Bankers Gone Wild (Again)

get_out_of_jail_freeThere seems to be no end to the chutzpah of the big banks. They brazenly break the law and then pay growing but still quite affordable penalties to get out of their legal jeopardy.

The latest examples have just been reported by the New York Times. The front page of the newspaper has a blood-boiling story on how the likes of JPMorgan Chase, Bank of America and Citigroup intimidate people who have gone through personal bankruptcy into paying back debts that have been discharged in court. Although the debts are not legally collectable, the banks keep the obligations alive on credit reports, meaning that borrowers are faced with a choice between paying and having their credit rating ruined. Such a tactic makes loan sharks look good by comparison.

According to the Times, the practice is being investigated by the Justice Department. Before long we will read of a settlement, and the banks will move on to a new way of cheating their customers.

JPMorgan and Citi are also involved in a settlement just announced by U.S. and European regulators involving another sleazy banking practice: the manipulation of foreign currency markets. The U.S. Commodity Futures Trading Commission ordered five banks to pay more than $1.4 billion in penalties, including $310 million each from JPMorgan and Citi. Britain’s Financial Conduct Authority fined the five banks (which also include HSBC, Royal Bank of Scotland and UBS) another $1.7 billion, including around $350 million each for JPMorgan and Citi. Swiss regulators hit UBS with an additional $138 million penalty.

In foreign exchange markets, the daily setting of rates is known as the fix. Evidence released by regulators made it abundantly clear that traders at the five banks saw to it that the fix was fixed (i.e. manipulated) by colluding rather than competing.

These settlements involved civil charges. The Justice Department is reportedly investigating criminal misconduct by the banks. That’s good news, but there is a strong possibility that these probes will result in something disappointing.

The Justice Department has a long track record of allowing large corporations to evade serious criminal charges by offering miscreants the option to enter into deferred prosecution or non-prosecution agreements that amount to get-out-of-jail-free cards. And even when token criminal charges are enforced, as happened in the Credit Suisse tax case last May and the UBS interest-rate-manipulation case before that, the consequences are hardly devastating.

This failure of corporate prosecution is the subject of a new book called Too Big to Jail by Brandon Garrett, a professor of the University of Virginia School of Law. In an interview with the Corporate Crime Reporter, Garrett says: “There are a number of ways to punish a company. The concern is that none of those ways are being taken seriously enough.” Garrett proposes a system in which corporations plead guilty and are put on probation – hopefully a more rigorous form than the probation BP was on (because of its 2007 case involving an explosion at its Texas City refinery) at the time of the Deepwater Horizon disaster.

Garrett’s notion that having a judge (rather than just a monitor) involved in these cases is laudable, but it is not clear that would be enough to rein in corporate lawlessness.

Note: Garrett has posted a handy list of more than 300 deferred and non-prosecution agreements on his website.

 

The Nonexistent Corporate Mandate

source-mitch-mcconnell-plans-to-vote-against-the-budget-dealAmerican voters have spoken, and what they demanded is a repeal of the excise tax imposed on medical device manufacturers.

That, more or less, is what the incoming Senate Majority Leader Mitch McConnell said in his post-election remarks about the Republican agenda for the new Congress. Eliminating that tax, which is one of the lesser known provisions of the Affordable Care Act, is on the short list of the GOP’s legislative priorities.

I think it’s safe to say that the medical device issue, which is of great concern to companies such as Medtronic and Boston Scientific, was not uppermost in the minds of voters who pulled Republican levers on Tuesday.

It’s no surprise that the Republican members of Congress and the corporate interests that bankrolled their campaigns are engaged in another massive bait and switch. After subjecting the electorate to a torrent of ads that whipped up a frenzy of fear about Ebola and ISIS and demonized President Obama, they are now returning to the real objective: using government to serve big business.

