Ruthless Criticism

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“Mega-mergers” –
Capital concentration on a global scale

[Translated from GegenStandpunkt 4-1998]

The business pages of the newspapers – in synch with the stock exchanges – are surprised, excited, sometimes even confused by the “merger mania” that pushes up the stock markets and their “fantasies”: whether banks and insurance companies, pharmaceuticals or automobiles: more and more corporations, which already operate worldwide and are among the giants in their industries, join forces to form still larger units, in order to be the largest possible in their industry or to bear close comparison with it. The minority of people in the know, who never miss a management trend, forget that until recently they were impressed by “downsizing” and savvied that “small is beautiful,” whereas “big business” was an obsolete model no longer able to hold its own against the highly productive, mobile, smaller units of the 21st century. These know-it-alls are the ones who have now discovered something completely new: the trend towards big. The news they proclaim risky or pleasing because it enhances profit is new at most in its dimensions. However, this technique of competing, the “centralization of capital,” is as old as capitalism itself.

The expertise which consists in unconditionally vindicating the “market” in order to subsequently comply with the rationality of its “decisions” is finished with the matter as soon as it turns to it. Its need for explanation is satisfied if it can cite the advantages that corporate headquarters can expect from mergers. According to this information, through mergers the banks try to cheapen the expenses of automating money transactions in light of diminishing returns from the traditional loan business, to gain access to new business areas, and to cut costs by thinning out their overlapping network of branches. The new auto giant DaimlerChrysler does not want to close any branches, it says, but promises a greater global presence for both brands by the fact that one of the partners brings a widespread network of branches in Europe, the other one in the U.S.A.; in addition, the two partners’ range of models barely overlaps. By contrast, Volkswagen, so one learns, strives to extend its platform strategy to the models of more and more sales brands and to equip more vehicles with the same parts from the same suppliers. For this, models are again needed which may compete even with themselves for buyers, if only rising unit numbers result overall. Various acquisitions and cooperation agreements by the Wolfsburg Group aim at expanding its offer to the entire range of the car market: it seeks partners for the construction of trucks and buses and buys absolute luxury class manufacturers like Rolls-Royce and Lamborghini. Today, it is said, an automaker can only survive as a “full service provider.” The car manufacturers for the mass market apparently assume that the rich are always getting richer and their need for prestige and luxury, despite its lesser significance in total sales, is good for a stable, independent source of profit in comparison with the changing economic conjunctures of the mass market car. Telecom companies join together all around the world: they want to offer global and at the same time independent networks in order to avoid involving competitors. Airlines as well. Pharmaceutical companies combine in order to tap the field of genetic engineering with its abundant opportunities and risks and its enormous research expenditures.

At one time, the branch network should be expanded, another time thinned out; at one time, the product range extended, another time streamlined. In one case, costs should be reduced by a “synergy effect,” in another, the expenditures for research and development increased. However, all the business strategies that companies pursue with a merger have in common a final purpose which none of the affiliating companies neglects to declare: their objective is always the “necessary positioning for global competition” in which they want to be among “the survivors” and aim at nothing less than “market and price leadership.” Whatever they do for this, it is apparently easier, more effective and profitable through a merger: the production of a huge capital size in one hand is a distinct recipe for success and a weapon in competition. Whether they know it or not, the capitalists teach an interesting lesson with their mergers about the market and the equality of opportunities it allows:

I. Capital size – the decisive means of fighting the competition

The capitalist wages the struggle for the market with his commodity. He must offer it at a price that ensures him the buying power of the consumer, and it must make a profit with this price. This is ultimately the reason and purpose why he manufactures commodities. In the interest of profit, the sales price of his commodity should be as high as possible. However, competitors also want to sell and contend with their offer for the buying power of consumers. In order for his offer to beat theirs, his selling price must be low; only then can he get rid of the entire volume of his products. Insofar as he can use the price of his commodity to make his competitors’ offers unattractive, he sells not only a given quantity, but a growing quantity at their expense. The ability to make increasing profits with increasing sales is based on each individual commodity being sold at a price that is lower than the market norm and still including a profit.

In order to underbid competitors and to make a profit at the same time, he must reduce the costs he spends producing the commodity by frugally combining the production factors capital and labor. The competitive struggle for the market is therefore conducted in the factory, where the command of the employer counts. “Rationalization” is what common knowledge calls the most reasonable of all changes in the production process, the use of improved machinery to increase the productivity of labor – so that it makes more profit for the employer, the goal of all economic activity. And that is done by being made cheaper; the more products labor creates in a certain time, the less labor is paid per product: unit wage costs are reduced by an increasing quantity of products with payroll remaining the same or by reducing payroll – by saving on labor power – on a given quantity of products. Secondary effects of changes in production add to the capitalistic efficiency of the productivity increase: new machinery is also good for compressing work – the mobilization of more work in an hour; through new technology, simplified workflows contribute to the reduction of hourly wages by making the skills of workers who were previously paid and used superfluous. The “rationality” of this production is greater, the less the people who have to live from work give rise to in wage costs. In order to get his operations in shape as a means of success on the market, the capitalist optimizes the exploitation of labor.

In order to reduce unit costs in this way, that is, in order to lay out less in costs for producing one commodity, the capitalist must invest more in total capital: the acquisition of new technology that increases the productivity of labor and cuts the costs of wages costs money and increases the capital advance. Investment in the research and development of new production processes and product features that justify a profitable selling price require increased capital expenditures. The objective of reducing costs – to sell more and win market share – is therefore a necessity: the larger capital advance must translate into a higher number of products and result in more sales so that the expense is worthwhile. The increased scale of production requires then, in addition, an increased advance for raw materials and intermediate products.

If a company lowers its costs and undercuts competitors in this way, then it forces them to do the same in order to remain “in the market” and to be able to sell at competitive prices. They likewise must increase the capital advance, the profitability of production, and the mass of products. A capital that is not capable of doing so is useless as a source of profit, hence devalued. The capitalists force on each other an ever increasing minimum size of their capital. They must be able to invest ever growing financial assets, according to the various dimensions of the spheres of production, if their assets are to be suitable at all for functioning as capital and turning a profit.

The necessary growth of invested capital and its instrument

The capitalists first raise the capital advance through an accumulation of their profits: these are put back again into the business from which they originated. How much a capitalist has already accumulated, how good his previous profits have been, decides whether and how well he is able to continue to participate in the competition for the profitable use of buying power.

But that’s not all: the size of the required capital is given by the competition and may not be dependent on what has already materialized as a result of accumulation. To contend, a businessman needs to mobilize the additional capital beyond the limits of his accumulated profits by borrowing credit. The loans the bank opens for him are, on the one hand, again dependent on his past success in making money, thus on the size of his assets, and on the other hand, the bank’s assessment of the chances of success for the expansion, rationalization or reorganization of his business. The price of independence from the limits of his assets consists in the duty to pay the bank the required interest, and indeed regardless of the course of his own business. The market success which the borrower seeks with the use of capital that does not belong to him is therefore vital; a failure leads not only to an absence of profit, but to an expropriation of the bad debtor.

