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The only win if Canadian Pacific acquires Kansas City Southern is for freight rail's hedge fund investors, who are squeezing operating cash out of these railroads at the expense of workers, community safety, and the overall economy.
On March 15th, the Surface Transportation Board (STB)—the federal agency that regulates the U.S. freight rail industry—gave final approval to the acquisition of Kansas City Southern by Canadian Pacific. Approving this merger between America's sixth- and seventh-largest railroads was a dire mistake, which will have enormous economic and social costs that resound for decades.
In a nation committed to a competitive market, in a sector that's already as consolidated as American freight rail, it's important to evaluate mergers very carefully, because once big companies absorb smaller ones, it becomes impossible to pull them apart again. And as economics researcher Eric Peinert of the American Economic Liberties Project puts it, "Nothing in the history of rail consolidation suggests this particular merger is a good idea."
Allowing these two railroads to merge is likely to reduce competition in the industry, leading to higher shipping prices, reduced service, and job cuts. It will impair the ability of small businesses to operate. It will lead to increased safety risks and have environmental impacts on the communities where rail traffic will increase. And as cost-cutting pressure from railroads' predatory hedge fund investors continues to mount, it will likely contribute to even more aggressive cuts in service than we have seen over the past five years.
The STB knew all that. They got 2,000 public comments about the merger, from industry experts, researchers, lawmakers, and the general public—hundreds of them laying out reasons why it shouldn't get the green light. On behalf of people across America, U.S. Senators and Representatives weighed in with their concerns, which the STB ignored.
"Cost-cutting demanded by the industry's hedge-fund investors—while generating a cash windfall for them personally—has resulted in safety compromises that risk the lives of employees and the well-being of the densely settled communities freight railroads pass through..."
The most obvious risks are to the competitive marketplace, with both rail customers and rail workers paying the biggest price. Sen. Elizabeth Warren (D-Mass.) called for the merger application to be denied outright on antimonopoly grounds. As Rep. Katie Porter (D-Calif.) put it, as America's Class I freight railroads have dwindled from 33 to just seven, "lack of competition has allowed railroads to gut capacity, capture and extort businesses, fire thousands of workers, and threaten the integrity of America's freight transport network and supply chains – all while extracting monopoly profits."
For American businesses, precision scheduled railroading (PSR), the approach these giant railroads are taking to providing as little service as they can get away with and doing it as cheaply as possible, has meant less frequent, less reliable, and more expensive shipping options. And for the freight rail workforce, it's meant job cuts of 28% across the industry with onerous contract terms and more dangerous working conditions for those who remain.
In the wake of the hazardous Norfolk Southern derailment at East Palestine, Ohio and a string of other high-profile derailments earlier this year, industry-watchers of all stripes have noted that cost-cutting demanded by the industry's hedge-fund investors—while generating a cash windfall for them personally—has resulted in safety compromises that risk the lives of employees and the well-being of the densely settled communities freight railroads pass through, like the Chicago suburbs.
According to employees, extreme schedule pressures under PSR push workers to their physical limits, leaving them with as little as 60 seconds to conduct railcar safety inspections. And due to investor pressure to save money by running fewer, longer trains, it's more and more frequent to see trains as long (150 cars) as the one that derailed in Ohio. Sarah Feinberg, former head of the Federal Railroad Administration (FRA), says that even trains as short as 80 cars can pose size risks.
The American Economic Liberties Project describes the hyper-consolidated U.S. freight rail giants as operating under a "financially extractive business model," which makes but money for the railroads' hedge fund investors at great cost to the public welfare. And Peinert says yet another merger will make things even worse. "This deal sets the stage for future disasters like East Palestine, and will likely lead to even further railroad staffing cuts, even higher cargo loads, and other profit-driven safety shortcuts."
