The ideal paradigm of a new free-enterprise structure: more democratic synergies, less autocratic mergers and acquisitions (M&A). GM, a de facto monopoly, is the poster child of why horizontally-merged conglomerates do not work and its recent bankruptcy protection filing is the proof that antitrust legislators need to slowly dismantle and discourage present and future large-scale M&A activities. GM’s “drive” for virtual control of the American car manufacturing market led to its oversight of over 12 car brands including Hummer, Cadillac, and Buick, in its 100 year history. The obvious problem with this and all horizontally-merged conglomerates, is that if one brand fails due to an economic downturn, where demand is substantially weakened, then all similar brands will consequently fail.
While currently under Chapter 11 protection, GM’s new CEO, Fritz Henderson, is focusing on restructuring the company with its strongest brands and marginalizing the weaker brands to scraps (Pontiac) or for sale (Hummer, Saturn, Saab). The U.S government’s failure to responsibly regulate GM’s acquisition appetite in the past is to blame for the company’s current ills, and not entirely union officials. My reasoning is based on the fact that one of any government’s responsibilities is to prevent crises from occurring within society, and when a company actively seeks growth externally through M&A activities, economic security pertaining to employment and market competition is subject to higher risks. Now, due to its lack of regulation in the past and at the expense of the free enterprise system, the U.S. government is forced to increase taxpayers’ stake in the company to over 60% through capital infusion in order to save the company and its employees.
There is no such thing as a free market void of government intervention; regulation is necessary for the sanity of a society, because it won’t be too long before an unemployment crisis turns into a human crisis. The notion of “too much regulation” only occurs when a government begins to acquire majority stakes in companies, which the Obama Administration has been forced into in order to prevent a greater unemployment crisis.
Major downsizes and “asset marginalization” are expected for some of America’s largest companies and I fear this will hurt the American economy more long term than it will short term as U.S. corporations continue to divest their foreign investments for much needed capital, while foreign corporations increase their U.S. investments. A great example of the former was Goldman Sachs’ recent and substantial decrease in its stake in the world’s largest bank, the Industrial and Commercial Bank of China (ICBC).