Simple Ideas: Competition and Acquisition

Some of my friends call me a socialist (usually conservatives/those hanging out on the right of the political spectrum), and some call me a capitalist (usually progressives/those hanging out on the left). I guess that puts me in the middle. As an entrepreneur and owner of businesses, the fact is that, by virtue of my actions, I’m a capitalist. But that doesn’t mean that I agree with everything in our capitalist economic system, or even most of it. I’m certainly a big supporter of social and environmental consciousness in business – my businesses are B Corporations, we support 1% for the Planet, and I regularly speak on the subject of social and environmental responsibility in business, and take direct action to help try to fix systemic problems. Clearly I believe that capitalism can do a lot better.

One of the ills of our capitalist┬ásystem is the seemingly inevitable tendency of industries to drift inexorably toward monopolies or oligopolies. I think this is one of the natural “features” of a capitalist system. One of the features is *supposed* to be competition driving efficiencies and reducing costs and passing these reduced costs on to consumers, but this doesn’t always happen. In the quest for efficiencies or other levers to increase profits or yields, companies merge or acquire other companies. Economies of scale, centralisation of administration or other activities, can lead to increased profits or returns on investment, so of course companies will pursue these avenues. It almost goes without saying, these mergers or acquisitions are almost always terrible for consumers. Consolidation of ownership or market share leads to reduced competition by definition, and that reduced competition will usually lead to higher prices. Generally always a bad outcome for consumers, but also for the economy as a whole.

My proposal to address this failing of capitalism is to limit the ability of companies to acquire other companies. Clearly, this could be a major problem for smaller businesses, but they aren’t the source of the problem I described above, so they don’t necessarily need to be included. It can start with listed companies. Why should any publicly listed company be allowed to acquire another company (publicly listed or otherwise)? I can’t think of any good reason why, can you?