Do Big Corporations Work?

This may seem an absurd question; obviously big corporations “work.” They do make profits. They do produce goods. They make profits. Experimentally speaking, they do work.

But the same could be said for tyranny: caste systems, slavery, feudal systems, fascist systems, and even communist systems. They all “work” but they don't work equally well for meeting the needs of the people.

Consider the free-market theorists' objections to socialism:

  • Top down control puts too much decision making into the hands of the few at the top.
  • Without shopping, it is difficult to determine the value of things, making it nearly impossible to do a good job setting priorities and allocating resources.
  • Competition based on productive merit gets replaced with political competition. Producing goods for customers gets replaced by oratory, boot licking, back-stabbing and worse.
  • The interests of the individual government workers are often at odds with the goals of the bureaucracy they serve.

All these objections to state communism also apply to a large extent to big corporations! Yet, big corporations exist and compete successfully in market economies. Either the theory above is wrong or the “market” economies in which big corporations thrive are not really free market economies.

The truth is a bit of both. The theory above is incomplete, and big corporations are subsidized by the modern cuddly fascist state. All of the above objections to large corporations (and large government bureaucracies) are true, but there are other factors in favor of large organizations that balance these out up to a point. The big factors that apply to governments and corporations are:

  • Access to funds/capital. Governments can tax, big corporations can float stock that is considered low risk (compared to the risk of new small businesses.)
  • Economies of scale. Some things are just plain expensive to build on a small scale, such as manufacturing automobiles.

It is impossible to build a spaceship on a small scale. And raising the money from space enthusiasts to send a man to the moon is a very difficult proposition. Thus, governments have beaten out the private sector when it comes to putting people into space. The advantages of bigness and access to money outweigh the inefficiencies of bureaucracy. On the other hand, primary education does not benefit from large economies of scale, so public education suffers ongoing crises as control of the schools is moved further up the pyramid.

Some economies of scale are inherent in certain industries. Back yard oil refineries will always produce fuels that are more expensive than that sold by the major oil producers. This would be true even if the oil companies merged into a single monopoly. Similarly, whenever expensive specialized tooling can greatly reduce the cost of producing each item, concentration of industry is inevitable to some degree.

But are there really that many economy of scale opportunities in flipping hamburgers, selling dry goods, or performing general practice medicine? And does a company really need to be as big as General Motors or Toyota in order to make cars economically?*

I don't think so. Much of the advantages that big corporations have over smaller corporations and individual businesses are due to government intervention in the economy. In the next sections, I will show opportunities for eliminating these artificial conditions that lead to excessively large corporations.

*With computer aided design and computerized general machine tools, we may be able to move back towards smaller scale, specialty production for cars.