Weighing the impact of recent company mergers on US economy
How are megamergers affecting Americans economically - either as consumers, workers, or society as a whole? It is difficult to tell. So far during the current merger spree, any ill effects on society as a whole have been difficult to pin down.
In some industries - steel, in particular - mergers have saved factories from collapse. In other industries - oil, for instance - workers stand to lose jobs and plants may be shut down.
The overall economic impact of mergers is an open question.
At the time of the Socal-Gulf deal, many financial analysts predicted that the $13.2 billion in capital that was going into the deal - coming on the heels of the $10.1 billion Texaco purchase of Getty - would further tighten the already crimped credit markets.
Since then it has seemed that this borrowing helped accelerate the early-April rise in the prime interest rate. But the huge federal budget deficit has played an equal part, economists say.
Lief H. Olsen, chairman of Citibank's economic policy commitee, argues that the Standard Oil of California (Socal)-Gulf deal ''may seem very large in absolute terms, but when placed in the context of our extraordinarily large and efficient capital markets, it can be accommodated quickly without any meaningful interest-rate effect and without any deprivation to other borrowers.''
Because it is a financial transaction and not an investment in bricks, mortar , machinery, or new automobiles, Mr. Olsen says, Socal's borrowing ''would pass swiftly to the shareholders of Gulf (and) they would use those proceeds to buy other stocks and bonds.'' Early returns from the Texaco-Getty deal indicate that many stockholders are reinvesting their windfall in stocks and money-market accounts.
That's good news for banks and brokerage firms. Injured parties, however, might include workers who are displaced when their company is bought and communities that lose factories, jobs, and tax revenue when a bought-out plant is relocated. This varies from merger to merger.
There is little evidence, however, that the recent mergers have caused higher prices for gasoline, autos, steel, textiles, or goods and services in general.
Many economists argue that alternatives to big mergers would be the erection of tariff barriers or the more frequent use of government bailouts. These could, they say, drive up prices and taxes; certainly such protectionism would limit diversity in the market place.
''Quotas will result in higher prices, inflation, and more steel substitutes and will isolate steel companies from the adjustments needed to keep competitive ,'' Commerce Secretary Malcolm Baldrigesays.
Mergers, on the other hand, ''are often a way of increasing cost efficiency, '' Gulf Oil officials told Congress recently. ''Mergers reallocate resources to more valuable uses.''
Some economists, however, note that Socal's high debts from its purchase of Gulf will have to be paid back somehow and that the money might well come out of its exploration fund. But Socal chief George M. Keller promised Congress that the merger would not drive up gasoline prices or hurt the search for oil. (To a deficit-worried Congress, Mr. Keller also pointed out that $2 billion of the $13 .2 billion would go into federal and state coffers as taxes.)
There are other types of costs, however - as Mr. Keller recently admitted. Ten to 15 percent of the 60,000 employees working for the combined Socal-Gulf company may lose their jobs. Not only would there be displaced workers, but the loss of jobs would hurt Pittsburgh, where Gulf's corporate headquarters is located.
It is usually in the area of jobs that the debit is made in one of these gigantic transactions.
What is the cost of unemployment? Of social dislocation? According to the arguments of federal antitrust officials, whatever the cost is - and however the social adjustment is to be made - it should be addressed through means other than antitrust policy.
''We seem to have answered once and for all in the negative the question whether antitrust is the proper means of dealing with social and political - real or imaginary - problems created by mergers,'' says J. Paul McGrath, assistant US attorney general for antitrust. ''It is now clear that anti-trust law cannot, for example, provide a reasonable standard for weighing the social dislocation caused by the closing of an inefficient plant in one community, as compared with the probable increase in social welfare caused by a more efficient plant in another.''
Other laws must address the impact of mergers on consumers, on workers, on society as a whole, he says.
Assailing ''big business'' as uncaring and profit-oriented has often been a populist political strategy.
''It is the trusts which limit production, or which, without limiting production, take advantage of the lack of government control, and eliminate competition by combining to control the market, that cause an increase in the cost of living,'' Teddy Roosevelt told delegates to the Progressive (Bull Moose) Party convention in August 1912.
Worried that by merging and eliminating competition ''trusts'' were threatening the economic and political health of the country, Roosevelt earlier used the bully pulpit of the presidency to campaign against such market-cornering megacorporations as John D. Rockefeller's Standard Oil.
The Reagan administration is more lenient on mergers than the Carter administration was, but even during the Carter years the advent of a more laissez faire attitude was evident.
Merger momentum might slow if a presidency that emphasizes protectionism more than free trade enters the White House.
But the change of thinking that embraces today's more relaxed antitrust attitude embraces Democrats as well as Republicans. The tide runs deep - as does the change in the world's economy towards greater interdependence.
Greed and ambition can be involved in megamergers. But by and large, economists hold the view that companies are born, grow larger, and often feel the need to unite in order to prosper or simply to survive in a competitive world economy. New companies usually come along, and competition usually sorts things out.
Even trustbuster Roosevelt noted that the ''combination of capital, like combination of labor, is a necessary element of our present industrial system.''
The first two ran April 27th and 30th.