Sorry, Wrong Number!
By J.M. Hamilton (3-26-11)“How many yachts can you water-ski behind? How much is enough…”
- Charlie Sheen (aka Bud Fox), from the movie, Wall Street
History repeats. In 1974, the U.S. department of justice saw fit to break up the AT&T monopoly (aka Ma Bell), via an anti-trust law suit, into seven regional holding companies. The break up did not last. This week AT&T announced it would buy T-Mobile for a tidy $39 billion, which will essentially create a duopoly in U.S. wireless communications with its sister Bell Company, Verizon. There will be the usual regulatory scrutiny, perhaps a spin off or two to protect the consumer, and the usual arguments will be made in favor of the merger, like achieving “economies of scale” and “synergy” (read: pink slips). There will be some chest thumping and grand standing in congress, a little noise, and then in all probability the merger will go through.
The consumer will not be protected, however, and the costs of the merger will be passed along to the cellular customers in the form of higher monthly fees, poorer service, and less innovation and possible cut backs in R&D. Management and congressmen, exempted from insider trading laws, will grow richer, and the employees at the combination – those lucky enough to retain their jobs – well, they’ll just have to work a little harder.
Meanwhile, our government regulatory authorities (Justice, the SEC, and the FTC, Et Al.) will be kept on a very short leash, indeed, starved for funding by their handlers, the plutocracy. Can one envision a time when this script won’t play out? Not anytime soon.
Witness the pending play, rehearsed so many times before, as big oil, in all probability, gets called to take the stand for the umpteenth time before congress to explain why gas prices are soaring. If called upon, Big Oil, of course, will blame OPEC and trouble in the middle-east, but assure congress that the industry is competitive and properly functioning. Not to hear Mr. Stephen Schork tell it, on a recent Bloomberg Surveillance broadcast with Messrs. Prewitt and Keene. Mr. Schork, an expert on energy matters, and an investor and speculator, informs us that 19 of 20 barrels of sweet crude sitting in Cushing are owned by speculators; moreover, thanks to the oil rich shale of Canada, the oil sitting in reserve in Cushing could be replaced six times over. Per Mr. Schork, the NYMEX futures market is “corrupted.” As Mr. Keene notes, speculators are moving the price of oil; and therefore, the price at the pump. It sure wouldn’t be market forces, but what market forces truly exist in an industry dominated by monopoly and cartels? Meanwhile the consumer will get soaked (not with inexpensive oil, however), and the newly minted nascent recovery, financed and sponsored by the Fed and QE2, will take it on the chin.
So when will the consumer prevail, and corporations fight the urge to merge? Possibly, maybe someday soon, when the monopolies themselves realize that they are literally financially disemboweling the consumer, world markets, and cutting into one another’s profits; then maybe, monopolies will fully appreciate the instability myopic and unmitigated greed creates.
When gas prices spike, it eliminates consumer discretionary spending that could go into other businesses, or monopolies, goods and services; that is to say, when Exxon Mobil has a record quarter, the AT&T’s of the world suffer because the consumer has less money to spend on cellular services (not to mention the overall drag on the economy, which may compound into recession).
The extent to which a business (say AT&T) is harmed by the gouging another monopoly (say Exxon Mobil) executes upon the American consumer, depends upon where AT&T’s goods and services fall within the consumer’s, or market place’s, hierarchy of needs. Sooner or later business and monopolies, of all shapes and stripes, are not going to appreciate the Wall Street banking cartel and the oil oligarchy taking out the U.S. economy and cutting into their profits. Of course, many businesses and monopolies, apparently, did not get overly upset that Big Oil price increases set the U.S. economy up for failure, and the Wall Street banking disaster finished the job in 2008, because there’s always world markets to exploit and sell to.
But a very unfunny thing happened to the “globalization paradigm” in the last thirty days: namely, a quake, a tsunami, and a presently unfolding nuclear disaster, just north of Tokyo – Japan.
This blog, from time to time, has taken a crack at Apple, who many of us love and adore, because of their cool products, and their cultivated anti-establishment – snarky- image. Apple is perceived to be the anti-Microsoft.
