This piece was co-written with Shawn Bayern, visiting Assistant Professor of Law at Duke University. Professor Bayern teaches business associations.
We now have an economy that we don't understand and can't seem to control even when we want to. Having created corporations, we have let some of them become "too big to fail"--a dangerous state of affairs, both economically and politically. Perhaps there are some companies that are simply too big to exist.
One way to avoid a similar problem in the future could be an antitrust law that limits how big corporations can become. This is not a new idea; at the time the modern antitrust statutes took shape in our country about a century ago, political leaders were concerned directly with corporate size and power. In the last several decades, however, legal economists have sharply narrowed antitrust law, leaning heavily on the assumption that larger companies can be more efficient. This view has some merit; after all, efficient companies can produce cheaper consumer products, and everyone shares in the savings. But the recent crisis should make us consider whether these economists have been leading us astray.
There are many reasons a "too big to exist" conception of antitrust law makes good sense for a democracy. Perhaps most importantly, large companies have proven to have disproportionate power over the political process. Concentrated financial power often leads to concentrated political power; if you have a lot of cash, one of the most efficient uses of it to maximize profits is to petition the government to change the rules in your favor. Economies of scale might work all too well when it comes to influencing government.
Big-company money spent on sustained lobbying and media campaigns has often led Congress to pass non-responsive legislation--for instance, legislation that gives dangerous environmental licenses to favored industries or tax breaks to those who least need it.
Even Milton Friedman, a devout defender of markets, recognized the dangers of corporate power over the political process. "If the rules of the game are that you go to Washington to get a special privilege," Friedman wrote, "I can't blame [a corporate manager] for doing that. Blame the rest of us for being so foolish as to let him get away with it."
There are also reasons to think an antitrust policy focused on size and power makes good economic sense. Despite economic theorizing, bigger companies are not always more efficient companies. And even if they were, there are important societal efficiencies that go beyond whether individual companies operate cheaply or produce low-cost products. As Bert Foer of the American Antitrust Institute recently testified before Congress, we can choose to use competition policy to help prevent much of the systemic risk that has crippled our economy. By focusing more on size and concentration, we might be able to avoid collapse, unplanned nationalization, and bailouts.
More generally, the world is both harder to predict and richer than an economic worldview usually supposes. Recent economic troubles should have taught us that using narrow economic thinking to make broad policy pronouncements will often get us into trouble. Indeed, in today's economy (and ecology), it may even be worth questioning whether a focus on efficiently producing consumer products remains an effective way to promote economic activity that Americans value.
We don't mean to suggest that corporate size is all that matters, and we obviously don't believe that one size fits every industry or circumstance. But focusing on manageable scale can help us achieve both democratic and economic goals. To achieve these goals, we should be debating structural changes rather than getting stuck on conventional and short-term fixes. The artificial quarantine of "economics" into a sphere distinct from politics, separate from collective decisions about fairness and value, does not serve us well.
Large can be good for the employees . Many large companies in the past were the only places that you could have benefits unless you had a government job.
Keeping the idea of profit as a good living rather than over the top extravagance would have served these companies and the American public well. There is another point.........This is our country and that should be remembered by all of us, we can survive if we work together. Low cost of foreign made products has given us a huge amount of products that can be gotten at a low cost to the consumer, but at what is the cost in the long run?. Trash...............so much trash. HMMMMM
Anti-trust law or anything else detrimental to corporate interest will not and cannot be passed without first taking the corruption out of Washington politics. It is that simple and that difficult.
It is a vicious cycle of course - corruption prevents the passage of election reform which prevents the passage of anything that might hinder the monied interests from wielding power.
Our government is fundamentally corrupt. That should be the headline everyday, all day.
Obama vowed to rid Washington of corrupting influences then he appointed the likes of Larry Summers and other wall street insiders to head his economic team. What a joke all that campaign rhetoric turned out to be. Unfortunately, as usual, the jokes on us.
If there is a need, (which I beleive there is) to limit the size of financial institutions this should be done through banking and financial regulations.
Take, for example, the field of pig farming. Until not too long ago, most pigs grown in the US for consumption were grown on small family farms, and they were able to use the fertilizer produced by their pigs both to generate the food for their pigs, and to sell to other farmers. Now it's almost all done in big agribusinesses, and they aren't able to handle the droppings. The way that they get around that is by ignoring all the environmental laws put in place to protect our waterways! In other words, the only way that they can be cheaper (and thus, more "efficient") is by externalizing the costs onto ALL of us!!
There are times where it makes some sense to allow a company to monopolize a market, such as the original AT&T, or another utility provider, but notice that in those cases the "companies" were almost governmental organizations!
There's a concept known as "Too big *to be allowed* to fail", and I'm beginning to wonder if perhaps we should abondon it and let *everyone* learn an extremely painful lesson about the dangers of privatizing gains and socializing losses.
If the public is going to be on the hook for companies that are 'to big to fail' then it is in the public's interest to make sure that they are in fact small enough to fail.