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When Corporations Get Too Large |
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In the midst of all the bailout madness, we keep hearing the same mantra from those who defend the trillions of dollars that are being laid out by the federal government: We have no choice. If we don’t prop up the Citibanks and the AIG’s (and possibly the GM’s and the Chryslers, too), then the consequences will be devastating for the American work force and for the entire world economy.
And therein lies the crux of the problem. Corporations like these have become so large and so powerful, they simply cannot be allowed to fail, even if free market forces dictate that they should. Paradoxically, our economic system has promoted the growth of these giant companies to the point that the laws of capitalism are being superceded by the necessities of corporate welfare.
Imagine if a locally-owned five and dime store hit hard times because a Wal-Mart moved into town and undercut all its business. Would the government rush in and bail it out? Of course not! That would put maybe a dozen people out of work, and it would be chalked up to the realities of doing business. We like to glorify small businesses, but we’re also used to them coming and going with regularity.
But just imagine if Wal-Mart was in trouble. What if they were in the position that the Big 3 auto makers are in today? Do you think they’d be allowed to fail? Do you really think the government would let the corporation that represents 1.6 million employees, 13% of the nation’s productivity, and 20% of all US grocery sales go under? Not a chance! They’d have no choice but to prop up a company that has made itself indispensable through its sheer size.
The government has no choice. But we, as consumers do. The often untold beauty of the capitalist system is that it depends on the choice of the consumer. And if we are collectively aware enough, we can see the danger in letting corporations get too big, and we can prevent it. We can refuse to give our money to the largest corporations. I call this practice “Shopping Small.”
“Shopping Small” means favoring smaller companies over larger ones when you have a more or less equal choice. Go to a locally-owned pharmacy instead of Walgreen’s. Buy a regional soft drink such as Cheerwine instead of Coke or Pepsi. Purchase toys that were handcrafted by a domestic mom and pop operation instead of by some large corporation in an overseas lead-paint producing sweatshop. If needed, make a sacrifice and pay a little bit extra in order to favor a smaller company. And if nothing else, never darken the doors of a Wal-Mart again.
Of course, “Shopping Small” is only one piece of a larger effort that is needed to reduce the size and influence of our corporations. There will also need to be some serious work done in our legislative and corporate cultures as well. But we as consumers play a big role. Perhaps the biggest is just to sound the alarm and to let it be known that we won’t stand for corporations so large that they can’t be allowed to fail when, in all fairness, they should.
(cross-posted at Discipline for Justice)
The bigger problem of bailing out these huge corporations is that they will lose any incentive to be well-run companies. If there are no consequences to making mistakes, then mistakes will go up.
What this means is that if we bail out these companies now, it will only get worse until our entire economy collapses. If a company is not competitive, it is far better if we let it fail now rather than bail it out — sucking up our tax money and adding to the federal deficit — and then watch it fail even worse later because it has no incentive to become a better company.
Let these companies fail now, when it is still possible that there are smaller, better run companies ready to take their place. Otherwise we are doomed.
im tired of all this treasury shooting from the hips and the resulting shoulda, coulda, woulda
Where all major consumer goods such as big screen TVs are sold in box stores, I fail to see how “shopping small” is even possible. But the “too big to fail” mantra is very annoying and needs to be dealt with.
The point is to keep companies from wanting to get enormous and take over whole industries and stamp out all their competitors - in the style of Wal-Mart. “Shopping small” would hopefully encourage a business climate where companies seek to be successful amongst a whole range of successful companies in their particular industry.
You’re absolutely correct. GM already proved it. They received a bailout years ago and they didn’t get any better.
“Paradoxically, our economic system has promoted the growth of these giant companies to the point that the laws of capitalism are being superceded by the necessities of corporate welfare.”
Where exactly is the paradox? “Too big” is not a paradox, but the obvious outcome of the system. Don’t read too much into the free markets cure all, propaganda.
George - Thanks for the question. I never meant to defend the free market system, but just to show that what we’re doing right now is anything but free market. I believe a decentralized system that focuses on local entrepreneurship (sp?) and environmental sustainability is the way to go - and it can only be accomplished through education and innovation - not through anything legal.
If it is too big to fail, it is too big to remain private. Nationalize all industries that “must” remain solvent. If we must have the car industry, nationalize it and get those idiots running it out in the soup lines where they belong. The same is true of the financial industry. Also tax all golden parachutes at 150%. Then executives might think twice about requiring them.
Get rid of limited liability, and make shareholders, directors and officers/executives liable for the liabilities of the corporation and then things will change.
Growth will be slow, but that’s probably better — leverage has failed us every time…
Good idea, Steve. During the earliest years of American history, this was true - as well a number of other regulations that limited the size and power of corporations. They got whittled away one by one.
Make companies that are deemed too large to fail purchase insurance against executive incompetence and malfeasance and mass unemployment. Let them rather than the taxpayers finance their own bailouts. Maybe this can be the bribe that lets the health insurance industry release its stranglehold on our health care system.
That would be sweetly ironic, Walmart indirectly financing the birth of single payer healthcare in the USA!