Kimberley Josephson Tried to Defend Mergers and Acquisitions

Assorted retorts from yahoo boards and elsewhere: Rothbart and Mises Have Some Things to Say on School, But Less So on Economics · New blog on the kid: Kimberley Josephson Tried to Defend Mergers and Acquisitions · Being Outspoken is a Virtue in a Writer

First, there is a thing I totally agree on:

Carl Menger once said that “Man himself is the beginning and the end of every economy” and Charlie Munger has asserted that “If you have a dumb incentive system, you get dumb outcomes.” I completely agree with both Menger and Munger and would like to add that if you have distorted incentives, you get distorted outcomes.

This agreement does not cover the title of the essay:

It’s Time to Stop the Prejudice against Mergers and Acquisitions
Saturday, January 27, 2024 | Kimberlee Josephson
https://fee.org/articles/it-s-time-to-stop-the-prejudice-against-mergers-and-acquisitions/

I'll quote her own summing up of this:

There is no justification for assuming from the outset that a merger or acquisition will be bad for consumers.

I take it that Kimberlee Josephson lives in the world of The Wind in the Willows. You know, where Toad of Toad Hall and the other animals can be consumers, without ever having to be producers. Or be associated with them. On the one hand, as C. S. Lewis stated, they have all the irresponsability of children, who never need to go to work. On the other hand, they have all the freedom of adults, who don't have to go to school or eat up a vegetable they do not like or wear a thing they don't appreciate the looks or feel of.

A man is usually enabled to consume by:

• being a producer in association with sellers
• being a seller in association with producers
• being an employee of a seller or a producer or of the state
• being an heir of a very rich version of any of the above, while he lived
• receiving donations from any of above (for whatever service he does or is seen as doing by those giving)
• being a dependent of any of above
• being dependent on the state.

Which of the above do not need to take orders? Apart, obviously from "taking orders" on goods to deliver. Here is the list:

• a producer in association with sellers
• a seller in association with producers
• an heir of a very rich man
• one receiving donations from any of above (for whatever service he does or is seen as doing by those giving).

A very unusual case is obviously some very rich employees of the state known as kings and presidents. Another, somewhat less unusual, case is living "off grid" like anything between Robinson Crusoe and Bjorn Andreas Bull-Hansen. But the former can make sure they have no inconvenience as consumers, and the latter can produce their consumption in the nature where they get it from, so, neither of them is really concerned with this.

But we can all agree that a consumer who is enabled to consume by being a producer is overall freer than a consumer who is enabled to consume by being an employee, or even, God help them, a dependant on the State!

That's where mergers come in.

That's where acquisitions come in.

A bit more than two decades ago, I sent the now abdicated Queen of Denmark a letter complaining about Carlsberg, a major Danish beer company, enjoying the honorary title:

Leverandør til Det Kongelige Danske Hof*

The Carlsberg company certainly makes better beer than Pripps, and I have forgiven them a few years ago, but at the time, I was highly concerned about 1 factory of Pripps laid off and 100 workers with it. When a few years ago I figured it was time to forgive them, I considered that each of the 100 laid off workers had already either reached pension age or got another and decent job. None of them was any more incommodated by the layoff. I hope. So, back then, I recommended Her Majesty to make Faxe the Royal Court Purveyor° of beer instead.

However, there is a Swedish brewer that not only makes better beer than Pripps, but even than Carlsberg. When I complained about the first boys home at SSHL** I must add that none of the Spendrup siblings went there. They were some of my few good friends, and their concern is doing an excellent work of brewing beer. As my grandpa was a distiller at Vin & Sprit back in the day, and the trade union also covered brewers, I am obviously partial to the subject.

And I think that the executives and owners of Spendrups are freer than the former executives of Pripps, before they got bought up. Obviously, while Spendrups now are Swedes, their ancestors were Danes. What did you expect of good brewers? OK, if you live in Bree and are named Barliman Butterbur, or if you are a Belgian monastery, you might decently compete with the Danes. I thought Spendrups were a bit smaller than they were, they actually sell more than Carlsberg in Sweden these days. But they do have two microbreweries. I was not totally off.

If we go from Nordic beer to Central European wine, you may have heard of the "Austrian wine scandal" ... what you may not be aware of is, the offender was not one of the small vinyards, like the Heurigen around Vienna. The offender was one of the biggest or I think the single two biggest vinyard owners, and they were selling to German supermarkets.

So, my counterargument would go:

• smaller companies allow more people to be producers
• smaller companies are less likely to lay off the employees they have
• smaller companies (like the Austrian Heurigen) are less likely to fall for a get-rich-quick scheme like the ... well, Austrian wine scandal.

If you think this problem only exists in alcohol, Benfluorex, sold in France as Médiator, and Talidomid, sold in Sweden as Neurosedyn, have contributed to malformed babies, with no genetic reasons for the malformation, they just disturbed the normal process of gestation. Neurosedyn has also contributed to still born babies. Sorry, I had actually misunderstood Médiator. It was not affecting gestation, as far as I understand, it affected health, and killed between 1 500 and 2 100 patients, according to the allegations. The reason for my misundestanding is, when I tried to tell a Frenchman about Neurosedyn, he immediately thought I was talking of Médiator.

