Economics
Concentration of Economic Power

Peter Burgess PULSE ... Concentration of Economic Power

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.

Amir Hossein Rahdari Amir Hossein Rahdari 1st 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 society. Political cycles, now, determine what should be written in law and has pretty much manipulated, if not replaced, the economic cycles which used to be longer. Medium-term development programs require at least 4-5 years to show results. Policies such as the Keynesian gimmickry that became the norm after the GFC (although it has been in place for almost the past 40 years). It only offers a temporary fix not a long-term solution and it provides a safe haven for a small group of individuals while hurting others. Like(1)Reply6 hours ago

John Maynen Nicholas A Vine Nicholas A Vine 2nd Customer-Centric I Relationship/Partnership Builder I Generate Economic/Social Opportunities I Community Engagement Well done Peter Burgess. Great points. Although I believe that firms that assisted with this merger view it this way. Very well articulated article. LikeReply8 hours ago

Jeff Hawkins Jeff Hawkins Writer and Contract Attorney You've missed it, though you are probably smart enough to figure it out LikeReply17 hours ago

Lisette Muntslag Lisette Muntslag 1st Visionary The new aristocrats....all wealth concentrated in the hands of an oligarchy.... LikeReply19 hours ago

Marco Monfils Marco Monfils 1st Independent marketing and business 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? LikeReply22 hours ago

John Maynen John Maynen 2nd 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 One (1998). That was acquired by Chase (2004). And Chase could care less about the economic health of my community. They'll gladly take my money, multiply it by whatever the Federal Reserve Bank allows, and lend it in communities that are thriving. Along with this has been the centralization of political power. Jeffersonian democracy had it that the lowest level of government that can handle an issue should be the one to handle it, working up from the precinct to the township to the city to the county to the state and then to the federal government. The US Constitution promotes the general welfare which leads to a 'one-size-fits-all' approach to solutions. But the needs of a school in rural Alabama are different from the needs of a school in urban Detroit. Another manifestation is in legislation itself. When the space program began, NASA was trusted to hire the best available scientists and engineers to solve the problems. Today, legislators, or the lobbyists who own them, put solutions in the legislation. If America tried to go to the moon today, the law would probably have the rocket fuel formulas and equations for orbital mechanics embedded within. Like(3)Reply22 hours ago Amir Hossein Rahdari, Ramesh Srinivasan, and Claudia Freed

Peter Augsten Peter Augsten 1st 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 think and act out of the box to drive something boldly to the better... this is what I would expect from company leaders... but they stay inside the box ( their comfort zone ) and drive global systems to a collapse to come... Like(3)Reply23 hours ago John Maynen, Amir Hossein Rahdari, and Lisette Muntslag

Doug McDavid Doug McDavid 1st Pushing into 21st Century Enterprise Architecture Powerful food for thought, Peter, moving into a new year through (hopefully!) a period of reflection. Like(2)Reply23 hours ago Claudia Freed and Lisette Muntslag

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