Monday, August 02, 2004

Of National Commissions. And Antitrust. And Mergers

Dear Colleagues:

Whenever a national commission is needed, ofttimes but not always after some disaster, it seems that it is populated by members of the establishment. Outsiders, and people who are very competent but do not have some form of celebrity, are not wanted. I suppose the reasons can be many; one often hears that the establishment members who are put on national commissions are experts, have experience, etc. I suspect that there is another, more vital and usually unspoken reason: they are safe. They will not rock the boat or, if the situation gives them no option but to rock it, they will do so only within limits.


This seems to be the story of the 9/11 Commission (one of whose original cochairs was Henry Kissinger, you may remember). The 9/11 Commission’s members were all members of the establishment and, with only one possible exception, were leading members of it.


Given the Commission’s recommendations, one’s immediate reaction to what was said above is that it did rock the boat. And yet there are those who say -- I think with good reason -- that it followed the Washington game of rarely if ever accusing individuals of being at fault. That would rock the establishment boat too much, critics say. The Commission instead finds institutions to be at fault. (Apparently we have fault filled institutions run and populated by faultless individuals.) There are also those who say the Commission overlooked (or tossed aside) chances to find out more about the Saudi Arabian connection -- that could really rock the boat, because the connection goes right into the present and a past Oval Office.


The incompleteness of the work, and the non-boat rocking, of an establishment-populated national commission did not commence with the 9/11 Commission, of course. In my adult lifetime, the same phenomena characterized the Warren Commission. And I gather that, before I even remember having learned to read, it also characterized the group or commission which investigated Pearl Harbor.


We are now about to see the same phenomena occur yet again with regard to another national commission. This commission is not one that is widely known -- in fact, I would bet that 99.99 percent of our citizens don’t know of it at all. Nor is it dealing with matters of the same world shaking character as 9/11, the Kennedy assassination, or Pearl Harbor. Yet it is dealing with matters of fundamental importance to our economy (though right wingers who hate antitrust would not agree).


The commission in mind is the Antitrust Modernization Commission ("AMC"). It was created because of Congressman James Sensenbrenner, has twelve members evenly divided between Democrats and Republicans, is comprised of members of the antitrust law establishment, and therefore consists almost exclusively of people who are or were from big law firms where they defended big companies. This Antitrust Commission held its first meeting on July 15th, and precisely what issues it will address is still unknown, except that it likely will study three issues that Sensenbrenner is concerned about: intellectual property and antitrust, antitrust and the global economy, and the antitrust role of state attorneys general.



Because of who the members of the Commission are (you can look them up on line at http://www.amc.gov/ and mailto:info@amc.gov) there seems to me little or no chance that the AMC will do anything except suggest further weakening of the antitrust laws. That is the way things have been going for the last 35 years or so (due in major part to the influence of the Chicago School of economics), and the commissioners have "grown up," so to speak, under that kind of intellectual regime. Nor would one think there is any possibility that the Commission would even consider or discuss, let alone favor, one particular change that would do major good: a change in the law to outlaw almost all mergers of any type. That change is just too much of a rupture with the way things are going, with the intellectual milieu of the last 35 years, which strongly favors disasters such as the Time Warner/AOL merger, and with the desires and even the beliefs of the plutocracy that runs this country in its own interest and to the detriment of us commoners.


I could, of course, explain from scratch why I hold such heretical views. But my patience being exhausted after 40 years or so, I shall simply quote instead from two sources. One source is an Introduction to an 89 page issue of an intellectual magazine, called The Long Term View, that was devoted entirely to a dozen articles and interviews on the subject of Bigness Is Badness. The other source is from a fictional, quite serious book entitled Trail of Tears that will be published next January. (Trail of Tears is the second volume of a quartet called Thine Alabaster Cities Gleam.)


Here is what was said in the Introduction to the issue of LTV on Bigness Is Badness.


I first did antitrust work in 1964 -- 38 years ago. I have been active in the field in perhaps half the years since then. From the time I began in antitrust, or perhaps starting shortly afterwards, one would regularly hear the phrase, "Bigness is not badness." This never seemed right to me, doubtlessly because of the contrary influence of two brilliant Justices, Louis D. Brandeis and William O. Douglas. Yet "bigness is not badness" is a philosophy that swept the field of economics and the field of antitrust law. It carried the federal judiciary and American politicians. It supported wave after wave of mergers in which huge companies became gigantic, and it supported increases in corporate size, without mergers, that caused companies to become elephant-sized.


