During the two decades between the mid- 1920s and mid-1940s, the number of firms
remained
relatively stable, first because of the Great Depression, and subsequently due to the Second World War.
Nitzan Bichler - 2012 - Capital as Power
We call this route 'internal' since it merely redistributes control over existing capacity and employment.
Merger and acquisition activity perhaps is the most potent form of differ- ential accumulation, serving to kill three birds with one stone: it directly increases differential breadth; it indirectly helps to protect and possibly boost differential depth (relative pricing power); and it reduces differen- tial risk.
This path is limited, however, both by the availability of take- over targets and by socio-political and technological barriers.
Internal Depth: Cost Cutting. The purpose is to cheapen production faster than the average, either through relative efficiency gains or by larger reductions in input prices. The process is 'internal' in that it redis- tributes income shares within a given price. Although cost cutting is relentlessly pursued by large firms (directly as well as indirectly through outsourcing), the difficulty of both protecting new technology and controlling input prices suggests that the net effect commonly is to meet the average rather than to beat it.
External Depth: Stagflation. Our emphasis on stagflation rather than inflation is deliberate: contrary to the conventional wisdom, inflation usually occurs with, and often necessitates, some slack. Now, for a single seller, higher prices commonly are more than offset by lost volume, but things are different for a coalition of sellers. Dominant capital, to the extent that it acts in concert, can benefit from higher prices, since, up to a point, the relative gain in earnings per unit outweighs the relative decline in volume. Of course, for the process to become continuous (inflation rather than discrete price increases), other firms must join the spiral. But small companies have little political leverage and usually are unable to collude, so the common result is to redistribute income in favour of the
3
4
? 19 For any given firm, green-field investment of course can draw on inter-firm labour mobility as well as on new employment. From an aggregate perspective, however, labour movement between firms is properly classified as internal breadth.
Differential accumulation and dominant capital 331 bigger ones who can. We refer to this method as 'external' since the redis-
tribution occurs through a (pecuniary) expansion of the earnings pie.
Some implications
In addressing the implications of this taxonomy, it is important to distinguish the case of an individual large corporation from the broader analysis of domi- nant capital as a group. A single firm may successfully combine different facets of breadth and depth. However, the same does not hold true for domi- nant capital as a whole. If we look at breadth and depth not as firm strategies, but as overall regimes of differential accumulation, it quickly becomes apparent that the broader conditions that are conducive to one regime often undermine the other. For the sake of brevity, we group our tentative argu- ments here into eight related propositions:
? Proposition 1. Understood as broad regimes, breadth and depth tend to move counter-cyclically to one another. Breadth presupposes some measure of employment growth as well as relative political-economic stability. Depth, on the other hand, commonly implies restrictions, conflict, and stagflation. Although strictly speaking the two regimes are not mutually exclusive, they tend to 'negate' one other, with more breadth being asso- ciated with less depth, and vice versa.
? Proposition 2. Of the two regimes, breadth is the path of least resistance. There are two reasons for this pattern. First, usually it is more straight- forward and less conflictual to expand one's organization than it is to engage in collusive increases in prices or in struggles over input prices. Although both methods are political in the wide sense of the term, depth commonly depends on complex corporate-state realignments that are not necessary for breadth. Second, breadth is relatively more stable and hence easier to extend and sustain, whereas depth, with its heightened social antagonism, is more vulnerable to backlash and quicker to spin out of control.
? Proposition 3. Over the longer haul, mergers and acquisitions tend to rise relative to green-field investment. While both routes can contribute to differential accumulation, as capitalism spreads geographically and dominant capital grows in importance, so does the threat of excess capacity. Mergers and acquisitions alleviate the problem whereas green- field aggravates it. 20 The broader consequence of this shift is for chronic stagnation to gradually substitute for cyclical instability.
20 The notion of excess capacity, associated mainly with Monopoly Capital writers such as Kalecki (1971), Steindl (1952) and Baran and Sweezy (1966), is admittedly problematic. Here, we use it to denote the potential threat to prevailing earning margins from higher resource utilization. To illustrate, recall from Figure 12. 2 that, since the Second World War, US margins, measured by the combined profit and interest share of GDP, have been positively related to the rate of unemployment. In this context, a move from higher to lower unemployment increases utilization and threatens margins.
? 332 ?
?
?
?
?
Accumulation of power
Proposition 4. The relative growth of mergers and acquisitions is likely to oscillate around its uptrend. Corporate amalgamation involves major social restructuring and hence is bound to run into roadblocks. The result is a wave-like pattern, with long periods of acceleration followed by shorter downturns.
Proposition 5. The underlying logic of mergers and acquisitions implies progressive 'spatial' unification and, eventually, globalization. For amalga- mation to run ahead of overall growth, dominant capital must succes- sively break its 'envelopes', spreading from the industry, to the sector, to the national economy, and ultimately to the world as a whole. In this sense, differential accumulation is a prime mover of spatial integration and globalization.
Proposition 6. Cost cutting is not a real alternative to an amalgamation lull. The pressure to reduce cost is ever-present, but its effect is more to meet than to beat the average. The principal reason is that productivity improvements are neither inherently related to corporate size nor easy to protect. Similarly, reductions in input prices seldom are proprietary and often spill over to other firms.
Proposition 7. A much more potent response to declining mergers and acquisitions is inflationary increases in earning margins. This method is often facilitated by previous corporate centralization, and although the process is inherently unstable and short-lived, it can generate very large differential gains. By its nature, though, such inflation is possible only through a vigilant limitation of production, as a result of which inflation appears as stagflation.
Proposition 8. Over the longer term, differential accumulation depends primarily on mergers and acquisitions. In the shorter term, it can benefit from sharp stagflationary crises. The main engine of differential accumu- lation is corporate amalgamation, a process that thrives on overall growth and the successive breakup of ownership 'envelopes'. Occasional discontinuities in the process, however, push dominant capital toward an alternative regime of stagflationary redistribution. The result is a pendulum-like oscillation between long periods of relative political- economic stability accompanied by green-field growth and low inflation, and shorter periods of heightened conflict, stagnation and inflation.
The remaining chapters of the book highlight the significance of these propositions with an examination of the US experience over the past century. Brevity and the exclusive focus on the United States make this analysis suggestive rather than exhaustive. Nonetheless, the United States and US- based firms have had a leading role in shaping modern capitalism, so their experience may offer insight into other cases as well as into the nature of capi- talist development more broadly. Finally, a word of caution. Although the
Differential accumulation and dominant capital 333
United States offers the best historical data, these are not always suited for our disaggregate analysis and occasionally force us into rough approxima- tions, roundabout estimates and bare speculations. Our conclusions therefore are tentative and open to challenges, and they invite further research and discussion.
