Sherman Act violations and civil penalties for Clayton Act violations. It has provided incentive for the instigation of civil suits by plaintiffs (in the form of treble damage awards) and has, at the same time, created several means whereby defendants may reduce the costs they would suffer as a result of successful suits in equity.

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The limited force of these laws is evident in court proceedings. As regards the costs of conviction to the defendent, over 70 percent of convictions have been via pleas of nolo contendere (no contest). Such pleas entered before any testimony has been taken are not prima facie evidence in later civil proceedings. The consequence is to increase the victim's private costs of subsequent civil litigation. In addition, judicial apathy in general and judicial leniency in response to nolo pleas result in minimal fines and compensation. By way of example, the much publicized Heavy Electrical Equipment Case resulted in victim compensation which was less than 40 percent of the estimated illegal gain to the offenders. Finally, while plea options allow the defendants to force a privatization of the cost of civil litigation, the Internal Revenue Service will socialize 50 percent of the cost of civil settlement by generally allowing the offender to claim them as ordinary and necessary business expenses. In reviewing these outcomes, Mark Green has noted that "[w] hile some court imposed fines achieve compensation and others create deterrence, antitrust fines have the distinction of doing neither" [ 11 ].

Additional constraints on enforcement result from judicial interpretation and reticence. The judiciary has generally seen its function as enforcing a congressional mandate to protect competitors as opposed to consumers. In addition, the judiciary has been reticent to force divestiture, dissolution or divorcement upon firms utilizing complex technologies and exhibiting complex economies out of a fear that their rulings may impair industrial efficiency [ 12 ].

This combination of law and judicial attitude places rather strong limits on the possible outcomes of antitrust enforcement. First, successful prosecution is likely to impose a loss on the offender which is less than the illegal gains experienced. Second, to the extent that nolo pleas privatize the cost of civil litigations, the likelihood of a small victim suing a large offender is reduced. Third, the likelihood that monopoly sector firms (acting as collective monopolists) will be successfully prosecuted for restraint of trade is reduced. Fourth, the likelihood that monopoly sector firms (when characterized by complex technologies and economies) will be deprived of market power is reduced.

Given these objective characteristics of law and adjudication, the use of antitrust sanctions and public (socialized) resources against competitive and monopoly sector violators will depend on the actions of the state agencies which participate in enforcement. While prosecutorial powers are held by the Justice Department and the Federal Trade Commission, evidence, recommendations and demands for judicial review originate in other government regulatory agencies.

Several studies have demonstrated that the prosecutorial agencies have tended to allocate disproportionate percentages of their enforcement resources to the prosecution of small versus large cases [13]. In this context

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small and large define the size of the defendant, the magnitude of the offense, and the size of the agency's required expenditure. Such agency decisions are seen as a rational response to several objective factors. First among these is the historic fact (noted above) that the chance of successful prosecution is greater in small cases when the defendant's violations may be characterized in terms of simple economies and overt acts than in large cases when the defendant's violation must be characterized in terms of complex economies and structural presumptions. Second is the fact that defendants in small cases may have a limited ability (or desire) to purchase defense resources (e.g. lawyers) and, consequently, cannot significantly reduce the chance of agency success. On the other hand, defendants in large cases may have defense budgets which are large relative to agency budgets and, consequently, can significantly reduce the agency's chance of successful prosecution. And, finally, congressional evaluations of agency performance have placed emphasis on the total number of cases prosecuted and the rate of successful prosecution.

Since small cases are more likely to involve violations by competitive sector firms while large cases are more likely to involve violations by monopoly sector firms, the actions of the prosecutorial agencies will tend to place a relatively greater burden of enforcement on competitive sector firms even when the expected social loss imposed through monopoly sector violations is greater.

When we combine this result with the characteristics of law and judicial action, we find that the structural characteristics of monopoly sector firms which contribute to their potential for generating illegal incomes also contribute to their relative insulation from prosecution. At the same time, the structural characteristics of competitive sector firms (which contribute to their lesser potential for generating illegal incomes) combines with the state or agency's need for legitimacy through enforcement to yield a relatively greater burden of enforcement on competitive sector violators.