What makes this ruse tricky to carry out is that voters provided telltale signs that they were not endorsing that self-serving agenda. The biggest clue was the overwhelming support for ballot measures on raising the minimum wage in solidly red states such as Arkansas, Nebraska and South Dakota. These measures were so popular that some business opponents gave up long before November 4, prompting the Employment Policies Institute, the mouthpiece for low-wage employers, to make the lame assertion that the votes did not mean much because its side did not really try.

Voters in Massachusetts; Oakland, California; and Trenton and Montclair in New Jersey voted in favor of requiring employers to provide paid sick days. And in Illinois, voters approved a measure favoring an amendment to the state constitution allowing an additional 3 percent tax on personal income above $1 million. That was on the same day they chose a wealthy private equity dealmaker to be their next governor.

If the GOP has any mandate, it’s certainly not one to pursue a pro-corporate agenda on employment and income distribution issues. On the contrary, there is reason to believe that much of the reason for voter rejection of Democrats was not because they are too far to the left, but rather that they are not far enough, at least on economic justice matters.

Take the issue of Obamacare, which many right-wingers foolishly believe is the greatest assault on personal liberty in the history of the republic. Ever since the legislation was being debated, the media has conflated that sort of opposition with the more appropriate criticism that the law did not go far enough in taking profit out of healthcare. Today, one does not have to be a reactionary to believe that the Affordable Care Act is seriously flawed, as evidenced in the ability of the insurance industry to go on peddling ultra-high-deductible junk plans through the exchanges.

Just as there is little room in mainstream discourse for the varieties of discontent on issues such as healthcare, the choices that people have for expressing their displeasure are limited. Many of those voting GOP were doing so simply to register dissatisfaction, not to endorse a party whose policy prescriptions are often out of cloud-cuckoo-land. If the Republicans and their corporate handlers forget this, they will be assuring that 2016 is a rerun of 2012 rather than 2010.

What’s the Point of Profits?

mrmoneybagsAccording to conventional economic theory, corporations earn profits in large part to finance expansion, which means both additional investment and more hiring. How old fashioned. As an article the other day in the Wall Street Journal points out, today’s executives at publicly traded firms increasingly think that the most important use of excess cash is to buy back portions of the company’s stock from investors. The Journal notes that one in four companies in the S&P 500 index have recently carried out stock buybacks.

This practice, which was once limited to troubled companies seeking to prop up a faltering stock price, is now becoming an epidemic. In an earlier article, the Journal reported that buybacks in the first half of this year totaled $338 billion, putting 2014 on track to break last year’s figure of $600 billion.

Out-of-control buybacks are symptomatic both of rampant executive greed and the growing unwillingness of large corporations to grow in a way that will bring about broad-based economic prosperity. The greed comes into play because the buybacks automatically increase corporate earnings-per-share figures, which are widely used as a basis for determining executive compensation levels.

In addition to lining their own pockets, executives who carry out buybacks are refusing to invest in growth. As the Journal put it: “While the economy has crawled back to life, many businesses remain reluctant to buy new equipment, build factories or hire workers.” For these top managers, all that matters is their personal enrichment.

It’s significant that the company listed by the Journal as one of the most aggressive users of buybacks is Ingersoll-Rand, which has employed the technique to boost its EPS figure about 90 percent over the past year. What the Journal does not mention is that Ingersoll-Rand is one the corporations that has reincorporated abroad to dodge U.S. taxes, moving on paper first to Bermuda and then to Ireland.

Like other companies going through so-called inversions, Ingersoll-Rand did not change where it did its actual business. The purportedly Irish company derives 59 percent of its revenues from the United States and has 80 percent of its long-lived assets there.

Apologists for inversions claim they help generate higher net profits that companies use for investment and job creation, yet Ingersoll-Rand shows how such a firm is instead using its ill-gotten gains to buy back stock and thus propel its top executives higher into the 1 Percent.