The reality, however, as this blog has documented, is that Apple utilizes Chinese “labor,” and Japanese manufacturing to mitigate product cost and maximize profit. In short, Apple is about as establishment as it gets. Last we read, Apple had north of fifty billion in cash sitting on their balance sheet, courtesy – to some degree – of the fine purveyors of Chinese labor, Foxconn (see this blog for details). I bring up Apple, because in many respects Apple symbolizes globalization. Apple designs and engineers products here in the states, but outsources the manufacturing of product components and product assembly to the Pacific Rim. And the mark-up on Apple products is extraordinary because of the slave labor involved. The reality is Apple could manufacture and assemble in the U.S. and still make exceptional profit and returns, albeit less than they are making now.
But now, and this scenario is by no means limited to Apple, we hear there are going to be disruptions in the supply chain for the I-pad, because some components are manufactured in Japan, and the Japanese manufacturing facilities have either been washed away or are uninhabitable due to radiation. Therefore, Apple cannot meet demand, which might turn off consumers, impatiently, awaiting product, and harm Apple’s bottom line and image. If and when Apple gets production up to speed, consumers may want to run a Geiger counter over the I-pad to insure its safety, but that would go for all Japanese products, post-crisis.
The bottom line and the lesson on Japan: Apple and other multi-nationals can no longer take for granted any given market, or country, to produce a revenue stream or a supply of products; and more importantly, it can ill afford to allow other multi-nationals or monopolies to trash a major world economy, like the U.S., as it may need that market again, either as a manufacturing, service, or revenue source. Good corporate governance and risk management dictates peripheral vision into economic and political areas beyond a corporation’s next quarterly financial statement.
Does the Japanese disaster spell the end of globalization, or put another way, the end of labor, regulatory, and tax arbitrage?
Not hardly, but it may make monopolies and multi-nationals reconsider their recent disdain for U.S. labor, and more greatly value the relative stability of the U.S. economy (still plugging along at roughly 25% of world GDP). If nothing else, multi-nationals and monopolies will be forced to hedge, that is Japan illustrates that they can no longer count on the stability of all developed or emerging markets and economies running in tandem all the time, neither as a source of revenue or supply. Instead, they will have to reconsider America (indeed, all markets), and this means they can no longer allow their brother monopolies, Banking and Big Oil, to prey upon the American consumer to the detriment of their financial statements, management bonuses and earnings, and their stockholders (not necessarily in that order).
In the near future, we may see a whole new side to the Apple’s of the world. Instead of passively allowing Wall Street banks and Big Oil to trash the U.S. or world economy, upon which they depend, Apple, or like companies, may actually be on the forefront of advocating real and true bank regulatory reform (the antithesis of Dodd-Frank), and perhaps insist upon the break-up of the Big Oil monopolies, or be a leading advocate for alternative energy development. All the better to insure plenty of discretionary income and employment for their consumers, and healthy markets for their own products and services.
An enlightened and wiser Mr. Gecko may have responded to Bud Fox with, “Greed is good,” particularly when greed is channeled for the betterment of society, the American consumer/labor, and corporate bottom lines (they are mutually inclusive). Mr. Gecko also advised Bud to read Sun Tzu: “Every battle is won, before it is fought.”
FINALLY, Hats off to President Obama for obtaining quick UN and European support for taking out Colonel Khadafy. Too bad, the Arab League is above the fray. American interests are being well represented by President Obama. Even more kudos and accolades will, undoubtedly, be heaped upon Mr. Obama with a quick and early American exit, after the Colonel takes a dirt nap. President Obama, and his Secretary of State, may very well be showing Americans the benchmark in how foreign policy and the use of force should be conducted. Too bad his predecessor, President Bush, didn’t conduct our foreign affairs in a similar fashion in Afghanistan and Iraq.
P.S. 8-17-13: Hats off to the administration for blocking the US Air and American Airlines merger. The proposed merger was anti-competitive, anti-free market, and pro-monopoly. The proposed merger would have killed jobs and management, harmed air travel consumers, hiked up air fares, and further consolidated a cartel in air travel. This administration has shown guts in blocking some M&A, such as US Air/American and AT&T and T-Mobile; it should do so more often. In order for capitalism to triumph over monopoly, socialism, and socialism by private proxy, competition must prevail. Adam Smith wouldn't have it any other way.
No comments:
Post a Comment