With the form of capital predominant today, solely the sphere of big companies, the corporation, the capitalists deliberately handle the necessary size of capital as a weapon of competition. The corporation originates from the fact that the sums of money which are individually too small to get a competitive company up and running are pooled together by their owners and only in this way become a mass of capital fit for use. The owners of money establish a corporation and provide this money; this legal person, represented by appointed executive officers, now pursues the purpose of capital: profit and growth. The investors have nothing more to do with the functioning capital that they have created; the capitalistic use of their assets is separated from the ownership titles. The share certificates to the property lead a life of their own with their right to a dividend and are based on a completely different business which is pursued by the shareholders. They hold, buy and sell the shares of various companies according to their expected performance. They earn from the changes in price of their shares, for which the industrial profit and its future prospects are only an indicator.

The corporation, for its part, leads its own life and does business with the once and for all provided capital, independent of the shareholders and of the price movements of the shares. Only when it wants to increase its capital advance does it refer back to the shares with the value they have gained in the meantime. It issues new shares – and mobilizes all the more money, the better the price of its shares. So for capital in this organizational form, the past success and belief in future success of profit-making becomes the source of the capital size, thus the decisive means for its success.

The consequences of the growth of capital: market barriers

By means of the size of their capital, companies reduce their cost price and wage their struggle for the market. By increasing their market share, they narrow the market for their competitors. They advance more capital and construct more profitable factories that must produce and sell an ever larger number of units if the expenses for their productivity are to pay off. With the same methods by which the capitalists expand their individual market and displace competitors, they therefore bring about the absolute limit of the market which their steady expansion must run up against at some point. On the one hand, they increase their supply of commodities without regard for the ability to pay of the needs in the society, that is, only in regard to their competitive needs. On the other hand, their growing and more cost-effectively produced supply of commodities only comes about as a result of the fact that they have less labor power working per product in manufacturing them and making a living from this. The profit margin that interests capitalists arises with falling sales prices as a result of the fact that their business creates less buying power for other people. If they run into the limits of the market which are caused by their competition, then they do nothing other than intensify these same old techniques – or they enter into alliance with competitors.

Mergers and acquisitions – capital expansion without growth

The merging of companies enables the capital size to grow in one hand without new capital being invested, hence without capital growing at all. Through centralization [1], entrepreneurs organize a capital size and competitive power that their own capital and its growth is not capable of. They resort to this strategy when they come to the conclusion that their capital is too small for the market penetration that they had intended. To expand their business, they give up the fight against a competitor in order to combine with him against the rest of the industry. The limited suitability of his own capital advises the individual capitalist to give up his independence and merge his company into a larger unit, no matter what the reason for this lack: it can be that the means of growth, including the loan based on it, maxed out and is not going to increase; it can be that all these means are available, but not sufficient to promote the company on the scale that its management decides is necessary or advantageous; it can be that the investment of additional capital seems too risky; or even that the fruits of new investment and expansion of capacity would take too long to wait for.

With mergers, the operating capital in one fell swoop is increased to the weight of a whole different company. A legal act adds the current business of one firm to that of another, with all its momentum: business assets, production plants, sales, customer base. The merger also combines the profits of the involved companies under one roof; and more and different things can be done with this profit mass than with its halves. The procedure complements the techniques of competing through growth in that it produces its results through the incorporation of a larger capital: while in one case, the capitalist rationalizes with additional capital investments, thus lowers his cost price and increases the rate of profit in order to also increase the profit mass by increasing sales of his more competitive products, through company mergers the mass of profit of a company is directly increased without – initially – increasing its rate. But the latter is always foreseen.

The centralization of capital power: a useful measure

If a corporation “diversifies” its field of business through mergers and opens up new industries, then in this way it takes advantage of the sheer size of capital. Reached by enlargement, a combination of more or less cyclical, more or less export- or consumer-related transactions reduces its market risk and allows it to balance shrinking business in one sector with growing business in another. The concentration of the profit mass from a variety of diverse fields of business also enables the conglomerate to throw huge masses of capital into promising areas of growth.

A case of centralization of capital which does not belong to the mega-mergers discussed here should not be entirely omitted. Sometimes the interest of a buyer does not apply to the whole business in which he acquires a right, but only a moment of it. Acquisitions are made in order to acquire a production process, a patent, the brand name or market share of a competing company, and to then close it. In such a case, the purchase price is an investment in a particular productive capacity or in a sales growth which does not first have to be conquered by lowering the cost and selling price. In cases of obvious ruin, the takeover target lowers its price so much that a purchase interest can be directed solely at the value of the real estate on which it sits. This was the predominant type of takeover interest in the elements of the East German economy which were offered for sale by the agency in charge of its privatization.

“Synergy-effect”: cost reduction as a direct effect of the merger

In mergers between partners belonging to the same industry according to product, process, research and sales, size immediately translates into profitability. The mere fact that two companies no longer compete, but pursue their business in common, lowers the cost price and improves the rate of profit. [2] The enlarged volume of commodities sold allows larger production batches, a higher utilization of the factories of the group of companies, and the closure of production facilities that thereby become redundant. The combined capital needs only an administration that allows the pooling of research, the prevention of duplicate development, and spreads the cost of research expenditures over a larger number of end products. All this lowers production costs and increases the rate of profit, even without having to change something technical in production and without having to sell more commodities than they would have before combining.

“Leadership in cost, price, and technology”: increasing the mass of profit as a means of increasing the rate of profit

Of course, the capital size obtained through mergers does not spare the methods of competition covered above. Rather, it is the greatest lever for streamlining and expansion. The larger scale of production makes the changes in production technology to save on labor costs profitable, which it would not be on a smaller scale. The greater capital advance can finance product changes and new developments that also pay off because the costs are distributed to more units sold. The investment funds needed for it make the added mass of profit available – not to mention the increased size of the new corporate credit.

The cost reductions that directly or indirectly result from the merger not only increase the profitability of the volume of commodities pre-set by the sales brought in by the partners, but are obviously good for expanding their own sales at the expense of the competitors, i.e. for the fight over the market.

Competition with mergers: continually required, commonplace in crisis and, in view of global market barriers, an indispensable competitive strategy for future winners in crises

The centralization of capital is thus a competitive technique that is always preceded by a press release – whether to confront competitors with superior competitiveness, or whether to face the competition of larger capitals in the industry on a new level. The merger of two companies always aims at a third, taking measure of its power and confronting it with a suddenly newly potent competitor. Each new merger seeks to trump the previous one and each larger merger gives the standard that the others have to contend with. [3] In any case, companies combine together with an eye on the barriers of the market. To compete worldwide in the fight for the buying power of consumers, an expansion via acquisitions or mergers may sometimes seem less risky, more cheaply and quickly profitable than growth by their own means. This is the sense in which VW CEO Piech explained the purchase of Rolls Royce: although the price forced up in the bidding war with BMW was enormous, it was still very cheap in comparison with the costs entailed in developing and marketing its own luxury brand, which could certainly have been built technically. It just would have taken decades to give its own model a similar prestige that would justify its extremely high price.

Mergers and acquisitions are secondary methods of crisis competition: size enables capitalists to better survive crises in which smaller competitors run out of funds, especially as the mass of capital in one hand also provides the basis for a correspondingly enlarged creditworthiness. If the market can absolutely not expand, a winner of the crisis can still grow and expand its market by cheaply buying up the losers in the competition, taking over their capacities, operations, brands and customers.