15 Breadth
It is difficult to describe the rapacity with which the American rushes forward to secure the immense booty which fortune proffers to him. . . . for he is goaded onwards by a passion more intense than the love of life. Before him lies a boundless continent, and he urges onwards as if time pressed and he was afraid of finding no room for his exertions.
? Alexis de Tocqueville, Democracy in America
It is hard to think of a capitalist growth episode more exhilarating and prom- ising than the nineteenth-century advancement of the 'American frontier'. The promise of abundance, riches and endless opportunities (minus the Indians) excited tellers of stories and theories alike and lured millions to try their luck in the land of unlimited possibilities (Zinn 1999).
Yet, as the opening quote from de Tocqueville points out, even in this historically unique period, with a wilderness large and fertile enough to accommodate everyone, the pursuit of growth was decidedly differential. Growth itself may seem unbounded, but the control of growth is always bounded. No capitalist can ever control more than the entire social process. This is the whole. The only way for some owners to gain more power over this totality is for others to give up some of theirs. In the rush for power, there is never enough room for everyone.
The present chapter examines how dominant capital increases its power by augmenting the relative size of its corporate organs. To reiterate, there are two basic ways of doing so: (1) green-field investment that buys newly built facilities and hires new employees,1 and (2) mergers and acquisitions that take over the existing facilities and employees of other firms. We spend relatively little time on green-field growth, which, as we shall see, is the less important avenue. The bulk of the chapter is devoted to corporate amalgamation and its far-reaching implications for the capitalist creorder.
1 Throughout the chapter, we use the term 'green-field investment' to denote the purchase of newly produced plant and equipment. The production of these items is distinct from the process of accumulation.
? Green-field
Dominant capital can run its green-field investment at different speeds: it can sprint ahead of the pack, expanding its employment faster than the overall growth of the business sector; it can run with the pack, expanding at the same rate as the business sector; or it can trail the business sector. Of these strat- egies, the first two are relevant for our inquiry. Both augment the external breadth of dominant capital (differential employment per firm); but as it turns out, both act as a double-edged sword in that they also undermine external depth (differential profit per firm).
Running ahead of the pack
The consequences of running ahead of the pack are fairly clear. When larger firms hire new workers faster than the overall expansion of private employ- ment, their corporate size grows relative to that of the average firm (particu- larly since, as we shall see shortly, the size of the average firm tends to fall even as overall employment rises).
But, save for exceptional circumstances, this strategy is suicidal. Recall that the ultimate purpose is to increase not the relative size of the organiza- tion (breadth), but of relative profit (the product of breadth and depth). And it turns out that that this strategy usually loses in depth more than it gains in breadth, leading to falling differential profit.
As the reader now knows, 'letting industry loose' undermines the funda- mental tenet of 'sabotage' without which profit and accumulation are impossible. The vulnerability here is so great that even the mere anticipation of 'excessive' growth is often enough to trigger panic, price war and sharply lower differential profit per firm. Perhaps this is the reason that most domi- nant-capital executives respond to green-field 'opportunities' with the suspi- cion of a New-York-City driver who has just spotted an empty parking space. Their typical knee-jerk reaction is to look for the proverbial road-sign warning: 'Don't even THINK of parking (your cash) here'.
Running with the pack
Fortunately for dominant capital, there is no need to lead. Simply going with the crowd and letting employment expand in tandem with the business sector as a whole is sufficient to generate external breadth. The success of this 'sound' strategy has to do with the different expansion patterns of large and small firms.
Large companies react to overall growth mainly by increasing their employment ranks. Smaller companies, by contrast, respond by growing in number (through the birth of new firms) as well as in size (by hiring more workers). This difference is important since newborn firms, by their very nature, tend to be smaller than the average (recall our discussion of aggregate
Breadth 335
336 Accumulation of power
concentration in Chapter 14). The implication is that, even if green-field growth is spread proportionately between dominant capital and the rest of the business universe (since both expand at the same clip), as long as some of this growth results in the birth of smaller firms, the net impact is to reduce average employment per firm and, therefore, to augment the differential breadth of dominant capital.
The evolution of this process in the United States is illustrated in Figure 15. 1, which shows the number of corporations, the overall level of employment and the average number of employees per firm (with series rebased for comparison). 2 The overall picture is one of pronounced diver- gence. From 1926 to 2008, the number of corporations has risen nearly
10,000
1,000
100
10
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
Figure 15. 1 US employment, number of firms and size of firms * Corporations only.
** Nonfarm private employment divided by the number of firms.
Source: U. S. Internal Revenue Service (number of corporate tax returns; the numbers for 2004- 2006 are extrapolated based on recent growth rates); Historical Statistics of the United States (series codes: D127 for non-agricultural employment; D139 for non-agricultural government employment till 1938); U. S. Bureau of Economic Analysis through Global Insight (series codes: EEA for nonfarm private employment from 1939 onward).
2 Note that not all 'active corporations', as the IRS classifies them, accumulate. Many firms are incorporated solely for legal purposes, tax evasion, etc. , and often have neither assets nor employees. The proportion of such firms is fairly large but also fairly stable. According
? ? ? ? ? log scale
? ? ? ? ? Number of Firms *
Nonfarm Private Employment
? ? ? ? ? ? ? ? ? ? ? ? ? 1926=100
www. bnarchives. net
Average Employment per Firm **
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Breadth 337
sixteenfold, whereas overall employment has grown only threefold. As a result of this difference, average employment per firm has dropped by over 75 per cent (note the logarithmic scale). 3
The process wasn't always even.
During the two decades between the mid- 1920s and mid-1940s, the number of firms remained relatively stable, first because of the Great Depression, and subsequently due to the Second World War. Consequently, changes in overall employment during that period were reflected more or less fully in the average size of firms, which fell throughout the Depression only to rise rapidly thereafter.
In the longer run, however, this early pattern proved an aberration. As noted, capitalism is subject to strong centrifugal forces, one of which is the inability of business enterprise to control the overall number of independent capitalists on the scene. And indeed, after the war, the number of firms started multiplying again, while their average size trended down more or less contin- uously. Since large-firm employment has increased over the same period, we can safely conclude that overall employment growth served to boost the differential breadth of dominant capital.