The edition of the Journal with the buyback article also ran a piece with the headline “As Life Span Grows, So do Worries on Pensions.” The fact that people are living longer is apparently seen as a problem for those companies that still provide defined-benefit retirement plans. New actuarial data show that the average 65-year-old will live more than two years longer (to 88.8 years for women, 86.6 years for men) than was estimated in 2000. This is expected to increase retirement plan liabilities by about 7 percent.

Experts quoted in the article expect that corporations will respond to the change primarily by accelerating their move into 401(k)s and other defined-contribution benefits which relieve the employer of long-term financial responsibilities. It does not seem to occur to business leaders that all that excess cash going into stock buybacks could instead be devoted to pension plans that now have even more need for better funding.

Preying on the Military

militarylendingReincorporating in foreign countries with lower tax rates is not the only way large corporations put profit before patriotism. A front-page story in the New York Times points out that predatory lenders continue to target members of the U.S. military. Despite much business talk about supporting the troops, these unscrupulous firms exploit the precarious financial condition of many members of the armed services.

The vulnerability of service members to predatory lending is not a new story. The federal Military Lending Act of 2007 was passed with the intention of barring the most exploitative practices, but it did not go far enough. The Obama Administration is now seeking sweeping changes to the law to eliminate its many loopholes and to expand its applicability to the many new kinds of predatory “services” that the infinitely creative consumer finance industry has created in the past seven years.

At the same time, the Consumer Financial Protection Bureau has brought enforcement actions against predators that have been violating the law. Last year the bureau got payday lender Cash America to pay $19 million to settle charges relating to abusive practices such as charging more than the 36 percent interest cap established by the Military Lending Act. In May, Sallie Mae and its former loan servicing unit Navient had to pay $60 million to settle federal allegations that they charged servicemembers excessive interest rates and fees on student loans. And in July, a company called Rome Finance had to pay $92 million to settle accusations that it exploited military purchasers of consumer electronics. CFPB Director Richard Cordray told reporters at the time: “Rome Finance’s business model was built on fleecing servicemembers.”

Faced with these obstacles, the predatory lenders have been looking for relief at the state level. The Times points out that states such as Kentucky, Arizona, Missouri, Indiana and Florida have eased their financial regulation, but it gives special attention to North Carolina, where a 2011 push by financial services lobbyists to ease interest rate restrictions was so brazen that it prompted military commanders from Fort Bragg and Camp Lejeune to warn the changes could harm their troops. Last year the industry tried again and succeeded, thanks in part to a decision by the commanders not to get involved again.

The issue is playing a role in this year’s U.S. Senate race in the Tarheel State. Republican candidate Thom Tillis, the state Speaker, supported the easing of restrictions on military lending and has reaped large campaign contributions from the financial services industry. The Times asked his campaign manager Jordan Shaw about this and was told that that the donations did not influence his voting record. Yet Shaw stated that Tillis “wanted to make sure that people still have these loans as an option.”

Conservative politicians such as Tillis have bought into the self-serving ideology of predatory lenders – that consumers should have the freedom to choose exploitative borrowing arrangements. It’s bad enough when this mindset is applied to the general public. Extending it to those who risk their life for their country is breathtakingly cynical and a reminder that corporations are loyal to nothing other than their own enrichment.

 

The CSR Sham

Varkey“We are committed to using our resources to increase opportunity, protect the environment, advance education, and enrich community life.” That declaration comes from the chief executive of the computer systems company Oracle, which is featured in a new report on spending by large companies on corporate social responsibility, or CSR. Statements like this, which are de rigueur these days in corporate communications, seek to give the impression that big business is largely a philanthropic endeavor – that the pursuit of profit and community betterment are not only consistent but are often indistinguishable from one another.

The report on CSR spending was prepared by the consulting firm EPG on behalf of the Business Backs Education campaign, which is based in Britain – where CSR is an even bigger deal than in the United States – and is said to be “led by UNESCO, the Varkey GEMS Foundation, and Dubai Cares under the auspices of the Global Education and Skills Forum.” Bill Clinton has lent his name to the effort.