If, however, mergers become a general fashion in the midst of a good business cycle; if companies that have already grown into giant corporations come to the conclusion that they must still become much bigger than they already are in order to survive the competition; if they find the commitment of additional capital and the construction of more capacity too risky and doubt whether they can profitably expand their market by additional investments – then the business leaders anticipate a contraction of the market, for which they prepare themselves with earnings that are still good and prices on their shares that are still attractive. They want to reach a “critical” conglomerate size and volume of sales which they hope will get them through a crisis better than their smaller competitors – hence, at their expense. For a long time, the VW boss Piech avowedly pursued his “shopping spree” as a preventive measure against a foreseen auto crisis: the largest in the industry, he said, prepares for the fight for survival that will line up as soon as the car boom peaks out in Europe. Globally, the industry was already suffering from an overcapacity of 40%, and only 10 of the 20 or so still independent car manufacturers would be left in the medium term. Corporations under the crucial size of 1 million cars per year would have no chance. But VW wanted to be among them and, according to what Piëch said, it would be.

Mergers and acquisitions are, however, not only measures taken by entrepreneurs to prepare to get through crises successfully, they are themselves a contribution to their causation. They increase the power of accumulation and they accelerate with it. The faster capital grows, the faster it runs into the limits of the market which it produces with its growth. Businessmen almost reckon with it when they take on the fight for a “foreseeably shrinking market” with a merger and build up capacity, which they and their competitors know themselves forms “a total excess capacity.” They face the limitations of demand by not accepting that the limits apply to them and relying on their capital size to beat the capital of their competitors.

Mergers in the financial sector: size is rate of return

In industry, the strategically achieved capital size is, apart from immediate “synergy effects,” the means which must be used in order to reduce production costs, increase profits and expand the market. In the field of banking, insurance and investment companies, it is different. The merger of these institutions has the immediate effect of increasing their credit power: the addition of their customers’ deposits and debts, of securities and payments due from other banks, leads to a new financial institution that has more credit than the sum of credits that its constituent parts had separately. In its extended credit, the combined bank can grant more credit and enter into new payment obligations. And this sphere does not have the problem of having to again make the selling price more profitable by changes in its product and its production. For finance, more revenue is automatically more profit, because interest is attached to each credit transaction. Banks not only disclose on their balance sheets the size of their means of profit, but the level of their business success. The larger the network of a bank’s lender-borrower relations, the more it can make use of the state’s license to take advantage of the money needs of the society as its source of profit. And thanks to this, the expansion of its credit relations across national borders provides an ever wider circle of lucrative applications for the money creations of the central bank.

Globally operating banks then have the necessary size and requisite contacts to broker and finance cross-border mergers. The buying and selling of publicly traded companies is indeed a financial transaction of its own kind.

II. The combination of two profit sources ^[4]

The speculative assessment of the new capital size

Capitals are fused because their managements promise themselves an earning power and competitiveness from the addition of their factories, production processes, patents and turnover that is greater than the sum of earnings and market shares of the previously independent companies. They consolidate the use value of their capital, the ability to produce profit, through the concentration of its value in the hands of an owner: the “acquired company” transfers its assets to another, the “transferee” – or both transmit it to their joint new launching and then go extinct. The commodity that changes hands here is functioning capital, a production process that creates and increases value. Its own value is determined by its suitability for this purpose. This value is not assessed like the price of marketable commodities. What the existing facilities promise to achieve as a contribution to the merged company, what they are worth as sources of profit, the parties assess in a joint valuation.

The money advance that was first made for the facilities of the company and is always newly made for their continued operation enters into the assessment of this fitness. However, the current value of the assets that the company owns must be estimated: how much of the investment is still available and still useful, how much consumed and depreciated? The “intrinsic value” – investments minus depreciation = current value of the facilities – forms an initial basis for determining the value that the company has for its owners – its “earning power.” The quotation for the facilities according to their performance as a source of profit inverts the above standpoint: indeed it is the real capital advance applied in business with which the profit is generated; however, the value of the property is not measured in the expenditure, but in the earnings this expenditure brings in. An average profitability is deduced from the profit on a root sum which would have to be spent in order to achieve such a profit. [5]

If functioning capital changes ownership, then it is not about the transfer of asset components, but capital: the facilities are transferred as sources of profit – the power to become a surplus is bought or acquired. The company to be acquired first proves its profit potential with the success it has already achieved. But even its assessment requires an act of valuation: the revenues reported to the tax agencies and to shareholders – perhaps differently to both – are examined for their validity, undisclosed reserves, and concealed risks, and other company secrets are revealed to the partner or hidden for good reason. The previous profits are certainly not useless if they are merely past. Because it is about the appropriation of profit potential, the profits that do not yet exist are secondly decisive: the profit expectation which the partners are confident in determines the value that gets attributed to the company. The current course of business and its development, the commission books, the market trends which the company operates in, as well as the general economic outlook serve as data for this speculation which calculates a company’s current value from future profits. It is up to the partners whether their appraisal of the earnings potential of their companies is based on the earnings which each of the companies hopes to generate for itself or on the contribution which they could equally make to the combined company. [6] In any case, the opening balance sheet of the merged company which results from the addition of the acquired company’s value is a speculative claim to business success. The new company gets certified a profit potential that must still back up its value size. Capital depreciation is pending if it can’t justify the claims already estimated and practically recognized in the merger.

The stock swap: The pooling of the fictitious capital of both companies

The decision made about the size of the capital value to be acquired on both sides is the subject of dispute between the partners because this decides the ownership of property. The size of the capital value which they get recognized determines their relative shares in the new company and the related rights to parts of the future profit. Of course, the agents of both sides try to ascribe as high a value as possible to their capital at the expense of the other and to secure for their property as large as possible a portion of future profits. Disputes over valuation are part of any purchase and sale between companies and are part of mergers between capitals of whatever company form; in each case, valuation decides the size of the property of the former owners and their claims to compensation or their share in the combined company. Really complicated, however, is the valuation when joint stock companies merge.

The combination of the asset base of the two corporations comes about only as a result of a combination of the property titles in their name. These exist as rights to shares of the profits of these companies and lead (as mentioned) a life of their own on the stock market. The share rights cease to exist in the individual capital whose profit they have claims on; the property of the shareholder may not, of course, simply expire, it must be compensated by the grant of a new source of money, with equivalent rights to the proceeds of the new company.

But what is an equivalent right? To the valuation of the functioning capital is added the valuation of the fictitious capital of the company to be acquired. It must decide what percentage of the right to dividends of the new company should go to the shares of the old company. It is understood that one does not add to the nominal share capital of the merging companies and replace each old share one-to-one with new ones. Even the otherwise normal relation of joint stock companies to their shares – they issue them, stock trading decides how much they are worth – occurs only after the exchange. In the exchange ratio, the merging companies settle and decide on their own what is otherwise achieved by the speculation of shareholders: they fix a valid, in any case final, value to their old shares.

The projection of the value of their equity securities from the presumed earnings which they promise should be carried out in a correct and reasonable manner, and defines the contradiction of an “intrinsic” value of – fictitious – capital. This valuation of shares looks like a critical review of the prices that have appeared on the stock market. They should count in exchange only insofar as they are justified by the – estimated – profitability of their companies. Would it be so, then the valuation of the share capital would actually be the purely mathematical application of the calculated net asset value and income value of the companies on their stock portfolios as represented in the merger report.

