Warren and Ocasio-Cortez propose to ban M&A during coronavirus pandemic
Ø Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez plan to come up with a legislation that will stop big mergers of companies during the coronavirus outbreak.
Ø Last week they revealed their plans to introduce the Pandemic Anti-Monopoly Act to put a moratorium on major deals involving big companies, hedge funds and private equity firms. The major deals would be those involving companies with more than $100 million in revenue.
Ø The bill also proposes to stop mergers of companies that hold exclusive patent valuable during the crisis, such as personal protective equipment.
Ø A description of the legislation on Warren's website, says that the outbreak has "triggered an economic crisis that has hit small businesses especially hard, making them potential targets of large corporations seeking to increase their power through predatory mergers."
Ø The bill proposes to freeze mergers and acquisitions until the five-member FTC (Federal Trade Commission) unanimously decides that the small businesses and workers are not under "financial distress."
Ø Rep. David Cicilline, who also heads the House Judiciary Committee’s antitrust panel, called for a similar regulation on mergers previously.
Ø Those against the legislation argue that it would be unfair to the financially healthy tech firms, such as Apple, Facebook, Alphabet, Amazon, and Microsoft.
Ø One critic of this bill is the trade group NetChoice, which counts Facebook and Google as members. “In hard economic times, often the only way to save a business and the jobs it provides is to seek investment from larger market players," the trade group said in a statement.
Ø There are also those who believe that mergers and acquisitions would be a rare thing in 2020 due to the coronavirus outbreak.
The Warren-AOC Tandem
Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez team up to bring in a bill in Congress against large business interests they believe will be tempted to conspire and buy out struggling competitors. With the Global COVID-19 pandemic still at its height, there is a need to regulate the financial market to ensure fair trading practices.
Many small businesses are struggling under the economic strain the multiple nationwide lockdowns that are taking place in an attempt to curb the spread of the pathogen has caused. Many of them have had to close down shop indefinitely because of the loss of income. This is an enticing opportunity for many large companies that have the financial reserves to target and buy out smaller competitors. If this takes place, then the larger corporations grow larger, and the smaller companies that remain are handicapped even more, thanks to the disparity in the marketplace.
Ocasio-Cortez brings a watchdog mentality to the table, seeking to keep larger businesses honest, fair and out of the temptation to acquire other, smaller businesses to monopolize in their market. This is urgently needed because of the tendency of large profit businesses to take advantage of every window they get to get a leg up on the competition.
Antitrust laws are clear; there should be no conduct on the part of a corporation leading to the monopolization of its market. Competition should be based on quality of service and/or product, innovation or business savvy unrelated to predatory and abusive business practices. The uncertainty of the Pandemic’s trajectory and aftermath will cause uncertain rifts in the fabric of market trends, tempting enough for any would-be monopolizing industry leader to scoop up the remains of their erstwhile rivals to bolster and consolidate their market gains once things return to normal again.
Anyone who has owned or worked for a small business should sympathize; there is no true free market, and at least with the oversight and regulations such as this bill would put in place, the smaller fish will have a chance at economic success.
Lemuel, I agree that something has to be done to protect small business. Senator Warren and Representative Ocasio-Cortez aren’t wrong to want to keep an eye on big corporations during the chaos of COVID-19. But they have the wrong solution.
You are wrong that this is an enticing opportunity for big business to target and buy out smaller competitors, because I think you misunderstand the nature of big business. Just because a corporation makes millions in revenue per year doesn’t mean they can afford the hit that the Chinese Virus has dealt to their marketplaces. Most businesses are struggling and fighting to not lay off employees. Even if large companies wanted to buy out smaller ones, Josh Bowen rightly points out in his analysis that those are always free and independent market transactions agreed to on both ends.
I certainly agree that monopolization is antithetical to free market capitalism, and it is one of the government’s few duties to protect against monopolization. However, I fail to see why we need additional regulations on the books that do nothing but prevent free market transactions between willing parties and which doesn’t actually help small business.
If we want to help small business, we should not be bailing out large corporations in the way we have been with our stimulus package. It’s amazing to me that companies who were already failing before the Wuhan Virus’ onset are the beneficiaries of millions of taxpayer dollars designed to keep them afloat when the natural business cycle should have left them penniless a long time ago. This is due to the fault and incompetence of big government, and we should fight to change the course of our stimulus packages to provide loans for small businesses.
Lemuel, there certainly is a true free market, and to state otherwise is cynical. However, regulations like this only reduce the freedom of that market without actually making life easier for the little guy. If you want to help them, we need more of our stimulus going to the PPP and other programs. Not Warren and AOC’s crazy and useless ideas.
Businesses are one of the most integral parts of our society during times of normalcy, and during pandemics like the one, we are experiencing. Companies were able to start churning out masks, start producing more ventilators, and manufacture hand sanitizer all on the turn of a dime. Through this experience, it’s clear to see the value that Business holds in the world.
With something so valuable, it makes sense that we should protect it. But there are multiple ways of doing that. Elizabeth Warren and AOC falsely believe that the best way to do that would be to place more regulations on them by banning business merges involving larger corporations. In reality, the best way to protect Business is to encourage free and fair market transactions.
That is why we must not put such a full ban on merges. Businesses naturally assemble resources in the most efficient way possible. This allows supply to match demand more closely, and for there to be less wasted resources produced. By allowing merges, companies can more efficiently use the resources of acquired businesses. In a pandemic where we can not afford for there to be wasted resources, it only makes sense.
Elizabeth Warren and AOC would have you believe that the pandemic means larger businesses will start gobbling up unyielding, smaller competitors and then create tyrannical monopolies. This is simply not the case. In almost all Mergers and Acquisitions, both businesses are happy to move forward with the deal, and both sides have chosen to be in the deal. Furthermore, larger businesses would only conduct acquisitions if it felt like it had the resources and that it made business sense. With the pandemic being so uncertain, it is highly unlikely any big business will take the risk in an acquisition.
To summarize, we need efficiency, and the best way to achieve that is to allow businesses to organize themselves in the same ways we let them before the pandemic. Furthermore, The possible drawbacks are highly unlikely to occur, and most certainly won’t happen in the way that is mentioned by the democratic senators.
If I learned anything in business ethics it’s that real markets are never ideal markets; the real world will never represent idealized data and theories on how markets should run. Economics is a school of thought based around creating the perfect market, but so long as human beings exist perfect markets shall not be within reach. This means that businesses will not do the fair and right thing when there is a more efficient and cheaper way of doing the same, I.E dumping waste in a river instead of paying a large overhead for proper waste disposal, if they are not being held accountable. This means that, while Milton Friedman was an extremely smart man, his theory that ideal markets will regulate themselves and therefore require no oversight is based in a platonic dream world where markets culminate in a state of perfect economic balance.
But that does not happen.
I am not sure if I support the Warren/Cortez bill. While I believe in market regulation, I do not necessarily agree that it isn’t in the best interest of some small businesses who are struggling to sell themselves to a large company that has the resources to help the business survive. That way the owner gets a nice payday, and hopefully a large amount of employees keep their jobs.
Either that, or the government needs to ensure that it will aid small businesses who will now be unable to merge with larger companies.
But, Joshua, you wrote about how regulations kill business. I strongly disagree with this, and I have an inkling you do to. You also wrote that the best way to protect business is to encourage “free and fair” business practices. That's oversight. I hate to break it to you but free is not fair, and if corporations have no obligation to follow fair business practices thanks to government oversight, it can be guaranteed that many will not. Yes, some businesses, run by stalwart true-hearted businessmen, will be fair, but that cannot be a guarantee across the board.
You can’t have your cake and eat it too.