The Relation of Other State Agencies to Monopoly Sector Enforcement

While the Justice Department and the Federal Trade Commission play prosecutorial roles in a wide range of business violations, other agencies share in the process of enforcement. The overall impact of state agency partici- pation on the extent of enforcement depends in part on the manner in which Congress has allocated enforcement powers to the various agencies given the agencies' primary responsibilities. A government agency is in many respects a microcosm of the state. It may use its congressionally granted enforcement powers and public resources to resolve conflicts between capital accumu-

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lation and social harmony. To the extent that its primary responsibility is defined in terms of promoting capital accumulation, it is less likely to apply enforcement powers which retard profits in the interest of promoting general social harmony. To the extent that its primary responsibility is defined in terms of protecting the collective interests of groups who bear the costs of capital accumulation, it is more likely to apply enforcement powers to retard profits in the interest of reducing particular sources of social disharmony.

In many instances it would appear that the enforcement powers necessary to retard the acquisition and abuse of market power reside in state regulatory agencies whose primary responsibility is the promotion of monopoly sector accumulation. Some general consequences of such an allocation of enforcement powers are demonstrated by the role of the Comptroller of the Currency in promoting national bank expansion during the 1960s, a period of substantial merger activity. Early in that decade, federal legislation and Supreme Court rulings stated that bank mergers should not be approved (and could be subject to antitrust prosecution) if community convenience and needs could not be expected to substantially outweigh potential anti-competitive effects [14]. To determine the net impact of a merger, the bank regulator with primary jurisdiction was to solicit advisory opinions from the other bank regulators and the Justice Department. The three bank regulators were the Comptroller, the Federal Reserve and the Federal Deposit In- surance Corporation (FDIC). The regulator of the surviving bank would have primary jurisdiction.

While all three regulators were concerned with maintaining conditions for profitable accumulation, the Comptroller had been placing great emphasis on the need for National banks (the Comptroller's constituency) to expand in powers and size in response to an increased competition from newer non- monetary financial institutions, e.g., thrift institutions. In reviewing merger advisory opinions, a subcommittee of the House Committee on Banking and Currency weighted the pro and con recommendations of each regulator and the Justice Departments by the dollar value of assets involved in the merger. They found that while the weighted percentage of pro-merger recommendations by the Fed and FDIC were close to those of the Justice Department, the weighted percentage of pro-merger recommendations by the Comptroller were more than double those of the Justice Department [15]. Since all agencies viewed the same information, and were interpreting the same legal provisions, it is reasonable to conclude that the Comptroller's relative emphasis on expansion through merger made it less willing to retard national bank acquisition of unlawful powers.

While some of the Comptroller's merger recommendations were sub- sequently overturned (establishing that the powers granted were in fact unlawful), the consequence of its actions was to socialize the costs of

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promoting illegal acts and to require that additional private and public expenditure be made in the interest of enforcement. A secondary consequence was thus to reduce the enforcement resources available for prosecution of other monopoly sector violations.

There is ample reason to believe that the role of the Comptroller in promoting the acquisition of unlawful powers and in protecting the bene- ficiaries of such powers is reproduced in other situations involving regulated industries. As regards mergers, it has been noted that the Justice Depart- ment's concern for promoting competition far exceeds that of industry regulators. At the same time, the Supreme Court has been unwilling to overrule regulators on findings of fact and probable effect since the regulator presumably has more competence than the courts in these matters [16]. Since the majority o f regulated industries define the domain of monopoly sector firms, this situation insulates them from legal strictures on the acquisition of market power. As regards the more general insulation which regulatory commissions provide, Walter Adams has noted that,

. . . the history of these commissions shows that what starts as regulation almost inevitably winds up as protection. The power to license becomes the power to exclude: the regulation of rates, a system of price supports; the surveilance of mergers, an instrument of concentration; and the supervision of business practices, a pretext for harassing the weak, unorganized and the politically undeIprivileged [ 17 ].