The indirect impact of employment growth, operating through depth, is more complex and harder to assess. On the one hand, the multiplicity of small firms keeps their profit per employee low - partly by precluding cooperation and pricing discretion and partly by undermining formal political action. This fact bears positively on the differential depth of dominant capital. At the same time, unruly growth in the number of small firms can quickly degen- erate into excess capacity, threatening to unravel cooperation within domi- nant capital itself. The balance between these conflicting forces is difficult if not impossible to determine.
All in all, then, green-field growth is no panacea for dominant capital. Although the process boosts its differential breadth, it has an indeterminate and possibly negative effect on differential depth. One way to counteract this latter threat is to scare the underlying population with 'overheating' and educate 'policy makers' about the benefits of 'balanced growth' - a
to the IRS, in 2004 roughly 12 per cent of all active corporations had no assets (zero book value) - a bit less than in 1935, when 13 per cent of corporations were in the same position. The long-term stability of this ratio means that the attendant bias need not concern us here.
3 Our measurements here are not strictly comparable: we contrast the number of corporations with overall non-agricultural private employment (that also includes proprietorships and partnerships), rather than with corporate employment only (for which data are not publicly available). However, we can assess the accuracy of this comparison indirectly, by looking at the share of corporations in nonfarm private GDP (using data from the U. S. Bureau of Economic Analysis, Tables 1. 3. 5 and 1. 14). This share rose from 61 per cent in 1929 to 67 per cent in 2007 - a 10 per cent increase. Now, if we assume that relative employment trends roughly track relative GDP trends, the implication is that, over the entire period, corporate employment rose by only 10 per cent more than overall nonfarm employment. Compared to the threefold rise in nonfarm private employment reported in the text, this bias is too small to affect the overall results.
? 338 Accumulation of power
stagnationary recipe that has been applied with considerable success over the past half-century. 4 But the more fundamental solution to the problem is corporate amalgamation.
Mergers and acquisitions
A mystery of finance
Our discussion of amalgamation begins with Figure 15. 2. The chart plots a 'buy-to-build' indicator, expressing the dollar value of mergers and acquisi- tions as a per cent of the dollar value of gross fixed investment. In terms of our own categories, this index corresponds roughly to the ratio between internal and external breadth. (The data sources and method of computing this index are described in the Data Appendix to the chapter. )
The chart illustrates two important processes - one secular, the other cyclical. Secularly, it shows that, over the longer haul, mergers and acquisi- tions indeed have become more important relative to green-field investment
1,000. 0
100. 0
10. 0
1. 0
0. 1
? ? ? ? ? log scale
? ? ? 1999
218%
? ? ? ? ? ? ? ? ? ? ? ? trend growth rate: 3. 4% per annum
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Buy-to-Build Indicator
? ? ? ? ? ? 1896
0. 3%
(mergers & acquisitions as a per cent
of gross fixed private domestic investment)
www. bnarchives. net
? ? ? ? ? ? ? ? ? ? ? ? ? 1880 1900
1920 1940 1960 1980 2000 2020
Figure 15. 2 US accumulation: internal vs external breadth Source: See Data Appendix to the chapter.
? 4 For a neo-Marxist analysis of this long-term policy bias, see Steindl (1979).
Breadth 339
(Proposition 3 in Chapter 14). At the end of the nineteenth century, money put into amalgamation was equivalent to less than 1 per cent of green-field investment; a century later, the ratio surpassed 200 per cent. The trend growth rate indicated in the chart suggests that, year in, year out, mergers and acqui- sitions grew 3. 4 percentage points faster than new capacity.
Now, whereas employment associated with new capacity is added by small and large firms alike, amalgamation increases mostly the employment ranks of dominant capital. The net effect of this trend, therefore, is a massive contri- bution to the differential accumulation of large firms. 5
The reasons for this tendency are not at all obvious. Why do firms decide to merge with, or take over other firms? Why has their urge to merge grown stronger over time? And what does this process mean for the broader political economy?
These are not straw-man questions. Mergers baffle the experts. 'Most mergers disappoint', writes The Economist, 'so why do firms keep merging? ' (Anonymous 1998). And the textbooks offer no clear answer. According to one influential manual, mergers remain one of the 'ten mysteries of finance', a riddle for which there are many partial explanations but no overall theory (Brealey et al. 1992: Ch. 36).
The efficiency spin
Needless to say, amalgamation is a real headache for mainstream economics, whose models commonly rely on the assumption of atomistic competition. Alfred Marshall (1920) tried to solve the problem by arguing that firms, however large, are like trees in the forest: eventually they lose their vitality and die out in competition with younger, more vigorous successors.
On its own, though, the forest analogy was not entirely persuasive, if only because incorporation made firms potentially perpetual. So, for the sceptics, Marshall had to offer an add-on. Even if large firms failed to die, he said, and instead grew into a corporate caste, the attendant social inconvenience was still tolerable - because, first, such a caste tended to be benevolent and, second, the political costs were outweighed by the greater economic efficiency of large-scale business enterprise.
The rigorous spin on this justification was provided by Ronald Coase (1937), who stated that the size of firms is largely a matter of 'transaction costs'. Inter-firm transactions, he asserted, are the most efficient since they are subject to market discipline. Unfortunately, such transactions are not free, and therefore they make sense only if their efficiency gains exceed the
5 The effect on relative employment growth is probably somewhat smaller than implied by the dollar figures. First, amalgamated companies often end up shedding some workers, and second, merger and acquisition data include divestitures that reduce rather than raise employment (though only if the acquirer isn't part of dominant capital). Correcting for these qualifications, though, isn't likely to alter the overall trend.
? 340 Accumulation of power
extra cost of carrying them through; otherwise, they should be internalized as intra-firm activity. Using such a calculus, one can then determine the proper 'boundary' of the firm, which, according to Coase, is set at the precise point where 'the costs of organizing an extra transaction within the firm become equal to the costs of carrying out the same transaction by means of an exchange on the open market or the costs of organizing in another firm' (p. 96).
The ideological leverage of this theory proved immense. It implied that if companies such as General Electric, Cisco or Exxon decided to 'internalize' their dealings with other firms by swallowing them up, then that must be socially efficient; and it meant that their resulting size - no matter how big - was necessarily 'optimal' (for instance, Williamson 1985; 1986). In this way, the nonexistence of perfect competition was no longer an embarrassment for neoclassical theory. To the contrary, it was the market itself that determined the right 'balance' between the benefits of competition and corporate size - and what is more, the whole thing was achieved automatically, according to the eternal principles of marginalism.