Despite the recent statement by STB chair Martin Oberman that this merger "will be an improvement for all citizens in terms of safety and the environment," their own environmental impact study found that the opposite would be the case in numerous communities along busy rail routes: the merger will increase hazardous cargo transportation along 141 of the 178 rail segments, totaling 5,800 miles of track in 16 states. And even basic public services like Metra passenger rail service—a critical economic engine for the 10-million-population three-state Chicago metro area, which operates on Canadian Pacific tracks, competing with freight services—are at risk. Along some of those track segments, freight traffic is projected to triple, with much of the new cargo slated to include hazardous materials.
In response to the market consolidation concerns raised by merger opponents, the STB has imposed some conditions. They will require that interchanges within other railroads be kept open, that a process be provided for challenging rate increases, and that the companies provide data so the STB can monitor compliance. But as Sen. Warren noted, these measures are insufficient. That's especially true given that there's already evidence that Canadian Pacific and Kansas City Southern may have been violating antitrust law against collusion, by sitting down together at a luxury hotel in Florida to plan the future of the company in early February, even before the merger was approved.
Cutting routes, service, and workers may be good for profits, but it's bad for American competitiveness, for workers, for industry, and for public safety and quality of life. The only win here is for freight rail's hedge fund investors, who are squeezing operating cash out of these railroads—cash they used to use to pay employees, fund service, and finance safety improvements—and taking it to the bank.
"The East Palestine disaster raised significant questions about rail safety," Sen. Elizabeth Warren said in response to the approval of Canadian Pacific's acquisition of Kansas City Southern. "Allowing this merger is a mistake."
U.S. federal regulators on Wednesday approved the first major railroad merger in more than two decades, a move that follows the East Palestine rail disaster and that critics warned would reduce competition, raise prices, cost jobs, and threaten safety.
The Surface Transportation Board (STB) approved Canadian Pacific Railway Limited's proposed $31 billion acquisition of Kansas City Southern Railway Company, a merger that will create a single railroad linking Canada, the United States, and Mexico. The agency said the merger will take roughly 64,000 truckloads off the road and add more than 800 union jobs.
"The decision includes an unprecedented seven-year oversight period and contains many conditions designed to mitigate environmental impacts, preserve competition, protect railroad workers, and promote efficient passenger rail," STB said, adding that it "also anticipates the merger will result in improvements in safety and the reduction of carbon emissions."
"Shame on STB for disregarding both the administration and the rail workers who know all too well that corporate consolidation leads to a more dangerous rail industry."
However, opponents of the deal pointed to the East Palestine, Ohio disaster and other recent railroad accidents, which they said underscored the need for a more cautious approach to consolidation.
"The merger brings the total number of Class 1 railroads to six, down from over 100 just a few decades ago," the progressive news site More Perfect Unionnoted on Twitter. "Corporate consolidation in the railroad industry compromises safety and risks lives by prioritizing profits and cutting corners to reduce costs."
"Despite concerns from small towns and suburban Chicago cities, the STB ruled, based on data provided by industry, that the only community and environmental impacts of the merger would be an increase in noise," More Perfect Union continued.
"The Biden administration has taken a strong antitrust stance by blocking the $3.8 billion JetBlue-Spirit merger and urging the STB to do the same for Canadian Pacific-Kansas City Southern (CP-KCS), citing the need to promote competition in the railroad industry," the outlet said.
"Shame on STB for disregarding both the administration and the rail workers who know all too well that corporate consolidation leads to a more dangerous rail industry," More Perfect Union added. "The last thing we need is another merger right now."
U.S. Sen. Elizabeth Warren (D-Mass.)—who earlier this month wrote to STB Chair Martin Oberman asking the agency to reject the merger—similarly tweeted that "we don't need another rail merger that'll crush competition, reduce safety, increase prices, and destroy jobs."
U.S. Rep. Raja Krishnamoorthi (D-Ill.), who represents some Chicago suburbs through which the new international railway will run, wrote on Twitter Tuesday that "even before the disaster in Ohio, I had been warning about the threats to communities in my district that would come from a potential CP-KCS merger."
Itasca, Illinois Administrator Carie Anne Ergo—who chairs the Stop CPKCS Coalition—toldThe Washington Post that "the tragedy in Ohio is an illustration of what we've been talking about can happen."
