The Problem With Big Business

[Scribbly]

Very interesting blog post on the FT got me thinking today (http://www.ft.com/cms/s/0/09417d98-f969-11e0-8e7e-00144feab49a.html#axzz1b7SJFURj) unfortunately, I think you have to sign up to see it, so I will summarize.

Essentially; big businesses suffer from the same problem government departments do. The people at the top are paid excessively huge amounts compared to the people underneath them, and do not have any consequences for failure beyond the loss of their job. Compare this to entrepreneurs, who start off small and risk their livelihoods. If they fail, they go down with the ship. If a CEO fails, he gets a golden parachute and isn't likely to face the loss of any personal assets.

He also claims that smaller companies are likely to be more local and therefore more likely to benefit the immediate economy with jobs as they grow, compared to large businesses owned by shareholders where the reward is based on profit. This is essentially where the disconnect occurs; small businesses are encouraged by the benefits to the individuals taking part in it. Large businesses are encouraged by the benefits to nebulous entities who own shares in them, and that leads to the corporate culture that I think we all agree is a real burden today.

I apologize if all this is trite and others have realized it before, but...

If that is the case, how do you go about changing the environment to encourage entrepreneurs and penalize big business (or at least the negative behaviors of big business)? I realize that big business and government are tied closely, so such measures are unlikely to receive much support, but this seems like a great place to start for 'concrete demands'. Things off the top of my head;

1) Government-backed loan schemes. There is already an initiative for this in the UK coming into force next year for green and environmental technology, and government loan schemes are very common across Europe generally. The credit crunch has hurt the ability of new businesses to obtain loans. So the government can step in and plug that gap for start-up capital. Provide a coherent business plan, demonstrate some chance of growth, and get a low (or no) interest loan for a period of time (I'd guess 3-5 years?) in order to get started. There's some obvious downsides here, as acting on a scale large enough to make a difference could simply throw money away. On the other hand, this seems like what a stimulus package should look like. My main caveat is that the current schemes link these to various sectors the government wishes to promote. I think that any business should be able to make the pitch.

2) Big businesses 'fleeing' to where things are cheapest is seen as a major hurdle. The only way you're going to change corporate behavior is to hurt the shareholders and put a different set of pressures on them. Therefore, if you want to force companies to show some loyalty to the countries that birthed them, you need to institute high rates of tax on dividends paid to shareholders in companies that have major holdings overseas. How you'd structure that precisely would be difficult, because to some extent international trading is necessary and really does help the communities producing the goods more than if they weren't there... so this is going to be tricky to nail down the specifics. But if you want to stop companies taking all their manufacturing to the cheapest location, there's no other sensible way to go about it.

3) The big business ability to manipulate regulation and government itself is a huge issue (and I think is one of the core complaints of the Occupy movement). Pulling the two apart in practice is going to be incredibly tough. I suspect it comes down largely to campaign donations and lobbyists. You'd need to institute some sort of maximum level any entity can donate to any political cause, with the tax office analysing the origin of all money in political organizations to make sure there's no crossover or shell games. If it is determined there is a risk of corruption, you need immediate, harsh penalties. Jail time and huge fines for all parties involved. I don't see politicians being likely to implement this one even more than the other two, for fairly obvious reasons. Doing so, however, would remove one of the largest advantages that big business has over smaller ones; it'd force a far more equal level playing field. Something that most capitalists should appreciate!

So yeah. I thought I'd throw this out there and see what the folks at PD think about it. I'd be particularly interested to hear from you guys who run your own businesses.

[Precious Moments Zalgo]

Essentially; big businesses suffer from the same problem government departments do. The people at the top are paid excessively huge amounts compared to the people underneath them, and do not have any consequences for failure beyond the loss of their job. Compare this to entrepreneurs, who start off small and risk their livelihoods. If they fail, they go down with the ship. If a CEO fails, he gets a golden parachute and isn't likely to face the loss of any personal assets.

Inertia and bureaucracy are also problems for large companies.  Large companies cannot move quickly, whereas small companies can be agile.  I have developed software in all sizes of companies, and when a customer finds a bug, it is much more satisfying to be able to give them a fix later that same day that it is to make them wait four months for a bundle patch.

It seems to me that the enormous amount of political and economic clout that large companies wield is the only reason they are able to out-compete small companies.

[Scribbly]

An interesting claim in a comment - though I can't find anything to back it up:

Maybe we should re-impose the old US rule that a corporation cannot exist longer than the natural lifespan of a human. Forcing the liquidation of corporations was and probably is a good idea and would fix the problem you outline.

Does anyone know anything about this law? If corporations had a 'lifespan' imposed on them, that would certainly be a radical change and could play into the rhetoric around 'corporate personhood' quite nicely... I'd like to know more about how it worked in practice, though, assuming it isn't just gibberish.

Inertia and bureaucracy are also problems for large companies.  Large companies cannot move quickly, whereas small companies can be agile.  I have developed software in all sizes of companies, and when a customer finds a bug, it is much more satisfying to be able to give them a fix later that same day that it is to make them wait four months for a bundle patch.

It seems to me that the enormous amount of political and economic clout that large companies wield is the only reason they are able to out-compete small companies.

Yeah, that is part of what the post talked about; the inertia and bureaucracy tend to come about because of the size of the company and the warped reward schemes that the size imposes on the people involved in it.

[kingyak]

An interesting claim in a comment - though I can't find anything to back it up:

Maybe we should re-impose the old US rule that a corporation cannot exist longer than the natural lifespan of a human. Forcing the liquidation of corporations was and probably is a good idea and would fix the problem you outline.

Does anyone know anything about this law? If corporations had a 'lifespan' imposed on them, that would certainly be a radical change and could play into the rhetoric around 'corporate personhood' quite nicely... I'd like to know more about how it worked in practice, though, assuming it isn't just gibberish.

Inertia and bureaucracy are also problems for large companies.  Large companies cannot move quickly, whereas small companies can be agile.  I have developed software in all sizes of companies, and when a customer finds a bug, it is much more satisfying to be able to give them a fix later that same day that it is to make them wait four months for a bundle patch.

It seems to me that the enormous amount of political and economic clout that large companies wield is the only reason they are able to out-compete small companies.

Yeah, that is part of what the post talked about; the inertia and bureaucracy tend to come about because of the size of the company and the warped reward schemes that the size imposes on the people involved in it.

I've read a little on how corporations used to work, but it's been a while. From what I recall, corporate charters were initially granted mainly to ventures that would provide some public service, for example building a road or importing difficult to obtain goods. When a company incorporated, its charter had an expiration date that varied depending on the venture. The charter could be renewed by the government that granted it, but usually the company dissolved when the charter expired. Corporate charters could also be revoked if the company engaged in activities not covered by the charter, broke the law, caused public harm, etc.

[Scribbly]

Interesting. That actually does sound familiar, I think I saw a documentary on it a long time ago...

I'll have to do some more reading, I think. Particularly into why that stopped being the case.

[Mesozoic Mister Nigel]

Interesting. That actually does sound familiar, I think I saw a documentary on it a long time ago...

I'll have to do some more reading, I think. Particularly into why that stopped being the case.

Massive deregulation began in the Carter era and continued under Reagan and, to a lesser degree, under subsequent Presidents. You'll get lots of info just by searching "deregulation". This is an interesting overview of the history of corporate charters: http://reclaimdemocracy.org/corporate_accountability/history_corporations_us.html