But then, there is a little glitch in this Nobel-winning spin: it is irrefutable. The problem is, first, that the cost of transactions (relative to not transacting) and the efficiency gains of transactions (relative to internalization) cannot be measured objectively; and, second, that it isn't even clear how to identify the relevant transactions in the first place. This measurement limbo makes marginal transaction costs - much like marginal productivity and marginal utility - unobservable; and with unobservable magnitudes, reality can never be at odds with the theory. 6
For instance, one can use transaction costs to claim that the historical emergence of 'internalized' command economies such as Nazi Germany or the Soviet Union proves that they were more efficient than their market predecessors. The obvious counterargument, which may well be true, is that that these systems were imposed 'from above', driven by a quest for power rather than efficiency. But then, can we not say the exact same thing about the development of oligopolistic capitalism? 7
In fact, if it were only for efficiency, corporations should have become smaller, not larger. According to Coase's theory, technical progress, particu- larly in information and communication, reduces transaction costs, making the market look increasingly appealing and large corporations ever more cumbersome. And, indeed, using this very logic, Francis Fukuyama (1999) has announced the 'death of the hierarchy', while advocates of the 'E-Lance Economy' (as in freelance) have argued that today's corporate behemoths are
6 The literature on 'measuring' transaction costs is reviewed sympathetically by Wang (2007) and Macher and Richman (2008). For a critical assessment, see Buckley and Chapman (1997).
7 For more on the contrast between power and efficiency arguments here, see Knoedler (1995).
? Breadth 341
anomalous and will soon be replaced by small, 'virtual' firms (Malone and Laubacher 1998). So far, though, these predictions seem hopelessly wrong: amalgamation has not only continued, but accelerated, including in the so-called high-technology sector, where transaction costs have supposedly fallen the most.
From efficiency to power
From an efficiency perspective, the relentless growth of large firms is indeed puzzling. Why do firms give up the benefit of market transactions in pursuit of further, presumably more expensive internalization? Are they not inter- ested in lower costs?
From a power viewpoint, though, the riddle is more apparent than real. Improved technology certainly can reduce the minimum efficient scale of production (MES); and, indeed, today's largest establishments (plants, head offices, etc. ) often are smaller than they were a hundred years ago. However, firms are not production entities but business units; and given that they can own many establishments, their boundary need not depend on production as such. The real issue with corporate size is not efficiency but differential profit, and the key question therefore is whether amalgamation helps firms beat the average - and if so, how?
The conventional wisdom here is that mergers and acquisitions are a disci- plinary form of 'corporate control'. According to writers such as Manne (1965), Jensen and Ruback (1983) and Jensen (1987), managers are often subject to conflicting loyalties, and this conflict may compromise their commitment to profit maximization (the so-called principal-agent problem). The threat of takeover puts these managers back in line, forcing them not only to improve efficiency, but also to translate such efficiency into higher profit and rising shareholders' value.
This argument became popular during the 1980s. The earning yield on US equities fell below the yield on long-term bonds for the first time since the 1940s, and that drop gave corporate 'raiders' the academic justification (if they needed one) for launching the latest and longest merger wave. The logic of the argument, however, was and remains problematic. Mergers may indeed be driven by profit, but that in itself has little to do with productivity gains. Neither is there much evidence that mergers are prompted by inefficiency, or that they make the combined firms more efficient. 8 Indeed, as we suggested in Chapter 12 and argue further below, the latent function of mergers in this regard is not to boost efficiency but to tame it - a task that they achieve by keeping a lid on overall capacity growth. Moreover, there is no clear indica- tion that mergers make the amalgamated firms more profitable than they
8 See for example, Ravenscraft and Scherer (1987), Caves (1989), Bhagat, Shleifer and Vishny (1990) and Kaplan (2000).
? 342 Accumulation of power
were separately - although here the issue is somewhat more complicated and requires some explication.
Two points are worth noting. First, there is a serious methodological diffi- culty. Most attempts to test the effects of mergers on profitability are based on comparing the performance of merged and non-merged companies. 9 While this method may offer some insight in the case of individual firms, it is misleading when applied to dominant capital as a whole. Looking at the amalgamation process in its entirety, the issue is not how it compares with 'doing nothing' (that is, with not amalgamating), but rather how it contrasts with the alternative strategy of green-field investment. Unfortunately, such a comparison is impossible since the very purpose of mergers and acquisitions is to avoid creating new capacity. In other words, amalgamation removes the main evidence against which one can assess its business success.
Perhaps a better, albeit 'unscientific', way to tackle the issue is to answer the following hypothetical question: What would have happened to the prof- itability of dominant capital in the United States if, instead of splitting its investment one third for green-field and two thirds for mergers and acquisi- tions, it were to plough it all back into new capacity? As Veblen (1923) correctly predicted, such a 'free run of production' is not going to happen, so we cannot know for sure. But then the very fact it hasn't happened, together with the century-long tendency to move in the opposite direction, from green- field to amalgamation, already suggests what the answer may be. 10
The second important point concerns the meaning of 'profitability' in this context. Conventional measures, such as earnings-to-price ratio, return on equity, or profit margin on sales, relevant as they may be for investors, are too narrow as indicators of capitalist power - particularly when such power is vested in and exercised by corporations rather than individuals. A more appropriate measure for this power is the distribution and differential growth of profit (and of capitalization more broadly), and from this perspective mergers and acquisitions make a very big difference. By fusing previously distinct earning streams, amalgamation contributes to the organized power of dominant capital, regardless of whether or not it augments the more conven- tional rates of return. In our view, this 'earning fusion', common to all mergers, is also their ultimate reason.
And indeed, by gradually shifting the emphasis from building to buying, from colliding to colluding and from a certain measure of public oversight to increasingly capitalized government, corporate capitalism in the United States and elsewhere has been able not only to lessen the destabilizing impact of green-field cycles pointed out by Marx, but also to reproduce and consoli- date on an ever-growing scale. Instead of collapsing under its own weight,
9 For instances of this approach, see Ravenscraft (1987), Ravenscraft and Scherer (1989), Scherer and Ross (1990: Ch. 5) and Healy, Palepu and Ruback (1992).
10 See also footnote 12 in Chapter 12, for the accumulation consequences of Japan's anti- merger/all-for-growth attitude.
? Breadth 343
capitalism seems to have grown stronger. The broader consequence of this shift has been creeping stagnation (Proposition 3 in Chapter 14); and yet, as Veblen already suggested a century ago, the large accumulators have learned to 'manage' this stagnation for their own ends.
