What do monopolistic practices and antitrust laws have to do with traffic congestion and commuter woes?
More than you might imagine.
In the late ’30s and ’40s, General Motors, with the help of a few oil and tire companies, purchased electrified mass transit systems in 28 cities. It soon disabled these systems and began to lobby for new highways in the hopes of increasing its sales of vehicles, gasoline, and tires.
Ultimately, the U.S. Justice Department prosecuted these companies for criminal violations of the antitrust law that many called the “economic crime of the century.” But the damage had already been done.
Fifty years after that incident our country is in the grip of monopoly mania. The new American Antitrust Institute (AAI) (202-362-8704) reports that there were 4,728 reportable U.S. merger transactions in 1998 totaling in value over $1.2 trillion. There were 1,529 mergers in 1991.
AAI argues that budgets for the federal antitrust agencies have not accounted for such a large increase in mergers. “Between 1977 and 1997 the total budgets of the FTC and the Antitrust Division decreased by 7 percent in constant dollars, while the GNP grew by 112 percent. Mergers have increased by 550 percent since 1992,” says AAI President, Bert Foer.
The concentration of economic power in a few giant corporate structures has been the stimulus for many populist and progressive revolts in our nation’s history. Republicans authored the first federal antitrust law — the Sherman Act — in 1890. Teddy Roosevelt thundered against the “giant trusts.” Franklin D. Roosevelt assailed the “malefactors of great wealth.”
The trustbusters of yesteryear would be shocked at what has occurred in the past twenty years. ITT chairman Rand Araskog once said that merger mania “has more to do with the self-fulfilling prophecies of some egomaniacal financiers and overwhelming ambition of some investment houses than with business efficiencies. Too many deals are being done because of the ability to do them — not because they have sound economic logic or business validity.”
Mr. Araskog should know. He spent years spinning off subsidiaries of ITT that were cobbled together unwisely. Today mergers proliferate by using inflated stock values to acquire other companies. As Federal Reserve Chairman, Alan Greenspan, told a House Committee recently, many of these large mergers don’t work out. Workers lose their jobs, communities suffer, and consumers pay more and receive less service. In due time, some of these giant companies become too large to be allowed to fail, and the government is expected to bail them out.
Merger mania invites corporate welfare, a growing system of corporate socialism in which the taxpayers are forced to bail out mismanaged corporate giants.
Expanding by purchasing your competition does not create a quality economy. Instead it compromises service, products, and prices. Worse still, it undermines the public’s ability to demand reform and corporate accountability.
Merger mania has become almost ubiquitous. It’s occurring in the drug, telecommunications, airline, defense, auto, energy, electrical, cable, banking, and HMO industries. Will we allow it to continue? Or will we use it as a springboard for populist and progressive revolts?