But it is not so: in the exchange price, which gives the shares a binding value for the transfer of ownership, the value that stock trading with its price movements has attributed to the shares enters as a base factor. The valuation of the merging capital as part of a new source of profit is supplemented and modified by a second, different valuation of the goodwill, the fitness as a source servicing the demands of finance capital which exists in its share capitalization – share price multiplied by the number of shares. This valuation must also justify the exchange. Because the stock market capitalization is the credit which a company enjoys; it does not want to hurt it by the merger, but promote it. The exchange price must therefore be suitable to at least maintain this value which the share represents with its price, through the transfer of ownership, but preferably increases it. The merger partners thereby recognize the status of previous speculation on themselves as binding, the new property claim determining a second value of their companies. And with the fixing of the exchange rate, they speculate at the same time on the future speculation of the stock market with their papers. The rate should guarantee that the stock exchange confirms the price of the papers of both companies and that the new ones exchanged for it are grabbed right away again as an attractive trading object.

The fixing of an appropriate exchange ratio is thus not as easy as it looks in the laws on stock companies: in order for the “intrinsic” value of the shares to be able to result from the “purely mathematically” estimated net asset and earnings values of the functioning capital, the stock market capitalization also enters into this estimation as a determining factor. So the two conflicting valuations of the companies are “reconciled” in a compromise [7]: the exchange ratio of the shares may not be too far from the expected contributions of the acquired companies to the profit of the new one, thus removed from the identified earnings values, so that the new company keeps its dividend promises and does not increase the ownership claims on its profit too excessively. But it must also not be so far removed from the valuation of the shares, which exist in their stock market price, that the transfer of ownership does not ensure the preservation of the existing fictitious capital.

The adequacy of the exchange ratio is decided by the shareholders. The change of ownership is booked as an asset of the banks, investment funds and private people who just hold stock in these companies as owners whose will decides over the use of the thing belonging to them, but otherwise have nothing to do with its business and management. The companies can not dictate the ownership in them; that is reserved for the “represented share capital” at the shareholder’s meeting that approves the merger with a certain majority. The determination of the price for the general exchange of old shares is only a recommendation by the companies involved to their shareholders which requires their consent. Their expectations as shareholders must therefore be satisfied. They examine whether they should participate in the speculation on the greater competitive power of the combined companies and whether their portion in its earnings is also sufficiently high. They compare the claim title which they should get with the one which they have and whose value size is fixed in the share price. They don’t accept any exchange which threatens to devalue their rights, but also none which disadvantages them relative to the shareholders of the partner company. If the exchange ratio deviates from the price relation on the stock exchange, special dividends, bonuses, etc. are needed to compensate for the so-called “residuals” and win the shareholders over to the merger. Once the shareholder collective has decided on the merger, the individual shareholder speculates with this decision: it is left up to him to take or refuse the share exchange. If there are enough shareholders who do not exchange, the company must improve its offer to them; in the event the whole project falls through, that the majority does not approve the merger at the shareholders’ meeting, the actual exchange no longer takes place. [8]

It all comes down to one thing: the maneuver with which a productive capital improves its competitive position must be suitable for satisfying the claims of fictitious capital. The market value of the share and its rise – thus satisfying finance capital with successful profit-making and satisfying its speculation on its claims to continue the company’s success – this is the yardstick by which the methods of actually improving profitability must prove that they should generally come about. [9]

Speculation on the merger

Mergers, especially those of the “global players” with their current and future anticipated competitive successes, are usually a very attractive offer for the banks and large shareholders. They are therefore vigorously speculated on. The announcement, indeed even the rumor, of a merger supplies the stock market with the famous “future” which must immediately be “traded on” and which animates business with the relevant shares. Any real or suspected difference between the pre-determined exchange ratio and the current stock market price is not just complained about, but also capitalized on. [10] So the fictitious capital increases even before the merger of the involved companies and even before the new company has shown the benefits of the merger with increasing profits. [11] This appreciation in stock market circles in turn enables the objects of speculation, through the issue of new shares, to cover their growing need for capital. The merger business that promotes and uses stock speculation therefore flourishes or stumbles according to the general level of confidence on the stock market. [12]

The final act of the merger: the actual bringing together of the companies

The centralization of ownership under one roof is one thing, the actual merger of the companies another. While the “shareholder value” is satisfied, the savings, “synergy effects” and rationalizations that are made possible by capital size must still be carried out by a new organization of the merged company parts. Production is redistributed to the production plants now available, departments are merged, administration pared down, factories closed. Because everyone involved is clear that the new capital size should produce these effects, merger negotiations include an agreement about what, after the merger of the companies in terms of value, should be done with the acquired production plants; on them ultimately depend all sorts of interests which are affected by the pending changes. It has to be settled whether and how the relationships and obligations of the old company continue to apply in the new one. What will become of their contractual commitments under the new management? Are existing supplier relations and collaborations preserved or terminated? The workers at the various locations of the new company can translate the merger and its “billions in savings” immediately into layoff numbers. They are interested in the question of whether their factory will be closed or maybe it affects the others – and their opinion about the centralization of capital depends on the answer. But workers are not asked anyway – they are affected, but not a decisive party in the dispute. [13]

The location change is different for the political subjects who are also affected by it – the city, the state, or the country in the case of major companies. They all assess the reorganization of merged operations the same ways as the staff: the thing is good if the reduction affects other regions, and bad if it is “us.” Unlike the staff, the political authorities really take part in the merger process – and indeed with offers to the merging company that should make it appealing to keep production on the site, so that the region or the nation preserves the source of wealth. Bigger capital can give more business to the state or take it away, thus it also demands more protection and subsidies. Also, in this, its size is the source of yields.

The demand that politics intervene is the reason that hostile takeovers, at least in Germany, are not left up to the involved companies to dispute. When companies are acquired “cold” via the stock exchange, national unity does not put up with ignoring regional economic and political viewpoints or disturbances of the politically desired and promoted cooperation within and across industries between competitors as members of a national industry. When in 1997 the small steel company Krupp, with the help of a loan from Deutsche Bank, attempted a hostile takeover of its bigger rival Thyssen, a great outcry arose from the German public; in workers' demonstrations and in Parliament, “American Wild West methods” [14] that would not fit the good customs of “Rhenish capitalism” were denounced. Government authorities in Bonn and Dusseldorf intervened and then moderated a voluntary merger of the two competitors. So the state’s claims to a German steel company and its loyalty to the business location were factored in. No mention was made about whether the friendly acquisition caused fewer long-term staff reductions.

III. National competition for the complete world market:
The state’s contribution to the centralization and internationalization of capital

Mergers are always political affairs; this applies more than ever to today’s mergers, which in many cases cross national borders and not infrequently result in “global players” so big their turnover exceeds the national budgets of many countries and which, in any case, decisively alter the competitive circumstances of national business sites. Hence, the governments of the home countries of these world market players, which must authorize the capitalistic integration within their borders and beyond them, are challenged. The fact that politicians not only permit them, but actively promote them, points to a new level of development of the world market and a new position of the nation state towards it. In the past, the state in fact more frequently and clearly had political reservations about the “excessive concentration of capital power,” as well as about “transnational capital.” The reasons that the capitalist state once had for these reservations apparently no longer apply much.

