Trust Buster Wanted
We've all seen over recent months the smiling, self-satisfied faces of corporate
executives announcing yet another multi-billion-dollar business merger.
Last April, it was NationsBank Corp. joining BankAmerica Corp. In June,
it was AT&T combining with TeleCommunications Inc. In August, it was
British Petroleum acquiring Amoco Corp. And in November, it was the marriage
between Exxon and Mobil.
During the past three years, there have been more major consolidations consummated
than in all of the 1980s--itself a merger-mad decade--and the annual aggregate
value of U.S. corporate mergers has doubled over that brief span to a mind-boggling
$1.5 trillion. Since March of last year alone, the top five mergers of all
time, in terms of dollars and people involved, have taken place.
Wall Street has reacted predictably. The record high of 9,374 points achieved
by the Dow Jones average at the end of November was traced by market watchers
directly to nine huge combinations or acquisitions announced over the preceding
weeks. Mobil shares, for instance, promptly jumped 15 percent in the wake
of the oil giant's declared link-up with even larger Exxon.
Less publicized in the business press were the downside effects accompanying
the 1998 mergers. While top executives will receive either handsome pay
packages or golden parachutes, ordinary employees are awaiting the inevitable
pink slips. The NationsBank-BankAmerica deal will cost an estimated 8,000
jobs, the BP-Amoco combine 6,000 jobs, and the Exxon-Mobil unification up
to 20,000 full-time positions.
Stockholders, of course, view these payroll cuts favorably. In the short
run, they stimulate an immediate, if unjustified, up-tick in the involved
firms' stock values on Wall Street. Mergers, especially those accompanied
by substantial employee reductions, have become the quick, easy way to enhanced
market valuations. Forget higher earnings obtained through product improvement
and innovation or better service; simply merge and eliminate redundant and
costly duplicate workers. Then, sit back and watch stocks soar, relieving
the pressure from spoiled and demanding investors conditioned to expect
constant dividend increases regardless of performance levels. No need to
risk capital in an effort to achieve real growth through internal expansion.
The social cost of this economic shortsightedness is enormous. From 1991
to 1995, the American economy lost over 3.3 million jobs to downsizing,
many of them a result of structural consolidations. Since the beginning
of last year, the same pattern has begun to reemerge, even though countless
financial experts assured us not long ago that the era of downsizing was
over. In truth, routine downsizing will end only when the federal government
steps in and ends it by changing the rules of the game. Meanwhile, job reductions
in the U.S. economy are suddenly at their highest level since the recession
of the early 1990s. So far, manufacturing has taken the major hit, with
250,000 positions eliminated nationwide through the end of November, but
the service sector will shortly close the gap.
Employment losses are not the only negative outgrowth of the urge to merge.
Monopoly pricing is another. Consider, for example, that as a result of
recent mergers and acquisitions, the top five grocery chains now control
a third of the nation's retail food market. Or consider that the pending
Exxon-Mobil amalgamation will place up to 20 percent of U.S. gasoline sales
under the aegis of one large company. That kind of economic power, which
is being replicated in virtually all other areas of the economy, can have
only one long-range effect: higher prices for consumers.
This doesn't have to happen. Federal antitrust laws sufficient to prevent
the worst instances of merger mania have been on the books for decades.
The real problem at present lies in enforcement. Preventing mergers and
breaking up monopolies has not really been a government priority for over
The last serious federal "trust buster" was New Dealer Thurman
Arnold, who headed the antitrust division of the Justice Department from
1938 to 1943, actively implementing the antimonopoly laws with a staff of
slightly over 300 lawyers. Since then, the rate of business mergers has
expanded geometrically, but the legal staff charged with monitoring them
has numerically stagnated, actually declining by a quarter under the Reagan-Bush
regime in the name of getting the government "off our backs."
According to the Washington Post, the number of proposed mergers
has doubled in the 1990s (to 3,700 per year), while the antitrust division
maintains approximately the same number of regulatory staffers it had 60
years ago--343 overworked investigators.
A single major case, such as that involving Microsoft Corp., is sufficient
to tie up and exhaust most of the Justice Department's comparatively meagre
legal resources. Meanwhile, merger deals like Exxon-Mobil proceed apace.
It seems absurd that Washington would permit the two largest petroleum refiners
in the country to join hands, but sheer manpower considerations may prevent
an in-depth federal prosecution of the matter.
Such a crackdown, moreover, assumes a desire on the part of the government
to contest the pending oil merger in the first place, a highly questionable
assumption. Since the last great anti-monopoly crusade in the 1930s, strict
application of the nation's antitrust laws has become unfashionable. Presidents
of both major parties have ceased to view the growth of big business as
a threat, but rather as the key to industrial stability. The production
needs of the late Cold War and the increased reliance on corporate funding
of political campaigns have only reinforced this view in recent times--to
the point where prominent economist John Kenneth Galbraith was moved to
tell Congress in 1967 that U.S. antitrust policy was essentially a "charade."
Even nominally Democratic administrations like Bill Clinton's have given
anti-merger activity little more than symbolic lip service, basically rubber-stamping
the latest consolidation craze.
Fortunately for the American people, a strengthened Clayton Antitrust Act
is in place to control merger mania, if only our political leadership will
use it. As amended in 1950 by populist Democratic Senator Estes Kefauver's
anti-merger provision, the 1914 law empowers the Federal Trade Commission
and the Department of Justice to forbid the acquisition by one corporation
of the shares or assets of another, if such action would substantially lessen
competition or tend towards monopoly.
The Clayton Act could (and should) be buttressed even further. Louis M.
Kohlmeier, Jr., a Pulitzer Prize winning reporter for the Wall Street
Journal, proposed one needed addition in an important (but largely forgotten)
1969 book, The Regulators: Watchdog Agencies and the Public Interest.
Drawing on years of observing federal regulation of business from a consumer
interest standpoint, he called for an outright ban on all mergers involving
"significant competitors-direct, indirect or potential," defined
as those where one partner's annual sales or assets exceeded $100 million
in 1969 dollars. (A comparable figure today would no doubt be in the billions.)
Kohlmeier's reform, combined with serious enforcement of existing anti-merger
law, would go a long way in reversing the current trend toward bigness for
its own sake. Left unchecked, the mega-mergers that have come to characterize
the late 1990s will not only imperil the livelihoods of hundreds of thousands
of additional workers, but will create a predatory environment in which
a few giant conglomerates control all aspects of American economic life.
The result could be a world few of us would care to inhabit.
Wayne O'Leary is a writer in Orono, Maine.
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