Patterns of amalgamation
Merger waves
Now, this general rationale for merger does not in itself explain the concrete historical trajectory of corporate amalgamation. Mergers and acquisitions grow, but not smoothly, and indeed the second feature evident in Figure 15. 2 is the cyclical pattern of the series (Proposition 4 in Chapter 14).
Looking at the past century, we can identify four amalgamation 'waves'.
Internal Depth: Cost Cutting. The purpose is to cheapen production faster than the average, either through relative efficiency gains or by larger reductions in input prices. The process is 'internal' in that it redis- tributes income shares within a given price. Although cost cutting is relentlessly pursued by large firms (directly as well as indirectly through outsourcing), the difficulty of both protecting new technology and controlling input prices suggests that the net effect commonly is to meet the average rather than to beat it.
External Depth: Stagflation. Our emphasis on stagflation rather than inflation is deliberate: contrary to the conventional wisdom, inflation usually occurs with, and often necessitates, some slack. Now, for a single seller, higher prices commonly are more than offset by lost volume, but things are different for a coalition of sellers. Dominant capital, to the extent that it acts in concert, can benefit from higher prices, since, up to a point, the relative gain in earnings per unit outweighs the relative decline in volume. Of course, for the process to become continuous (inflation rather than discrete price increases), other firms must join the spiral. But small companies have little political leverage and usually are unable to collude, so the common result is to redistribute income in favour of the
3
4
? 19 For any given firm, green-field investment of course can draw on inter-firm labour mobility as well as on new employment. From an aggregate perspective, however, labour movement between firms is properly classified as internal breadth.
Differential accumulation and dominant capital 331 bigger ones who can. We refer to this method as 'external' since the redis-
tribution occurs through a (pecuniary) expansion of the earnings pie.
Some implications
In addressing the implications of this taxonomy, it is important to distinguish the case of an individual large corporation from the broader analysis of domi- nant capital as a group. A single firm may successfully combine different facets of breadth and depth. However, the same does not hold true for domi- nant capital as a whole. If we look at breadth and depth not as firm strategies, but as overall regimes of differential accumulation, it quickly becomes apparent that the broader conditions that are conducive to one regime often undermine the other. For the sake of brevity, we group our tentative argu- ments here into eight related propositions:
? Proposition 1. Understood as broad regimes, breadth and depth tend to move counter-cyclically to one another. Breadth presupposes some measure of employment growth as well as relative political-economic stability. Depth, on the other hand, commonly implies restrictions, conflict, and stagflation. Although strictly speaking the two regimes are not mutually exclusive, they tend to 'negate' one other, with more breadth being asso- ciated with less depth, and vice versa.
? Proposition 2. Of the two regimes, breadth is the path of least resistance. There are two reasons for this pattern. First, usually it is more straight- forward and less conflictual to expand one's organization than it is to engage in collusive increases in prices or in struggles over input prices. Although both methods are political in the wide sense of the term, depth commonly depends on complex corporate-state realignments that are not necessary for breadth. Second, breadth is relatively more stable and hence easier to extend and sustain, whereas depth, with its heightened social antagonism, is more vulnerable to backlash and quicker to spin out of control.
? Proposition 3. Over the longer haul, mergers and acquisitions tend to rise relative to green-field investment. While both routes can contribute to differential accumulation, as capitalism spreads geographically and dominant capital grows in importance, so does the threat of excess capacity. Mergers and acquisitions alleviate the problem whereas green- field aggravates it. 20 The broader consequence of this shift is for chronic stagnation to gradually substitute for cyclical instability.
20 The notion of excess capacity, associated mainly with Monopoly Capital writers such as Kalecki (1971), Steindl (1952) and Baran and Sweezy (1966), is admittedly problematic. Here, we use it to denote the potential threat to prevailing earning margins from higher resource utilization. To illustrate, recall from Figure 12. 2 that, since the Second World War, US margins, measured by the combined profit and interest share of GDP, have been positively related to the rate of unemployment. In this context, a move from higher to lower unemployment increases utilization and threatens margins.
? 332 ?
?
?
?
?
Accumulation of power
Proposition 4. The relative growth of mergers and acquisitions is likely to oscillate around its uptrend. Corporate amalgamation involves major social restructuring and hence is bound to run into roadblocks. The result is a wave-like pattern, with long periods of acceleration followed by shorter downturns.
Proposition 5. The underlying logic of mergers and acquisitions implies progressive 'spatial' unification and, eventually, globalization. For amalga- mation to run ahead of overall growth, dominant capital must succes- sively break its 'envelopes', spreading from the industry, to the sector, to the national economy, and ultimately to the world as a whole. In this sense, differential accumulation is a prime mover of spatial integration and globalization.
Proposition 6. Cost cutting is not a real alternative to an amalgamation lull. The pressure to reduce cost is ever-present, but its effect is more to meet than to beat the average. The principal reason is that productivity improvements are neither inherently related to corporate size nor easy to protect. Similarly, reductions in input prices seldom are proprietary and often spill over to other firms.
Proposition 7. A much more potent response to declining mergers and acquisitions is inflationary increases in earning margins. This method is often facilitated by previous corporate centralization, and although the process is inherently unstable and short-lived, it can generate very large differential gains. By its nature, though, such inflation is possible only through a vigilant limitation of production, as a result of which inflation appears as stagflation.
Proposition 8. Over the longer term, differential accumulation depends primarily on mergers and acquisitions. In the shorter term, it can benefit from sharp stagflationary crises. The main engine of differential accumu- lation is corporate amalgamation, a process that thrives on overall growth and the successive breakup of ownership 'envelopes'. Occasional discontinuities in the process, however, push dominant capital toward an alternative regime of stagflationary redistribution. The result is a pendulum-like oscillation between long periods of relative political- economic stability accompanied by green-field growth and low inflation, and shorter periods of heightened conflict, stagnation and inflation.
The remaining chapters of the book highlight the significance of these propositions with an examination of the US experience over the past century. Brevity and the exclusive focus on the United States make this analysis suggestive rather than exhaustive. Nonetheless, the United States and US- based firms have had a leading role in shaping modern capitalism, so their experience may offer insight into other cases as well as into the nature of capi- talist development more broadly. Finally, a word of caution. Although the
Differential accumulation and dominant capital 333
United States offers the best historical data, these are not always suited for our disaggregate analysis and occasionally force us into rough approxima- tions, roundabout estimates and bare speculations. Our conclusions therefore are tentative and open to challenges, and they invite further research and discussion.
