Corporations Are Not Humans : Not Even Close --- Episode 42

                                         MANAGED COMPETITION

    The recent leap in the ability of transnational corporations to relocate their facilities around the world in effect makes all workers, communities, and countries competitors for these corporations' favor. The consequence is "a race to the bottom" in which wages and social conditions tend to fall to the level of the most desperate. 

   On September 14, 1993, E. I. du Pont de Nemours & Company announced it would dismiss 4,500 employees in its U.S.-based chemical business by mid-1994 to cut costs. While 4,500 families struggled to adjust to the fact that the economy had labeled their breadwinner a redundant burden, the money markets cheered. This layoff was part of a larger cutback of 9,000 people from du Pont's total worldwide workforce of 133,000 --- all part of a plan intended to cut the company's costs by $3 billion a year. The price of a share of du Pont stock jumped $1.75 on the day of the announcement. Such announcements have become daily fare in the financial fare in the financial press. Clearly, important changes are occurring in the structure of industry. According to The Economist :

     The biggest change coming over the world of business is that firms are getting smaller. The trend of a century is being reversed. . . Now it is the big firms that are shrinking and small ones that are on the rise. The trend is unmistakable --- and businessmen and policy makers will ignore it at their peril. 

   It is a widespread perception that the massive corporate giants have become too large and bureaucratic to compete against the more nimble and innovative smaller firms that we are told are rapidly gaining the advantage in highly competitive global markets. Proponents of this view point to the fact that large firms are shedding employees by the hundreds of thousands. To back their claim they cite statistics showing that the new employment and technological innovations are being generated primarily by more competitive small and medium-sized firms. Although employment growth and innovation do generally come from smaller firms, to claim that smaller firms have the advantage in global markets is highly misleading. 

   INTEGRATION AND COOPERATION AT THE CENTER

   For all their praise of free-market competition, most corporations seek to avoid it for themselves at every opportunity. As Adam Smith observed in 1776, "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." Such cooperation need not be born of evil motives. Competition creates turbulence, which is embraced as opportunity by speculators. But for those who manage productive enterprises, the resulting uncertainty makes investment planning inherently difficult, disrupts the orderly function of the firm, and can result in serious economic inefficiency. The desire to increase control and predictability by reducing competition might be considered one of the natural laws of the market. 
   Firms trying to reduce competition in the global economy by the same means have always used, by increasing their control over capital, markets, technology, and competitors. However, the combination of a globalized economy and modern information technologies lets firms consolidate that control on a scale never before possible. The competitive tactics are also familiar . Weaker competitors are absorbed, colonized, or crushed. Accommodation is sought with stronger competitors through strategic alliances, mergers, acquisitions, and interlocking boards of directors.
   A favorite corporate libertarian argument for globalization is that operating national markets introduces greater competition and leads to increased efficiency. This neglects the larger reality that when markets are global, the forces of monopoly transcend national borders to consolidate at a global level. As soon as borders are opened, the pressure mounts to allow domestic firms to merge into ever more powerful combinations in order to be "competitive" in the global marketplace. When Philip Morris acquires a Kraft and a General Foods, as it did in the 1980s to create the United States' largest food company, it does not make U.S. markets more competitive. Rather it creates a strengthened platform from which to create and project monopoly power on a global scale. 
   As a rule of thumb, economists consider a domestic market to be monopolistic when the top four firms account for 40 percent or more of sales. Through a series of mergers and consolidations, the top four major appliance corporations in the United States { Whirlpool, General Electric, Electrolux/WCI, and Maytag } controlled 92 percent of the U.S. appliance market as of 1990, and four airlines { United, American, Delta, and Northwest } accounted for 66 percent of U.S. revenue passenger miles. Four computer software companies { Microsoft, Lotus, Novell/Digital, and WordPerfect } controlled 55 percent of the U.S. software market in 1990, and two of them { Novell and WordPerfect } merged on June 27, 1994. 
   When five firms control more than half of a global market, that market is considered to be highly monopolistic. The Economist recently reported five-firm concentration ratios for twelve global industries. The greatest concentration was found in consumer durables, where the top five firms control nearly 70 percent of the entire world market in their industry. In In the automotive, airline, aerospace, electronic components, electrical and electronics, and steel industries, the top five firms control more than 50 percent of the global market, placing them in the monopolistic category. In the oil, personal computers, and media industries, the top five firms control more than 40 percent of sales, which shows strong monopolistic tendencies. 
   The argument that globalization increases competition is simply total bullshit.  To the contrary, it strengthens tendencies toward global-scale monopoly. 

   Agriculture has been a major subject in trade negotiations, with U.S. trade negotiators making a strong appeal for reducing barriers to free trade in agricultural commodities and eliminating protection for small farmers in Europe and Japan. The story of U.S. agriculture reveals why U.S. agribusiness corporations are so enthusiastically calling for the "freeing" of agricultural markets. It is part of the process of restructuring global agriculture into a two-tiered system controlled by the agribusiness giants. 

   From 1935 to 1989, the number of small farms in the United States declined from 6.8 million to under 2.1 million ; a period during which the U.S. population roughly doubled. As farmers have gone out of business, so too have the local suppliers, implement dealers, and other small businesses that once supported them. Entire rural communities have disappeared . Meanwhile, the major U.S. agribusiness corporations have grown and consolidated their power. The top ten "farms" in the United States are now international agribusiness corporations with names like Tyson Foods, ConAgra, Gold Kist,  Continental Grain, Perdue Farms, Pilgrims Pride, and Cargill---each with annual farm products sales ranging from $310 million to $1.7 billion. 
   Two grain companies ---Cargill and ConAgra---control 50 percent of U.S. grain exports. Three companies --- Iowa Beef Processors(IBP) , Cargill, and ConAgra---slaughter nearly 80 percent of U.S. beef.  One company --- Campbell's --- controls nearly 70 percent of the U.S. soup market. Four companies --- Kellogg, General Mills, Philip Morris, and Quaker Oats --- control nearly 85 percent of the U.S  cold cereal market. Four companies --- ConAgra, ADM Milling, Cargill, and Pillsbury ---mill nearly 60 percent of U.S. flour. This concentration is in part the consequence of 4,100 food industry mergers and leveraged buyouts in the United States between 1982 and 1990 ---and the consolidation process continues.