Wednesday, February 13, 2013

Merger Mania

Lately I've noticed a trend that seems to be growing. I wasn't planning on writing about this, but today I see this headline: American, US Airways boards OK merger to create world's largest airline, meaning I guess the universe is telling me to mention it.

One of the few perks of being an architect is that building products companies will buy everyone in your firm a lunch while they do a presentation about their products. It's called a "lunch and learn," and it's written off by companies as a business expense (whether it should be is another matter). They also typically combine that with a lecture session by which you can earn the continuing education credits you need to keep your license.

We typically have one of these a week, and over the last few years a marked trend that is so noticeable as to be impossible to ignore is the merger in nearly every area of multiple companies into just one or two giant conglomerates. It's fair to say that if there are a handful of major competitors in any market, before long most of them will be combined into one. Now, it's doubtful that people who don't interact with the construction industry are aware of this trend, or care. Certainly the people drooling in front of FOX News won't hear about it. But it's one of the many unheralded stories taking place outside of a media spotlight focused on political infighting, show business, hot-button social issues, and sensationalism rather than information.

So, for example, let's say the market for, I don't know, bricks, is dominated by BrickCo Brick Company, The Bricksman Corporation, and Butter-and-Stack Industries. You may have dealt with all these in the past, and even heard presentations from all of them at some point. But today, you'll be hearing from the BrickCo-Stack-Bricksman Corporation, and all the wonderful new products they have on offer.

It seems like every lunch presentation now starts off with a list of mergers. To be specific, today's lunch and learn was from Clark Dietrich Building Systems, makers of fine steel studs and related products. I wasn't paying enough attention to get this exactly right, so forgive the inaccuracies, but the presenter said something about 11 companies in 2001 merging down to just two (ClarkWestern Building Systems and Dietrich Metal Framing), finally merging together in 2011 to form Clark Dietrich. If you're interested in more details of these mergers, they have a handy chart on their Web site.

And they're hardly alone. It really doesn't shock us anymore when our product representatives suddenly work for a different company without ever changing jobs. These kinds of mega-mergers are the norm. Suddenly, two products which you might have specified as competitors end up owned by the same company. They may not be as noticeable as American and United Airlines, but it is happening everywhere, and at a faster rate than ever.

The other trend is the "octopus company," the one company that has about a hundred different brands. You think you're buying from different companies, but all your money's flowing to the apex of the pyramid. Exhibit A: Ingersoll Rand. Hop on over and look at how many brand names they control. Exhibit B: Georgia-Pacific. Hop on over there to see how much of the construction industry ends up in the pockets of the Koch Brothers. Exhibit C: RPM International. I didn't even realize how many brands were ultimately owned by them until just now. Or how about SikaSarnafil? Yes, they also used to be two companies; now it's owned by the Sika Group out of Switzerland. That's just off the top of my head. I'm willing to bet that most people reading this have never heard of any of those companies. Yet their products are in some way a part of your life and the world around you.

These companies straddle the globe, and ownership truly knows no borders. All the money from the thousands of products these brands sell all over the world ultimately ends up in the hands of small elite of international investors. And don't hand me the line about grandma's pension fund.

So what's the point I'm trying to make? What does all this consolidation mean? I'm glad you asked. Simple logic tells us that it means 1.) a concentration of wealth in the hands of fewer and fewer people, 2.) more control over the market and less competition, and 3.) drastically reduced job opportunities as competitors are forced out. And what are the major trends in the world today? Greater and greater wealth in fewer and fewer hands, and less and less employment for the masses. Now you can understand why it's happening. This is the thesis of Barry Long's book Cornered: The New Monopoly Capitalism and the Economics of Destruction. It's one thing to read about it in the abstract. But it's quite another when you see it first hand every week while you're eating your Potbelly or Jimmy John's.

The massive consolidation in all sectors of the economy is a trend that's not getting enough attention. Why is it happening? I think it's simple - as the economy slows down and the rate of profits decline, companies merge to keep profits high by controlling entire sectors of the economy. That can explain an often-cited contradiction - if the rate of profit is declining, why are overall corporate profits at all-time highs? Because of mergers and consolidation. The profits from ten little companies are all rolled into one giant one. Unfortunately for workers, the jobs that those ten companies might have created are now only created by a single company. And the profit and the jobs are global, leading to a small caste of international winners, even as entire nations fall into disrepair. This is a major factor that's being ignored in my opinion.

What are the perils and the promise? Perhaps entire sectors of the economy consolidating into single companies means it will be easier for workers to seize control, as Marx predicted. After all once competition is eliminated, why do these companies even need to be private? Or perhaps they will take the role of medieval lords in new variety of corporate neofeudalism, where one's rights are exclusively dependant upon your recourse to these powerful entities rather than guaranteed as a citizen of a nation state.

I guess I learned more from lunch and learns than what I was expecting.

1 comment:

  1. Great post.

    Here's a good "illusion of choice" graphic for the food industry:


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