It's ironic, as I might be developing a diabetes type two, that, when I try to self medicate alcohol before going to bed, and lots of coffee the rest of the time, both of them being diuretics, and therefore helping to pee out excessive blood sugar, or whatever it is that keeps me awake those nights when I need to pee at 2am, and can't get to sleep before 6am, a lady in the neighbourhood told me to get to a doctor. She was precise that a doctor would not necessarily prescribe insuline, there are medications for that. Now, guess what Médiator was? Well, a medication prescribed for weight loss and for diabetes type two. Some people have religious prejudices against alcohol, and religiously motivated over confidence in doctors, and those doctors would have been likely to prescribe me Médiator up to recently. Which is chemically speaking "second cousins" of amphetamine.°° And some doctors serving big pharma, and sharing one of those religions, may have an interest in stamping me as an alcoholic.

Companies the size of Servier and Astra (now merged into Astra Zeneca since 1999) can afford to either sue or otherwise silence whistleblowers. Just as they can give gilded edges to the incomes of state hired doctors. The point of Kimberlee Josephson was that a state could produce distorted incentives and get distorted outcomes. I agree in principle, though not on the application. The point is, very big companies can also give incentives and produce distorted outcomes. One obvious point in case is, big companies can force masses to consume mainly things that come from big companies. If most of the masses are employees of one big company or another, it means that these employees can be so paid that the big companies perpetuate themselves as a kind of manorial lords over the masses. They guy who makes cheap margarine or at best cheap butter needing perhaps to buy cheap bread, from another big company, because he cannot afford the bread from a baker. And the company that produces so much bread that bakeries go broke (already happened in Sweden, where small bakeries are much less common than in France) may be paying the employees so low wages that they can only afford butter or margarine from the other big company. And when low wages are no longer the bread and butter of big business, rationalisations, and layoffs become so. The guys who currently are not earning their money, but live off severance packages, unemployment funds, welfare and so on need to make their money last longer and can also be relied on to provide big business with lots of consumers for daily merchandise. Very big companies are like small or even medium sized, states. Coca Cola Company of Pennsylvania arguably has a budget exceeding the state budget of the smaller countries like Liechtenstein or Luxemburg.

Justice being taken away, then, what are kingdoms but great robberies? For what are robberies themselves, but little kingdoms? The band itself is made up of men; it is ruled by the authority of a prince, it is knit together by the pact of the confederacy; the booty is divided by the law agreed on. If, by the admittance of abandoned men, this evil increases to such a degree that it holds places, fixes abodes, takes possession of cities, and subdues peoples, it assumes the more plainly the name of a kingdom, because the reality is now manifestly conferred on it, not by the removal of covetousness, but by the addition of impunity. Indeed, that was an apt and true reply which was given to Alexander the Great by a pirate who had been seized. For when that king had asked the man what he meant by keeping hostile possession of the sea, he answered with bold pride, “What thou meanest by seizing the whole earth; but because I do it with a petty ship, I am called a robber, whilst thou who dost it with a great fleet art styled emperor.”

St. Augustine states that kingdoms without justice are mere robberies, and robberies are like small kingdoms; but large Empires are piracy writ large (5th C)
https://oll.libertyfund.org/quote/st-augustine-states-that-kingdoms-without-justice-are-mere-robberies-and-robberies-are-like-small-kingdoms-but-large-empires-are-piracy-writ-large-5th-c

This is also true of certain big companies. This fact or observation, or if you prefer opinion, doesn't mean I prefer Soviet style Socialism. Socialism just makes the state a very big company, instead of making it a fairly neutral overseer over companies big and small. And I am no fan of Big State either. It lives off big taxation, and big taxation lives off big companies rather than many small ones.

Hans Georg Lundahl
Paris
III Lord's Day after Epiphany
28.I.2024

PS, sorry, it was actually the IV Lord's Day after Epiphany!

I was doing it quickly and forgot that 22 days are sufficient to have 4 Lord's Days, if the first and the last are that./HGL

* While both a Leverandør til Det Kongelige Danske Hof and a Kongelig Hofleverandør send merchandise to the Danish court, the former is a larger business, with which the court has indirect relations. The latter is a smaller one with which it has direct ones.

** See this post:

New blog on the kid: These News From SSHL Are Extreme Cases
https://nov9blogg9.blogspot.com/2024/01/these-news-from-sshl-are-extreme-cases.html

° Not sure whether Royal Court Purveyor covers Leverandør til Det Kongelige Danske Hof or Kongelig Hofleverandør or both, just using it as a convenient well known approximate translation.

°° "Le benfluorex, commercialisé sous le nom de Mediator par les laboratoires Servier de 1976 à 2009, est un principe actif pharmaceutique, chimiquement proche de la norfenfluramine, une substance toxique elle-même très proche de l'amphétamine." — Thus wiki.