There never really was any proof that bigness is not badness, that bigness is, in fact, good. Rather, the alleged benefits of gigantic size were mainly matters of theory. They were a propaganda triumph of academics, and of lawyers and investment bankers who benefitted when companies grew gigantic by merger or otherwise. I once asked a former head of the Antitrust Division, who was one of the believers, whether he had any factual proof that large mergers benefitted the economy. His answer was no.


Ideas from the University of Chicago once were called "a triumph of theory over fact." So it was here, where the so-called "Chicago School" had much to do with the overthrow of Brandeis and Douglas.


For nearly two generations now, the idea that "bigness is not badness" has prevailed. But of late questions have been raised that ought to cause a reassessment of the role and value of gigantic corporate size. Many of these questions are discussed in this issue of LTV. The questions include economic ones of efficiency and maximizing economic benefit. But they also include ones, as Brandeis and Douglas realized, that involve political power in this country.

And here is what is said in Trail of Tears:

Conglomerate Corporation, called Conco, was one of the three most regular and lucrative clients that Crider, Rogers had. Conco had started in the 1950s, when its founder, after returning from the war, had built a small grocery chain in Detroit and had then used the chain’s accumulated cash to buy a small autoparts manufacturer. From there Conco grew and grew and grew by acquisition after acquisition after acquisition. By the late 1970s and early 1980s, it was a mammoth conglomerate which owned more than 200 companies of every imaginable type. Its companies ranged from computer manufacturers, to automobile and jet engine manufacturers, to airport operators, to the world’s largest manufacturer of nails, to automated pig farms in North Carolina and Iowa.


Conco, with its unending stream of unrelated acquisitions, was the kind of company which had led Art Buchwald to once write a column in which he described the merger movement as continuously proceeding until, at the end, there were only two companies left in the United States, one east of the Mississippi and one west of the Mississippi. And then those two merged, said Buchwald. It was the kind of company which, because also typified by Gulf & Western, had led one nationally syndicated cartoonist to call such a company "Engulf and Devour" in his cartoons.


These kinds of companies were and are symptomatic of the merger movement which occurs regularly in American society, which occurs every ten or twenty years or so. A wave of mergers takes center stage. Corporate takeover artists, their investment bankers and their lawyers, all of whom make piles of money from mergers (although not all the piles are equal -- some are much higher than others) defend this with a host of rationalizations. So do shill economists. Allegedly, businesses will be run more efficiently, as new techniques are forced on companies and the slothful go to the wall. Excess capacity and excess capital employed in an industry will be liquidated, making the industry more efficient and its roducts or services cheaper. A conglomerate will be better able to withstand economic cycles, because some of its product lines will do well when others do badly. There can be cross selling of products, as, for example, when TV companies urge you to buy their books, which tell you about their movies, which advertise their websites. To facilitate all of this, plants and companies are closed down to obtain efficiency, people who have worked in a place for 30 years are left with no jobs or savings, towns are destroyed, legislators and executive officials don’t stop any of this because they are bought off, usually by campaign contributions, and judges don’t stop it either because they have been brainwashed by all the lawyers, investment bankers and economists who are bought and paid for by the ergermeisters and who live and move in the same circles as the judges.


Then, in the long run, the whole thing usually falls apart because of business incompetence, lack of knowledge of new businesses, vastly differing corporate cultures, increased inefficiencies, fights for position, greed, and the rest of the catalogue of sins. The companies that were bought begin to be sold off, so that the investment bankers and the lawyers make more money. And then it is time, or maybe in the meanwhile it became time, for a new merger movement to begin, in which the whole cycle repeats itself, and the pro-merger propaganda again floods the nation though it lacks any basis in fact.

The foregoing quotations say nearly everything this author has to say about
gargantuan size in corporations and about the mergers that often produce it. One
thing you may rest assured of, however, is that these kinds of ideas will never
appear in the report of the new Antitrust Commission, regardless of how true
they may be. For no matter their possible truth, heresies of this nature, which
run deeply contrary to the main intellectual currents of their age, do not
appear in the reports of good, gray, safe national commissions.*





*If you wish to respond to this email/blog, please email your response to me at Velvel@MSLaw.edu. Your response may be posted on the blog if you have no objection; please tell me if you do object.

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