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GLOBAL TRENDS

Annex Research’s Analysis of UN Report on Global Investments 2000

“Robber Baron” Era Is Back

Surge in Cross-border M&A’s Fuels Concentration of Corporate Power

Text Box: "Laws are like spider webs. If some poor weak creature comes up against them-it is caught. But the bigger one can break through and get away." (Solon, c. 630-c. 555 BC)

PHOENIX, Jan. 12 - The “Robber Baron” era in the American history reached its apex some one hundred years ago.  “The public be damned,” railed the railroad tycoon, Cornelius Vanderbilt.  But an alarmed Congress mounted concerted efforts to reign in the unchecked power of large industrial corporations that were shaking the United Stated of America right down to its constitutional roots.  This led to Sherman and Clayton Acts, two pieces of antitrust legislation that are still the law of the land today.  As Bill Gates and Microsoft found out last year.

But the menacing industrial Hydra[i] has sprung new heads, especially in the waning decades of the 20th century.  And there is as yet no Hercules in sight who could slay that Hydra.  Giant national corporations have mutated into even more awesome multinational or transnational behemoths.  And even these terms are misnomers, since such companies actually operate on a supranational basis.  They lay down new laws or try to break through existing ones.  Just as the Greek philosopher Solon (c. 630-c. 555 BC) noted 28 centuries ago.

So as we enter the Third Millennium, the world is now facing the same nemesis America did a century ago.  Only on a global, rather than a national scale.  The brute “might is right” and “money is might” philosophy is once again threatening Homo Sapiens’ finer endeavors.  “The public be damned.”  It’s just that instead of the industrial tycoons’ driving the trend, this time around, it is Wall Street that’s wagging everyone’s tails, transforming transnational corporations into mighty multinational whips.  And “M&A is the way!” …it is done (here’s a Wall Street slogan by Annex Research for Madison hucksters).

What makes all this possible, of course, is technology.  Transnational corporations (TNCs) are now able to disperse physical production around the globe in search of the lowest labor rates, and then integrate it effectively thanks to falling transportation and telecommunication costs. 

In short, the physical factory has dropped down the food chain to a commodity level and into the realm of a local economy.  Thanks to falling transportation and telecommunication costs, the physical plant has been supplanted (pun intended) by a Global Virtual Factory.  The latter is now wrapped inside an Integrated Services offering,  Which enables it to deliver products with lightening speed to just about any customer anywhere around the world. 

It’s an ideal world from a TNC perspective.  It’s a potential nightmare from a Homo Sapiens’ vantage point.  Because it may lead to a new form of slavery.  And usury.  Man’s enslavement by the Almighty Dollar.

All levers man has devised so far to control unchecked power are still at the local or national levels.  Yet most of the corporate power is now escaping through existing legal hatches into the free and open global air ABOVE and BEYOND the local legislators.  Trying to put that genie back into the bottle is like catching air.  The only way it might be done is by creating a global political regime - the dreaded One World Government, of which the United Nations (UN), the European Union (EU), etc. are the founding elements. 

We say “dreaded” because the TNCs can influence and control such a global government more easily than a myriad of national or local legislative bodies.  After all, the UN, the EU, the WTO, the IMF, the World Bank, etc. ARE creations of the globalist bankers, such as Rockefellers, Rothschilds, etc.  And these folks haven’t impressed the world as shiny examples of civil liberties champions, have they?

Furthermore…

·        Did you know that the U.S. tax authorities made income tax “adjustments” in favor of the 156 American and 236 foreign-based TNCs to the tune of $1.5 billion in 1994?

·        Did you know that 61% of the American and 67% of the foreign-based TNCs PAID NO U.S. INCOME TAXES in 1995?

Which means that Vanderbilt’s infamous “the public be damned” comment from a century ago is slowly becoming a reality today.

Well, with that “cheery” preamble, let us now dig into the flesh of the matter…

M&A Leads the Way!

Our annual analysis of the United Nations World Investment Report 2000 shows that cross-border mergers and acquisitions (M&As) are the drivers behind the globalization trend.  Their ultimate objective is concentration of market power in few but mighty hands.  And with no such thing as a global trustbuster in sight, Wall Street’s M&A push is well on its way to achieving that goal.

In 1999, for example, cross-border M&As accounted for $720 billion, or 90% of the total foreign direct investment (FDI) outflows made by the global TNCs ($800 billion).  Or about 83% of the world’s total FDI inflows ($865 billion) during the same period.

Text Box:  The 1999 M&As are up more than seven-fold since 1987, roughly the start of the long-running Wall Street bull market.  Back then, the global M&A activities accounted for only $100 billion, according to the UNCTAD data (the Geneva-based United Nations Conference on Trade and Development). 

The global M&A activities in 1999 resulted in over 6,000 transactions, yielding an average deal of about $120 million.

Perhaps more telling about the rising significance of this Wall Street-driven activity is the fact that M&As (both cross-border and domestic) surged from 0.3% of the world GDP in 1980, to 8% in 1999.  The total number of the deals (24,000) increased by a compound interest rate of 42% during the same period, reaching an aggregate value of $2.3 trillion by 1999.

