The Trustification of America

By Gus Tyler

Published January 14, 2005, issue of January 14, 2005.
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What is the economic future of America, as seen through the eyes of one who has been personally involved with the ins and outs of Wall Street? His name is Martin Lipton. And he is the founder of a Wall Street law firm that specializes in corporate takeovers. He predicts that mergers and acquisitions will proliferate. And in a newsletter to his clients, he writes, “It appears that there will be an M and A (Merger and Acquisition) boom.” He then adds, “The recent increase in M&A activity reflects a return to confidence in the economy.”

If what happened during the month of December in the matter of M&As is an indicator, Lipton’s conclusion rests on a firm base. In that one month, more than a quarter-trillion dollars went into mergers and acquisitions. What is happening, as a result, is that more and more corporate ownership is passing into fewer and fewer hands.

All of which raises the question as to whether such a trend is good or bad for America and for the world economy.

This is not a new question in America. As the 19th century merged into the 20th, a major economic and political problem was the rise of what were then called “trusts.” They were looked upon as menaces, and a sweeping movement emerged to “bust the trusts.” Their most famous advocate was a Republican president named Theodore Roosevelt. Congress moved to curb trusts under the Sherman Anti-Trust Act. Why were they so anti- “trust?”

The basic motive was foreshadowed a couple of centuries earlier in the words of the immortal Adam Smith when he wrote: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

This was written at a time when the system some call “capitalism” and others call the “free enterprise system” had not yet formally banded together to form joint stock companies called “corporations.”

These corporations then began to merge with others of the same trade to form monopolies, oligopolies or cartels. The object was always the same — namely, to be in a position to dictate prices and to be able to do so by wiping out or buying out their potential competitors.

We all have seen proof of what happens. In hundreds of small and large communities, there once were many small businessmen running their retail or manufacturing shops. But shortly after a chain store with deep pockets arrived, these intruders were able, by undercutting the small business, to wipe them out and then engage in monopoly pricing.

The current growth of mergers and acquisitions is not any sign that there is a “return to confidence in the economy.” It might well mean just the opposite. As the economy faces weaknesses, those with the deep pockets have a great chance to buy out — often at a bargain price — those who are having a hard time in our weakening economy.

Oh, dear Teddy R, where art thou at this perilous moment when we once more need to hear your voice demanding that we “bust the trusts”? After all, since you and Abraham Lincoln are the two most honored Republicans in American history, surely the White House and Congress would give you a respectful hearing!






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