To this point we have emphasized structural characteristics which constrain the use of enforcement powers vis-a-vis monopoly sector violators and which, in the interest of legitimacy, often direct them against competitive sector violators. We may now consider the fate of a state agency which could use its enforcement powers to promote the interests of groups which bear the costs of illegal activity in the monopoly sector.

A recent House bill proposed an Agency for Consumer Protection which would bring about several changes in the structure of monopoly sector enforcement. First, it would consolidate the enforcement powers which are currently held by the consumer affairs departments of some 26 state agencies. The primary responsibility of these agencies has generally been the promotion of industry interests. Second, the Agency for Consumer Protect- ion would use these powers to intervene on behalf of consumers in federal agency proceedings and to seek judicial review of agency actions which involve substantial consumer interests. Third, the agency could obtain the information required to effectively promote consumer interests. This inter- rogatory power could only be exercised relative to the 5 percent of firms with $5 million or more in assets, i.e., relative to the firms which define monopoly sector production [ 18].

While the socialized costs of promoting consumer interests would not

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necessarily be increased through passage, the consolidation of powers held and the primary responsibility of the new agency would certainly make the use of enforcement powers against monopoly sector violators more likely. Proponents note that passage would help remedy the lack of true adversary proceedings in the regulatory process; would promote compliance with, and enforcement of, existing laws; and would provide consumers with an access to courts and, thus, with the legal standing necessary to challenge state agency promotion of business interests [19]. With these probable consequences before them, organized business interests successfully contributed to the death of this legislation [20]. We note in passing that a bill to allow consumer class action suits to be brought after a company violated a Federal Trade Commission cease-and-desist order was defeated in the same congressional session [211.

While these consumer interest defeats contribute to the capital accumulation bias in the overall structure of law and enforcement they also reveal that bias and consequently weaken the legitimacy of the state. In the presence of increased organized support for such legislation, it is not un- reasonable to expect that a consumer protection agency will eventually be established, but that its powers will be such as to limit its impact on monopoly sector profits and accumulation.

The Realization of Illegal Potential

Just as monopoly sector production dominates the structure of the United States' economy, it is apparent that monopoly sector enforcement will significantly determine the overall structure of law and enforcement. In considering the correlates of monopoly sector enforcement, we will derive some general conclusions regarding the distribution of illegal incomes among competitive and monopoly sector wealth holders.

An insulation of monopoly sector producers from antitrust enforcement contributes to the conditions generating traditional crime in the competitive sector. Current levels of monopolization are estimated to account for an annual reduction in national income of at least 6 percent [22]. They could, in turn, add 2 percentage points to the basic rate of unemployment, thereby increasing inequality and the incidence of traditional crime [23]. While the wealth status of traditional offenders limits the gains which any single offender can realize, and while the magnitude of income transferred is a small percentage of total competitive sector income, the aggregate income transferred is large relative to competitive sector profits. For example, in 1972 an estimated 12.4 billion dollars was lost to business through traditional crime with a disproportionate percentage of this loss falling on small

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business [24]. This measured loss could be as large as 50 percent of total competitive sector profits. Therefore, enforcement is necessary to sustain competitive sector accumulation and to legitimize the state relative to competitive sector wealth holders in general and the organizers of competitive sector business in particular. We may then draw a conclusion: limited monopoly sector enforcement intensifies criminogenic conditions in the competitive sector and consequently requires that enforcement resources be used to constrain an illegal redistribution of income which victimizes the owners of competitive sector capital [25 ].

While traditional crime imposes a drain on competitive sector profits, antitrust violations by competitive sector business contributes to that sector's profit income. However, as noted above, a disproportionate allocation of enforcement resources to prosecute competitive sector business violations is a corollary of limited monopoly sector enforcement. What makes this socially inefficient allocation acceptable? Since the knowledge that violations have occurred is often consequent on public enforcement, this allocation may contribute to a public impression that competitive sector producers are more prone to engage in illegal activities. This would reduce pressure for monopoly sector enforcement. It would also yield an increased conflict between competitive sector producers (who generally oppose state interference with intra-industry price competition) and a public which stands to gain from enhanced competition.