I was unable to find a copy of the full report posted online, so I am depending on a summary published by the Financial Times. The main finding is that U.S. and UK companies in the Fortune Global 500 spending about $15.2 billion a year on CSR activities.

It’s not clear whether that number is supposed to be impressive, but it is worth noting that the 128 U.S. companies on the list alone account for $8.6 trillion in annual revenue. But even more significant than the amount of CSR expenditures is what they are being spent on. According to the report, 71 percent of the spending by U.S. companies consisted of in-kind contributions, often consisting of the firm’s own products. Oracle, which the FT calls “one of the biggest CSR spenders,” is said to grant “its software to secondary schools, colleges and universities in about 100 countries.” Pharmaceutical companies often donate their own drugs.

Not only is such in-kind giving much cheaper than cash contributions – it also serves to promote the company’s products. The giveaways are in effect marketing campaigns to raise the profile of and increase the future demand for those products.

EPG appears to have used a narrow definition of CSR, consisting of spending that is more commonly defined as philanthropic. CSR also includes broader initiatives on issues such as the environment. Such activities present another set of problems, given that those voluntary initiatives are often used by business as a way of thwarting more rigorous regulatory oversight.

The report is part of the Business Backs Education effort to get corporations to increase the portion of their CSR spending that goes to education. That sounds like a worthwhile mission, but when you look at who is behind the campaign, it all seems somewhat less altruistic.

One of the key backers is the Varkey Gems Foundation, which was established by Sunny Varkey (photo), a Dubai-based entrepreneur who founded and runs Gems Education, the largest operator of private schools in the world and a for-profit provider of services to public schools. Forbes estimates Varkey’s personal wealth at $1.8 billion.

In other words, Varkey is pushing corporations to contribute more to educational budgets that in many cases will be spent on purchasing services that will enrich him and his company even more. And he’s doing this under the banner of CSR and with the imprimatur of UNESCO and the former president of the United States.

From the findings of the EPG report to Varkey’s broader plans, all this is a glaring example of how much of CSR is a sham, a way for large companies and the superrich to promote their self-interest while pretending to be humanitarians.

Corporate Benefit Cutters Still Shifting Costs to Taxpayers

walmart_jwj_subsidiesWal-Mart’s recent announcement that it will snatch health coverage away from 30,000 part-timers is not just the latest in a long series of Scrooge-like actions by the giant retailer. It is also a sharp reminder of both the necessity of the Affordable Care Act and the deficiencies of that law.

If we think back to the time before Obamacare became a political lightning rod, we may recall that it was precisely the behavior of corporations such as Wal-Mart that created the need for healthcare reform.

In addition to paying low wages, Wal-Mart had long been criticized for providing inadequate benefits to its employees. In 2003 the Wall Street Journal published an article describing the various ways in which the company kept its spending on health benefits as low as possible. This was explored in more detail in an AFL-CIO study that came out about the same time.

This evidence, combined with reports that the company was encouraging its workers to apply for Medicaid and other government social safety net programs, prompted critics to argue that Wal-Mart was in effect shifting some of its labor costs onto taxpayers. In 2004, the Democratic staff of the House Committee on Education and the Workforce published a report estimating that the average Wal-Mart employee used federal safety net programs costing $2,103 per year.

Over the following few years, state governments were encouraged to reveal which employers accounted for the most enrollees (including dependents) in Medicaid, the State Children’s Health Insurance Program and other forms of taxpayer-funded health coverage. For those states that did disclose those lists, Wal-Mart was almost always at or near the top. My colleagues and I at Good Jobs First still maintain a compilation of these disclosures, though most of the data is now woefully out of date.

