In 1998, four of the five largest corporate mergers have been proposed. But are they good for American consumers? After a background report, WGBH's Paul Solomon leads a discussion. Then continue the debate in an online forum.

PAUL SOLMAN: Now, four views; two from Wall Street. Bruce Wasserstein is an investment banker who's been involved in many larger mergers. He's author of a new book, A Big Deal, The Battle for Control of America's Leading Corporations. Jim Grant is an economic writer and editor of a newsletter Grant's Interest Rate Observer. And we have two economics professors with us: Fred Weston teaches mergers and acquisitions at the Anderson School of Management at the University of California in Los Angeles, UCLA. And Walter Adams is past president of Michigan's State University and author of A Dangerous Pursuits, Mergers & Acquisitions in the Age of Wall Street. Gentlemen, welcome to you all. Professor Adams, from a business point of view, does this recent spurt of mergers make sense to you?

WALTER ADAMS, Michigan State University: Well, it really doesn't because mergers do not create new wealth. They don't build new factories. They don't create new products. They don't provide new technology. They do not increase efficiency. Nor do they--in and of themselves--stimulate international competitiveness. They represent merely a rearrangement of existing assets--the trading of ownership shares on the floor of the New York Stock Exchange. You might call it rearranging the deck chairs on the Titanic.

PAUL SOLMAN: So, Mr. Wasserstein, are you engaged--you and your colleagues, that is--engaged in a wasteful activity here?

BRUCE WASSERSTEIN, Investment Banker: Well, I very much enjoyed the professor's comments, because they summarize really an outdated and very, I believe, simplistic point of view. This is a complex phenomenon, but the one thing we can all agree on is that it did happen and continues to happen. There have to be reasons why this is a recurring fundamental force in our economic markets. The fact that the takeout of a merger or acquisition is fundamental to companies starting up, to venture capital markets, is obviously another factor in the growth of the stock market. But the big factors that are new, I think, at this point in time are the deregulation of industry and the changes in technology. The confluence of these two factors with the nature of the financial markets at this time have led to this explosion of activity.

PAUL SOLMAN: Jim Grant, economic fundamentals, human psychology, which do you think is driving this more, and do you agree with Professor Adams or Mr. Wasserstein?

JIM GRANT, economics writer: I agree with all my panelists in advance. It seems to me that of the two fundamentals of psychology the benefit of the doubt must go to psychology. These merger waves are recurring; they are not unique. And the explanations advanced for them at the time are strikingly similar. But inasmuch as technology changes and structures change and the explanations can't be the same, right--there has to be something else. It is no accident, I think, that these merger waves have tended to occur at moments of the greatest optimism and the highest valuation of financial markets. A hundred years ago there was talk of a new era. Similarly, in the 1920s and the 1960's, and now again in the 1990's, the higher the stock market, the more intense the optimism, the greater the tendency towards consolidation. Contrariwise, at the bottom of things we find an unsticking. These are cyclical features of markets.

PAUL SOLMAN: Unsticking, I'm sorry, I didn't follow.

JIM GRANT: Well, things come unstuck at the bottom. There are divestitures, spin-offs, breakups.

PAUL SOLMAN: You mean, the mergers of yesteryear become today's--

JIM GRANT: Sure. And by the way, as a matter of scholarship, it seems to me--I've never read a study that did not contend that five years or so after the merger, that the owners of the acquiring company were better off. On the contrary, those owners tend to be worse off.

PAUL SOLMAN: Well, let's stay with the larger issue of whether or not it's good for the economy before we get to how successful they are--whether it's not, it's good for the companies involved. Professor Weston, we haven't gotten you in here. Psychology do you think is driving it more than fundamental factors?

FRED WESTON, UCLA: What has changed is the globalization of competition. This, in part, came about from technology. But the technology produced lower transportation costs. So now we have one world market. In addition, the boundaries of industries are blurring. There's competition among firms in different industries. I would disagree that there are no studies that show shareholders are better off five years later. Some show they do and some not. But what's most significant is that even if the mergers, on balance, were failures, their great impact is the four other firms not involved in mergers to be efficient. It's the threat of being taken over that has made the whole economy more efficient. Since 1980, when this merger activity increased, there has been an increase in the number of jobs in the economy from 99 million to 119 million. That's 20 million jobs in 10 years. That's 2 million jobs a year. When a merger is announced, it is said that--often it's reported 2,000 laid off, 300,000 laid off. But this is moving resources. Fundamentally what mergers do, contrary to what Prof. Adams says--mergers and the threat of mergers move resources to their highest and best and most economic uses.

PAUL SOLMAN: Prof. Adams, isn't that true? I mean, we're talking about the economy as a whole now, not just for business or businesses. I mean, isn't there a real efficiency factor and you're always afraid your company is going to get taken over and, therefore, you squeeze the most out of the assets?

WALTER ADAMS: Well, that really is not borne out by the facts. If you take a look at the major acquisitions that have taken place during the 1980's, two-thirds of those mergers have been failures. When you talk to a management guru like Peter Drucker, he says one out of five mergers is a success. Two mergers neither live nor die, and two are outright failures. Now, one out of five, that isn't a very good batting average. It seems to me when you look at an AT&T, which buys an NCR computer, they pay $7 2 billion for that acquisition. A few years later they sell it for half that amount. Kodak buys Winthrop Chemical, sells it off at a great loss to itself. The market itself has demonstrated that these giant mergers do not work because the mythology that size guarantees efficiency, technological progressiveness, international competitiveness, that just isn't borne out by the facts.