No fear of monopoly – supervision of competition has become an international affair

The various laws on the “protection of competition” show that it is one of the tasks of politics to prevent a concentration of capital which leads to “market dominance” by one or a few companies. It is assumed as quite natural for capitalists to edge out competitors in their struggle for the market, that they strive for market dominance, and that for them a monopoly would be the nicest guarantee of profits. The exploitation of all other economic subjects for the benefit of the private enrichment of an individual capital which has a monopoly on a product that others depend on is, however, not the success of capitalistic competition that the ideal collective capitalist wants to have in the interest of its national wealth. The state intervenes when it sees indicators that a company, through its sheer size, can prevent comparison with competitors. Mergers are then prohibited, cartels punished, and trusts de-concentrated so that business activities remain subordinate to the rules of competition and no economic power arises that bypasses the law.

Opposing this state standpoint is always the one on exports. For the export power of a company, for its ability to assert itself in international competition, a capital size that comes very close to being an undesirable monopoly in relation to the national market is precisely the right thing. The greater the resources, the more unassailable the position on the domestic market, the more potent such a “competitor” is when it comes to conquering markets beyond the national borders, achieving export success and bringing the country positive foreign trade balances. In addition to the one objective of preventing monopolies, another one therefore enters: to permit and sometimes produce desirable monopolies. [15] Which of the two viewpoints in which case tips the scales is a question of political objectives. Therefore, there is in an anti-trust department that protects competition, detects and accuses companies of market dominance by means of their market share and the size of their nearest competitor – and economic officials who decide in the last instance whether it is in the national interest to break it up.

The national interest today demands a clear balance between both viewpoints: vigilance against market dominating companies has given way to the worry that the nation could possibly not command the sorts of companies which know how to conquer the world market and which could face up to foreign competitors of similar potency. However, if states at any time see their market threatened by monopolies and want to fight the distortion of competition, then it is clear to them that this is an international affair: the member states of the E.U., which all want to dominate the common market with their domestic business, have transferred the supervision of competition to the Brussels Commission. One needs super-national monopoly control – even more so against the monopolies of the others – and submits to it. In recognition of this situation, the U.S. and E.U. permit the competition watchdogs of the transatlantic partners to oppose mergers on their own territories, provided that the companies also affected on this market have or want to win significant shares – in fact, these multinationals need the approval of the local authorities in order to widen their territory. The E.U. Competition Commissioner may therefore give his vote on the merger of the U.S. aircraft manufacturer Boeing and McDonnell-Douglas; U.S. agencies may condemn the restrictions which Brussels imposes on the “Star Alliance” – a combination of Lufthansa, United Airlines and Scandinavian Airlines – in Europe, as a fundamentally wrong policy on competition. Where mergers have become international issues, the conflict between the advantages and disadvantages of monopolies which have to be weighed by a national economic minister always gets into the question of how to distribute the advantages and disadvantages between the competing nations: one’s “own” companies that dominate the world market are good and desirable in contrast to the monopolies that are politically cultivated by the other states, are unfair and corrupt free competition, at least as long as they do not locate on the domestic market and contribute to its growth.

The “multinationals” – from threat to the homeland to national lifeblood

Secondly, the position of nations toward “transnational capital” has changed. Formerly, there was the accusation that “multinationals” would move beyond their national jurisdiction and control, undermine the power of democratically legitimated governments to shape domestic and foreign policy and dull the levers of economic policy. The homeland feared a “sell out” and a “foreign infiltration” of the national economy if domestic companies passed into foreign ownership. It was suggested that local workplaces could thereby lose added value and independent competitiveness and be turned into the “extended workbench” of foreigners. However, patriots were no less plagued by the opposite worry about a dependence of local economic activity on foreign decisions, all the way up to the extreme case that a flight by homeless capital could follow the inherently beneficial influx of foreign capital and rob the nation of its economic base. All charges boiled down to one: “multinationals” would use the homeland without at the same time reliably serving it as a source of wealth.

The latest critical debate about the “opportunities and risks of globalization” has made it clear that nationalism in economic matters is different today. Beyond all the opportunities and risks, public opinion has agreed that global corporations are a reality which the nation state and its inhabitants have to deal with. The worry that the homeland could be used by the multinationals to its detriment has given way to the opposite worry, that it could possibly not be used by them and even not host any global corporations.

That is no surprise. The “reality” to which the capitalist nations claim to respond with their corrections is their own interest and their deed. For the growth needs of their economy, they have razed ever more borders to its territorial operations, “opened” all the countries on earth – forcibly or not – and thereby completed the “tendency of capital to produce the world market.” The world market is now open and available for use. There are no more political limits to the mobility of commodities and capital. Every commodity is a world-market commodity: the component parts of its cost price indicate that this is now a commonplace in the global supply of machinery, preliminary products, etc. – and, of course, every wage that is paid for producing them must allow itself to be measured by whether or not the labor would be cheaper to get, all in all, in Portugal or Korea. Gone is the time when foreign trade – import and export of commodities and capital – was a mere extension of the business that was essentially taking place within the country’s borders and supervised by the relevant sovereign. The world market is no longer an addition to national business activity, but from the outset the field on which it must prove itself. It is therefore no longer a way out when companies run up against the limits of domestic buying power – they just don’t run up against it as soon. Capitalist firms, whether small or large, whether only regionally or internationally active, have to deal with the fact that the market they use is part of the world market. They are in competition with capitals from all over the world and they get themselves in shape for this competition when they form mergers to create the corporate size that promises to compete on a global level.

They are permitted this border crossing; national politics know that the test of the world market is the condition of existence of capital. Without global competitive success, nothing is possible any longer on the domestic market. The nationalism of economic policy is not extinct for this reason. The protection of domestic business life consists not only in defensive prohibitions of capital flight and protectionist firewalls, but political measures that ensure this business life stands up to any comparison with foreign competitors. The defense of the sources of wealth of the nation is today about the conquest of the world market by national corporations. There is nothing defensive about this. The conquest of the world market is aimed not just at a modest defense of the sources of wealth now existing in the country, but at increasing them. This is promoted by the policy of establishing the international capitalistic power of “our multinationals,” constructing the “global players” of one’s own nation and inviting foreign ones to locate in the country. [16] In this respect, the buzzword globalization, which the country – unfortunately – must surrender itself to, expresses the relation of the nation to the world market very incorrectly.

However, because international capital is the source of wealth of the capitalist nation, the doubt always comes up again, when the national balance sheets leave something to be desired, as to whether the benefits from the business activities of a “global player” are still going to the nation. The creators of “globalization” themselves problematize the remittances of international business to the home nation because they have only one concern: they worry about the nationalization of the successes of global exploitation.

Multinationals and their home countries: Business location nationalism – not out of date, but subordinated to the patriotism of money

The question whether DaimlerChrysler will actually still be a German or American multinational is of much interest to the respective public opinion; less so the other question, what a “German” or “American” multinational is and what its success means for their nations’ wealth. In Germany, the national question was answered positively and the merger was considered a kind of incorporation of the American company into the German prestige company. Although two company headquarters and two CEOs were in agreement, one sticks to the fact that the new company is a stock corporation according to German law and the American boss vacated his chair to a German one. So it is celebrated as a symbol of national affiliation – but what about its content?