Two big waves of M&As are discernible.  The first, a smaller one, was in 1988-1990.  It was followed by another bigger wave which started in 1995, and which is yet to crest.  After a record 74% surge in 1998, the cross-border M&As increased by 35% in 1999, for a 47% growth rate in 1996-1999.

Despite a large number of “megadeals” (109 over $1 billion in 1999) that have taken place in the recent surge of M&As, the relative size of the biggest transactions is modest when put in historical perspective.  The largest M&A deal to-date, Vodafone Air Touch’s acquisition of Mannessman in 2000, valued at about $200 billion, is a scant one-third of the early 20th century creation of US Steel, which would be worth about $600 billion in today’s dollars.

At the last turn of the century, at the height of the “Robber Baron” era, the ratio of M&As to the U.S. GDP was about 10%.  As you saw from the above stats, it is now about 8% of the global GDP.

So Wall Street is slipping while climbing… J

Flies in the Ointment

There are also some other flies in Wall Street’s M&A ointment.  As with most top-down fads (as opposed to the bottom-up trends), many deals go sour.  How many?

“Half of all M&As do not live up to the performance expectations of parent firms, typically when measured in terms of shareholders value,” according to the UNCTAD report.  But that doesn’t worry too much the top Wall Street deal makers who usually make out when the deal is done (see the “Top 10 M&A Deal Makers” table).

Cross-border M&As can also be used to REDUCE competition in local markets, as the global oligopolists drive out the local com Text Box: Top 10 M&A Deal Makers
January-June 2000

1. Goldman Sachs			$901B
2. Morgan Stanley Dean Witter	$808B
3. Merrill Lynch				$757B
4. Credit Suisse First Boston		$386B
5. JP Morgan				$359B
6. UBS Warburg				$345B
7. Rothschild				$255B
8. Deutsche Bank			$240B
9. Salomon Smith Barney		$227M
10. Lazard					$214B
Source: Financial Times, July 5, 2000
petitors.

“Moreover, even in M&As that do go well, (an) efficient implementation from an investor’s point of view does not necessarily mean a favorable impact on the host country development… The main reason is that the commercial objectives of the TNCs and the development objectives of host economies do not necessarily coincide.”

“Do not necessarily coincide?”  How about calling a spade a spade: They clash!  Just check with the heads of the Southeast Asia countries that were savaged in 1997 (see “Wall Street’s Financial Terrorism,” this writer’s global economic column published by the Chronicles magazine of Chicago in March 1998).

Globalism = Recolonization

Text Box:  More than three years later, even the UN scribes are agreeing with our conclusion - that unchecked globalism can lead to recolonization of the world.  Here’s what the UNCTAD 2000 report concluded about the “benefits” of the TNC-led globalization:

“The areas of concern transcend the economic and reach into the social, political and cultural realms. In ‘industries’ like media and entertainment, for example, M&A may seem to threaten national culture or identity.  More broadly, transfer of ownership from domestic to foreign hands may be seen as eroding national sovereignty and amounting to recolonization.”

“Recolonization” is precisely what occurred in Asia after the 1997 financial crisis, as the global bankers and TNCs bought up ravaged local assets at “fire sale” prices. 

ASIA. In South Korea, for example, one of the “Asian tigers” wounded by the 1997 crises, acquisitions by foreign firms exceeded $9 billion in 1999, making the country the biggest M&A takeover target in developing Asia.

Foreign takeovers in Southeast Asia nearly tripled in the post-crisis period (1997-1999), reaching an annual average of $20 billion.  This compares to an average of only $7 billion during 1994-1996.  Purchasers from the U.S., U.K., Singapore, Netherlands and Switzerland - in that order - were the largest acquirers.

U.S. companies, for example, spent $5.8 billion during 1998-1999 acquiring devalued assets in the five hardest-hit Southeast Asian countries (Indonesia, the Philippines, Malaysia, Korea and Thailand).  But prior to the financial crisis, which some say was deliberately engineered by Wall Street, the same American TNCs spent only $344 million on the much more expensive assets.

Text Box:  Similar ratios are discernible for the other top “vulture capitalists” - from the U.K. ($3.2 billion vs. $461 million); Singapore ($2.5 billion vs. $1.1 billion), Netherlands ($1.8 billion vs. $400 million) and Switzerland ($1.7 billion vs. $316 million).

Those economies are now humming again, but the profits are flowing into Wall Street’s and TNC’s pockets, not those of the local businesses.

As for China, the country that has attracted a quarter of all direct foreign investments made by the TNCs in the developing world during the 1990s ($285 billion), it finished the 20th century on a sour note.  The 1999 investments, while still formidable at $40 billion, dropped from the year before by 8%.  It was China’s first decline on record!  And it came at a time when the country has been all but admitted to the WTO - a “carrot” the Chinese government has been eyeing for years.

LATIN AMERICA. Nor is just an Asian financial flu.  Remember the financial crisis in Brazil, some two years ago?  And how a former George Soros man (Arminio Fraga) was installed as the Central Bank governor and put in charge of the “turnaround?” (see “Brazil Central Bank’s Revolving Door”, Feb. 1999). 

