COMMENT: by Bob BrowningNews Weekly
Globalisation + monopolies = a less free market
, December 2, 2000
Bob Browning argues that globalisation, far from producing a free market, leads to greater and greater concentrations of wealth, in fewer and fewer hands.
Will history remember "globalisation" as a time when free trade, wealth production, consumer sovereignty and living standards blossomed? Or as a time when corporations and the financial class greatly increased their economic and political power?
Over the last three years, corporate managements have spent around $4.8 trillion on company acquisitions in the US alone as Fortune 500 corporations swallow each other up in a rush to conglomerate.
Consider the component manufacturing industry for example. In less than a year, one big US corporation, AlliedSignal, acquired another, Honeywell.
When the acquisition failed to quickly produce the profits that shareholders wanted, the new Honeywell merged with yet another giant, United Technologies Corporation.
No sooner had that union been consummated, than an even bigger fish, General Electric, snapped up the lot for a cool $43 billion.
The financial media reported this mega-merger more or less routinely. According to the. New York Times it was just one of "an almost weekly series of deals in the US, Europe and Asia, as companies jockey to dominate their industries, not just at home but everywhere in the world."
Not even the speed and $43 billion size of the G.E.-Honeywell conglomeration rated it exceptional. Citigroup, ExxonMobil, and DaimlerChrysler had already been down that road. Time Warner and America Online and many others were in the process of doing so.
The only question financial circles seemed to think worth asking was whether the money spent on such take-overs was worth it. Would the mega-mergers produce profits as big as fund managers and shareholders expected?
However, other issues need to be raised. According to the US Census Bureau the biggest companies in nearly every industry during the 1990s have increased their share of their industry's revenue.
Why have governments in the US and elsewhere not stepped in to protect diversity and competition? The move to control Microsoft was more an exception than the rule.
Major political parties in developed countries increasingly rely on corporate funding for electioneering. Governments depend on corporations and capital markets for foreign investment. Does this explain the benign attitude of governments to oligopolies? All major political parties these days share an ideological orthodoxy that favours corporations and the rentier class.
Also notable has been the comparative lack of industrial action and popular protest. As the New York Times' Louis Uchitelle remarked (NYT, 5 November, 2000): "Not since the 1890's have mergers so extensively concentrated corporate market power... Yet as the new corporate giants emerge and intrude on people's lives, there is none of the anti-trust crusading of Teddy Roosevelt's day, and little of the populist reaction".
One of the main reasons for corporate merging is to cut costs. Mergers almost always lead to sackings and redundancies. Why has industrial reaction been so muted?
The Age's Kenneth Davidson believes (19 November, 2000) globalisation and associated neo-liberal policies over the past few decades have eroded workers' bargaining power: "The US labor market was effectively deunionised during the 1980s. Between 1979 and 1997, real wages fell in the US. The fruits of rising labor productivity were channelled into profits and a rising share market."Justifications
Corporation-funded think tanks justify oligopoly by arguing that globalisation makes mergers inevitable. Mergers, they say, enable companies to implement economies of scale. It allows firms to "vertically integrate - that is, own and manage all the operations in the productive process.
Combining customer bases and eliminating redundant personnel cuts costs. Saved resources, it is claimed, go to research and development, capital investment, and other productivity-promoting efficiencies.
In the global economic age, corporations believe they cannot become internationally competitive without mergers.
Policy orthodoxy among governments of advanced trading countries seems to support the view that globalisation requires not just big, but huge (but lean) players. A former anti-trust division chief of the US Justice Department told Uchitelle, for example: "We understand that companies have to be of sufficient size and scope to play in the global market place".
Critics offer more sceptical reasons why merger mania is so prevalent. Corporate executives like the status and princely salary packages that go with managing big corporations.
Bankers like the profits they make from financing the mega-deals. Shareholders like the way take-overs raise share prices (at least during the bidding period). Finance industry workers like the employment and pay rates that merger and associated funding activity creates.Excess capacity
There is, however, another important factor motivating mergers - the worldwide problem of excess capacity. Modern technology and capital investment give industry the ability to produce more than even global demand can consume.
Enormous capital has already been invested in existing plant. But people either do not want, or cannot afford to buy, as much of the goods and services as existing industry is capable of producing. Cars, foods, books are but some examples.
The worldwide phenomenon of excess capacity squeezes profitability. Standard & Poor's told the NYT that "mergers are a popular means of reducing capacity. The only way to really make a profit is to consolidate."
However, reducing capacity by swallowing competitors does have a serious downside. It reduces the number of operators, concentrates control of industries and market power in fewer hands.
Uchitelle questions whether the new giant players will continue to compete in earnest, and merely "stabilise" prices as neo-liberal supporters claim.
Or will they achieve: "enough concentration of corporate power to push up prices - in effect, fix them - by controlling output? The second idea would violate antitrust law, but the first is clearly the view of the industry's executives, and so far, at least, of the antitrust authorities.
Another problem is that corporations have borrowed hugely to conduct company buy-outs and share buy-backs to become global. The assumption is that conglomerates will prove more efficient and profitable. But what if they don't?
Bankruptcy of an industry-dominating mega-corporation could amount to an economic crisis. Governments may not be able to allow them to fail, as market theory say they should. Taxpayer-funded bail-outs may be unavoidable.More important questions
There are still other and more important questions to ask - not just economic questions, but issues of political, social and cultural significance. What effect will all this have on democracy and national sovereignty, on popular culture and public morality?
Corporate CEOs like Chainsaw Al and financial operators like Robert Milliken are not the class of people most citizens would immediately select to wield more power over their lives, and with less accountability.
Managers of corporate giants in industries ranging from tobacco and oil to music and magazine publishing have not always set a high standard of public morality and social responsibility.