The national business location: Exploitation – the primary livelihood of the nation

A capital that contributes to national economic activity and the economic power of the nation is one that continues to produce in the country, uses and pays workers, donates incomes and sales in the country, positively influences the country’s balance of trade and payments through exports, and ultimately through its taxes finances the political power that allows it to do all this. In this sense, companies of American or other origin are also a welcome contribution to the German economy when they invest capital and build factories there. However, in this sense, the American growth which the German Daimler-Benz group has secured for itself is not a contribution to German business: in terms of production, wages, taxes and exports, nothing changes in Germany when Chrysler now operates on its territory and for its market as part of a German-American conglomerate. But because the international merger also promotes the competitiveness of the German company, it nevertheless strengthens the German economy, because only if the company contends globally does its contribution to German growth come into effect. If this contention, depending on the calculation, requires shifting production, wages and taxes abroad, then from the standpoint of the nation this is not a deduction from national business, but a condition for it – at least, as long as the multinational with its foreign engagement is growing overall and does not migrate at the expense of the national business site.

The business location services of the “global players”: a suitable national credit

For its part, the political power of the state secures the contribution of globally active capitals to national business life by rendering them a special service and thereby committing them to their “home.” Multinationals are treated by the states which are involved with large companies to political protection from the perils of competition: VW, Daimler, Siemens, as well as the GM subsidiary Opel are no longer allowed to go bankrupt by “their” state, as long as it can. They not only create sales and incomes in the country, contribute to positive balances of trade and ensure an inflow of money from abroad. They perform, at the same time, through their business, the all-important service to national wealth: service to the money power of the state. Their profit-making puts the money creations of the central bank to productive use. Their export successes create demand for the nation’s money outside the nation’s borders; the same happens when they pool the earnings of their subsidiaries in their home base. With all this, they create the demand for the money of the nation which gives it solidity. In the standard for their success, they drive out the money of other national money creators from international business transactions and replace it with the money of their state, to which they confer and reserve the privilege of money creation beyond its sovereign territory.

Business location nationalists misjudge this service to the monetary power of the nation, seeing in the internationalization of capital its de-nationalization and grumbling about the capitalists spreading good money around the world instead of using it for the greater good of jobs and taxes in this country. The invoice for the nation that was valid long ago reduces its objections to a critical footnote to global national success. Such business location arguments – only now and then, and brought by unions interested in “employment” without any pressure – are never shown to be wrong, but also do not get heard, as long as the money power of the nation is so glitteringly successful. [17]

The national financial center: A multiplier of national money power

If industrial exploitation goes smoothly in a country, if the capital on national soil asserts itself on the world market and knows how to use foreign buying power, if the cross-border success of production and trade creates demand and solidity for the national money, then a second source of national wealth appears which is based on the first, but quantitatively eclipsed. Where this basis functions, finance capital flourishes. Disposal over a reliable national money makes the banks seek lenders not only among local business people, but wherever credit is needed. While they participate in profit sources around the globe with their interest earnings, they turn this at the same time into opportunities for the investment and expansion of their national money. Such investment increases and strengthens the quality of this money as good for expansion just as well as its domestic valorization.

A national financial system that can handle a money that is reliable and in demand worldwide not only spreads loans out over the world, it also attracts foreign money. Financial assets are in demand where the money itself is stable in value and possibly even experiences a steady appreciation against other moneys. Therefore financiers from all over bring their wealth into the country and buy the nation’s equities and debt securities. They make their money available to the country, give the national financial center credit and thereby increase the ability of its banks to expand their business. [18] To the extent that a national financial system establishes itself as a source and target of global business, it displaces other national moneys and provides the money of its state with a solid, special position in the world economy.

The state whose industrial, commercial and financial capitalists perform this service for it and make its money into an indispensable medium of global business life has its own credit. It has the power to create money via political decree. With it, it can pledge more and more business to itself and its money, and uses it to satisfy its own financial needs: even its national debt is as in demand and as secure as the money it creates. The money power of the state is true national wealth and the definitive measure of national success.

It depends on the outcome of the

Competition for the shares of the national money in global business life

This competition for the role of founder and lender of credit to the whole capitalistic world has sorted the states: the great majority have become debtor countries and “emerging markets.” Their national progress, which also consists in increasing money, depends entirely on whether foreign investors fancy putting money on them, and how much. They face a handful of home countries of capital who have the capital that the others need. The practice of creating credit by means of one’s sovereignty – the privilege of every state power in relation to its subjugated society – leads in the open world economy, where all national credit is compared and rated as an investment vehicle by globally acting finance capital according to its suitability for its business, leads to an unquestioned hierarchy of currencies: after the introduction of the euro, there are only three moneys that enjoy global validity and are immediately recognized as the money form of all wealth.

No wonder that the national monetary guardians of these currencies no longer fear capital flight. In their credit, they have the capital of the world. Their security in no longer having to fear capital flight corresponds to the yearning for capital imports on the part of all the other states. They have accepted that three currencies are the money of the world and that they – unlike the U.S., Japan and Europe – can not create their own money, but must earn their money – and indeed by withstanding the test made by the profit claims of the metropoles on their national inventory. However, for the countries that create capital, whose money and credit is mixed up worldwide in every profitable affair, every successful business is a contribution to the power of their money. For them, it has become a new identity of private profit and governmental growth, resulting from international business and national wealth.

But then, the national world moneys, which are created in growing quantities, also need to be used ever more profitably in every corner of the earth – and are also affected by every bankruptcy. It is ridiculous when the leading nations reassure themselves that their economy is doing well at home, that the crisis only faces East Asia – when there are still European, American and Japanese investments there that are being devalued and wiped out. If capital is global, then its crises are too. If opportunities for the profitable investment of money are not found overall and in sufficient quantities, the spiral of national world economic success goes in reverse: then, for the leading capitalist nations, it is not only the additional income that the worldwide use of their national credit brings them that is crossed out, but the substance of their wealth, their money itself, is damaged. A nation which must undergo this notices that its domestic economy is not much good. It can’t adequately secure the state’s international money power – but it is only there for this. So that their national money is not affected by the global slump, or as little as possible, and to avoid the danger of devaluation, the competitive world economic powers seek to expand the share of their money in global business life at the expense of the others. Not least by dedicating themselves to the promotion of large-scale mergers and, in consultation with every other nation, making themselves a party to the cutthroat competition of their private corporations. This is the progress of globalization.

