Democracy and Megacorporations May Be Mutually Exclusive
The era of big government may be over, as the president says, but the era of corporate giantism seems only to have just begun.
The proposed Daimler-Benz deal with Chrysler will be the biggest industrial merger in history. America’s banks are joining up at a record pace, as are defense contractors and telecommunications behemoths. SBC just announced its decision to acquire Ameritech. Compaq’s merger with Digital will be the largest in the history of the computer industry.
The nation is in the midst of an economic consolidation even more dramatic than that which occurred more than a century ago when vast empires were created in railroads, steel, iron and oil--and when the antitrust laws were first put into place to stop corporate giantism.
Our forebears cared then. Should we be concerned now?
There have been two strands to America’s historic concern about corporate bigness. The first was political. It was the fear that large concentrations of economic power might undermine democracy. The second has been economic. It’s that business leviathans might get so large that they squeeze out competitors, after which they raise prices and stifle innovation.
The first strand animated the antitrust movement of the late 19th century. For Republican Sen. John Sherman of Ohio, chief sponsor of the Sherman Antitrust Act of 1890, the power of trusts amounted to “a kingly prerogative, inconsistent with our form of government.” Sherman reasoned that “if we will not endure a king as a political power, we should not endure a king over the production, transportation and sale of any of the necessaries of life.”
Only the second strand remains today. Modern trustbusters worry solely about maintaining competition. That’s why the Justice Department is battling Microsoft, whose Windows operating system dominates 90% of the market, and why it’s trying to stop Lockheed from merging with Northrop.
And that’s why today’s trustbusters probably won’t stop Citicorp’s merger with Travelers into a $700-billion financial colossus or NationsBank’s giant merger with BankAmerica. Nor do I expect the government to derail the combination of Daimler-Benz and Chrysler or Digital’s merger with Compaq or most of the other megamergers.
These combinations won’t threaten competition. Other big companies are in the same market, so the new giants will have ample incentive to keep their prices low. Besides, most of these markets are global or about to become so. If the newly formed giants did try to raise prices, competitors from other nations would move in. If not GM or Ford, then Volkswagen or Toyota would grab the market away from a Daimler-Chrysler that raised its prices too high.
In addition, technologies are evolving so quickly in these industries that a dominant player can be overtaken if it gets smug. Telecommunications, finance, entertainment and computers all are shifting ground, trespassing into one another’s terrains, morphing into a mind-boggling variety of integrated products and services. Unless one player has a lock on a key standard (as, arguably, Microsoft has with Windows), dominance is likely to be fleeting.
In fact, many of these mergers will create new efficiencies, which can reduce prices further. Huge national banks will be less susceptible to regional downturns than will smaller banks, for example, and they can spread the costs of new technologies (like fancy automated teller machines) over many more transactions. Chrysler will gain sales outlets abroad and Daimler-Benz will gain a wider range of downscale cars. Compaq will obtain a much-needed system for direct sales and service and Digital will get some leading-edge products.
Some employees will lose their jobs, of course. But that’s less of a problem now, when fewer than 5% of workers across the nation are actively looking for jobs. Digital is expected to cut some 15,000 jobs, or 28% of its present work force, after merging with Compaq. Yet most of those jobs are in Massachusetts, where unemployment is down to 3.7% and other high-tech companies are recruiting like mad.
The real danger of the new corporate giantism is political rather than economic. It has to do with the earlier, now abandoned, strand of antitrust.
Even if they don’t have power to raise prices, the new giants will have more power to raise political money. At a time when campaigns for elective office in America are fast degenerating into pure television advertising and when “soft money” for such ads is already out of control, we should at least consider the possibility that corporate giantism will poison elections for good.
Most of the half-billion dollars spent during the last presidential election came from American corporations and Wall Street. (Even in their support for Democratic candidates, they outspent organized labor.) And as these giants become global, the campaign money will, in effect, come from everywhere around the globe. Concerned about the “Chinese connection” in 1996? Ponder the “German connection” when Daimler-Chrysler begins underwriting future candidates or when publishing giant Bertelsmann, which just bought Random House, begins flexing its own political muscle in America.
Consider also their power to mount effective lobbying campaigns in Washington or our state capitals, seeking favorable outcomes in contests over environmental or health and safety regulations. I still have scars to show how effective corporate lobbying was in the first Clinton administration. The new giants will have even deeper pockets.
Remember Harry and Louise, the fictional couple in commercials that helped sink the Clinton administration’s national health initiative? Such well-financed corporate public relations campaigns have effectively swayed public opinion. The new giants could do so even more.
Ponder the generous flow of corporate money that already compromises universities and think tanks in pursuit of analyses favorable to corporate positions. The new giants will have more resources for this sort of thing.
They’ll be able to afford platoons of lawyers to fight anyone audacious enough to take them to court and to litigate forever against any government agency trying to enforce the law. Are Justice Department lawyers a fair match for Microsoft’s army of private attorneys from America’s most prestigious law firms?
If none of this concerns you, consider: The new giants will be employing--directly and through vast webs of suppliers and subcontractors--large numbers of Americans. Decisions about where to open a new facility or where to close an old one will affect thousands of livelihoods. So you can bet that mayors, governors and even heads of state will give the giants whatever they ask for. “Corporate welfare” in the form of tax breaks, subsidies and other government largess already flows disproportionately to big companies. More of it will flow even more freely to the new giants.
Moreover, a democracy requires that its representatives speak out against irresponsible conduct. Will government officials whose constituents’ jobs (and whose own campaign coffers) are dependent on the new giants be willing to criticize when they deserve criticism?
A democracy needs a free press that informs citizens of major dangers or unfairness or corruption. Will media that are dependent on the new giants for an ever-larger share of advertising revenues be willing to blow the whistle on them when a whistle should be blown?
A democracy requires free citizens who are willing to say publicly unpopular things to provoke critical debate. Will individuals who depend for their livelihoods on a few corporate giants--or whose relatives depend on them--be willing to sound the alarm when alarms should be sounded?
As we ponder the current surge toward corporate giantism, these are the sorts of questions we ought to be asking, not just whether the results are economically justified. It’s the discussion we had more than a century ago, but haven’t had much since. As historian Richard Hofstadter observed, “The political impulse behind the Sherman Act was clearer and more articulate than the economic theory. Men who used the vaguest language when they talked about ‘the trusts’ and monopolies . . . were reasonably clear about what it was that they were trying to avoid: They wanted to keep concentrated private power from destroying democratic government.”
The greatest threat to democracy is the deepening cynicism among so many people who are convinced that the political game is rigged in favor of the big guys. The problem is, they’re often right. The trend toward corporate giantism may mean they’re right even more of the time.
