Burgess COMMENTARY

Peter Burgess

Concentration of Economic Power

Towards the end of 2015 we got the news that DuPont and Dow Chemical were going to merge into a single company and then split into three companies. On the face of it, two huge companies becoming three rather more modestly sized companies sounds like progress towards a little bit more competition. But, of course, it is nothing of the sort.

With DuPont and Dow Chemical being separate companies they competed tooth and nail over all of their product lines. According to conventional economic theory, efficient competition is good for the consumer. Business behavior seems to confirm that this is true, because most successful (that is highly profitable) companies have managed to arrange their market position so that they have little or no competition. Of course, this is what DuPont and Dow Chemical are doing in this case.

With the merger and the subsequent split, there will be three multi-billion dollar companies rather than six or more not quite so large company units doing this business. Based in the 2014 numbers the three new companies will look something like this:

• A new material sciences company that will have a combined revenue of more than $50 billion and serve the packaging, transportation and infrastructure industries.

• A new agricultural company that will have a combined revenue of more than $19 billion selling seed and crop protection chemicals; and

• A new specialty products company will have a combined revenue of more than $13 billion and sell materials to the electronics and communications industries as well as to the safety and protection sectors.

Yes ... there are other huge companies in these sectors so these three companies will not be outright monopolies in their respective market segments ... but if my economics training serves me well ... a well managed oligopoly results in most of the benefits of a monopoly anyway.

My impression is that regulators today have nowhere near the commitment to competitive markets that was the norm 40 odd years ago. Maybe it is because the idea of a competitive market is now defined more and more by 'law' rather than by economics. I would argue that 'law' can be adjusted to suit those that help elect the politicians ... but nothing actually will change the way economics actually behaves.

Concentration of power has been going on throughout my adult life (about 50 years) and shows signs of accelerating rather than being brought under control. This is not good. It enables the value of companies to go up, but at the expense of society and the environment going down. Not good.

Peter Burgess Founder/CEO at TrueValueMetrics developing Multi Dimension Impact Accounting 37 posts

10 comments

8mo John Maynen Available Soon: Business Architect and Strategic Business Analyst There was a time when people did their banking with local community and regional banks that had a vested interest in the long-term economic health of the community. Then came a merger and acquisition craze. I opened an account in the 1980s with Gary-Wheaton Bank. That was acquired by First Chicago (1988). That was acquired by NBD Bank (1995). That was acquired by Bank… See more LikeReply3

8mo Peter Augsten Owner at AUGSTEN - Consulting Agree with your analysis and statement, Peter. This behaviour of companies is logical within the current global economic setup and direction... we maximize the value for some ( tax optimization, maximization of profit, eternal quantitative growth ), and socialize incurred cost and burden to come. The overall system needs to be transformed. We often here about the need to th… See more LikeReply2 8mo Doug McDavid Consultant and mentor in architecture of enterprise Powerful food for thought, Peter, moving into a new year through (hopefully!) a period of reflection. LikeReply1

8mo Amir Hossein Rahdari CSR and Sustainability Nice analysis. I very much agree with Mr. Peter Augsten and Mr. John Maynen. It is a fundamental systemic problem and it stems from the politically oriented policies (in favor of agents of power who have a few years in the administration from which they should benefit the most) and that have no regard for long-term economic, social and environmental development of the soci… See more LikeReply1

8mo Marco Monfils Independent marketing and strategy advisor Agree with your analysis Peter. The way I see it, the idea of a competitive market is now defined more by geopolitics and this is an outcome of the global board game we 'play' today, one in which scale and efficiency is the cost of entry to then compete. Is this good for consumers? Not really, but what is the alternative? LikeReply

8mo Jeff Hawkins Writer and Contract Attorney You've missed it, though you are probably smart enough to figure it out LikeReply

8mo Nicholas A Vine Customer-Centric I Business Partnerships & Community Relationship Specialist Well done Peter Burgess. Great points. Although I believe that firms that assisted with this merger view it this way. Very well articulated article. LikeReply

8mo Halima Claudia Aquino Communications Consulting, Research and Development It's strange isn't it.... We're merging global companies - thereby weakening capitalism, global market competition and individual choice. At the same time- we're committed to a dangerous division of the world's dwindling natural resources - thereby strengthening global and local competition in a way that also weakens individual choice. Individuals are in a lose - lose situa… See more LikeReply

7mo Michael Floreth Financial Empowerment Coach at Empowering and Strengthening Ohio's People Well articulated. Preaching free markets can be made to serve the manipulators of markets. while appearing to support fairness and competition. LikeReply