15 Breadth
It is difficult to describe the rapacity with which the American rushes forward to secure the immense booty which fortune proffers to him. . . . for he is goaded onwards by a passion more intense than the love of life. Before him lies a boundless continent, and he urges onwards as if time pressed and he was afraid of finding no room for his exertions.
? Alexis de Tocqueville, Democracy in America
It is hard to think of a capitalist growth episode more exhilarating and prom- ising than the nineteenth-century advancement of the 'American frontier'. The promise of abundance, riches and endless opportunities (minus the Indians) excited tellers of stories and theories alike and lured millions to try their luck in the land of unlimited possibilities (Zinn 1999).
Yet, as the opening quote from de Tocqueville points out, even in this historically unique period, with a wilderness large and fertile enough to accommodate everyone, the pursuit of growth was decidedly differential. Growth itself may seem unbounded, but the control of growth is always bounded. No capitalist can ever control more than the entire social process. This is the whole. The only way for some owners to gain more power over this totality is for others to give up some of theirs. In the rush for power, there is never enough room for everyone.
The present chapter examines how dominant capital increases its power by augmenting the relative size of its corporate organs. To reiterate, there are two basic ways of doing so: (1) green-field investment that buys newly built facilities and hires new employees,1 and (2) mergers and acquisitions that take over the existing facilities and employees of other firms. We spend relatively little time on green-field growth, which, as we shall see, is the less important avenue. The bulk of the chapter is devoted to corporate amalgamation and its far-reaching implications for the capitalist creorder.
1 Throughout the chapter, we use the term 'green-field investment' to denote the purchase of newly produced plant and equipment. The production of these items is distinct from the process of accumulation.
? Green-field
Dominant capital can run its green-field investment at different speeds: it can sprint ahead of the pack, expanding its employment faster than the overall growth of the business sector; it can run with the pack, expanding at the same rate as the business sector; or it can trail the business sector. Of these strat- egies, the first two are relevant for our inquiry. Both augment the external breadth of dominant capital (differential employment per firm); but as it turns out, both act as a double-edged sword in that they also undermine external depth (differential profit per firm).
Running ahead of the pack
The consequences of running ahead of the pack are fairly clear. When larger firms hire new workers faster than the overall expansion of private employ- ment, their corporate size grows relative to that of the average firm (particu- larly since, as we shall see shortly, the size of the average firm tends to fall even as overall employment rises).
But, save for exceptional circumstances, this strategy is suicidal. Recall that the ultimate purpose is to increase not the relative size of the organiza- tion (breadth), but of relative profit (the product of breadth and depth). And it turns out that that this strategy usually loses in depth more than it gains in breadth, leading to falling differential profit.
As the reader now knows, 'letting industry loose' undermines the funda- mental tenet of 'sabotage' without which profit and accumulation are impossible. The vulnerability here is so great that even the mere anticipation of 'excessive' growth is often enough to trigger panic, price war and sharply lower differential profit per firm. Perhaps this is the reason that most domi- nant-capital executives respond to green-field 'opportunities' with the suspi- cion of a New-York-City driver who has just spotted an empty parking space. Their typical knee-jerk reaction is to look for the proverbial road-sign warning: 'Don't even THINK of parking (your cash) here'.
Running with the pack
Fortunately for dominant capital, there is no need to lead. Simply going with the crowd and letting employment expand in tandem with the business sector as a whole is sufficient to generate external breadth. The success of this 'sound' strategy has to do with the different expansion patterns of large and small firms.
Large companies react to overall growth mainly by increasing their employment ranks. Smaller companies, by contrast, respond by growing in number (through the birth of new firms) as well as in size (by hiring more workers). This difference is important since newborn firms, by their very nature, tend to be smaller than the average (recall our discussion of aggregate
Breadth 335
336 Accumulation of power
concentration in Chapter 14). The implication is that, even if green-field growth is spread proportionately between dominant capital and the rest of the business universe (since both expand at the same clip), as long as some of this growth results in the birth of smaller firms, the net impact is to reduce average employment per firm and, therefore, to augment the differential breadth of dominant capital.
The evolution of this process in the United States is illustrated in Figure 15. 1, which shows the number of corporations, the overall level of employment and the average number of employees per firm (with series rebased for comparison). 2 The overall picture is one of pronounced diver- gence. From 1926 to 2008, the number of corporations has risen nearly
10,000
1,000
100
10
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
Figure 15. 1 US employment, number of firms and size of firms * Corporations only.
** Nonfarm private employment divided by the number of firms.
Source: U. S. Internal Revenue Service (number of corporate tax returns; the numbers for 2004- 2006 are extrapolated based on recent growth rates); Historical Statistics of the United States (series codes: D127 for non-agricultural employment; D139 for non-agricultural government employment till 1938); U. S. Bureau of Economic Analysis through Global Insight (series codes: EEA for nonfarm private employment from 1939 onward).
2 Note that not all 'active corporations', as the IRS classifies them, accumulate. Many firms are incorporated solely for legal purposes, tax evasion, etc. , and often have neither assets nor employees. The proportion of such firms is fairly large but also fairly stable. According
? ? ? ? ? log scale
? ? ? ? ? Number of Firms *
Nonfarm Private Employment
? ? ? ? ? ? ? ? ? ? ? ? ? 1926=100
www. bnarchives. net
Average Employment per Firm **
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Breadth 337
sixteenfold, whereas overall employment has grown only threefold. As a result of this difference, average employment per firm has dropped by over 75 per cent (note the logarithmic scale). 3
The process wasn't always even.
During the two decades between the mid- 1920s and mid-1940s, the number of firms remained relatively stable, first because of the Great Depression, and subsequently due to the Second World War. Consequently, changes in overall employment during that period were reflected more or less fully in the average size of firms, which fell throughout the Depression only to rise rapidly thereafter.
In the longer run, however, this early pattern proved an aberration. As noted, capitalism is subject to strong centrifugal forces, one of which is the inability of business enterprise to control the overall number of independent capitalists on the scene. And indeed, after the war, the number of firms started multiplying again, while their average size trended down more or less contin- uously. Since large-firm employment has increased over the same period, we can safely conclude that overall employment growth served to boost the differential breadth of dominant capital.
The indirect impact of employment growth, operating through depth, is more complex and harder to assess. On the one hand, the multiplicity of small firms keeps their profit per employee low - partly by precluding cooperation and pricing discretion and partly by undermining formal political action. This fact bears positively on the differential depth of dominant capital. At the same time, unruly growth in the number of small firms can quickly degen- erate into excess capacity, threatening to unravel cooperation within domi- nant capital itself. The balance between these conflicting forces is difficult if not impossible to determine.
