My Two Cents

Since 9/11, Americans have been able to clearly separate common sense from jibberish, idealism from opportunism and honesty from fanaticism. And that’s not just rhetoric.

We all noticed, for example, that when bad times came, the so-called “free-marketers” immediately ran for bail-outs to the same government they previously wanted out of their way.

Plus, did you wonder why the same people who barked at the prospect of big, protective government, are the ones who now get upset when one dares to criticize it? Case in point: the “Beverly Hills Summit,” where the White House asked Hollywood producers to get with the program and support the government propaganda machine. Now, if you’re caught disagreeing with this request, the wrath of the “keep-the-government-small-and-out-of-the-way” brigade will fall upon ye.

This brigade tends to be made up of the same people who would kill (and some do) to save a fetus from abortion, yet are happy to fry criminals. I guess a life is only a life depending on the political bent, and a government is only a government depending on the occasion (read: hand outs).

Then, take vertical and horizontal integrations, the masterpiece of free-marketers. Indeed, their new mantra now seems to be: “take it away, please!” But some die-hards protest: “in order to face large capital expenditures, companies must be huge.” Better yet, they should become dominant in their fields or monopolies (the buzz word here is to be No. 1). Free-marketers tend to be monopolistic and not too “free” after all. As stated by Karen van Miert, former EU Competition Commissioner: “Some chief executives pretend that competition can exist without competition.”

Not so, I say, if standardization and incentives (both government prerogatives) were to be implemented. costs would come down. Today, one of the biggest costs of doing business in technology-related fields is due to lack of common standards, something that big business and free-marketers don’t want and, in order to prevent them, they weaken the political process that could bring order, rules and regulations.

But let’s be specific: What’s wrong with vertical integration?

First of all, it has been said that if every part of a company has to serve every other part, there’s no incentive to talk about anything else. Of course, one could make the distinction that vertical integration is different from synergy, but that’s only semantics. Second, with integration, a good portion of the revenue flow is internal, which begs the question: where is the threshold that could cause the house of cards to collapse? Third, conglomerates play Wall Street games by cutting personnel, programming, development and marketing, a short-term gimmick that will come to hound them in the long run (but that will be someone else’s problem, well after the stock options have been exercised). So, budget cuts force re-runs instead of original programming, which cannot be produced internally in the quantity needed or be purchased outside. This is why Sony shut its Columbia TriStar Network television unit and Warner Bros. Television scaled back its roster of writers-producers.

In the past, in order to see stock grow, companies were pushed into strange mergers or acquisitions. Firms overpaid for businesses across the board. Today, 30 percent of the capital committed to U.S. buy-outs between 1998 and 2000 is at risk of being written off. Before, we didn’t have to confuse brains with a bull market; now we’re told that many break-ups, such as AT&T, are based on the view that they’re worth more in pieces than as a whole.

But that’s not all. Rupert Murdoch is losing sleep over the prospect of a merger between Time Warner (the second largest U.S. cable-TV operator) and AT&T (the largest). “We produce content, and so we don’t welcome the immense power,” he has been quoted as saying.

Meanwhile, other media conglomerates are relieved that Murdoch won’t be adding a U.S. satellite distribution powerhouse to his global empire. Jean Marie Messier of Vivendi-Universal for one, acknowledged that he feared Murdoch acquiring Direct-TV. All of this, courtesy of consolidation.

Dom Serafini