SYNOPSIS:The EU block of the GE merger destroys conventional wisdom
When the European Commission indicated it was likely to block the proposed merger between General Electric and Honeywell, American politicians from George W. Bush on down cried foul, with some alleging that the decision was politically motivated. They're almost certainly wrong about that, but it is true that the E.C.'s case against the merger is far from watertight. Mario Monti, Europe's competition referee, may have made a bad call on this play.
Nonetheless, our politicians should lower their voices. Mr. Monti is one of the good guys in today's global economy. He should not be made the target of attempts at political intimidation.
To put t he G.E.-Honeywell affair in context, you need to realize that this case is a triple switcheroo: it contradicts not one but three pieces of conventional wisdom.
First, the conventional view is that globalization weakens governments, because it forces them to compete for private investment. Broadly speaking, this view is right. (Conventional wisdom usually is.) There are, however, exceptions to the rule, and antitrust policy is one of those exceptions. In today's world, no company can compete effectively unless it can operate freely on both sides of the Atlantic — which it can do only with a green light from antitrust authorities in both the United States and Europe. The result is that instead of eroding the power of those authorities, globalization has extended their reach: American regulators can block European mergers, and vice versa.
Second, this case inverts traditional roles. Until recently, only the U.S. seemed to take antitrust policy seriously. Europeans might have U.S.- style legislation on the books, but they often seemed to feel that cartels, like extramarital affairs, were nothing to worry about as long as the participants were discreet — and they were scornful toward puritanical Americans who insisted on enforcing the letter of the law. Lately, however, Europe has gotten serious about antitrust, giving the competition commissioner broad powers to block mergers and investigate allegations of anticompetitive behavior. Mr. Monti, an American-trained university professor who assumed that office in 1999, has used those powers aggressively. General Electric and Honeywell are by no means the first companies to find Mr. Monti blocking what they thought was a done deal.
Was Mr. Monti right to block this particular deal? It's a complicated issue. Let's just say that the case against this merger is similar to the case for breaking up Microsoft, though it seems a lot weaker. On the other hand, you don't need as strong an argument to block a merger as you do to break up a going concern. We're in a gray area, with the precise shade of gray a matter of opinion.
Even if you disagree with Mr. Monti's opinion, however, his sincerity is not in doubt. The best answer to those who claim that this is really a protectionist ploy is Mr. Monti's track record: he has repeatedly shown himself willing to oppose the demands of powerful European interest groups. Why would he suddenly become a tool of protectionists?
And that leads us to the third switcheroo. Europeans are accustomed to cozy cohabitation between politicians and businessmen; Americans tend to insist on at least the appearance of an arms-length relationship. But just at the moment when the Europeans have placed competition policy in the hands of a sternly upright professor, the United States has acquired an administration that seems oblivious to normal concerns about conflict of interest.
It's not yet clear whether the Bush administration really is a government of, by and for big corporations to an extent not seen since Warren G. Harding was president, or whether it just looks that way. But the stories keep accumulating. Intel's chief lobbyist says that his highly inappropriate meetings with Karl Rove were "quite useful" to its merger case — and Mr. Rove didn't even get a slap on the wrist. According to the outgoing chairman of the Federal Energy Regulatory Commission, the head of Enron offered to support him at the White House if he changed his policy positions. And it took three months — and a sharp prod from Jake Tapper at Salon — before Treasury Secretary Paul O'Neill honored his promise to sell his Alcoa stock. As a consumer, I'm not sure I trust these people to protect me from the market power of giant corporations.
And so it's nice to know that Mr. Monti is out there, looking after my interests.
Originally published in The New York Times, 6.24.01