The partners in recent corporate mergers have been true titans, with names like Chrysler and Daimler-Benz, or Ameritech and SBC Communications, or Travelers and Citicorp.
The money involved–$70 billion here, $56 billion there–is eye-popping in itself.
But does this urge to merge mean anything bad, or even important, for the American economy? Will the mergers hurt consumers, drive up prices, or throttle competition? Or are they part of an inevitable trend dictated by the growth of a global economy, as companies gird to fight competitive wars on a global battlefield?
For all the drama, the answers are not obvious.
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But the mergers–nearly $375 billion worth in the past six weeks–have generated enough public and congressional concern that President Clinton responded Wednesday by establishing a top-level panel to study their impact on the economy.
Presidential concern does not necessarily mean alarm. There was no hint that the panel is a prelude to official opposition to any of the mergers or new legislation to slow the trend.
“When there is a major trend like this in American business, there is a presumption that you need to take a look at it,” a White House official said. “There is not a presumption that you need to act.”
Experts agreed that the formation of the panel was at least partly political window-dressing, designed to show the public and Congress that Clinton is watching. But the effect on the economy of the series of big mergers, such as the takeover announced this week of Chicago-based Ameritech Corp. by SBC Communications Inc. of San Antonio, is a legitimate subject for government study, they said.
“It’s only 15 years ago that we broke up Ma Bell and now here we are putting it back together again,” said Lawrence Chimerine, chief economist of the Economic Strategy Institute in Washington. “So it’s a legitimate question to ask: Where are we going?”
The panel will be headed by Gene Sperling, chairman of the National Economic Council, and will include Treasury Secretary Robert Rubin; his deputy, Lawrence Summers; Council of Economic Advisers Chairwoman Janet Yellen, and Commerce Secretary William Daley.
Clinton formed the panel in the wake of a dramatic series of mergers–$260 billion worth of them in April, a one-month record, and another $114 billion this month.
It’s not as though the government has ignored the mergers. A phalanx of federal agencies–the Federal Trade Commission, for instance, or the antitrust division of the Justice Department or the Federal Reserve–all have experts working full-time on antitrust issues.
But these agencies look at the narrower, legal aspects of antitrust law, whether a merger may be legal but not whether it’s bad for the economy. The White House group will study this broader issue. “They will take a look and see whether we’re increasing competition and improving American industry,” said the White House official, who requested anonymity. “It’s not meant to look at individual mergers. We’ll leave that to the regulatory agencies.”
These agencies already are overworked. The Justice Department’s antitrust division, for instance, has about 500 employees, about as many as a middling law firm. The giant corporations involved in many of the mergers can field legal teams far stronger than their watchdogs.
Some of the mergers already are receiving legal scrutiny.
The Justice Department, citing antitrust violations, sued Tuesday to block plans by MCI Communications Corp. and Rupert Murdoch’s News Corp. to merge their satellite TV company with a partnership owned by major cable TV firms.
The department and more than a dozen states also are considering filing antitrust lawsuits against Microsoft Corp., accusing it of using unfair practices to protect the near monopoly of Microsoft’s operating-system software and to leverage that position into related markets. The Justice Department’s decision on whether to sue Microsoft could come Thursday.
The big mergers have come thick and fast. Travelers Group Inc. and Citicorp agreed last month to a $70 billion combination of financial-services titans. Daimler-Benz AG announced last week it will buy Chrysler Corp. for more than $40 billion.
The SBC takeover of Ameritech for $56 billion was announced Monday; if completed, it would create the country’s biggest telephone company.
As big as it was, SBC-Ameritech wasn’t the only big merger this week. Energy service company Baker Hughes Inc. agreed to buy Western Atlantic Inc. for about $5.5 billion in stock. Monsanto Co. announced plans to acquire seed companies Dekalb Genetics Corp. and Delta & Pine Land Co. for a combined $4 billion.
The White House group will ask whether such deals strangle trade or hurt consumers by raising prices.
Chimerine said mergers could make U.S. firms more competitive globally without creating monopolies. “There are some benefits from size, and you could see lower prices rather than higher ones,” he said. “We’re still at an early stage, and there’s enough foreign competition so the trend isn’t necessarily bad.”
Lester Thurow, economics professor at the Massachusetts Institute of Technology, said the trend has less to do with monopoly than the creation of global firms within a global economy.
A wave of mergers at the end of the 19th Century marked the transition from local to national companies, Thurow said.
“Now we’re going from national to global companies,” he said. “But I don’t think this is a sign of any monopoly power being created.”
Although a true monopoly could drive up prices, one force behind the deals– especially in the auto industry–is falling prices, with excess capacity and, possibly, too many firms. Deflation has replaced inflation as many economists’ fear.
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As the economy becomes more global, Thurow said, national authorities are going to find themselves with fewer weapons to fight the trend. This is one reason why the White House panel may end up being more a discussion group than a legislative or legal force.
“I suspect,” he said, “that they’re trying to head off some (public) outcry about something that we really can’t do anything about.”