XI.2: The Growth of Corporations

Corporations do not get bigger because they get more complicated. Rather, corporations get more complicated because they get bigger.

In my earlier post, I presented Jane Jacobs’ argument that by their nature governments get bigger and their growth causes them to get more complicated. But Jacobs also applied the same principle to private organizations, like corporations. That is, the growth of corporations and other organizations causes them to get more complicated, rather than the other way around. And most everyone understands that organizations grow because their leaders grow them to increase their own salary and power. For example, Peter Gabriel wrote a song called “Big Time” to illustrate this broad tendency in our society. (Gabriel, 1986)

The sociologist Robert Nisbet advised that we should decentralize organizations to reduce their sizes:

We cannot be reminded too often that the stifling effects of centralization upon society are as evident in large-scale private industry as they are in political government. Big government and big business have developed together in Western society, and each has depended on the other. To these two has been added more recently a third force in society — big labor. (Nisbet [1953] 2010, 253)

In addition, Nisbet also said that thinkers from Aristotle down to modern times have stressed the need for decentralization. (Nisbet 1975, 237)

Many have wisely said, since the Great Recession of 2007-9, that a corporation that is ‘too big to fail’ is simply ‘too big’.

We could easily prevent having to bail a corporation out of its foolish business decisions to protect our economy. That is, the growth of corporations is brought about by mergers and acquisitions. And when a corporation requests to merge with or acquire another, regulators could simply deny the request if they believe it could cause the corporation to become too big to fail.

Nouriel Roubini and Stephen Mihm presented a scathing portrayal of the causes of the Great Recession of 2007-9. They listed: scarcity of financial industry regulation, reckless over-borrowing, deceitful debt packaging, dictatorial sales pressures, and psychotic speculation. They also listed solutions, the most effective being to break up the colossal banks. (Roubini and Mihm 2010, 226-30)

Robert Reich, former U.S. Secretary of Labor, agrees that the big banks should be broken up. (Reich 2012)

But in the Great Recession, government regulators forced taxpayers to bail out some too big to fail banks. And even worse, they allowed the same banks to acquire those banks that were allowed to fail. That made the too big to fail banks even bigger!

The underlying problem with the growth of corporations is that money talks, and in Washington, D.C., it screams.

The influence of money is why “too big to fail” also means “too big to jail”. Some think the solution is to let bureaucrats limit CEO salaries, but that makes as much sense as the old Soviet Union’s central planning scheme. It would be far less intrusive and more effective to break up the largest corporations, automatically reducing their CEOs’ salaries. And all gargantuan corporations should be down-sized, not just banks. (Adams and Brock [1987] 2000, 123)

Many large corporations have performed poorly but have nonetheless paid out extravagant salaries to their CEOs. If our regulators broke up the largest corporations, competition would increase, and that should mean smarter pay incentives for CEOs. (Bok [1993] 2000, 83-84)

Small business is the true backbone of our economy. But it will never be encouraged by our current national or state governments, because big business is the main source of campaign contributions. Big business is more than willing to pay out those contributions because it’s cheaper than competition from small business. And politicians are more than willing to slap crippling regulations on small business to keep those contributions coming from their big business partners.

Do you think that domination of markets by large corporations is unavoidable? Would society be better served if small businesses had more economic and political power? I argue that we can eliminate the too big to fail and too big to jail problems. Would you believe that’s possible?

This site is for discussing how to improve our political system. It is NOT for discussing party politics or political figures. So if you have a non-partisan question or comment, feel free to leave it below.

Sources:

Adams, Walter, and James W. Brock. [1987] 2000. “Summary of Bigness and Social Efficiency: A Case Study of the U.S. Auto Industry”. In The Political Economy of Inequality, eds. Frank Ackerman, Neva R. Goodwill, Laurie Dougherty, and Kevin Gallagher. Washington: Island Press. Originally published in Corporations and Society, eds. Warren J. Samuels and Arthur S. Miller. Westport, CT: Greenwood Press.

Bok, Derek. [1993] 2000. “Summary of The Cost of Talent: Summing Up”. In The Political Economy of Inequality, eds. Frank Ackerman, Neva R. Goodwill, Laurie Dougherty, and Kevin Gallagher. Originally published in The Cost of Talent: How Executives and Professionals Are Paid and How It Affects America. 1993. New York: The Free Press.

Gabriel, Peter. 1986. Song “Big Time” from the album So. London: Virgin Records.

Nisbet, Robert. [1953] 2010. The Quest for Community. ISI Books’ Background series edition. Wilmington, DE: ISI Books.

Nisbet, Robert . 1975. Twilight of Authority. New York: Oxford University Press.

Reich, Robert. 2012. “The Wall Street Scandal of all Scandals”. July 7 post. Robert Reich. http://robertreich.org/post/26708840314 (Accessed July 14, 2017).

Roubini, Nouriel, and Stephen Mihm. 2010. Crisis Economics. New York: The Penguin Press.