Time to enforce, and strengthen, antitrust laws!
Corporate Consolidation: Some Facts and Figures
By Spencer Windes on Feb 09, 2010
There has been a frightening trend towards corporate consolidation in the last few decades. Here are some troubling facts.
From thousands of seed companies and public breeding institutions three decades ago, 10 companies now control more than two-thirds of global proprietary seed sales.
The proprietary seed market (that is, brand-name seed subject to exclusive monopoly – i.e., intellectual property), now accounts for 82% of the commercial seed market worldwide.
From dozens of pesticide companies three decades ago, 10 now control almost 90% of agrochemical sales worldwide.
From almost 1,000 biotech start-ups 15 years ago, 10 companies now account for three-quarters of industry revenues.
The top 10 pharmaceutical companies control 55% of the global drug market.
In 2009 Merck and Schering-Plough merged to create Merck-Schering-Plough (a $41 billion cash and stock deal), just weeks after Pfizer bought Wyeth for $62 billion, maintaining its position as the #1 drug company in the world. The remaining big players (Roche, Johnson & Johnson, Sanofi Aventis, Glaxo) will most likely be forced to buy up smaller firms or seek mergers if they want to compete.
In raw foodstuffs, mergers among the nation’s largest grain firms — including Cargill’s acquisition of Continental Grain, and ConAgra’s purchase of Peavey and Standard Milling — contributed to giving four firms control over more than 60 percent of the nation’s grain business.
In meatpacking, ConAgra’s acquisitions of Armour Meats, Swift, Monfort, E.A. Miller and Northern States Beef, coupled with Cargill’s purchases of Spencer Beef and Sterling Beef, have played a key role in raising the four largest meatpackers’ market control of the field from 28 percent in 1980 to 70 percent or more in 2005.
The combined share of national sales controlled by the five largest grocery chains jumped from 26 percent in 1980 to nearly one-half by 2004; the share of the top 10 chains has risen above 60 percent; and in some major states, the four largest grocery chains have come to control as much as 70 to 88 percent of all retail grocery sales.
Cargill, the privately held conglomerate, is a linchpin of the oligopoly of the worldwide food industry. It employs or exploits over 160,000 employees at 1,100 locations in 67 countries and is responsible for 25% of all United States grain exports. It supplies approximately 22% of the United States domestic meat market, exporting more meat product from Argentina than any other company and is one of the world’s largest poultry producers. All of the eggs used in McDonald’s restaurants in the United States pass through Cargill’s plants. With $120 billion in annual revenues, Cargill is bigger than the economies of more than two-thirds of the world’s countries, including Kuwait, Peru and Vietnam. Its sales exceed those of Disney, Kraft Foods and PepsiCo combined and are nearly twice as large as those of its next closest competitor, Archer Daniels Midland.
Five of the top ten corporations in the world as of 2005 were oil companies; Exxon Mobil, Royal Dutch Shell, BP, Chevron, Conoco-Phillips.
Mergers have concentrated the number of competing producers of major weapons systems from 13 to three in tactical missiles, from eight to two in fixed-wing military aircraft, and from six to two in space launch vehicles.
Accounting and Auditing:
The Big Eight merged in the 1980s to become the Big Six, which merged in the 1990s to become the Big Five, which became the Big Four following Andersen’s 2002 collapse as a result of its involvement in the Enron scandal. The Big Four are the four largest international accountancy and professional services firms, which handle the vast majority of audits for publicly traded companies as well as many private companies, creating an oligopoly over the auditing industry.
The Big Four (2008 figures):
-PricewaterhouseCoopers: Revenue $28.2bn
-Deloitte Touche Tohmatsu: Revenue $27.4bn
-Ernst & Young: Revenue $24.5bn
-KPMG: Revenue $22.7bn
Six corporations-Time Warner, Disney, Murdoch’s News Corporation, Bertelsmann of Germany, Viacom (formerly CBS), and GE/NBC — now control most of the media industry in the U.S. (perhaps up to 90%).
The biggest radio broadcast firm controls an estimated 40 percent or more of revenues in the nation’s largest 186 local radio markets, while in 97 top markets, two broadcasters together control more than 80 percent.
The proposed merger of Live Nation and TicketMaster is a clear case of two oligopolies stacking on one another to extend their near-monopoly control vertically.
Live Nation either owns or has the right to book nearly every major pop music venue in the US (71 at last count), plus a number of venues abroad. Even the biggest musical acts have to negotiate with Live Nation about tours, ticket costs, and schedules, with the implicit threat that there is no alternative should negotiations get bogged down. TicketMaster is the largest ticket agency by far in the US (and in many other countries). As an agent, it takes commissions on each ticket sold, and it charges hefty fees as well. It is estimated that the company charges 35% or more of the face value of the ticket, and often it is impossible to buy tickets at face value at the venue’s box office. Chances are if you want to go to a rock concert, you go through TicketMaster.
The dollar value of corporate mergers and acquisitions amounted to $1.4 trillion during the 1980s, exploded to $11 trillion during the 1990s, and continued at a frenetic pace of $7.6 trillion during 2000-2003 adding up to a combined total of $20 trillion of corporate mergers and acquisitions over the 25 years ending in 2005.
Behind these aggregate dollar amounts has been a cumulative succession of ever-larger mega-mergers combining the biggest firms in one major field after another, aggrandizing concentration of economic decision-making throughout the economy.
What has a quarter century of consolidation achieved? First, it marks a monumental opportunity cost of $20 trillion spent shuffling paper ownership shares for existing facilities and firms that, instead, could have been invested in researching new products, developing new production methods, and building new production plants equipped with state-of-the-art technologies.
Mega-mergers have utterly failed to deliver the cornucopia of efficiencies, economies and “synergies” glowingly proclaimed by their lavishly compensated promoters. Instead, merged leviathans have become mired in the bureaucratic morass that characterizes economies of extreme organizational size and scale. Meanwhile, the financial “supermarkets” merged together by financial giants fostered profound conflicts of interest.
Consolidation has exacerbated market power throughout the economy. In food, it has spawned U.S. congressional charges that powerful oligopolies of grain buyers and meatpackers are exploiting farmers and ranchers, and that a handful of grocery giants collectively monopolize the nation’s retail shelves. In radio, it has afforded a handful of giants vast influence in dictating what political views and voices are — and are not — heard; what types of music are — and are not — played; and which musicians and concerts are — and are not — successful.
The “super-sizing” of U.S. firms through mergers produces organizations so big, and with operations so far-reaching and affecting the lives of so many, that as a matter of practical politics they come to be considered too big to be allowed to fail.
Last but not least is the far-reaching political influence these vast bigness complexes exert on a democratic government designed to be responsive to pressure.