Tuesday, January 02, 2018

Capital Consolidation and Tax "Reform"...,

therealnews |  Welcome to The Real News Network. I'm Gregory Wilpert coming to you from Quito, Ecuador. The year 2017 is turning out to be another banner year for the centralization of capital, that is, according to an article in the Financial Times this week, “Global mergers and acquisitions exceeds three trillion dollars for the fourth straight year.” The article goes on to point out the following: Faced with the prospect of Amazon's entry into the pharmacy business, the US's biggest drugstore chain, CVS Health, agreed to acquire health insurer, Aetna for about $69 billion. Encroachment by Facebook and Netflix into sports, media and film production led Rupert Murdoch to sell most of his 21st Century Fox empire to Disney in a $66 billion deal.

The US remained the most active region for mergers and acquisitions with $1.4 trillion in deals. The numbers of US deals struck in 2017 combined climbed above 12,400 for a record figure. The largest deal in 2017 has yet to be resolved as Broadcom pursues a hostile $130 billion bid for rival chip maker, Qualcomm. Joining me to analyze the causes and consequences of this massive centralization of capital in 2017 is Michael Hudson. Michael is a distinguished Research Professor of Economics at the University of Missouri–Kansas City. He's author of several books. The most recent among them is J is for Junk Economics. Welcome back, Michael.

MICHAEL HUDSON: Good to be back here.

GREGORY WILPERT: So, what at heart is causing all of this frenetic activity for companies to gobble up one another and thereby creating and ever greater centralization of capital?

MICHAEL HUDSON: Well, it's part of the neoliberal strategy to inflate the wealth of the 1%, basically by inflating the stock market and the real estate and the bond prices. At the same time, the central banks are pursuing quantitative easing that offer money at almost zero interest rates. You have the tax system, tax giveaways, to the... sector, which are encouraging these mergers and acquisitions by, essentially, dismantling the antitrust legislation that has been in place since the New Deal, and the tax giveaways that make it possible for all of this huge, hundreds of billions of dollar tax giveaways in the Republican tax law of two weeks ago that enables companies that have kept hundreds of billions of their earnings tax-free in offshore banking enclaves and tax avoidance centers.

Since 2004, all this money can now be replaced under the name of the head companies instead of their just-pretend foreign affiliates in these tax avoidance centers. So, the companies are going to be very tax rich. They've anticipated most of this and essentially, you can look at these mergers and acquisitions as part of an arbitrage operation. If you can get money at about 1%, if you're a hedge fund, a bank or a large corporation, if you can borrow at 1%, then you can borrow stocks that are yielding 10% or even more. Or, for that matter, even less and you can make up all the difference between the 1% you pay and the stocks whose dividends pay a higher rate of return, 5, 6, 7, 8, or 9%.