Healthcare reform should have put an end to all this, ideally by creating a system of Medicare for all funded with higher taxes on business. Of course, what we got was something else. Ironically, one of the most positive aspects of the Affordable Care Act – the expansion of Medicaid eligibility in some states – may be increasing the amount of hidden taxpayer costs generated by employers such as Wal-Mart. Yet that’s less important that the extension of those benefits to families desperately in need.

The ACA’s impact on the large portion of the workforce not enrolled in public programs is even more complicated. Although the law depends heavily on private insurance, it does not, strictly speaking, require employers to provide group coverage. Instead, what is often called the law’s employer mandate is a half-baked arrangement that will simply require larger companies (50 or more FTEs) that fail to provide adequate group coverage to pay a penalty.

That penalty is likely to be less than the cost of providing coverage and it will kick in only if at least one full-time employee of a company ends up getting federally subsidized coverage through the state or federal exchanges created by the ACA. It thus appears that companies such as Wal-Mart, Target and Home Depot that dump part-timers from their plans will be able to avoid the penalties, which in any event are not yet in effect as a result of several postponements by the Obama Administration.

While the ACA is helping more people get coverage, it does nothing to thwart low-road employers from continuing to shift what should be their health coverage costs onto taxpayers. It also appears to do nothing to help us discover which corporations are guilty of this practice, since there are no explicit provisions for making public the coverage reports that large employers will be required to file with the IRS.

Not only does the ACA fail to impose a meaningful employer mandate; it also misses an opportunity to shame those freeloading employers which expect taxpayers to pick up the tab for their failure to provide decent coverage to all their workers.

Another Healthcare Website Contractor Mess

big-pharma-pills-and-moneyThe Obama Administration’s struggle with healthcare information technology is once again on display, with the release of the first wave of disclosure mandated by the Affordable Care Act on payments by drug and medical device corporations to doctors and hospitals. These payments include consulting fees, research grants, travel reimbursements and other gifts Big Pharma and Big Devices lavish on healthcare professionals to promote the use of their wares — in other words, what often amount to bribes and kickbacks. The new Open Payments system is said to document 4.4 million payments valued at $3.5 billion for just the last five months of 2013.

This sleazy practice certainly deserves better transparency. Yet in announcing the data release, the Centers for Medicare & Medicaid Services (CMS) seemed to be sanitizing things a bit: “Financial ties among medical manufacturers’ payments and health care providers do not necessarily signal wrongdoing.”

Perhaps, but very often that is exactly what they signal. Let’s not forget that many of the big drugmakers have been prosecuted for making such payments as part of their illegal marketing of products for unapproved (and thus potentially dangerous) purposes. In 2009 Pfizer paid $2.3 billion and Eli Lilly paid $1.4 billion to settle such charges. Novartis consented to a $422 million settlement in 2010. That same year, AstraZeneca had a $520 million settlement. Illegal marketing inducements were among the charges covered in a $3 billion settlement GlaxoSmithKline consented to in 2012. The list goes on.

While the release of the aggregate numbers is useful, there are serious snafus in the rollout of the search engine providing data on specific transactions. As ProPublica is pointing out, the new site is all but unusable for such purposes. It is set up mainly to allow sophisticated users to download the entire dataset, yet even the wonks at ProPublica found that it did not function well in that way either.

Even if one overcomes these obstacles, the ability to analyze financial relationships between corporations and specific healthcare providers is limited by the fact that some 40 percent of the records — accounting for 64 percent of payments– are missing provider identities.

What makes the disappointing Open Payments rollout all the more infuriating is that it is being brought to us by the same infotech contractor, CGI Federal, that was primarily responsible for the much bigger fiasco surrounding the Healthcare.gov enrollment website a year ago. The contractor is part of Canada’s CGI Group, which as I noted in 2013, had a history of performance scandals both in its home country and in the United States.

Problems with the Open Payments site began even before its official public debut. Over the summer, the portion of the site through which providers could register to review the data attributed to them had to be taken offline during a critical period for nearly two weeks to resolve a “technical issue.”

