Economic Concentration and Economic Power: John Flynn and a Quarter-Century of Mergers

• Date: 01 December 2011
• DOI: 10.1177/0003603X1105600402
• Published date: 01 December 2011
• Author: James W. Brock
• Subject Matter: Article

Economic concentration and

economic power: John Flynn and

a quarter-century of mergers

BYJAMES W. B ROCK*

The author traces merger, consolidation, and concentration trends in

a number of major American industries and sectors over the past

twenty-five years and examines a variety of their problematic

consequences in the light of Professor John Flynn’s work

emphasizing the danger of economic power in a democratic free-

enterprise society.

KEY WORDS: Mergers, economic concentration, economic power, industrial

organization.

The dominant theme pervading congressional consideration of the [1950

Celler-Kefauver merger law] amendments was a fear of what was consid-

ered to be a rising tide of economic concentration in the American econ-

omy . . . . Congress saw the process of concentration in American

business as a dynamic force; it sought to assure the [antitrust agencies]

and the courts the power to brake this force at the outset and before it

gathered momentum.

—Brown Shoe Co. v. United States,

370 U.S. 294, 315, 317–18 (1961)

Lettin’ the cat outta the bag is a whole lot easier’n puttin’ it back.

—Will Rogers

THE ANTITRUST BULLETIN:Vol. 56, No. 4/Winter 2011 :681

* Moeckel Professor of Economics, Miami University, Ohio.

© 2011 by Federal Legal Publications, Inc.

I. INTRODUCTION

Throughout his career Professor Flynn articulated an abiding concern

about the menace of economic concentration and the importance of

combating it with antitrust policy. The Sherman Act, he wrote, consti-

tutes “a prohibition of the accumulation of undue economic power or

the exercise of collective economic power in ways which deny con-

sumers the short- and long-term benefits of a competitive process and

which deny the rights of competitors to succeed or fail pursuant to a

competitive process.”1

Flynn assessed the debilitating impact of excessive concentration

on economic performance in such industries as steel and autos, point-

ing out that a number of American industries “that are in difficulty

have been characterized by substantial economic concentration dur-

ing the post-World War II period”; that this concentration allowed

dominant firms in these fields to “become inefficient, inflexible and

sloppy; that those firms were content with the status quo and inca-

pable of responding to changing circumstances and a new economic

environment”; and that as a consequence “the absence of competition

in those industries was dangerous” in a variety of important ways.2

He observed that enforcement of the antitrust laws to deconcentrate

those fields “may well have helped to avoid or at least have mini-

mized the economic and human costs we now are paying.”3He raised

the concern that concentration, excessive firm size “and the absence

of diversity of a society can be a distinct threat to creativity” by

undermining a nation’s technological progressivity.4In this vein he

warned against sacrificing “the competitive contribution of the small

on the altar of an unjustified presumption in favor of bigness.”5

682 :THE ANTITRUST BULLETIN:Vol. 56, No. 4/Winter 2011

1John J. Flynn, The Reagan Administration’s Antitrust Policy, “Original

Intent” and the Legislative History of the Sherman Act, 33 ANTITRUST BULL. 259,

306–07 (1988).

2John J. Flynn, “Reaganomics” and Antitrust Enforcement: A Jurispruden-

tial Critique, 1983 UTAH L. REV. 269, 301 (1983).

3Id. at 302.

4John J. Flynn, The Social, Political and Economic Consequences of Corpo-

rate Size, 2 J. CONTEMPORARY L. 163, 171 (1976).

5Flynn, supra note 2, at 302.

More broadly, Flynn emphasized that concentrated economic

power and its exertion in “interfering with individual economic free-

dom is just as objectionable as the unjustified exercise of government

power interfering with individual political freedom,”6and that for

this reason, corporate giantism should be considered as dangerous as

big government and big labor.7On all these grounds, he concluded

that the overarching objective of antitrust policy should be “insuring

the dispersion of economic power to protect legal, social and political

processes from economic power . . . .”8

II. MERGERS, CONSOLIDATION, AND CONCENTRATION

Over the past quarter-century, from 1985 through 2008, nearly

142,000 mergers and acquisitions were recorded in the American

economy, having a combined aggregate value of $13.4 trillion.9That

dollar amount is four and a half times greater than the $3 trillion of all

U.S. private spending on research and development over the same

period.10 It is approximately equal to all private nonresidential invest-

ment in plant and equipment in the United States during the years

1985 to 2001.11 Considered another way, it equals the combined value

of all the goods and services produced in the United States—the

nation’s entire gross domestic product—in 2006.12

In fact, announcements of massive, multibillion dollar mergers

have become so frequent and so commonplace as to be subsumed

within the daily deluge of information in an Internet age. But what do

these aggregate merger statistics mean? How have they affected the

structure of individual American industries? How have they altered

ECONOMIC CONCENTRATION :683

6Id.

7Flynn, supra note 4, at 183.

8Flynn, supra note 1, at 304.

9BUSINESS VALUATION RESOURCES, LLC, FACTSET MERGERSTAT REV. (vari-

ous years).

10 U.S. CENSUS BUREAU, STATISTICAL ABSTRACT OF THE UNITED STATES

51(2009).

11 2010 ECONOMIC REPORT OF THE PRESIDENT 352 (2010)

12 Id. at 328.