As a consequence of this use of antitrust powers, monopoly sector firms retain the absolute size and market power which provide a relative insulation from loss due to other production related prosecutions. For example, enforcement of environmental standards may place a relatively large burden on competitive sector profits regardless of the fact that most manufacturing output (and, therefore, much environmental damage) originates in the monopoly sector. First monopoly sector producers can utilize their market power to diminish the impact of enforcement on profits by passing increased costs on as price increases. Second, given the absolute size of monopoly sector producers, effective constraints on their violations of environmental standards are argued to have adverse effects on growth and employment. Thus, state support for enforcement of environmental standards which place a relative burden on the competitive sector becomes a means to promote legitimacy while at the same time diverting enforcement resources and attention from the illegal environmental acts of monopoly sector producers - a result similar to that found in antitrust enforcement.

In general, these arguments support a conclusion that the use of enforcement resources to prosecute violations by competitive sector business is out of proportion to that sector's relative potential for generating illegal returns to wealth. While this tends to reduce realization of competitive sector illegal

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potential, it simultaneously sustains realization of the relatively greater illegal potential possessed by monopoly sector wealth holders. In diminishing an unlawful redistribution which benefits some owners of competitive sector capital, the structure of law and enforcement sustains unlawful re- distributions from competitive to monopoly sector wealth holders.

James O'Conner has argued that increased social expenditures to ameliorate the adverse impacts of monopoly sector growth generate increased strains on the state's budget [26]. In this regard we have seen that the state is required to make social expenditures to ameliorate the impact of limited monopoly sector enforcement on competitive sector business profits, the lir.kage being via increased traditional offenses. We have also seen that expenditures to constrain competitive sector antitrust violations are out of proportion to the relative negative impact of these violations on the efficient employment of social resources. It has been argued elsewhere that the presence of competition, per se, would eventually eliminate the long run gains which result from such violations. If true, then expenditures to constrain competitive sector business violations are also social expenditures in the sense that they purchase legitimacy as opposed to social gain. Taken together, competitive sector wealth holders suffer the costs of crime and the cost of taxation to support social law enforcement expenditures. The existing structure of law enforcement thus intensifies the state's fiscal crises and sustains illegal monopoly sector profit income.

While monopoly sector enforcement is expensive, its impact would be to retard the forces generating such fiscal strain by lowering structural barriers to growth, reducing criminogenic conditions in the competitive sector and, therefore, moderating the need for competitive sector enforcement. William Shepherd has calculated benefit-to-cost ratios for antitrust enforcement under Sector 2 of the Sherman Act, i.e., prosecutions in response to monopolization, attempts to monopolize and combinations or conspiracies to monopolize. The costs considered include the agency costs and the firm's adjustment costs. The benefits include increases in efficiency, innovative activity and equity. The average ratio of long-term benefits to total costs for 7 major cases was 43 to 1 (the high was 67 to 1 ; the low, 4.7 to 1) [27].

While such socially harmful monopoly sector activity restricts the achievement of potential growth and employment, correction through legal sanction has been limited by the political power held within the monopoly sector and the fact that the monopoly sector's role as an engine of growth implies that "excessive" enforcement would yield social harm. Out of this situation emerges the ability of monopoly sector wealth holders to realizeillegal gains.

In sustaining the structural basis for overall inequality in the distribution of income, law and enforcement minimize the difference between potential and realized illegal returns to monopoly sector wealth holders. Gains from

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limited enforcement are distributed as dividend income and as appreciation in the value of equity holdings. Shepherd estimates that current levels o f market power may account for some one-quarter of the total value of corporate stock held by the 4 million top wealth holders and offers the conservative estimate that in any year at least 3 percent of national income is redistributed toward greater inequality because of market power [28] . Since this estimate is based on measures of industrial concentration and the distribution of assets over the corporate sector, we can assume that the majority of this transfer is received by monopoly sector wealth holders. If we were to assume that 50 percent of this redistribution was directed to monopoly sector wealth holders through economic activities in conflict with the intent of existing antitrust law, we would find that over 9 percent of the income reported by the top 5 percent of family income units represented illegal gains. The loss which accompanies this illegal contribution to an unequal distribution of income is borne by the competitive sector wealth holding population. It appears as reductions in the real value of incomes, in increases in unemployment and crime, and in increases in the tax burden required to finance the cost o f welfare and law enforcement.

