Every so often government agencies will release documents that provide candid insights into their thinking, and how they would unleash monumental change if unconstrained by law and financial resources.
A case in point is the Federal Trade Commission and U.S. Department of Justice’s July 19 issuance of Merger Guidelines, the fifth time since 1982 for such pronouncements.
These “veer markedly from the guidelines that have informed merger-enforcement policies of prior administrations of both parties for the past 40 years,” writes law firm Sullivan & Cromwell in its assessment.
The firm adds, “Although the Draft Merger Guidelines do not change the underlying law, businesses planning merger activity must evaluate their positions and potential transactions carefully in view of the announced changes in the clearance and enforcement environment.”
The merger guidelines are dangerous in part because they are so broad.
For example, Guideline 2 says, “Mergers Should Not Eliminate Substantial Competition between Firms,” which of course is inherent in most transactions. Similarly, Guideline 3 says, “Mergers Should Not Increase the Risk of Coordination.” Yet coordination is an inherent benefit of mergers.
These arbitrary constraints supersede focusing on the impact to consumer welfare, and whether the combined entity will be able to withstand foreign competitive pressures and be better able to develop innovative new products and services.
There are also major omissions in the guidelines. Nowhere is there any discussion about how mergers and acquisitions can be exceptionally good for the U.S. economy and that this should be understood and even encouraged by regulators.
The guidelines do not discuss risk-taking by entrepreneurs who establish new businesses, often with the aim of an eventual sale, nor does it make mention of the employees who take major chances on joining these entrepreneurial leaders. Both serve the public interest.
The word “China,” America’s primary economic competitor does not even appear in the 51-page guidelines nor does the word “shareholder.” There is not even a basic acknowledgement that often it is by combining operations that companies can have the synergies and scale to grow – and serve the public good.
The upshot of the Biden Administration’s merger guidelines is that it would turn the clock back 40 years, to a time when American innovation was stifled, and businesses significantly regulated.
The genius of companies such as Apple, Amazon, Google, Facebook, and Microsoft is that they created entirely new industries and products. Government got out of the way and let the firms, their employees, shareholders, customers, and the broader economy flourish.
The benefits are enormous. Independent sellers account for more than 60 percent of the sales from Amazon’s retail store. Google routinely shares many of its breakthrough products such as Gmail and the Android operating system at no cost to consumers.
Yet today the Biden Administration has prioritized placing tech companies within the bullseye of its vigorous anti-business agenda. And in doing so, it is harming the innovators and entrepreneurs who have driven economic growth.
Larry Summers, Treasury Secretary in the Clinton Administration and Director of the National Economic Council in the Obama Administration, also recognizes the dangers of the Administration’s approach. He said he is “disappointed” with the merger guidelines as they show the administration is choosing to “double down on what sometimes seems like a war on business.”
While the guidelines do not have the force of law, they must be confronted by policymakers to help beat back the legal intimidation and uncertainty that the administration aims to foster. Otherwise, government will grow at the expense of the economy, imposing a high and unnecessary cost on the American people.
