Hewlett Packard and Compaq computers have announced a merger that will create the second biggest company in the industry next to IBM. Had the merger created the largest company, the Justice Department’s sticky hands might have gotten involved.
As it stands, the US government will be addressing certain "issues" rather than objecting outright. Meanwhile, the European Union is leaning towards making an issue out of it.
The Wall Street reaction — both stocks tanked on the news — more closely approximates reality. Here we have two companies whose stocks have been hammered in the last year, and both companies are widely seen as the losers in the computer wars. The proposed merger is an act of desperation, not consolidation.
It might work and it might not, but either way, the government should have nothing to say about it. The risks and profits should be assumed entirely by the companies and they shouldn’t be hindered by the government in any way.
Right now hundreds of companies are being investigated by the Justice Department for supposedly nefarious conspiracies against the public. When you get right down to it, most of these conspiracies just amount to doing business, which means getting buyers what they want at good prices. Sometimes that means merging; other times it means breaking up.
These days, government wants veto power over every economic decision. Once you subject business to government oversight, you introduce every manner of corruption and waste. Just picking one case randomly, a few years ago the government accused Mitsubishi of "secretly fixing the price and allocating the volume of graphite electrodes sold in the United States" — as if the bureaucrats know better than anyone what graphite electrodes should cost and who should sell them. In May of this year, the company agreed to settle and pay the parasites $134 million.
This is one example of thousands that illustrates the ways in which decisions that should be the exclusive province of company owners are being turned over to the political process. This trend is as old as it is dangerous. It introduces all sorts of artificial uncertainties and puts ham-fisted bureaucrats in charge of issues they know nothing about.
How many companies might have merged but didn’t do so for fear of the antitrust police? How well developed might software be today had the government not decided how the operating system ought to, or ought not to, join with applications? How many innovations were shelved for fear of eliciting government attention? The costs of these interventions are incalculable.
More seriously, these interventions further one of the great economic myths of our time: the idea that the public is a "stakeholder" in every business firm. In this view, everyone should have a say in how a business operates just because you happen to be a citizen as versus a stockholder or otherwise have some ownership in the company.
This way lies economic ruin, especially during economic downturns. A few years ago, a movement took hold that would have required companies to keep plants open that were inefficient, on grounds that to close them would have been bad for workers. The "stakeholders" deemed the plant worth keeping. Well, as Henry Hazlitt would say, this looks only at the short-term costs for some people instead of the long-run costs to society.
Plant-closing laws lead to all sorts of other interventions. The state will have to subsidize the company that is losing money. It might have to take over the management. It might have to buy its stock to keep the price from collapsing. It might even have to buy all of its product, which is guaranteed to grow shoddier as its markets dry up further. Eventually, a company that is kept afloat only by the props of government becomes a laughingstock.
One society that had a rule against plant closings was the Soviet Union. Everyone who worked in an industrial plant was a slave of the State. This is the logical culmination of all laws that intervene in business decision making. Eventually, the State itself assumes responsibility. To a lesser extent, this is also true of many European companies, which are hard-pressed to out-compete their American counterparts.
We haven’t gone as far as Europe or the Soviet Union, but look at our plight. Hardly any resource-extraction business can open a new firm or site without getting past the green guards, who stand ready to accuse any and every company of trashing the environment. Once that happens, the decision of whether to open a plant becomes a matter of politics rather than economics, and we are all poorer as a result.
Labor concerns are constantly intruding their way into management. The civil-rights police tell managers and owners whom they must hire and fire, how wages must be allocated by race and sex, and even what the job requirements of particular positions are. DC believes itself to have veto power over every labor-related decision in every firm.
The result is terrible bureaucracy and inefficiency, such that owners have to think as much about their government masters as their customers. Whereas private enterprise is based on the principle of voluntarism — everyone who participates does so because he or she wants to — these sorts of interventions are based on coercing people into doing things they otherwise would not. Interventionism is about telling people what they can or cannot do with their own property, and enforcing these decisions at the point of a gun.
In true private enterprise, the only people involved in making decisions of this sort — no matter how economically momentous — are the people who own titles to the company or are employed by contract to act on their behalf. Why? Because the owners themselves have the greatest stake in the outcome. It is they who are risking the money and stand to suffer any losses associated with the business.
Whether the merger of HP and Compaq succeeds or fails will ultimately depend on whether consumers are willing to buy its product rather than someone else’s. The consumer is the judge and jury over a company’s success. The only reason for the merger is the hope that the consuming public can be better served by making two companies one. Let them try. And let the profits or losses accrue to those willing to take the risk.