All in all, then, green-field growth is no panacea for dominant capital. Although the process boosts its differential breadth, it has an indeterminate and possibly negative effect on differential depth. One way to counteract this latter threat is to scare the underlying population with 'overheating' and educate 'policy makers' about the benefits of 'balanced growth' - a
to the IRS, in 2004 roughly 12 per cent of all active corporations had no assets (zero book value) - a bit less than in 1935, when 13 per cent of corporations were in the same position. The long-term stability of this ratio means that the attendant bias need not concern us here.
3 Our measurements here are not strictly comparable: we contrast the number of corporations with overall non-agricultural private employment (that also includes proprietorships and partnerships), rather than with corporate employment only (for which data are not publicly available). However, we can assess the accuracy of this comparison indirectly, by looking at the share of corporations in nonfarm private GDP (using data from the U. S. Bureau of Economic Analysis, Tables 1. 3. 5 and 1. 14). This share rose from 61 per cent in 1929 to 67 per cent in 2007 - a 10 per cent increase. Now, if we assume that relative employment trends roughly track relative GDP trends, the implication is that, over the entire period, corporate employment rose by only 10 per cent more than overall nonfarm employment. Compared to the threefold rise in nonfarm private employment reported in the text, this bias is too small to affect the overall results.
? 338 Accumulation of power
stagnationary recipe that has been applied with considerable success over the past half-century. 4 But the more fundamental solution to the problem is corporate amalgamation.
Mergers and acquisitions
A mystery of finance
Our discussion of amalgamation begins with Figure 15. 2. The chart plots a 'buy-to-build' indicator, expressing the dollar value of mergers and acquisi- tions as a per cent of the dollar value of gross fixed investment. In terms of our own categories, this index corresponds roughly to the ratio between internal and external breadth. (The data sources and method of computing this index are described in the Data Appendix to the chapter. )
The chart illustrates two important processes - one secular, the other cyclical. Secularly, it shows that, over the longer haul, mergers and acquisi- tions indeed have become more important relative to green-field investment
1,000. 0
100. 0
10. 0
1. 0
0. 1
? ? ? ? ? log scale
? ? ? 1999
218%
? ? ? ? ? ? ? ? ? ? ? ? trend growth rate: 3. 4% per annum
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Buy-to-Build Indicator
? ? ? ? ? ? 1896
0. 3%
(mergers & acquisitions as a per cent
of gross fixed private domestic investment)
www. bnarchives. net
? ? ? ? ? ? ? ? ? ? ? ? ? 1880 1900
1920 1940 1960 1980 2000 2020
Figure 15. 2 US accumulation: internal vs external breadth Source: See Data Appendix to the chapter.
? 4 For a neo-Marxist analysis of this long-term policy bias, see Steindl (1979).
Breadth 339
(Proposition 3 in Chapter 14). At the end of the nineteenth century, money put into amalgamation was equivalent to less than 1 per cent of green-field investment; a century later, the ratio surpassed 200 per cent. The trend growth rate indicated in the chart suggests that, year in, year out, mergers and acqui- sitions grew 3. 4 percentage points faster than new capacity.
Now, whereas employment associated with new capacity is added by small and large firms alike, amalgamation increases mostly the employment ranks of dominant capital. The net effect of this trend, therefore, is a massive contri- bution to the differential accumulation of large firms. 5
The reasons for this tendency are not at all obvious. Why do firms decide to merge with, or take over other firms? Why has their urge to merge grown stronger over time? And what does this process mean for the broader political economy?
These are not straw-man questions. Mergers baffle the experts. 'Most mergers disappoint', writes The Economist, 'so why do firms keep merging? ' (Anonymous 1998). And the textbooks offer no clear answer. According to one influential manual, mergers remain one of the 'ten mysteries of finance', a riddle for which there are many partial explanations but no overall theory (Brealey et al. 1992: Ch. 36).
The efficiency spin
Needless to say, amalgamation is a real headache for mainstream economics, whose models commonly rely on the assumption of atomistic competition. Alfred Marshall (1920) tried to solve the problem by arguing that firms, however large, are like trees in the forest: eventually they lose their vitality and die out in competition with younger, more vigorous successors.
On its own, though, the forest analogy was not entirely persuasive, if only because incorporation made firms potentially perpetual. So, for the sceptics, Marshall had to offer an add-on. Even if large firms failed to die, he said, and instead grew into a corporate caste, the attendant social inconvenience was still tolerable - because, first, such a caste tended to be benevolent and, second, the political costs were outweighed by the greater economic efficiency of large-scale business enterprise.
The rigorous spin on this justification was provided by Ronald Coase (1937), who stated that the size of firms is largely a matter of 'transaction costs'. Inter-firm transactions, he asserted, are the most efficient since they are subject to market discipline. Unfortunately, such transactions are not free, and therefore they make sense only if their efficiency gains exceed the
5 The effect on relative employment growth is probably somewhat smaller than implied by the dollar figures. First, amalgamated companies often end up shedding some workers, and second, merger and acquisition data include divestitures that reduce rather than raise employment (though only if the acquirer isn't part of dominant capital). Correcting for these qualifications, though, isn't likely to alter the overall trend.
? 340 Accumulation of power
extra cost of carrying them through; otherwise, they should be internalized as intra-firm activity. Using such a calculus, one can then determine the proper 'boundary' of the firm, which, according to Coase, is set at the precise point where 'the costs of organizing an extra transaction within the firm become equal to the costs of carrying out the same transaction by means of an exchange on the open market or the costs of organizing in another firm' (p. 96).
The ideological leverage of this theory proved immense. It implied that if companies such as General Electric, Cisco or Exxon decided to 'internalize' their dealings with other firms by swallowing them up, then that must be socially efficient; and it meant that their resulting size - no matter how big - was necessarily 'optimal' (for instance, Williamson 1985; 1986). In this way, the nonexistence of perfect competition was no longer an embarrassment for neoclassical theory. To the contrary, it was the market itself that determined the right 'balance' between the benefits of competition and corporate size - and what is more, the whole thing was achieved automatically, according to the eternal principles of marginalism.