"If what happened in East Palestine happened here in Itasca, the entire community would need to evacuate," she added. "It's terrifying."
Consumer advocates cheered a lawsuit filed Thursday by the Biden administration in a bid to block the proposed merger of two of the world's leading video game companies, Microsoft and Activision Blizzard--a $69 billion deal the Federal Trade Commission argued would "harm competition" in the nearly $200 billion gaming industry.
"Today's action is of incredible importance in ensuring fair and open competition in gaming and across the larger digital economy."
"The Federal Trade Commission is seeking to block technology giant Microsoft Corp. from acquiring leading video game developer Activision Blizzard, Inc. and its blockbuster gaming franchises such as Call of Duty, alleging that the $69 billion deal, Microsoft's largest ever and the largest-ever in the video gaming industry, would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business," the FTC said in a statement.
Reacting to the lawsuit, Sen. Elizabeth Warren (D-Mass.) tweeted, "Corporate monopolies have had free rein to hike prices and harm workers, but now the Biden administration is committed to promoting competition."
Microsoft announced in January that it would acquire Activision Blizzard--whose other popular titles include the World of Warcraft, Diablo, and Overwatch franchises--for $68.7 billion. Activision Blizzard has been plagued by multiple allegations of sexual harassment, gender discrimination, sexual battery, and labor violations.
\u201cCorporate monopolies have had free rein to hike prices and harm workers, but now the Biden admin is committed to promoting competition.\n\nI urged @linakhanFTC to scrutinize @Microsoft's proposed merger with @Activision & welcome this FTC action to block it. https://t.co/hX8PYQq6VB\u201d— Elizabeth Warren (@Elizabeth Warren) 1670529635
Politico reports:
The FTC voted, 3-1 to issue the complaint, with all three Democrats--Lina Khan, Alvaro Bedoya, and Rebecca Kelly Slaughter--supporting the move, and Republican Christine S. Wilson voting no...
The lawsuit is the FTC's biggest move yet under Chair Lina Khan to rein in the power of the world's largest technology companies. It is also a major black mark for Microsoft, which has positioned itself as a white knight of sorts on antitrust issues in the tech sector after going through its own grueling regulatory antitrust battles around the world more than two decades ago.
Microsoft president Brad Smith responded to the suit by insisting that "we continue to believe that our deal to acquire Activision Blizzard will expand competition and create more opportunities for gamers and game developers."
However, Sarah Miller, executive director of the American Economic Liberties Project, called the proposed merger "unlawful" and said it "will undermine the vitality of an important sector of the American economy and consolidate the video game industry into a small group of firms who control walled gardens of content, data, and advertising."
Sandeep Vaheesan, legal director at the Open Markets Institute, an anti-monopoly group, warned that "if Microsoft acquired Activision, it could use Activision's valuable portfolio of games as a competitive weapon, withholding titles from rival consoles or offering lower quality versions of them, to give its own Xbox and cloud-gaming service a leg-up."
"The FTC recognized this threat of unfair competition and made the right choice, once again showing it takes vertical mergers seriously," Vaheesan added. "If giants like Microsoft want to expand, they should invest in their own capacity and hire more workers, instead of snapping up firms in adjacent markets. We hope the court sees the merits in the FTC's case and stops this harmful consolidation."
Matt Kent, competition policy advocate for the consumer advocacy group Public Citizen, said in a statement that "today's action is of incredible importance in ensuring fair and open competition in gaming and across the larger digital economy. The FTC is showing, once again, that it is serious about enforcing the law, reversing corporate concentration, and taking on the tough cases."
"The proposed deal raises too many red flags to proceed, especially considering that Microsoft is already operating in several concentrated sectors of the economy including consumer electronics, cloud computing, software development, hardware development, internet search, social networking, virtual reality, and video gaming," Kent continued.
"This deal should be stopped," he added. "If allowed to purchase a key video game developer like Activision, Microsoft would be positioned to dominate gaming into the future and unfairly disadvantage other market participants."