Feb. 15, 2018
One of the biggest lessons I took away from my time investigating mergers at the Federal Trade Commission is to be suspicious of efficiency claims. Parties hoping to merge might make the case that their merger is necessary for efficiency’s sake—that the merger would enable them to achieve cost savings, economies of scale, and reductions in staff that allow them to eliminate redundancies, scale up, and increase output. But given the speculative nature of efficiencies, how can we be sure that they will ultimately lead to benefits for consumers, especially when so much of the focus on efficiencies centers around the benefits to the merging corporations directly and not around people? As a society, what are we willing to sacrifice in one area for gains in another?
When we frame layoffs as “efficiencies” and reduce them to monetary savings, we risk masking the very real, potentially devastating effects on human lives. Cutting back on “economic waste” by eliminating duplicate positions post-merger, for example, might make sense for a corporation financially, but for employees, the loss of one’s job is likely to result in financial and emotional distress. Research suggests that it can be associated with subsequent unemployment, long-term earnings losses, and lower job quality. It can also lead to declines in psychological and physical well-being, social withdrawal, and family disruption. A parent’s job loss can even affect children’s development and well-being, including lower self-esteem, educational performance, and future income. Thus, researchers have suggested a link between job loss and income inequality.
Is there a trade-off then between efficiency and equity? One of the most fundamental and controversial issues in economics, this trade-off gets at a central dilemma in distributive justice. In the case of dismissals, distributive justice concerns arise over whether the dismissal is a just outcome and whether remedies for unjustly dismissed employees provide full restitution, compensating employees for earnings losses and reinstating them to former jobs—concerns that fall outside the scope of antitrust review. In the case of mergers, the dismissal of an employee owing to redundancies may feel unjust because they are no-fault dismissals, involving no wrongdoing or shortcoming in performance. It makes sense then that even the prospect of job losses resulting from a merger is the subject of much public outcry.
Given the severe implications of job loss, it is no surprise that the public discourse around antitrust calls for greater scrutiny around a merger’s effects on employment reduction. But there is also another economic dilemma at play here: a scenario of asymmetric information, wherein one party (the federal government) in a transaction knows more than the other (the general public). Potential job losses, along with other efficiency claims and antitrust concerns, are all factors taken into account by antitrust regulators. Merger investigations, however, are non-public and confidential, and it is only when the government decides to sue to block a deal that certain details of the investigation become public in court. With such veiled transparency, it can be difficult for the general public to understand why an antitrust regulator did not try to block a deal, especially when those laid off feel the loss so acutely.
For the sake of increasing public awareness, then, perhaps it is time to consider granting greater transparency into the merger review process.
This blog is part of Caffeinated Commentary - a monthly series where the Millennial Fellows create interesting and engaging content around a theme. For February, the fellows have decided to respond to this quote from Dr. Cornel West: “Justice is what love looks like in public.