As with Healthcare.gov, it is likely that the government bashers will succeed in putting most of the blame for the shortcomings of the Open Payments system on the CMS. Yet the real lesson of the websites, along with that of the U.S. healthcare as a whole, is that the dependence on for-profit corporations –whether they be pharmaceutical manufacturers, managed care providers or information technology consultants — is always going to generate bloated costs and plenty of inefficiency.

Paying for Protection from Protests

grasberg_mine_11Responding to pressure from groups such as the International Corporate Accountability Roundtable, the Obama Administration has just announced that the United States will finally adopt a national action plan on combating global corruption, especially when it involves questionable foreign payments by transnational corporations that serve to undermine human rights. The White House statement notes that “the extractives industry is especially susceptible to corruption.”

True that. In fact, U.S.-based mining giant Freeport-McMoRan is an egregious case of a company that is reported to have made extensive payments to officials in the Indonesian military and national police who have responded harshly to popular protests over the environmental, labor and human rights practices of the company, which operates one of the world’s largest gold and copper mines at the Grasberg site (photo) in West Papua. There have been reports over the years that the U.S. Justice Department and the Securities and Exchange Commission were investigating the company for violations of the Foreign Corrupt Practices Act, but no charges ever emerged.

Here is some background on the story: Freeport moved into Indonesia in 1967, only two years after Suharto’s military coup in which hundreds of thousands of opponents were killed. The company developed close ties with the regime and was able to structure its operations in a way that was unusually profitable. Benefits promised to local indigenous people never fully materialized, and the mining operation caused extensive downstream pollution in three rivers.

Until the mid-1990s these issues were not widely reported, but then Freeport’s practices started to attract more attention. In April 1995 the Australian Council for Overseas Aid issued a report describing the oppressive conditions faced by the Amungme people living near the mine. It also described a series of protests against Freeport that were met with a harsh response from the Indonesian military. A follow-up press release by the Council accused the army of killing unarmed civilians. An article in The Nation in the summer of 1995 provided additional details, including an allegation that Freeport was helping to pay the costs of the military force.

In November 1995, despite reported lobbying efforts on the part of Freeport director Henry Kissinger, the Clinton Administration took the unprecedented step of cancelling the company’s $100 million in insurance coverage through the Overseas Private Investment Corporation because of the damage its mining operation was doing to the tropical rain forest and rivers (the human rights issue was not mentioned).

The company responded with an aggressive public relations campaign in which it attacked its critics both in Indonesia and abroad. Freeport also negotiated a restoration of its OPIC insurance in exchange for a promise to create a trust fund to finance environmental initiatives at the Grasberg site. Within a few months, however, Freeport decided to give up its OPIC coverage and proceeded to increase its output, which meant higher levels of tailings and pollution.

The criticism of Freeport continued. It faced protests by students and faculty members at Loyola University in New Orleans (where the company’s headquarters were located at the time) who called attention both to the situation in Indonesia and to hazardous waste dumping into the Mississippi River by Freeport’s local phosphate processing plant. Another hotbed of protest was the University of Texas, the alma mater of Freeport’s chairman and CEO James (Jim Bob) Moffett and the recipient of substantial grants from the company and from Moffett personally, who had a building named after him in return.

After its ally Suharto resigned amid corruption charges in 1998, Freeport had to take a less combative position. The company brought in Gabrielle McDonald, the first African-American woman to serve as a U.S. District Court judge, as its special counsel on human rights and vowed to share more of the wealth from Grasberg with the people of West Papua. But little actually changed.

Freeport found itself at the center of a new controversy over worker safety. In October 2003 eight employees were killed in a massive landslide at Grasberg that an initial government investigation concluded was probably the result of management negligence. A few weeks later, the government reversed itself, attributing the landslide to a “natural occurrence” and allowing the company to resume normal operations.