Notes

[1] Marx distinguishes between the concentration and the centralization of capital: “Two features characterize this kind of concentration, which grows directly out of accumulation, or rather is identical with it. Firstly: the increasing concentration of the social means of production in the hands of individual capitalists is, other things remaining equal, limited by the degree of increase of social wealth. Secondly: the part of the social capital domiciled in each particular sphere of production is divided among many capitalists who confront each other as mutually independent and competitive commodity-producers.” The “centralization proper, as distinct from accumulation and concentration” “is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. This process differs from the first one in this respect, that it only presupposes a change in the distribution of already available and already functioning capital. Its field of action is therefore not limited by the absolute growth of social wealth, or in other words by the absolute limits of accumulation. Capital grows to a huge mass in a single hand in one place, because it has been lost by many in another place ...The laws of this centralization of capitals, or of the attraction of capital by capital, cannot be developed here. A few brief factual indications must suffice... The battle of competition is fought by the cheapening of commodities. The cheapness of commodities depends, all other circumstances remaining the same, on the productivity of labor, which depends in turn on the scale of production. Therefore the larger capitals beat the smaller. ... The masses of capital welded together overnight by centralization reproduce and multiply as the others do, only more rapidly, and they thereby become new and powerful levers of social accumulation. Therefore, when we speak of the progress of social accumulation, we tacitly include – these days – the effects of centralization.” (Capital, V. 1, pp. 777-80)

[2] The perils of competition also give reasons to forge a diversified conglomerate as well as to increase “concentration on core areas.” Both appear simultaneously and successively. Management schools make fashions out of it and see the variants that just make more noise in the world proving the unsuitability of the others. Daimler-Benz in the 80s used the profits from the car business to tap into new business areas with promising future prospects: aerospace (DASA), railways (Adtrans), news, energy and electrical engineering (AEG) and software (Debi). The “integrated technology group” of Edzard Reuter generated significant losses in the crisis at the beginning of the 90s – especially since military technology developed worse than anticipated because of the unexpected end of the Cold War. After Shrempp replaced Reuter as CEO, the “concentration on core areas” – originally a negative concept, namely an expensive retreat from areas of over-accumulation – counted as a silver bullet. It has nothing to do with modest restriction, but is the basis on which a much larger global company is forged.

[3] In the aircraft industry, for example, the second largest U.S. aerospace company McDonnell-Douglas merged with Boeing to provide the size that is needed to win shares of the world market. The European states that once formed the Airbus consortium in order to provide their national air carriers with a competitive product on the market then found themselves ready to create a European Airbus AG to fight for the local distribution of their production with a unified business interest.

[4] The property and legal forms in which the centralization of capital is pursued are diverse. They range from mere cooperation agreements to joint ventures between independent firms which otherwise operate as competing capitals, all the way up to minority and majority stakes in the share capital of the partner, with and without agreements on control and profit transfers. They further range from the inclusion of a still independent corporation into an overarching unit, which either is industrially active (business group) or merely coordinates the financial linkages between various companies (holding company), up to mergers and acquisitions. The diversity of legal constructs is owed to the need to combine cooperation and competition in various circumstances, as seems useful to the involved parties. Finally, there are competitors who agree to cooperate. In every tighter or looser form of “corporate relationship,” the right to influence the business of the partner correlates with a legal obligation regarding its earnings or liabilities. Some constructions provide connections for a period of time and preserve the identity of the interconnected parts for the purpose of later breaking them apart. Only acquisitions and mergers lead to the complete uniting of two companies, both in regards to their use-values and their exchange values. This form of merger is the subject of the following.

[5] The laws on shares approve and regulate the necessarily speculative fixing of a company’s value in a merger.

[6] The merger report for DaimlerChrysler took as a basis the valuation of the two companies’ profit and revenue estimates for the next 3 years and prided itself on a “conservative” approach because the expected synergy effects were not included: “The Daimler-Benz AG of Stuttgart and the American Chrysler Corp. of Auburn Hills expect huge jumps in profit. For the first time, they are now announcing in advance of the merger report the future of both companies as DaimlerChrysler AG, Stuttgart. The individual company Daimler-Benz is planning a profit for the coming year between DM 8.6 billion and DM 6.2. In 2000, Daimler anticipates an increase to 10.2 billion DM. While strong growth was recorded at Daimler, it seems to flatten at Chrysler: the Americans expect 1999 earnings of a converted 10.5 (1998: 9.8) billion DM, the next year it will stagnate at 10.4 billion. However, the weaker selling Chrysler Group remains more profitable than the Daimler Group ... The valuation of the company by an independent auditor sets the value of Daimler-Benz AG at DM 110 billion ... The company value of Chrysler is a converted 82.3 billion DM. These values can’t simply be added together for the assessment of the new DaimlerChrysler AG – the expected synergy effects are not yet included in the ratings. According to the report, they are around DM 2.5 billion in 1999 and DM 5.4 billion in three to five years after the merger.” (FAZ, 7.8.98.)

[7] Presenting this compromise as a clean bill is a work of art that the merging partners leave to the specialists of the banks that specialize in mergers and acquisitions. Each contracting party has a trusted bank of its own and both together have an impartial third auditor review the fairness of the valuation. Both sides seem content, for example, with the following Solomonic solution: “The merger of Krupp and Thyssen into the Thyssen-Krupp Group has taken a further step with the initialing of the merger report. On Friday, the heads of the two companies announced according to plan a first clue to the jointly developed valuation report in which the valuation methods were applied consistently in both companies. The report estimates the company value of Thyssen at DM 23.67 billion, and the merger partner Krupp brings, according to this assessment, DM 11.84 billion. The Thyssen side thus brings two-thirds of the value of the new company, the Krupp side a third. If one brings these values into a relation with the existing shares, a value results for Thyssen’s stock of 690.09 DM, while the Krupp share reflects a value of 543.82 DM. The company values assessed by the consultants are well above the sums which the stock market attaches to the titles of Thyssen (market capitalization of about DM 12.3 billion) and Krupp (about 8.7 billion DM). The recently observed relation of the share prices is now close to the announced exchange ratio of 1:1 for the shares of Thyssen and 1:0.788 for those of Krupp ... The two parties have stressed that the institutions attending the merger, JPMorgan and Credit Suisse First Boston (Thyssen) and Merrill Lynch (Krupp) consider the exchange ratio to be fair and reasonable from a financial point of view.” (Neue Zürcher Zeitung 12./13.9.98)

Such luck: The company values identified “according to objective methods,” divided by the number of outstanding shares of both companies, results in the “inner values” of these shares, which indeed significantly deviate from the actual market price of the shares of Thyssen and Krupp, but still pretty much illustrate their relative price ratios; the relative ratio is crucial because the shares are traded proportionately to shares in the new company. The miracle of this division – the division of company value by the number of shares – declares that a multiplication – the stock market price by the number of shares – preceded it, and so the ideal company value could be found, which can be divided by each other up to the the decimal point.

[8] On the occasion of the call to exchange the shares of Daimler-Benz AG for DaimlerChrysler AG, a “Society for the Promotion of Shareholder Democracy” fought the call by executive management: “Attention Daimler shareholders! With an exchange at the current time, you irrevocably give up the unique opportunity to make significantly more money. Statistically, an additional payment of DM 30-40 is to be expected from an appraisal rights proceeding. Only shareholders who do not exchange now can enjoy the legal improvement!” Daimler-Benz AG opposed this call with the low chances of improvement as well as the disadvantages that could arise for the shareholders from a delayed merger – dividends at the American level only a year later – or from a failure of the whole project. (Internal information of Dresdner Bank from 1.10.98)

[9] Companies can also merge in a less complicated way. It happens without valuation specialists, publicity, shareholder meetings and stock swaps, if the question of ownership is unambiguously clarified beforehand: The company that wants to take over another turns not to the management of the other, but to their shares and buys them openly or in secret until it has a majority. The other capital is acquired by purchasing its – freely and anonymously traded – equity securities. This form of take over, which the taken over company is not party to, is fair on the stock market and is called hostile. Shareholders who have sold in such cases like to feel cheated because they notice in hindsight how cheaply they have given away their securities in light of the interest they attract.