PAUL SOLMAN: Mr. Wasserstein, the facts. You've certainly been in on a lot of the deals that took place.

BRUCE WASSERSTEIN: Sure. This is at the level of being fairly silly at this point. Fortunately, we have hindsight of the way the markets have performed. There's no doubt that there are changes in technology. There's no doubt there is a globalization. There's no doubt there is convergence. The advantage of America in the world market today, in comparison to other countries, has been, indeed, our flexibility to have a viscosity of assets. The reply I'd make to all of the professor's anecdotal information is, so what? The point is some deals work; some deals don't work. The statistics I completely would disagree with, but the fact that this company sold off this division doesn't mean that it's now not better focused on the future. We all have to adapt. After all, if you were a buggy whip company and you stayed that way, you wouldn't be in very good shape today.

PAUL SOLMAN: Mr. Grant, isn't that true? Isn't what Mr. Wasserstein says true? After all, Japan doesn't have as many mergers. Neither does Germany. And it looks like the United States has moved ahead of these countries in part because of the dynamism of our market--getting bigger, getting smaller.

JIM GRANT: I think he's right in two very important ways. One, the dynamism of American markets and finance is wonderful. And, in the absence of it, you get situations, such as the one you have in Japan, in which there is an ossification of markets and companies. And it's not very good. He also said something that I think bears repeating, that is, that at a price, the purchase of assets works. Well, it seems to me that what we have now is a very high price. And, furthermore, it's not coincidental that merger waves have occurred in eras of very high prices. If the studies I've read are valid, that, on balance, the acquiring companies tend not to do very well, perhaps it is because they've overpaid, perhaps because they got the courage to buy when everyone else had the courage to buy. It's no--again it's no--it is a paradox, but it's no secret that merger activity is quiescent when assets are cheap. Why is that? Well, there's no courage to lend; there's no courage to borrow; there's no courage to imagine great things. These things take place; they tend to take place at peaks.

PAUL SOLMAN: Professor Weston, I want to get in the question of people losing their jobs, which is a frequent complaint made about mergers and hostile acquisitions. There's this thing called synergy. One and one is great and equals three--you get more out of the combined companies than you would if they were operating separately, But as far as I can tell, synergy often means just cutting back people who were doing the same thing in the two companies, therefore, a loss of jobs.

FRED WESTON: Now, if you read the case, that is, where massive restructuring has taken place--it's more than just laying off people. It's changing top management. It's changing product selection. It's changing product quality. It's changing manufacturing processes. It's supplying new information systems. The difference between the mergers that fail and the mergers that succeed are that the mergers that succeed really make a fundamental change in the efficiency of the companies. And then they do succeed, and then they do contribute to the excellent performance of the economy during the last 17 years.

PAUL SOLMAN: So, last question to you, Professor Adams, do you see no merit to the argument that these mergers, hostile acquisitions, all the rest of it, much as they may not even work out in themselves, contribute to the overall efficiency of the economy by disciplining managements who otherwise wouldn't be disciplined?

WALTER ADAMS: There I have not seen persuasive evidence to that effect. It seems to me, you asked the question earlier about motivation behind mergers. The people who profit most from mergers are the marriage brokers on Wall Street who put these mergers together in the first place, and then five or ten years later, these same people preside over the divorce of these companies, and they get a commission at either end.

PAUL SOLMAN: Well, I have to allow Mr. Wasserstein a last word on that, since he is one of these so-called brokers. Mr. Wasserstein, you'll get the last word.

BRUCE WASSERSTEIN: You know theories of this international conspiracy are interesting but really underline my point of the paucity of depth to the arguments. Look, we have--

PAUL SOLMAN: You are paid on commission, are you not?

BRUCE WASSERSTEIN: It all depends, actually. But basically, if you don't give good advice, you're not going to be giving advice in the future. You have to think in our business, the people who are in it long-term are the people who give good advice. Mergers are a very imperfect process. They allow the economy to adjust to all sorts of changes, regulation, technology, globalization. A lot of them don't work. It is imperfect. The statistics, pro and con, are really at such an elementary level of distortion, one way or the other, that they really can't be trusted. For example, a lot of the numbers on jobs lost include companies, divisions that are sold by the acquiring company, so the jobs, in fact, aren't lost. And if you look at the unemployment rate in America today, at the height of the merger trend, it's quite clear that you can't argue that mergers by themselves create that high rate. In fact, if one were to summarize the boom level, at least on a correlation basis, we're having the highest rate of mergers in the U.S. We're also having the highest rate of growth and lowest unemployment in the western economies.

WALTER ADAMS: A spurious correlation, that spurious correlation-they know that, Mr. Wasserstein.

PAUL SOLMAN: Gentlemen, a spurious correlation is surely not a concept we'll wind up getting into tonight. Thank you all very much. We've run out of time. Appreciate your being here.