Why are companies merging?The corporations and the media give a number of reasons for the recent frenzy of mergers in the United States and across the world. One or more of these factors contribute to each merger.
What's wrong with mergers?
- Size - In many industries, especially banking, telecommunications and oil, there is a belief that the future will be dominated by a small number of giant transnational corporations. A large corporation today feels that it needs to merge with another to keep in the top two or three largest; the theory goes that any smaller companies will gradually lose market share.
- Power - This is related to size, but larger companies have more political and economic power to effect changes in regulation, trade policy and prices.
- Access to Markets - Companies which operate in different geographic areas or industries may merge to gain access to the other company's market. The theory goes that the combined corporation can sell to both markets with a slimmer structure.
- Overcapacity - due to increased efficiency (due to technological and other factors) and building of new plants in low-wage countries, many industries have the capacity to produce much more than the world markets can purchase. The gap in supply and demand is also partly due to the widespread inequities in wealth; in most countries, poorly-paid workers simply do not make enough money to buy the goods being produced. Mergers allow the combined company to cut overlapping jobs and reduce costs to try to be profitable with less revenue.
- Shrinking markets - In other industries, such as the weapons industry, a slowdown in buying has left companies with an excessive manufacturing capacity and management structure. By merging, they can eliminate some of the overhead and combine the income of the two companies. The American defense industry has seen a dramatic consolidation from dozens of military contractors down to just a few primary ones.
The problem with mergers is that they reduce competition and create even larger, more powerful transnational companies. Merger news is often accompanied with corporate-speak explaining how the larger company actually increases competition by creating a bigger company which can compete with some other big company, but it is intuitively obvious that the merger trend is reducing the number of choices for consumers.
The problem with giant transnational companies is that they usurp power from communities and democratically-elected governments, replacing a process by which policy can be made by community input, with policy made by corporate executives. With factories, offices and stores around the world, corporate heads often make decisions affecting people across the globe without the least bit of familiarity with, or concern for, the social impact of the moves. In addition to actual operating policy, companies use their lobbying power and threats of plant closings to gain favorable tax, trade and regulatory actions from governments, avoid enforcement of environmental controls, and win wage and safety concessions from workers. Corporate decisions are based on maximizing profits, with minimal concern for social welfare, and as companies get larger, their investors and executives are even further removed from the effects of their policy.
The short term effect of most mergers are a loss of jobs, and reduced competition in the marketplace. The ironic result of many mergers is that the combined corporation struggles and often fares more poorly than the individual companies may have (see "The Synergy Trap: How Companies Lose the Acquisition Game" by Mark Sirower [Simon and Schuster, 1997]). The merged company is usually saddled with debt from the merger (acquisition costs, or costs of closing plants and firing workers), the cost of merging the administrative and technological operations of the companies, and ill will from consumers.
What can we do about it?In real life, it's not so easy to fight corporate mergers and transnational giants. The normal levers that people have to use to govern our society are often ineffective against large, ever-growing corporations. The corporate lobbying power, control of the media, campaign contributions and backroom bullying tend to overpower the democratic process. Citizens, consumers and workers have much less influence over the corporations than their investors and the global financial markets. With a great deal of organization and outcry, boycotts, strikes and political pressure can force changes in corporate policy.
However, there are also ways to fight the dominance of global corporations with your everyday decisions. You can support local businesses in your own community, keep an eye on corporate welfare and big money campaign contributions, and watch for treaties and legislation that supports and encourages larger and larger corporations. There are also events such as the World Trade Organization Meeting in Seattle where you can stand up and join the resistance.
For more information, see
- Corporate Watch - an online magazine and resource center designed to provide you--every day Internet users--activists, journalists, students, teachers and policy makers--with an array of tools to investigate and analyze corporate activity.
- Multinational Monitor - publishes a magazine and website tracking corporate activity, especially in the Third World, focusing on the export of hazardous substances, worker health and safety, labor union issues and the environment.
- Project Underground - an environmental and human rights organization that supporting communities facing mining, oil and gas activities, primarily by transnational corporations.
STARC (STudent Alliance to Reform Corporations) is a student movement for corporate accountability, including a campaign to make sure universities invest responsibly.
