POLITICAL NUMBERS Big Is Bad for Us All
Winslow, John
POLITICAL NUMBERS Big is Bad for Us All by John Winslow Conglomerates are no longer making the headlines the way they did in the late 196Os, but the trend toward concentration of major...
...Twenty-one of the 28 acquired companies showed declining performance as measured by at least two of the three barometers...
...One third of the major independent corporations in existence between 1960 and 1968 have since been purchased by acquisitive conglomerates...
...In fact, raw economic statistics about how well companies perform before and after they are acquired by a conglomerate is one of the business world’s most tightly guarded secrets...
...Yet they have given us precious little data to prove their point...
...Recently there have been eight different governmen t investigation s of conglomerates (by the Senate Small Business Subcommittee on Monopoly, the Securities and Exchange Commission, the Senate Antitrust and Monopoly Subcommittee, the House Ways and Means Committee, the Department of Justice, the Interstate Commerce Commission, the Cabinet Committee on Price Stability, and the House Antitrust Subcommittee...
...The statistics came from 28 companies the four conglomerates had purchased, and they were judged by three efficiency standards: net income as a percentage of sales (that is, how much profit the company earned from its sales), net income as a percentage of assets (how much profit each unit of equipment and capital produced), and sales as a percentage of assets (how many sales each unit of equipment generated...
...The ratios can fall if a company cuts its prices, but the world being what it is, when they fall it is usually because the company’s internal costs have risen-that is, because it is less efficient...
...Whatever its findings may be, the Commission has steadfastly refused to release them-or to explain why the public must be protected from this information...
...it would be reasonable to conclude that these ratios reflect ineffective managemen t.” Within the last few years many aesthetic and political objections have been raised to the conglomerate trend...
...But when the FTC issued a public report on the subject, it deleted all the specific mentions of which companies had profited or declined after being purchased by conglomerates...
...Twenty-two of the companies declined in what many feel is the most important area, net income as a percentage of assets...
...Following the FTC‘s lead, the Federal Communications Commission has also worked hard to keep its performance data from the public...
...The three ratios are obviously related and tend to move in the same direction...
...With the support of Congress, the subcommittee was able to force four of the largest conglomerates-ITT, Litton Industries, Ling-Temco-Vought, and Gulf and Western Industries-to provide data on how the acquired companies performed both before and after their takeover...
...Spokesmen for the corporate giants insist that the trend toward bigness is dictated by logical, indeed inevitable, economic forces...
...information from recalcitrant companies and then vigilantly keeping it from the public...
...Worse, the FTC guarded against the risk of Daniel Ellsbergs in its midst by sending copies of a “hot report” containing this raw information through a shredder...
...According to one of its own staff economists (testifying before Senator Gaylord Nelson’s Small Business Subcommittee), the FTC “protected conglomerate managers from their stockholders by keeping specific [ management I mistakes secret...
...There are, however, a few other sources of information about conglomerate performance...
...The subcommittee report commented, “Inasmuch as these companies perform in many different industries...
...The government has played a rather strange game with these statistics, sometimes aggressively extracting John F. Winslow is the author of Conglomerates Unlimited (Indiana University Press...
...POLITICAL NUMBERS Big is Bad for Us All by John Winslow Conglomerates are no longer making the headlines the way they did in the late 196Os, but the trend toward concentration of major industries continues unabated...
...Beginning in 1970, the FCC hired additional staff to investigate whether corporate takeovers in the communications industry led to better or worse service...
...Unlike the highfliers that built and lost paper empires in the 1969s, today’s conglomerates are motivated by more traditional economic ambitions to dominate specific industries and create captive markets for related products...
...Every one of these reports-as well as a study conducted by the New York Stock Ex change- concluded that companies were generally less efficient after acquisition...
...At best, they maintained their previous efficiency...
...In 1973, after many false starts, the Federal Trade Commission finally succeeded in collecting performance data from 348 companies which had been purchased conglomerates...
...This was by far the largest collection of data on conglomerate performance ever made public...
...They deserve to be joined by the simple economic case: conglomerates are an inefficient way to do business...
...Some of the most interesting findings come from the House Antitrust Subcommittee study...
...The results were clear...
Vol. 6 • June 1974 • No. 4
