An Iowa congressman who led an investigation into the effects of the corporate merger movement on small businesses and local communities charged yesterday that business mergers are responsible for some of the nation's economic woes.
Rep. Berkley Bedell (D-Iowa) said he leans to the conclusion that the recent wave of conglomerate mergers, which join companies in unrelated lines of business, "has contributed to the alarming decline in productivity and the increasing rate of inflation that beset our economy."
Such a conclusion is "strongly" suggested by the just-published report of his House Small Business subcommittee on antitrust and restraint of trade on the seven days of hearings it held early this year, Bedell said. None of the eight subcommittee members filed dissents or separate views.
"What we found is a sad pattern of corporate management concentrating on short-term profit maximization to the detriment of the broader interests of the national economy and the public," Bedell said. "A large part of our economic problems . . . may be due to the shortsightedness of some business leaders."
In making its point, the subcommittee report points to the steel industry, which is seeking substantial help from the federal government to meet foreign competition. However, the report adds, some producers failed to reinvest profits to make their plants modern and competitive, choosing instead to divert them into nonsteel lines of business, such as steamships and real estate.
The report cites an estimate by Harold M. Williams, chairman of the Securities and Exchange Commission, that conglomerate mergers reshuffled the ownership of $100 billion in corporate assets between 1975 and 1980. This tended to have "an inflationary effect on the economy," Bedell said.
If the $100 billion had been spent "on capital expenditures, new product development and innovative research" instead of being "merely shifted from bank to bank, from corporate account to corporate account with bank trust departments and speculators taking their commissions along the way," it would "filter through the economy, create new jobs, support a wide range of expanded economic activity and enhance the quality of life," the report asserted.
The subcommittee found economic concentration to be increasing, with large businesses accounting for a growing share of productive capacity, and criticized the large banks and financial institutions that nurture this by encouraging and facilitating mergers. "They profit from the loans that often are necessary for their merger transactions, as well as acquiring added business from the surviving corporation," the report said.
Meanwhile, evidence in the hearings showed that some mergers led to plant closings and consequent unemployment and economic devastation of communities, as well as to steady erosion of the relative position of small business, which is, the report said, "the most innovative and the most prolific job-generating sector of the economy."
Success-story small firms are said in the report to be the ones most aggressively targeted by large ones for takeovers. But once acquired, according to evidence cited by Bedell, the small firms frequently show lower levels of productivity, innovation and job-creation.
Such findings illustrate what the report termed "one of the most dramatic discrepancies" turned up by the hearings: the gap between the theories advocated by so-called "conservative" economists.
For example, Prof. Robert Hessen of the Hoover Institute of War, Revolution and Peace in Palo Alto, Calif., testified about the "highly beneficial" effects mergers can have on both acquired and acquiring companies. By contrast, first-hand observers of several acquisitions by conglomerates told of the ruin of once-thriving independent enterprise.
The report said that no conglomerate "was willing to send witnesses to testify."