Muscling in on mega-mergers
EWPublished: Feb 27, 2001 11:26 PM | Updated: Jan 29, 2008 10:21 AM
Dr Mahathir Mohamad misses a few points in his speech at the International Conference of Globalisation in Kuala Lumpur ([#1]Strengthen laws against mega-mergers of conglomerates[/#], Feb 26).
There are laws against what he calls mergers of giant conglomerates to create massive companies capable of taking over the world economy. The US and the EU do have anti-trust laws designed to prevent any one company, or any one group of companies, from having a dominant position in a certain market or industry. These laws are in place mainly to protect consumers from predatory monopolistic trade practices, and to ensure that other companies can operate in a non-too-hostile environment.
The US has exercised these laws in the past to break up, among other things, Standard Oil and AT&T. More famously, Microsoft is currently on trial and is in danger of being broken up into two or more component companies.
The EU also has anti-trust laws, which it enforces actively. For all the benefit that consolidation would bring to the steel industry in general and the merging firms in particular, the recently announced mega-merger of three European steel manufacturers (Unisor, Arbed and Aceralia) can only go forward with EU regulatory approval. Even if approval is forthcoming, the EU may force the merged entity to divest of some assets to ensure that the merged entity does not have undue and unhealthy effect on competition.
In a similar vein, British Airways has either been stopped or deterred from merging with US carriers because the merged airline would probably have an unhealthily dominant share of the lucrative trans-Atlantic routes linking London and the US. The danger is that the airline would initiate a price-war with rival airlines and thereby force them out of the market. If it succeeds, it can then flex its monopolistic muscles and suck consumers dry.
I am not saying that the US and the EU are absolutely open and free economies; they are clearly not, as evidenced by the EU's enormous farm subsidies that benefit local farm producers, and the US' tariffs and quotas on manufactured goods such as textiles and occasional punitive 'anti-dumping' tariffs. It is just that their record on regulating and breaking up companies with unhealthily large market influence appears to be better than it is in most of the world (including Asia). How many successful anti-trust cases have you heard about outside of the US and the EU?
The truth is that there are laws that are enforced to prevent any one company from monopolising any aspect of world trade. In any case, individual countries can successfully prevent these large, global conglomerates from entering their markets by imposing tariffs or preventing them from entering altogether. Malaysia does this also, as a "top-open economy". For example, rather high import duties are imposed on imported cars to encourage the national car industry and to allow it to mature, and currently there is a 49 percent foreign ownership limit on local insurance firms.
There are laws against what he calls mergers of giant conglomerates to create massive companies capable of taking over the world economy. The US and the EU do have anti-trust laws designed to prevent any one company, or any one group of companies, from having a dominant position in a certain market or industry. These laws are in place mainly to protect consumers from predatory monopolistic trade practices, and to ensure that other companies can operate in a non-too-hostile environment.
The US has exercised these laws in the past to break up, among other things, Standard Oil and AT&T. More famously, Microsoft is currently on trial and is in danger of being broken up into two or more component companies.
The EU also has anti-trust laws, which it enforces actively. For all the benefit that consolidation would bring to the steel industry in general and the merging firms in particular, the recently announced mega-merger of three European steel manufacturers (Unisor, Arbed and Aceralia) can only go forward with EU regulatory approval. Even if approval is forthcoming, the EU may force the merged entity to divest of some assets to ensure that the merged entity does not have undue and unhealthy effect on competition.
In a similar vein, British Airways has either been stopped or deterred from merging with US carriers because the merged airline would probably have an unhealthily dominant share of the lucrative trans-Atlantic routes linking London and the US. The danger is that the airline would initiate a price-war with rival airlines and thereby force them out of the market. If it succeeds, it can then flex its monopolistic muscles and suck consumers dry.
I am not saying that the US and the EU are absolutely open and free economies; they are clearly not, as evidenced by the EU's enormous farm subsidies that benefit local farm producers, and the US' tariffs and quotas on manufactured goods such as textiles and occasional punitive 'anti-dumping' tariffs. It is just that their record on regulating and breaking up companies with unhealthily large market influence appears to be better than it is in most of the world (including Asia). How many successful anti-trust cases have you heard about outside of the US and the EU?
The truth is that there are laws that are enforced to prevent any one company from monopolising any aspect of world trade. In any case, individual countries can successfully prevent these large, global conglomerates from entering their markets by imposing tariffs or preventing them from entering altogether. Malaysia does this also, as a "top-open economy". For example, rather high import duties are imposed on imported cars to encourage the national car industry and to allow it to mature, and currently there is a 49 percent foreign ownership limit on local insurance firms.
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