Well, Fraga seems to have done just that.  He turned Brazilian assets over to his pals, the Wall Street bankers.  Who, along with their TNC clients, pumped over $31 billion into the Brazilian economy in 1999, mostly through M&A takeovers of the local companies, and called it a “turnaround.”  This followed $28.5 billion of foreign investments in 1998.

And suddenly, Brazil has leaped from a country plagued by a “financial crisis” to the best “investment opportunity” in Latin America, leapfrogging even Mexico, a NAFTA country the largest recipient of foreign investments prior to 1996.  In 1998-1999, Mexico received “only” $11 billion and $10 billion respectively.

Text Box:  In both Brazil and Argentina, the second most popular “investment opportunity” in Latin America in recent years, the local government- and bankers-pushed privatization has been the main driving force for the M&A-type takeovers of the domestic economies by foreign companies. 

As in the case of Asia, we are told that those economies are now humming again.  But what the media doesn’t usually tell us is that the profits are flowing into foreign, not local businessmen’s pockets.

In 1999, for example, Latin America received a record $90 billion in foreign investments (read foreign takeovers of local enterprises).  At the same time, however, the region posted a $56 billion current account deficit.  The latter figure represents the repatriation of dividends and profits to the foreign owners. 

So Latin America is a classic example of both a recolonization of the world by financial means, and of the “Wall Street Hoover” at work.  On the one hand, it’s sucking the manufacturing jobs out of the developed countries’ economies and spewing them south of the border.  On the other hand, it is sucking out the profits south of the border and bringing them back home.  Only to be as golden handcuffs for the next global “investment opportunity,” a.k.a. Wall Street colony.

EASTERN EUROPE. Speaking of which, since the end of the Cold War, Eastern Europe has become one of the fastest growing “investment opportunities” for the TNCs.  And as we predicted in 1996, it is gaining ground on the former TNC darlings in the Asia/Pacific region. 

In 1999, foreign investments in Eastern Europe reached $21.4 billion, for a 61% compound annual growth in the 1990s, by far the highest in the world.  Of course, they were practically zero at the end of the Cold War., so this figures overstates the attraction a bit.

The West’s old favorites - Poland, Czech Republic Hungary - maintained their relative positions among the top five recipients of foreign investments, raking in $7.5 billion, $5.1 billion and $1.9 billion respectively in 1999.  But while the figure for the Czech Republic represents a near doubling of the 1998 total ($2.7 billion), Hungary experienced a modest decline, and a big drop-off from the record $4.5 billion it received in 1995.

Perhaps the biggest surprise is a sudden resurgence of investments in Croatia, a tiny Balkans country that placed fifth and attracted $1.4 billion in 1999, up from only half a billion two years earlier.  The TNCs also upped their stake in Bulgaria, another small Balkans country, but by a smaller amount (from $537 million in 1998 to $770 million in 1999).

Text Box:  Russia placed third among the Eastern European countries with $2.9 billion of foreign investments in 1999, a small increase from the $2.8 billion it received in 1998.  But on a per capita basis, the largest country in the world, and by far the biggest economy of Eastern Europe continues to be mostly spurned by western investors (see “Two Faces of Globalism: Yin and Yang, Princes and Paupers” Dec. 1998).

Why? 

First, because despite the occasional diplomatic glad-handing by Washington, Russia continues to be regarded as the Bogey No. 1 by the New World Order leaders.  And what Washington wants, the TNCs do.

Second, Vladimir Putin, now president, and the man who has effectively run Russia since being appointed prime minister in August 1996, has been acting - surprise, surprise… by contrast to the Brazil or Argentina leaders, for example - in HIS country’s best interests.  At the same time, Putin has been skillfully courting the western bankers who have nearly $150 billion at stake, including the (bad) loans to the now defunct Soviet Union (see “Coopetition: Russia’s New Foreign Policy”).

Text Box:  Third, the best pickings are over.  In the heydays for plundering Russia’s resources, during the eight-year reign of the quisling Yeltsin regime, over $500 billion of Russia’s assets had been transferred to the West, whether legally or surreptitiously, according to our Russian sources.  By contrast, the West had invested less than $5 billion by the time Boris Yeltsin was reelected as president in 1996. 

So $5 billion in, $500 billion out… Perhaps that’s an extreme example of the “benefits” of globalism.  Yet it fits the patterns elsewhere around the world.

“Long live free trade!”  “The public be damned!”  The “Robber Baron” era is back.  Only now on a global scale.  Take cover.

Happy bargain hunting!

Bob Djurdjevic


[i]  Hydra - Many-headed monster that was slain by Hercules.  The term is also used to describe a multifarious source of destruction that cannot be eradicated by a single attempt.






 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume XVII, No. 2001-02
January 12, 2001

Editor: Bob Djurdjevic
Published by Annex Research
e-mail: annex@djurdjevic.com

P.O. Box 97100,      Phoenix, Arizona 85060-7100
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