Society and the Economy — Is Bigger Better?
Introduction
The mantra “bigger is better” is hardwired into today’s world. Virtually all economic sectors are dominated by a diminishing number of large companies which wield enormous power. This essay sets out to scrutinise this mantra. To ask: is bigger really better?
But first, let us chart the course of this cliché.
How did “bigger is better” enter our collective lexicon?
The phrase “bigger is better” is built on the sound economic premise of “economies of scale”(common sense concepts of efficiency, systemisation, automation, etc). This push towards economies of scale was a direct result of stagflation (stagflation combines high inflation with little to no growth), which plagued the global economy in the 1970s and 1980s.
The 1960s Western economic status quo was awkward and restrictive. The culprits are manifold, including governments and unions.
Awkward – Government intervention = bailouts, subsidisation, grants – most of which was wasteful.
Restrictive productive practices – Management unable to innovate; Unions restricting change.
Several new initiatives were used to drive the Western economy out of global stagflation, one of these was “economies of scale”, and with it “bigger is better” was born
“Economies of Scale” and the rise of unrestricted M&A
Economies of scale underpinned economic recovery as the 80s ended and the 90s rolled around. The low hanging fruit of efficiency was the first to be plucked. Following this, economists and policy wonks were left with a question: “what next?”.
Enter M&A (Mergers and Acquisitions; corporations buying other corporations).
A central plank of economies of scale is M&A. Buying other corporations allowed large corporations to scale up their activities far quicker than the slow, hard-fought, and often unpredictable organic approach toward growth of traditional businesses. Targets were hit faster and bigger, resulting in larger payouts for management and owners alike. All stakeholders inside the tent have profited from M&A.
The corporate world became addicted to M&A, and this addiction went on speed with the advent of zero interest rates (an article for another time!).
The scale and the acceleration of unrestricted M&A activity is breath taking, as the following chart illustrates.
The fall in deal volume in the 2010s is related to the financial crash of 2008; likewise the lockdowns of 2020 had a similar impact.
It is this level of M&A that has fomented “big corporations” to take over “Mom & Pop operations”, leading to the following societal consequences:
Hollowing out of the High Street.
Growth of commuter towns; the atomisation of communities.
Banal, bland & boring are the operative words as each town clones the next.
These are the visual impacts of unrestricted M&A, efficiency, and the “one size fits all” model.
Big Picture: The increasing dominance of all economic sectors by big corporations
Today’s economic model is not reflective of an open free market. It is not normal; it is far from normal - it is abnormal.
The graphs below emphasise this point. There are fewer and fewer major players. This is true to varying degrees across all economic sectors.
As the number of players shrink, the spectre of “Cartelism” and its attendant maladies emerges:
Superficiality- Less actual competition, more superficial competition e.g. marketing gimmicks supplanting the efficacy of products/services.
Corruption - Increasing capture of regulators and politicians.
Protectionism- Active creation of barriers to entry e.g. regulation (another article for another time!).
Can “bigger is better” continue unabated?
The potential prospect of a corporate super-monopoly leaves us with a number of questions:
How focused will a company be on continued growth vs. protecting what it has?
How flexible will a large company be if it has huge resources to manage and deploy?
How likely will a large company be to innovate as opposed to maintaining the status quo?
How does society manage, cope and deal with vast power being concentrated in a very (and diminishing) small number of hands?
The answers from an economic perspective to the questions 1—3 are negative. Monopolies result in less flexibility, more bureaucracy and less innovation. Economies of scale are increasingly turning into diseconomies of scale.
To those who will say “but the stock market is booming, there are record profits!”, I would retort by pointing to zero-percent interest rates, an out of control money supply, and technological innovation as variables masking what is going on under the surface.
What now drives the share price of big corporations are macro-economic events (inflation, interest rates, monetary policy, etc) as opposed to actual performance (profits, productivity, innovation, etc). The graph below visually demonstrates the degree to which stock market performance is divorced from the tangible world.
Big corporate is acutely aware of what drives share price. Is there any wonder at all as to why big corporations are so invested in areas far outside their traditional remit? And correspondingly, less interested in actual performance?
To illustrate this point, one may look to Twitter under Musk as a case study. 80% of the staff were let go and Twitter continued to function. 80% of the staff added nothing, but big corporate tolerated them regardless. This issue was not confine to Twitter solely; across Big Tech waves of redundancies attest to this.
The “zero interest rates” are gone, the money supply is being reigned in (though for how long more is debateable), and how far will “Zoom” calls take us? Unless we are all amenable to being replaced by robots (which I would hope we most certainly are not).
What solutions does big corporate offer?
Mass migration, Globalism (another future article!) & more barriers to entry (regulation).
Let’s tackle mass migration first - why does it benefit big corporations? Big corporate gains access to cheap labour AND more customers (the second point is often times over-looked), but invests nothing.
Society pays the social, cultural and financial cost. The ever-shrinking middle class pays the taxes, incurs the national debt & deals with inflation. On top of this, they simultaneously grapple with assimilating the population inflow.
How does society deal with vast power being concentrated in a very small number of hands?
Tony Benn had the following to say about large corporate power:
"It is dangerous to let big companies grow so big that they become more powerful than the democratic state. Democracy must always have the power to control great wealth, or it will become subordinate to it."
Prophetically, this is where we, the collective West, have ended up.
Disclaimer: I do not believe that replacing a small group of big companies with one big company (the state) would improve matters. Society needs to grapple with this concentration of power. Economically it is inefficient and ineffective, and this will only accelerate over time.
But how to achieve this?
Forcing more competition achieves two things,
A return to corporate efficiency, innovation, and investment in staff.
Forcing big corporate to focus on their competitors once again, rather than reshaping society to fit their needs,
Anti-competition laws are the most important measures to ensure big corporate serves society; they stand as a bulwark against corporations subordinating society to its needs.
I will close with a quote by President Theodore Roosevelt:
"Behind the mere fact of the establishment of the Standard Oil Trust and other trusts looms a bigger, sinister problem – the consolidation and control of the national highways of trade."