Notes

1 It should be noted at the outset that criminal, illegal and unlawful will all be used to describe activities which are perceived as imposing damage or social harm and in response to which legal mechanisms of punishment or redress have emerged. Since the characteristics of the legal system are taken to reflect the nature of the political economic order, we make no a priori assumption that acts defined by statute as criminal create more social harm than acts otherwise defined as unlawful. See Sutherland, Edwin H. (1973). On Analyzing Crime, Chicago: University of Chicago Press, p. 63.

2 The basic distinctions between competitive and monopoly sector production are drawn from O'Connor, James (1973). The Fiscal Crisis o f the State, New York: St. Martin's, pp. 13-16. Data on the distribution of corporate assets from U.S. Internal Revenue Service (1970). Statistics o f Income, Corporation Income Tax Returns for 1969. Washington, D.C.: Government Printing Office. Cf. Hunt, E.K. and Howard J. Sherman (1975). Economics: An Introduction to Tra- ditional and Radical Views. New York: Harper and Row, p. 253. Data on oligopolist structure from Kaysen, Carl and Donald F. Turner (1959). Antitrust Policy, Cambridge: Harvard University Press, pp. 26-37. Cf. Scherer F. M. (1970). Industrial Market Structure and Economic Perform- ance, Chicago: Rand McNally, p. 60.

3 Antitrust laws have a traditional presumption in favor of an open economy with a greater dispersal of decision-making centers and economic power. Blake, Harlan M. (1974). "Legislative Proposals for Industrial Concentration," in Goldschmid, Mann and Weston (eds.), Industrial Concentration: The New Learning, p. 360. The growth in market power inhibits achievement of this goal. For an extensive survey of antitrust literature, see Scherer, op. cit. For a discussion of market power, see Shepherd, William G. (1970). Market Power and Economic Welfare, New York: Random House; Shepherd, William G. (1975). The Treatment o f Market Power, New York: Columbia University Press.

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4 The illegal return (or income) to capital equals the value of the stock of capital times the relevant illegal rate of return.

5 Wealth statistics from Projector, Dorothy S. (1964). "Survey of Financial Characteristics of Consumers," Federal Reserve Bulletin 50: 285. Cf. Thurow, Lester C. (1975). Generating Inequality, New York: Basic Books, pp. 5 -14 . Data on corporate ownership from Lampman, Robert J. (1959). "Taxation and the Size Distribution of Income," in U.S. House of Represent- atives, Committee on Ways and Means, Tax Revision Compendium, Vol. 3, Washington, D.C.: Government Printing Office, p. 2237; Cf. Scherer, op. cir.. For additional comparative statistics, see Bates, Timothy (1976). Economic Man as Politician: Neo-classical and Marxist Theories o f Government Behavior, Morristown, N.J.: General Learning Press.

6 For additional discussions of law and the state, see Cloke, Kenneth (1971). "The Economic Basis of Law and State," in Lefcourt, Robert (ed.), Law Against the People, New York: Vintage; and

Kennedy, Mark C. (1970). "Beyond Incrimination," Catalyst No. 5. For structural analyses of the state, see O'Conner, op. cit. and Bates, op. cit.

7 See Scherer, op. cit., pp. 471-473 . 8 Ibid., pp. 424-425. 9 Mann, H. Michael (1973). "A Structuralist Direction for Antitrust: The View of a Policy Advisor,"

presented at the Midwest Conference of the Continuing Legal Education Program of the Minnesota State Bar Association and the University of Minnesota, Minneapolis, Minnesota. See Blake, op. cir. for a discussion of proposals for a more structurally-oriented antitrust law. Note that there is no consensus as to whether the structural characteristics of oligopolistic firms enhance efficiency more or less than they enhance market power.

