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The following is presented as part of The Columbian’s Opinion content, which offers a point of view in order to provoke thought and debate of civic issues. Opinions represent the viewpoint of the author. Unsigned editorials represent the consensus opinion of The Columbian’s editorial board, which operates independently of the news department.
 

Jayne: Mergers don’t always fly right

By Greg Jayne, Columbian Opinion Page Editor
Published: April 6, 2024, 6:02am

In researching and writing an editorial about Boeing this week, naturally I thought about corporate mergers. And Ronald Reagan. And St. Louis.

OK, OK, you might not see the connection; admittedly, it is not obvious. Boeing, after all, has been around since long before and long after Reagan’s presidency. And it never has been headquartered in St. Louis. And its current troubles can be pegged to a number of factors.

But when people who know more than I do about the aerospace industry point blame in one particular direction — Boeing’s 1997 merger with competitor McDonnell Douglas — it demands attention.

As Christopher Tang, a professor at UCLA’s school of management, wrote in February for Newsweek: “This merger led to conflicts between Boeing’s dedicated engineers and MD’s savvy finance and marketing executives. As the board of the merged company began to favor promising financial projections, Boeing underwent a transformation into a lean organization. … Boeing’s shift from an engineering focus to a finance focus led to a change in priorities.”

Or as Natasha Frost wrote for Quartz.com in 2020: “In a clash of corporate cultures, where Boeing’s engineers and McDonnell Douglas’s bean-counters went head-to-head, the smaller company won out. The result was a move away from expensive, ground-breaking engineering and toward what some called a more cutthroat culture.”

Of course, manufacturers need to be cutthroat. If you don’t keep costs down and don’t turn a profit, you don’t remain in business. And if Boeing doesn’t remain in business, roughly 67,000 Washington residents lose their jobs.

All of which brings us — in a roundabout way — to Ronald Reagan and St. Louis. A fascinating Vox.com article by Timothy B. Lee in 2017 carries the provocative headline, “Is Ronald Reagan to blame for the decline of St. Louis? Some experts think so.”

It should be pointed out, also, that many experts do not think so, or simply don’t know. But the discussion focuses on how Reagan ushered in an era of large corporate mergers by altering federal antitrust policy. “As a result,” writes Lee, “we got a lot more mergers, resulting in massive conglomerates that are disproportionately headquartered in a handful of big cities.”

Cities such as St. Louis, where McDonnell Douglas had been headquartered, suddenly stopped being corporate hubs. And when major corporations are no longer centered in St. Louis or Cleveland or Oklahoma City, those cities lose top-tier ad agencies and accounting firms and local banks. And, as Lee writes, “The lack of major employers makes it harder to convince talented young workers to stay, which in turn makes it harder for local businesses to grow.”

There can be benefits to corporate mergers. Consolidation can improve efficiency and make it easier to cut costs and take advantage of economies of scale. This can be good for consumers, leading to innovative products and reduced prices. As profits increase, so do stock prices, along with a corporation’s ability to purchase additional companies and further extend its reach.

But as Sen. Elizabeth Warren, D-Mass., has argued, “Consolidation and concentration are on the rise in sector after sector. Concentration threatens our markets, threatens our economy, and threatens our democracy.” That might sound like hyperbole; on the other hand, backlash against “coastal elites” has contributed to the sort of dangerous populism espoused by Donald Trump and his supporters.

Reagan was not the first politician to advocate for loosening antitrust laws. But he had the power, foresight and political savvy to turn economic theory into policy. It has changed the U.S. economy — not necessarily for the better, unless you are a stockholder.

As the New York Times wrote upon Boeing’s merger with McDonnell Douglas: “The full effect of the proposed merger on employees, communities, competitors, customers and investors will not be known for months, maybe even years.”

Decades later, those lessons are proving to be somewhat painful.

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