For over 100 years the slogan, “the bigger, the better” has guided the business community.
Even today, few executives would question the validity of such a slogan. Banks with assets exceeding $30 billion, oil companies with sales over $30 billion annually and insurance companies with millions of policyholders are believed to be big because they are better for consumers and the country.
ARE THEY? Let’s look at the bigness issues a little more closely:
1. Smaller companies can do a better job for the consumer than the giants are doing in the same industry. This is true, for example, in the pricing of life insurance or servicing by truck companies. Small businesses, whose owners know they can win under fair competition, are unable to fight the political and predatory market practices of their opposing goliaths.
2. Companies can become so large that government cannot allow them to fail. While small business is perfectly free to go bankrupt, big business can go to Washington — for a bailout. Apart from the more sensational welfare case of the Penn Central, big corporations are in Washington all the time asking for handouts on the grounds that if .they don’t get them they will go broke and damage the economy.
3. Giant corporations very often mean giant monopolies or giant monopolistic practices, which fleece consumers out of billions of dollars, as detailed by the Senate anti-monopoly subcommittee over the years. Frequently big business forces small business to go along with their anti-monopoly violations.
4. BIG corporations, historically without much of an innovative record, just as historically have lunched off lone inventors or small firms. A Department of Commerce study in the mid-’60s showed that individuals were the source of most inventions that helped build the economy-, not the fabled corporate laboratories.
In 1964, Donald Frey, vice president of Ford Motor Co., noted that auto suppliers, not the big auto companies, were the prime source of innovation.
5. Big corporations gravitate toward massive technologies because it is more profitable for them and more expensive for consumers. Recently, big technology is more likely to induce tax concessions or government subsidies.
In the quest for energy adequacy, why develop the abundant agricultural wastes and residues or other solar energies when there are more complex, expensive and government supported technologies like nuclear power around?
6. BIG COMPANIES can resist more strenuously the displacement of their existing technology by a more abundant form of new technology that is cheaper for the consumer. AT&T has preferred underseas cables at the expense of satellites; the three television networks long opposed cable TV development with its dozens of channels.
7. Big companies can control government and abuse significant political power more easily. DuPont in Delaware, Union Camp in Savannah, Ga., and U.S. Steel in Gary, Ind. are only a few of the company states or company towns where bigness becomes virtual government. It is hard to think of small business overthrowing South American countries.
8. Conglomerate companies can afford to ignore one consumer sector if they can profitably shift to other consumer sectors, com pared to firms rooted entirely in a smaller community. In such a case, only small business can fill the gap.
9. Large corporations encourage widespread community rootlessness by requiring constant moving of families between branch offices or plants.
10. Big companies are more likely to be inefficient than smaller-scale alternatives. Prof. Joe Bain has shown how, in several major industries, it is plant size, not company size, that determines efficiencies. The steel industry is a case study of that point One giant publisher recently contracted for a series of books to a tiny publisher because it was cheaper than doing it in-house.
THE WHOLE question of efficiency needs a fresh review in other contexts as well, such as the side effects, maintenance costs, or injuries to consumers.
There need not he a reverse dogmatism in favor of all small enterprises to justify a critical examination of business bigness in our economy. Or to justify asking what such bigness is doing to our society’s preferred values of individual initiative, responsibility and freedom from the giant organizations’ conforming pressures.