But then, there is a little glitch in this Nobel-winning spin: it is irrefutable. The problem is, first, that the cost of transactions (relative to not transacting) and the efficiency gains of transactions (relative to internalization) cannot be measured objectively; and, second, that it isn't even clear how to identify the relevant transactions in the first place. This measurement limbo makes marginal transaction costs - much like marginal productivity and marginal utility - unobservable; and with unobservable magnitudes, reality can never be at odds with the theory. 6
For instance, one can use transaction costs to claim that the historical emergence of 'internalized' command economies such as Nazi Germany or the Soviet Union proves that they were more efficient than their market predecessors. The obvious counterargument, which may well be true, is that that these systems were imposed 'from above', driven by a quest for power rather than efficiency. But then, can we not say the exact same thing about the development of oligopolistic capitalism? 7
In fact, if it were only for efficiency, corporations should have become smaller, not larger. According to Coase's theory, technical progress, particu- larly in information and communication, reduces transaction costs, making the market look increasingly appealing and large corporations ever more cumbersome. And, indeed, using this very logic, Francis Fukuyama (1999) has announced the 'death of the hierarchy', while advocates of the 'E-Lance Economy' (as in freelance) have argued that today's corporate behemoths are
6 The literature on 'measuring' transaction costs is reviewed sympathetically by Wang (2007) and Macher and Richman (2008). For a critical assessment, see Buckley and Chapman (1997).
7 For more on the contrast between power and efficiency arguments here, see Knoedler (1995).
? Breadth 341
anomalous and will soon be replaced by small, 'virtual' firms (Malone and Laubacher 1998). So far, though, these predictions seem hopelessly wrong: amalgamation has not only continued, but accelerated, including in the so-called high-technology sector, where transaction costs have supposedly fallen the most.
From efficiency to power
From an efficiency perspective, the relentless growth of large firms is indeed puzzling. Why do firms give up the benefit of market transactions in pursuit of further, presumably more expensive internalization? Are they not inter- ested in lower costs?
From a power viewpoint, though, the riddle is more apparent than real. Improved technology certainly can reduce the minimum efficient scale of production (MES); and, indeed, today's largest establishments (plants, head offices, etc. ) often are smaller than they were a hundred years ago. However, firms are not production entities but business units; and given that they can own many establishments, their boundary need not depend on production as such. The real issue with corporate size is not efficiency but differential profit, and the key question therefore is whether amalgamation helps firms beat the average - and if so, how?
The conventional wisdom here is that mergers and acquisitions are a disci- plinary form of 'corporate control'. According to writers such as Manne (1965), Jensen and Ruback (1983) and Jensen (1987), managers are often subject to conflicting loyalties, and this conflict may compromise their commitment to profit maximization (the so-called principal-agent problem). The threat of takeover puts these managers back in line, forcing them not only to improve efficiency, but also to translate such efficiency into higher profit and rising shareholders' value.
This argument became popular during the 1980s. The earning yield on US equities fell below the yield on long-term bonds for the first time since the 1940s, and that drop gave corporate 'raiders' the academic justification (if they needed one) for launching the latest and longest merger wave. The logic of the argument, however, was and remains problematic. Mergers may indeed be driven by profit, but that in itself has little to do with productivity gains. Neither is there much evidence that mergers are prompted by inefficiency, or that they make the combined firms more efficient. 8 Indeed, as we suggested in Chapter 12 and argue further below, the latent function of mergers in this regard is not to boost efficiency but to tame it - a task that they achieve by keeping a lid on overall capacity growth. Moreover, there is no clear indica- tion that mergers make the amalgamated firms more profitable than they
8 See for example, Ravenscraft and Scherer (1987), Caves (1989), Bhagat, Shleifer and Vishny (1990) and Kaplan (2000).
? 342 Accumulation of power
were separately - although here the issue is somewhat more complicated and requires some explication.
Two points are worth noting. First, there is a serious methodological diffi- culty. Most attempts to test the effects of mergers on profitability are based on comparing the performance of merged and non-merged companies. 9 While this method may offer some insight in the case of individual firms, it is misleading when applied to dominant capital as a whole. Looking at the amalgamation process in its entirety, the issue is not how it compares with 'doing nothing' (that is, with not amalgamating), but rather how it contrasts with the alternative strategy of green-field investment. Unfortunately, such a comparison is impossible since the very purpose of mergers and acquisitions is to avoid creating new capacity. In other words, amalgamation removes the main evidence against which one can assess its business success.
Perhaps a better, albeit 'unscientific', way to tackle the issue is to answer the following hypothetical question: What would have happened to the prof- itability of dominant capital in the United States if, instead of splitting its investment one third for green-field and two thirds for mergers and acquisi- tions, it were to plough it all back into new capacity? As Veblen (1923) correctly predicted, such a 'free run of production' is not going to happen, so we cannot know for sure. But then the very fact it hasn't happened, together with the century-long tendency to move in the opposite direction, from green- field to amalgamation, already suggests what the answer may be. 10
The second important point concerns the meaning of 'profitability' in this context. Conventional measures, such as earnings-to-price ratio, return on equity, or profit margin on sales, relevant as they may be for investors, are too narrow as indicators of capitalist power - particularly when such power is vested in and exercised by corporations rather than individuals. A more appropriate measure for this power is the distribution and differential growth of profit (and of capitalization more broadly), and from this perspective mergers and acquisitions make a very big difference. By fusing previously distinct earning streams, amalgamation contributes to the organized power of dominant capital, regardless of whether or not it augments the more conven- tional rates of return. In our view, this 'earning fusion', common to all mergers, is also their ultimate reason.
And indeed, by gradually shifting the emphasis from building to buying, from colliding to colluding and from a certain measure of public oversight to increasingly capitalized government, corporate capitalism in the United States and elsewhere has been able not only to lessen the destabilizing impact of green-field cycles pointed out by Marx, but also to reproduce and consoli- date on an ever-growing scale. Instead of collapsing under its own weight,
9 For instances of this approach, see Ravenscraft (1987), Ravenscraft and Scherer (1989), Scherer and Ross (1990: Ch. 5) and Healy, Palepu and Ruback (1992).
10 See also footnote 12 in Chapter 12, for the accumulation consequences of Japan's anti- merger/all-for-growth attitude.
? Breadth 343
capitalism seems to have grown stronger. The broader consequence of this shift has been creeping stagnation (Proposition 3 in Chapter 14); and yet, as Veblen already suggested a century ago, the large accumulators have learned to 'manage' this stagnation for their own ends.
Patterns of amalgamation
Merger waves
Now, this general rationale for merger does not in itself explain the concrete historical trajectory of corporate amalgamation. Mergers and acquisitions grow, but not smoothly, and indeed the second feature evident in Figure 15. 2 is the cyclical pattern of the series (Proposition 4 in Chapter 14).
Looking at the past century, we can identify four amalgamation 'waves'.
