Given the news of late, this seems to be a good time to throw this out for debate. It needs no introduction.
Count me with those who long to see legal limits to corporate sprawl.
The usual counterargument, along libertarian lines, is that government has no business meddling in people’s business.
Moose muffins.
Society has no problem declaring certain personal behaviors contrary to the common good - murder, theft, public urination, whatever. So society may also declare certain business behaviors “criminal.”
Back in the Progressive Era we made some efforts to control business - anti-trust laws come to mind. We need to do this again.
Kim Stanley Robinson’s utopian novel Pacific Edge is set in America after a Green revolution (no details of which are given; apparently it was peaceful). Big biz is forbidden. The government does not own or manage the economy, but it does intervene to break up any private business that has grown too large for all the managers and employees to know each other personally. (It also sets upper and lower limits to personal incomes – everybody is guaranteed $10,000 a year, work-free, which you can live on very meagerly if you’re satisfied with that; nobody is allowed to have more than $100,000 a year; there is still plenty of energy and dynamism and entrepreneurship in the economy, because “Everybody wants to be a Hundred.”)
I think that we should view our dependence on big private financial institutions like we view our dependence on foreign oil - it’s not in our best interest to have our well-being and security tied to actors who don’t share our interests, and indeed are often hostile.
My concern is that there may very well be some industries in which there is a natural economy of scale which favors really big players.
For example, it may very well be more efficient to have 1 or 2 companies manufacturing commercial aircraft than 10 or 15.
If that’s the case, it may be difficult to enforce your policies. Imagine there are 15 airplain manufacturers, and during a recession, 5 or 10 of them fail. Would you step in and prop up the failing companies? If so, then fundamentally, how is that any different from propping up a big company? And if not, how will you prevent the surviving companies from growing to pick up the slack? I suppose that you legally limit the amount of business they can do, opening up the field to more competitors. But that seems like an awfully inefficient way of manufacturing airplanes.
I’m interested in this issue, but before people start throwing around their unexamined ideological assumptions and the debate becomes a miasma of formless, pointless cliche, I think it might be instructive to get some historical background, so we can put the current situation in its appropriate context.
Specifically, I’d like to see some examples of previous corporations (or other organizations/entities) that could be considered “too big to fail,” according to the modern understanding. It doesn’t matter whether or not they actually failed in their day, or were even at risk; it’s enough that they be so large and dominant that their sudden dissolution should have been economically unthinkable. Do the old monopolies qualify? Standard Oil? US Steel? Were these outfits so big and diversified that their failure would have crippled the national marketplace to the extent that we’re seeing now? Or is the modern reach of the international conglomerate an unprecedented situation?
And what is the earliest such a large entity could have arisen? I mean a large, multi-pronged corporation whose elements reach into a variety of economic areas? Something like the Hudson’s Bay Company, maybe, as a prototype? It was certainly a vertically dominant operation and at its height had some horizontal power as well. Was that company, or anything like it, too big to fail? Was it possible, two hundred years ago, to create such an entity? Or, again, is the modern crisis without precedent?
I just want to get this stuff on the record to determine whether or not history can be instructive, and to see whether previous situations, and the actions therein (and/or responses thereto), provide any guidance.
Then the philosophical warriors can start dry-humping their ideologies.
Your example has actually been in the back of my mind.
Size, per se, isn’t the issue. While a neighborhood meat market is a modest concern, it takes quite a facility to build a commercial jetliner. I have no problem with that.
What does bother me is when an outfit like Boeing buys up all the competition and becomes the only game in town.
(Which has led to an interesting situation: the Air Force is trying to buy tankers to replace its old KC-135. It keeps rejecting Boeing’s proposal and wants the tanker offered by Airbus [a French company]. Because of Boeing’s “have-it-all” mania, our military feels compelled to buy major equipment from a foreign manufacturer. This is good?)
I belive the “too big to fail” thing started with US Steel-a conglomrate put together by JP Morgan, in 1896 or so. Morgan saw monopoly as a good thing, and having US Steel so big meant vast economies of scale, and a better product. Unfortunately, monopolies eliminate competition, which is the only driver of quality, these days.
That’s actually not true. The competing proposals are between Boeing and Northrup Grumman, both of which are American companies. Grumman’s plan just calls for parts of the proposed tanker to be subcontracted to Airbus. And the Air Force only “rejected” Boeing once, but then the GAO ruled that their criteria were flawed, and so the contract is up for rebid, and will probably be decided next year.
The thing is, it’s possible that the most efficient way to manufacture aircraft in the United States is to have ONE American concern manufacturing aircraft.
A professor of mine made this point, asserting that McDonnel Douglas was having serious problems when Boeing acquired them and would probably have gone out of business sooner or later.
I agree that there are advantages – possibly a lot of advantages – in preventing companies from buying up all their competition. At the same time, there are possible disadvantages in preventing consolidation in an industry.
Have we gone too far in letting industries consolidate? It’s a tricky question since there are pluses and minuses on both sides.
As a general principle, I disagree with the subject line, but I think the point can be argued in specific cases to great merit. IMO if something gets too big to fail it needs to be taken into the public interest rather than left to private ideology. I say this as a massive fan of the free market and believer that in the long run it is the best way to organize an efficient economy. In the short run, shit can hit the fan, and if a company gets so large that it cannot help but bring us all down with it, that’s an externality problem and it’s time to recognize that we might just want some inefficiency for a moderate increase in stability.
Unfortunately, creating a hard rule for this means we will get weird behaviors when companies get close to the “too big to fail” point, and if we don’t set a hard rule then things might be even stranger.
We did a good thing when we heavily regulated what we considered to be natural monopolies. I think we just need to take a harder look at this behavior. We’ve learned a lot over the last twenty or so years on the costs and benefits of heavy regulation in such industries and we can make some fair choices. To what extent does something like automaking or banking fall under this umbrella? The point can be argued on both sides, I think. It’s a hard discussion.
But it is important to realize that such regulatory activities can put weird incentives in place. If we fail to consider these issues and react based on today’s problems we are making even poorer choices than those we’re hoping to kick out of the director’s chair.
Well generally the argument is that people will do the amount of work it takes to be a hundred and then stop making any extra effort once they reach he ceiling.
The question does become a bit murky when considering industries where the capital equipment requirements are huge and the demand is on the order of a few hundred units a year. In such cases it may be difficult, if not impossible, to avoid such industries becoming “practical monopolies”.
Of course, this doesn’t apply to 99 percent of the businesses out there. There is absolutely no reason for a single entity to own, say, so many banks that we cannot allow the Leviathon to die.