In 2005 Global Witness published a report that elaborated on the accusations that Freeport was making direct payments to members of the Indonesian military, especially a general named Mahidin Simbolon. In an investigative report published on December 27, 2005, the New York Times said it had obtained evidence that Freeport had made payments totaling $20 million to members of the Indonesian military in the period from 1998 to 2004. (A 2011 estimate by Indonesia Corruption Watch put company payments to the national police at $79 million over the previous decade.)

Reports such as these raised concerns among some of Freeport’s institutional investors. The New York City Comptroller, who oversees the city’s public pension funds, charged that the company might have violated the Foreign Corrupt Practices Act.

Back in Indonesia, protests escalated. In 2006 the military responded to anti-Freeport student demonstrations by instituting what amounted to martial law in the city of Jayapura. Around the same time, the Indonesian government released the results of an investigation by independent experts concluding that the company was dumping nearly 700,000 tons of waste into waterways every day. In 2006 the Norwegian Ministry of Finance cited Freeport’s environmental record in Indonesia as the reason for excluding the company from its investment portfolio.

In 2007 workers at the Grasberg mine staged sit-down strikes to demand changes in management practices along with improved wages and benefits. More strikes occurred in 2011. Two years later, more than two dozen workers were killed in a tunnel collapse at Grasberg. Indonesia’s National Commission on Human Rights charged that the company could have prevented the conditions that caused the accident.

Freeport’s questionable labor, environmental and human rights practices continue, yet aside from that OPIC cancellation two decades ago it has faced little in the way of penalties. It remains to be seen whether the new Obama Administration policy changes this sorry state of affairs.

—————-

Note: This piece draws from my new Corporate Rap Sheet on Freeport-McMoRan, which can be found here.

Taking the Anti Out of Antitrust

brewopolyThe early episodes of the new Ken Burns documentary on the Roosevelts showing on PBS highlight Teddy’s role as a trust-buster, even addressing the debate between those like TR who wanted to more strictly regulate the giant conglomerates and those who wanted to dismantle them.

Today, much of the “anti” seems to have gone out of antitrust, as little in the way of either regulation or dismemberment is on the agenda. Some of the largest players in already highly concentrated industries have no compunction about trying to take over one another and grow larger still. They take it for granted that such combinations will be sanctioned outright or with cosmetic changes to make the outcomes slightly less anti-competitive.

The latest example of one big fish seeking to swallow another is the reported pursuit by Anheuser-Busch InBev of fellow beer leviathan SABMiller. Those who reach for a Bud or a Miller Lite may not realize that those familiar beverages are no longer all-American products. Anheuser-Busch InBev is a Belgian-Brazilian company that took its name after acquiring A-B in 2008 for more than $50 billion. The combined firm grew much larger after buying Mexico’s Grupo Modelo in 2013. Today AB InBev has more than 200 beer brands around the world and some $43 billion in annual revenue.

Its target, London-based SABMiller, is the result of the 2002 purchase of Miller Brewing by South African Breweries. In 2008 SABMiller created a joint venture with Molson Coors (a 2005 marriage) called MillerCoors to sell their brands together in the United States.

The combination of AB InBev and SABMiller would take an already super-concentrated industry and make competition even more of a joke. Sure, there are a few independents left — such as Pabst, Yuengling and Boston Beer Company, maker of Sam Adams — but they would be up against a company with more than three-quarters of the U.S. market.

AB InBev’s move is just the latest in a series of takeover attempts among companies that are already effective oligopolies. In July, number two U.S. tobacco company Reynolds American announced plans to acquire number three, Lorillard. Dollar General, the largest deep-discount retailer, is seeking to purchase the second-largest, Family Dollar, thereby overturning a deal to acquire that firm by Dollar Tree, the third largest player. Earlier, Sysco announced it would purchase rival distribution giant US Foods.

Not every deal goes through: Rupert Murdoch’s 21st Century Fox dropped its bid for Time Warner and Sprint abandoned its bid for T-Mobile. Comcast, one hopes, will not succeed in its attempt to take over Time Warner Cable. But the fact that these deals were even floated is an indication that mergers that were once unthinkable are now considered serious possibilities.