[10] “The prices of Daimler-Benz and Chrysler securities have drifted far apart in recent days. The Chrysler stock appears quite cheap. Indeed the stock of Daimler-Benz AG was quoted at 163 DM yesterday, well below the calculated goodwill of DM 188.55 per share. But the scissors with Chrysler (goodwill 119.32) comes with a cash price of DM 89.” (FAZ, 09.09.98) “Daimler sells and Chrysler buys. Anyone who pursued this dual strategy in the past six months could, as a future owner of DaimlerChrysler shares, earn up to 25%.” (Der Spiegel, 44/98)

[11] The share prices that are forced up by merger expectations want to be justified by the subsequent course of business – and all the more, the more the stock market euphoria has turned out. The entitlement attitude of the stock market subdues in theories that mergers are ultimately not as profitable things as they appear, – for those who drive up the takeover costs with their speculation: “Mergers create no value for shareholders. Business combinations are indeed popular in the stock markets, but usually lead to an inadequate performance for shareholders. ... The main reason for the unsatisfactory financial performance of newly married companies is augured by the high takeover prices. The balance sheet of the purchaser is heavily burdened by it. ... These results are consistent with the hypothesis that managers only use the securities of their company as ‘ammunition for acquisitions[’]' if they are convinced that the shares are too highly valued. ... Large mergers are nowadays financed almost exclusively with shares.” (NZZ 08/27/98)

[12] The stock market collapse of 1998 put a temporary damper on the global merger wave of 1992-8.

[13] The following legal instructions on employment commitments in a merger is most informative: “As far as provisions are found in the merger agreement about the combined company entering into obligations that transfer employment and working conditions, these have no constitutive significance, because these legal consequences just constitute the essence of the universal succession that takes place in any merger. However, such clauses have a certain psychological significance because they help eliminate the unrest resulting from disclosure of a merger. (Sölter/Zimmerer, Handbook of Mergers, p. 238).The manual ascribes an important psychological function to confirming to the workforce that legal duties will continue to exist. It considers appeasement appropriate. It should have a calming reassurance that existing contracts continue to apply – as if that would be any protection against layoffs! The “unrest” arises because the workforce knows that mergers initiate layoffs and they have no legal remedies against them

The affected, but entitled to intervene, subjects also include the management which itself plans and carries out the merger. Of the top managers one is too many, and accounting, controlling, sales, etc. also some smaller bosses are no longer needed – this is also a benefit of the merger. The paid functionaries of share capital are the initiators of the business and also the merger, at the same time they have a personal interest in “their” company, the post and career opportunities it has to award. The collision of their interest with their task can be solved with money – if it is only that. Aspiring business leaders with contrary ambitions also cause some planned mergers to fail.

[14] The workforce affected by the anticipated layoffs protests under this slogan. For public recognition of their concerns, they adopt the opposition title of the policy, which they deem more important than their concerns, and “fight” the “hostile takeover.” They consider an industrial strategy which does not coincide with that of their company an attack on their interest, as if the strategy of their company was in their interest or would even consider them. In any case, they do not want to “pass over to other owners.” For the independence of their company, they make sacrifices in pay and performance; they accept the resulting layoffs as necessary only to ensure competitiveness, ultimately the independence of “their” company. Their fathomless company-homeland standpoint accuses the outside managers of the new parent company exactly the standard as the term “ruthless profit maximization” which they accept from the heads of “their” company as unavoidable steps that the company takes to secure a livelihood. There is – at least in the cases considered, the association of functional and attractive for each other big corporations – no truth to the fear, in hostile acquired businesses will be ruthlessly rationalized as in the works of expanding parent company. As justified as the concern of the workforce is in facing new rationalization waves, just as unjustified is the fear that the acquired factories, offices, and staffs would be treated worse than by the old established one: they are through the acquisition part of the purchased capital, assessed as a contribution to the business and profit of the whole company assessed and compared with the old parts of the company according to their performance, location and other criteria.

[15] In the U.S., for example, the Justice Department’s attempt to demand Microsoft make software compatible with other programs was attacked with the argument that the company contributes, thanks to its monopoly position, significantly to the external success of the American economy; the government should not damage a major source of money. Even in cases where national production bases of a universal nature should be created and secured, states promote or endow, where they are able, national companies with more or less far-reaching monopolies, such as in energy or telecommunications. Only under today’s world market conditions, where their services for capitalist accumulation are protected and the business is internationalized, governments then expose these monopolies on the national market again to international competition – also a driving force for cross-border mergers in these areas!

[16] There is no lack of examples of the initiating role of politics: With an announced change in the law, the U.S. government gave the go-ahead to mega-mergers among its banks: it found that the Glass Steagall Act’s separation between commercial and investment banks, which it introduced during the Great Depression to protect savings accounts, was an obstacle in competing with European all-purpose banks and dismantled this outdated instrument for protecting the credit system: savings banks merged with credit dealers, stock brokers with insurance companies and divested their handicap – and they did it even before the law blessed it.

[17] The profit-making within the borders of the country is only a basis and first angle of national wealth, but also not its last. Conquering and defending the extraordinary position in the imperialist hierarchy indeed needs the achievements of the business location: domestic profits which positively impact the long term balance of trade and the national share in the world’s social product achieve the necessary confirmation and assurance of the quality of the national money. That local exploitation could fall out of favor with international finance, that a world money power could consist only of a financial center, blueprints and pensioners, thus the de-industrialization painted by fans of local exploitation, is however nothing to fear, as long as a state issues world money. Because it provides the capitalists operating with it the credit they need for their assertion in the competition; it also disposes of the necessary financial power to develop its society into an attractive capitalist location and make capital feel at home there.

What the business location fanatics deplore as neglect of the domestic base and as giving up investment at home, is rather the type of use of this base, that belongs to a world power. The economies on the site must also be suitable for making the national money solid. Everything produced that fails at the standard of profitability on the world market does nothing for this. Either it is competitive, or it can go under, so that it does not burden the national budget and the nation’s money. Business sectors which were once regarded as indispensable to the nation, like mining or, to some extent, agriculture are considered a burden and scaled back because their operation brings about expenses for the state which count as – no longer up-to-date – subsidies. The supply of necessary goods such as energy, raw materials, food is internationalized with national participation and thus made worthwhile for the successful nations. It is quite otherwise with the Transrapid, Airbus, etc.: subsidies associated with future world market hits are necessary and useful. Reforms which drive up unemployment figures, cheapen the labor of employees and “restructure” welfare systems, have nothing to do with neglect of the domestic economy and a powerlessness of politics in the face of the cross-border bustle of capital. This is how a world money power makes its domestic economy the basis for its national money.

[18] The same takes place, by the way, when German multinationals like Daimler or SAP have their shares traded in New York: they widen the circle of their shareholders, providing their company better access to new capital and proving vice versa the attractiveness of investing in German stocks.