10 See Scherer, op. cit., pp. 473-487 . For a discussion of the dynamics of innovative circumvention, see Silber, William L. and Kenneth D. Garbade (1976). "Financial Innovation and EFTS: Implications for Regulation," in Committee on Banking, Cuirency and Housing, Compendium o f Papers Prepared for the FINE Study, Washington: Government Printing Office. Since conglomer- ates are combinations of firms operating in dissimilar product markets, the impact of conglomerate mergers on market power could be manifest for example, as increased leverage in money and capital markets.

11 Green, Mark J., et al (1972). The Closed Enterprise System, New York: Grossman, pp. 162-164. Note that jail sentences for price fixing have become more common and that increased fines have been levied on individuals and corporations for this offense. Price fixing, however, is more likely to be practiced by competitive sector firms.

12 Scherer, op. cit., p. 467. 13 See, for example, Clabault, James M. and J .F . Burton (1966). Sherman Act Indictments

1955-1965: A Legal and Economic Analysis, New York: Federal Legal Publications, pp. 36-7; (1968). Cumulative Statistical Supplement to Sherman Act Indictments 1955-1965, New York; Posner, Richard A. (1974). "The Behavior of Administrative Agencies," in Becket and Landes (eds.), Essays in the Economics o f Crime and Punishment. New York: National Bureau of Economic Research and Colombia University Press and Mann, op. cit.

14 See Stelzer, Irwin IVL (1976). Selected Antitrust Cases, Homewood, Illinois: Richard D. Irwin, pp. 367-383.

15 Subcommittee on Domestic Finance, Committee on Banking and Currency (1973). Financial Institutions: Reform and the Public Interest, Washington, D.C.: U.S. Government and Printing Office, pp. 59 -60 .

16 Scherer, op. cit., pp. 488-489 . 17 Adams, Walter (1974). "Corporate Power and Economic Apologetics: A Public Policy Perspective."

in Goldschmid, Mann and Weston (eds.), Industrial Concentration: The New Learning, Boston: Little Brown, p. 374.

18 See H. R. 6805, "A Bill to Establish an Agency for Consumer Protection . . . . . . " 95th Congress, 1 st Session, Union Calendar No. 183.

19 From a letter to Members of Congress, Congress Watch, Washington, D.C., May 31, 1977. 20 Wall Street Journal, November 11, 1977, p. 1. 21 Ibid., "House Rejects Bid for Class-Action Suits Against Firms that Violate FTC Orders," October

14, 1977, p. 4.

186

22 As estimated by Scherer, op. cit., p. 408. 23 Based on a loose interpretation of Okun's Law which states that a 3 percent increase in output will

yield a 1 percentage point reduction in the rate of unemployment. For discussion of inequality and crime, see Gordon, David M. (1971). "Class and the Economics of Crime," Review of Radical Political Economics 3: 50--75; Danziger, S. and D. Wheeler (1975). "The Economics of Crime: Punishment or Income Redistribution," Review of Social Economy 33: 113-131; and Barnett H. C. (1976). "The Economics of Crime: A Comment," Review of Social Economy 34: 86-87.

24 Bureau of Domestic Commerce, U.S. Department of Commerce (1972). The Economic Impact of Crimes Against Business, Washington, D.C.: U.S. Department of Commerce.

25 For additional discussion of these relationships, see Quinney, Richard (1977). Class, State and Crime, New York: David McKay.

26 Strain on the state budget results from the need for revenues to support increased social capital expenditures which underwrite monopoly sector accumulation and to support increased social expenses which ameliorate some of the consequences of growth in tl'e monopoly sector. At the same time, growth in state revenues is constrained by a general resistance to suffer increased taxation (what is commonly referred to as the tax-payer revolt). For an analysis of this fiscal crisis of the state, see O'Conner, op. cir.

27 Shepherd, (1975), op. cit., pp. 314-320. 28 Shepherd, (1970), op. cit., pp. 210-212.

wealth, crime, and capital accumulation

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