All this is good news for investment bankers, who have been celebrating the fact that merger activity in the first half of 2014 was the highest in seven years and shows no signs of abating. But it does little for the rest of us.

Increased concentration tends to reduce employment, prop up prices, restrict consumer choices and discourage innovation. There was a time when employees of oligopolies had an easier time winning wage increases, but the weakening of labor unions has largely eliminated even that limited benefit.

Such drawbacks were known at the time of Teddy Roosevelt and became only clearer during the following decades. Today these lessons are frequently forgotten. A country that supposedly celebrates free competition instead bows to the desire of large corporations to absorb their competitors and dictate terms to the market. J.P. Morgan’s arrogant statement “I owe the public nothing,” is echoed every time one of these megadeals is announced.

Business Success and Economic Failure

familydollarWhat does it say that an all-out takeover battle is being waged for a chain of no-frills stores selling cheap merchandise at outlets typically located in the most downscale parts of town? The answer is that deep-discount retailing, which entered the mainstream during the recession of the late 2000s, remains a lucrative business as much of the country struggles with stagnating income levels.

The focus of the current bidding war is Family Dollar Stores, the second largest chain of deep discounters, also known as dollar stores. A couple of months ago, Dollar Tree, the third largest chain, announced plans for an $8.5 billion purchase of Family Dollar, which had been targeted by several corporate raiders such as Carl Icahn, who bought a 9 percent stake in the firm.

Family Dollar’s management seemed willing to throw in its lot with Dollar Tree and create a combined company with about 13,000 stores that could not only neutralize Icahn but also challenge the current leviathan of the industry, Dollar General with its 11,000 stores.

Dollar General, which long had its eye on Family Dollar, did not take kindly to the prospect of being relegated to second place. It launched its own fatter bid for Family Dollar, and after being rebuffed, it is now going hostile. It has announced a tender offer under which Family Dollar investors could sell their shares for $80 each, well above the $74.50 that Dollar Tree said it would pay.

As interesting as this may be to analysts of mergers & acquisitions, the takeover battle is not the most significant story here. First, there is the alarming fact that it is taken for granted that the marriage of two giant dollar-store chains can receive antitrust approval. The original Dollar Tree-Family Dollar deal has been promoted by the two companies with the argument that it was likely to be blessed by the Federal Trade Commission. Dollar General argues that its promise to sell off 1,500 outlets would make its deal palatable to the federal regulators. Why shouldn’t any combination among the three chains be considered unacceptable? And what about the even more controversial possibility, as has been widely rumored, that Wal-Mart might try to take over one of the dollar chains to shore up its faltering small-store strategy? Are we to assume that would get approved as well?

At the same time, there has been surprisingly little discussion of how these companies operate. For example, there’s the matter of their labor practices. Dollar General, Family Dollar and Dollar Tree are not often mentioned alongside Wal-Mart, yet they are also low-paying, non-union employers that have been involved in numerous wage & hour controversies. The dollar stores, whose outlets have much smaller staffs than those at Supercenters, have mainly been accused of improperly denying overtime pay to so-called store managers and assistant managers who spend most of their time on non-managerial tasks such as stocking shelves and unloading trucks. Family Dollar, for instance, fought one such case all the way to the U.S. Supreme Court, where it lost and finally had to pay a $33 million judgment.

And then there’s the issue of the basic business model of the dollar stores. This is a sector that to a great extent profits from economic desperation. Although a small portion of its customers are middle-class people looking for a bargain, most are lower-income individuals who cannot afford to shop at the likes of Wal-Mart, much less non-discount chains.

The deep-discount chains were supposed to have shrunk once the economy was in recovery. Their continued growth is a symptom of ongoing wage stagnation, and their business success is a sign of a broader economic failure.