Halting hidden damages in corporate America
From remarks by a Republican specialist in mergers and acquisitions before the Small Business Council of the Democratic National Committee.m Our decaying industry is in much worse shape than is generally realized because so many businesses are obsolete. Indeed, today our industry has more serious problems than during the Great Depression. On this subject I speak with some authority since I spent the first 10 years of my career in reorganizing and rehabilitating the industrial rubble left by the depression, first with a major Wall Street law firm and then with the (Securities and Exchange Commission) where I served as impartial adviser to federal judges in charge of big reorganizations.
Then most companies were in financial difficulty solely because the depression had shrunk the overall economy. Today, however, most of the economic derelicts that litter our business landscape are fundamentally unsound. We thus face a national emergency that will require the priority collaboration of management, labor, and government.
Thousands of companies were undermined by foreign competition, and others were unable to cope with fast-changing developments such as energy prices, interest rates, new technologies, or the impoverishment of our agriculture.
Moreover, vast areas of damage are hidden or not perceived. For example:
* The vital innovative small-business sector has been the primary victim of the recessions and the inflation since 1970. Hundreds of thousands of promising small businesses were stillborn or languished in their infancy, a tragedy we will not really feel for another decade when these businesses would otherwise be maturing as major creators of jobs.
* One of the best-kept secrets, although the underlying evidence is everywhere around, is that obsolescence has overtaken the giant corporation as the mainstay of our economic structure. Through most of this century, our giants prospered, especially in concentrated industries, because of relative insulation from foreign competition, an edge over disadvantaged competitors that was prolonged a half-century by two world wars and their recovery aftermaths. Thus our economy became structured primarily around gigantic corporations burdened by burgeoning bureaucracies, but many immobile giants - in autos and steel, for example - proved to be no more defendable against nimble foreigners than France's supposedly impregnable Maginot line.
To be sure, bigness in itself isn't bad. Many big firms are in industries where bigness is appropriate and necessary, and many big companies, like 3M and IBM, have indeed nurtured vibrancy. Nevertheless, the clear lesson is that in today's business climate, where change and innovation are essential for survival , the nation is served only when there is the largest possible number of viable, independent companies engaged in vigorous competition.
* Our stagnating giants still have the means to raise huge war chests for takeovers. The future of their present operations is bleak, and they lack the creativity to launch new businesses. They know that the only possible avenue for growth, or even survival, is to take over existing businesses. And so in recent years we have seen many giants struggle to shore up their position by the almost promiscuous acquisition of whatever targets of opportunity happen to appear on the scene.
Unfortunately, the bureaucracies of most giants are inept in implementing their acquisitions, and so the merger mania of recent decades has destroyed or weakened a generation of the nation's promising growth companies - perhaps the majority of the tens of thousands of companies acquired by the giants. All of this has augmented our ever-mounting unemployment.