Warren Buffett and his co-horts just became richer, more wealthier today. Buffett and Berkshire just quadrupled their investment with the merger of H.J. Heinz and Kraft Foods. Buffett and a Brazilian private equity group took HJ Heinz private a few years ago by doing a leveraged buyout of the company that included the used of Berkshire stock. When you can get the loans very cheap, thanks to the Federal Reserve’s Quantitative Easing, then that makes it all the more easy to do these mammoth deals. And with the merger with Kraft Foods that will not need any bank involvement as to funds. Buffett will make a killing on that investment as well. The question is why the world ever needed this merger. Buffett is hardly the knight in shining armour when it comes to business. When he bought the Railroad, Burlington Northern Santa Fe, any pipeline that connected Canada to the Gulf ports in America was doomed to achieve approval. He and his band of merry cutthroats contributed heavily to Obama’s campaigns in 2008 and 2012. What Warren wants Warren gets. This is the real problem of what happens when corporations and individuals get too big, too powerful.
The Dutch East India Company, the world’s first corporation, started the tradition of limited risk in business. Simply put, a few of the wealthy and powerful put up capital, buy some ships and warehouses, hire some captains and crews, and start trading beyond their immediate confines. Ship’s captains in these venues were more than ship’s masters, they were explorers and opportunists. They needed to be shrewd enough to see the opportunities and drive hard bargains. After all, they received a share of the rewards when their particular venture was successful. And why not, being a ship’s master and representative of the company was a hazardous occupation. Many lost their lives to ship wrecks, mutinies, and other disasters. So the race went on to open trade routes, establish trading outposts, conqueror or at least subjugate the local inhabitants to company rule. And to wage war, if necessary, on the competition. Eventually the Dutch would gain ascendency over the Portuguese only to lose some of their empire to the British corporation, the East India Company. The English were better suited since their had a long practice as pirates against the Spanish rule in the New World and other places. The Spanish had established the practice of several times a year sending trading fleets out to various parts of the world and then returning with their loot. Their ships were made for commerce, not for war. English ships were made for war, not commerce. Well, the results are obvious. Of course in fairness to the Spanish, they sent out far more of these large transports and their losses were not too great. English piracy was more of a wealth tax than a total loss of men, material, and goods.
The British East India Company was run like it’s own empire. As it opened up new trading outposts and established British rule over the area by way of company representatives, who were little more than local dictators with private military forces, the official British government representative would be established when that outpost achieved prominent size and interest. By the time of the Indian Mutiny the company, as it was known had finally become too vicious and dangerous for the good of all everywhere. The British government pulled the reigns in and many of the sociopaths who raped India were induced to retire or removed to other assignments of less danger to Queen and company. At its peak the company makes the modern banking system and those individuals such as Carlos Slim and Warren Buffett look like pikers. Britain grew more from the transfer of wealth from the invaded countries turned into colonies than it did from the industrial revolution. One may dispute this point but the British empire was run as a mercantile empire. Colonies existed to feed Britain with the raw materials and buy her finished goods. Case in point. India was growing cotton and manufacturing its own cloth prior to the British invasion. The company bought all the cotton and shipped it back to the UK where it was processed and turned into bolts of cloth and ready made clothing, Then those goods were shipped back to India for sale to the locals. Not that the company got all the cotton, but it certainly gained lion’s share. Part of Gandhi’s plan was for Indian to grow, harvest, spin and weave their own cloth and eschew those goods the British merchants want to sell them. What made Britain great made other subjugated countries poor. This is what colonialism does. Rather than develop a local economy it seeks to bleed it dry.
So what does Warren Buffett have to do with the lesson in the history of political economy? Notice I used the term political economy, the old term given to it by moral philosophers. God, I just love tie ins. The whole point of a corporation, a large company is the pursuit of profit. Now profit is not an evil thing. I have said it before and will say it again, a profit is the cost of doing business in the future. This extends to individuals who save a portion of their wages or income, that portion that does not pay expenses, just like a commercial company that makes stuff or does stuff. That is the point of savings. It is an invest in tomorrow. It is the capital that is needed to keep an economy going. So we save a portion of our income and perhaps invest that savings for future return. When we retire it is like liquidating our own company. That is the company of ME who provided labor of some kind to another entity. Now I take my savings, I take my investments, and I live off them. They will be my new income stream to replace to some extent the wage I earned from working. That some want more wealth to live off in retirement or unemployment is fine. But the point is, we all accumulate wealth to some extent unless we spend every dime given us. Warren Buffett is no different. Many years ago he took his earnings and some family wealth and started turning it into a fortune. I admire his hard work in his early years. Unfortunately, if truth be told and perhaps it won’t Warren cut corners on the way to becoming far too wealthy for his and our own good.
Much of his income has been protected from taxes by way of corporation laws. And much of his wealth is really liabilities. But all that aside. The real problem with these constant mergers and acquisitions is that they encourage concentrations of wealth that will destroy the financial world as well as the political one. How many Kraft and Heinz employees will lose their jobs due to the synergies gained? And by the way, all that synergy business is pure crap. No one have ever proved that synergy exists or works or does what everyone who used that stupid term says it does. I am sorry, the sum is not greater than the whole. There is no synergy gained by merging all businesses into giant firms. The benefits to the economies of scale accrue only to the giant enterprise and not to the consumer. Now I might be seen as being a little rough on Buffett. However, it is wealthy investors like him who encourage the idiocy of today’s startup. All that Venture Capitalist money that gets invested in start up is, for the most part, a ponzi scheme. How do we know your app is going to be worth billions of dollars in revenue? We don’t. That forecasted sales figure is picked out of the air and has nothing to do with reality. The valuation of that app is picked out of the air and has nothing to do with reality. In fact the only reality for these startups is that the VCs control when the company goes public and when the insiders can sell their shares. The VCs always make sure they get to sell off first and maybe a few key people get to unload some of their shares. But if you are an employee with a stock option, you might have to wait upwards of a year and by then your startup may have just failed and you have no capital gains to tax.
As long as we cling to the false belief that the markets are free and free trade happens when tariffs are abolished we will be plagued with the ever increasing concentration of business and that means people like Warren Buffett, who are not elected or appointed to any government position can dictate public policy to those who are are elected or appointed. I call it a conflict of interest. I call it theft. I call it enslavement to the great ponzi scheme of the few extremely wealthy. They have not improved the world one whit. So what do we do. Place limits on capital formation and the size of corporations, companies, and partnerships. We also muc stop letting individuals like the Clintons create tax exempt charities that only enrich themselves at our expense. So cut them all down, limit their size by law. Tax income on salaries of corporate executives excessively. Why do you need a million dollars each year? You can’t possibly spend that much and all you are doing is accumulating wealth at the expense of others. You own a great number of shares in corporations that earn billions each year, then we need a wealth tax. I have no problem with those who may have worked hard and accumulated assets of five million, but why do you need more? A wealth tax on everything above a dollar limit, and make that a one hundred percent tax. I really don’t want to redistribute wealth, I want to redistribute opportunity. Concentration of wealth reduces the number of opportunities for individuals to acquire some modest measure of wealth for themselves. And as far as free trade, no such thing. Countries always cheat and by cheating they steal jobs and revenues from other countries. Countries such as China are still of the mercantile mindset, wanting the world to be its collection of colonies. So stop all that free trade and other such crap. It is time to finally see that there is no free lunches anywhere in the world, someone always pays.