Message to A-B fanatics: We're in a world economy

Jun 17, 2008

The possible takeover of Anheuser Busch by the Belgian brewer InBev has sparked the predictable political outcry.

Claire McCaskill, the junior yet up-and-coming Democratic senator from Missouri, announced that she would block the takeover. Supporting the deal wouldn’t be “patriotic.” 

The senior senator from Missouri, Kit Bond, also is flat out against the deal. From our nation’s capital to Jefferson City to city hall, politicians are lining up to keep the Belgians from the brewery gates on Pestalozzi.

The cold hard reality is that we live in a global economy. Local companies get bought out by someone who lives elsewhere. How often have government officials sung the praises of our local business leaders when they purchase some foreign or out-of-state concern and move jobs move to St. Louis?

Or what about the times when local firms buy another and shift the workforce to a more friendly business climate? It didn't bother anyone here when A-B bought Rolling Rock and moved the brewing of that beer from Latrobe, PA, to New Jersey. 

As they said in the Godfather, “It’s just business.” 

The approach of our government officials is strikingly similar to that of many European governments in the 17th century. Governments worked hand-in-hand with the leading merchants to increase exports while trying to minimize imports. Called mercantilism by Adam Smith, the founder of modern market economics, the idea was to export goods to others but not import from them. This would build up the gold and silver holdings, a sign of success. It also protected local jobs and, therefore, political power. 

What Smith realized, and what is the concept underlying our capitalist system, is that competition drives out some firms and leaves those that are better able to meet the customers’ demands. When government officials protect local firms from this market reality, whose interests are being served?  Such protection often is not in the best interests of those who own the firm: the stockholders. 

The Atlanta Business Chronicle reported that Warren Buffet thinks the InBev-A-B marriage may not be such a bad idea. His Berkshire Hathaway company reportedly owns the second largest bloc of A-B stock (no, the beer family isn’t first or second). Consequently, his business acumen, not the protestations of local politicians, is likely to carry the day.

Could it be a good business deal after all? InBev’s takeover would greatly increase its ability to distribute its Beck’s and Stella Artois labels across the United States. Though a dominant player in the global market, InBev has little presence in the United States. In contrast, A-B’s market share is about 50 percent, though it will face increasing pressure from the recently combined venture of SABMiller and Coors. 

The InBev takeover also could greatly expand A-B sales worldwide. Where AB is the dominant brewer in the U.S., it has a relatively small presence in the international market. The combination could well reverse that trend, making the family of A-B products more competitive in more markets overseas. Properly managed, such increased globalization could significantly raise A-B stock values. 

Could this merger have damaging affects on the local economy?

I am not naïve enough to think that it couldn’t. Jobs may be lost in non-brewing areas or moved elsewhere. Perhaps we’ve grown too accustomed to the brewery. Like that old familiar coat that we wear and our spouse wishes we’d throw away. Maybe A-B isn’t functioning as well as it could, but since it still works we ignore its shortcomings.  But might a new management coat improve the company, leading to more jobs and more shareholder wealth?  That is the great uncertainty into which we locals are afraid to jump.

To those public figures faithfully opposing the merger, a suggestion: Instead of opposing the workings of the market, find ways to make our city and our state a more hospitable place to do business. Don’t try to pick the potential winners or prop up the potential laggards. Just create an economic and social environment into which companies will want to locate. If you do so, they will come. 

R.W. Hafer, a St. Louis resident, is a research prof essor and chair of the Department of Economics and Finance and director of the Office of Economic Education and Business Research at Southern Illinois University Edwardsville. To reach him, contact Beacon features and commentary editor Donna Korando.