Message to A-B fanatics: We're in a world economy
11:00 pm
Tue June 17, 2008

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

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.