Open Now
Open Now
Watch now

Are Big Corporations Really Necessary?

Big Tech. Big Pharma. Big food. Big banks. Big oil. We have concerns about all of them. Big Tech is spying on us and collecting our personal information. Big Pharma is taking advantage of us and poisoning us. Our health and fitness are being jeopardized by our consumption of large amounts of food. Big banks are causing boom-and-bust cycles to destabilize. Big oil is wreaking havoc on the earth.

Do we require them? Previously, they were required to address scale issues—the gathering and management of sufficient money to execute huge industrial-era undertakings such as the construction of railways, oil fields, pipelines, energy grids, fleets of ocean-going ships or airplanes, and supplying every household in America with 1.88 vehicles.

These accomplishments, and many more, have resulted in enormous advantages and gains in productivity and quality of life. They've opened up the world to trade and eradicated the majority of poverty. They were part of what Professor Deirdre McCloskey calls the Great Enrichment, the flowering of opportunity and economic growth since the nineteenth century that is unparalleled in human history.

However, capital accumulation is not as important in the digital era as it was in the industrial period. Scale can be downloaded to a significant extent via the internet, and money can be managed by renting it by the minute. AWS (Amazon Web Services) is the pinnacle of capital renting. Companies do not require their own server farms or specialized software to manage their digital operations; instead, they rent from AWS. AWS hosts their stores, logistics, and customer service.

According to Wikipedia, AWS has approximately 200 products and services as of 2021, including computing, storage, networking, database, analytics, application services, deployment, management, machine learning, mobile, developer tools, RobOps, and Internet of Things technologies.

As an even more specific example of distributed control over capital, consider AWS Ground Station. Do you need satellite capability to collect data? Check the website:

AWS Ground Station is a fully managed service that lets you control satellite communications, process data, and scale your operations without having to worry about building or managing your own ground station infrastructure. 

…. you can use Amazon S3 to store the downloaded data, Amazon Kinesis Data Streams for managing data ingestion from satellites, and Amazon SageMaker for building custom machine learning applications that apply to your data sets. You can save up to 80% on the cost of your ground station operations by paying only for the actual antenna time used, and relying on the global footprint of ground stations to download data when and where you need it. There are no long-term commitments, and you gain the ability to rapidly scale your satellite communications on-demand when your business needs it.

This is the age of capital-on-demand. Who needs massive businesses?

This knowledge frees up some mental space to consider some of the negative aspects of large organizations. There are several.

Bureaucracy

We want our businesses to provide value to people's lives via innovation and service. Some of them do. However, such sections are encircled and, at times, strangled by bureaucracy. Corporations created bureaucracy not for the sake of innovation, but for the reverse. It serves as a control engine, limiting the autonomy and creativity of employees while imposing rules, norms, procedures, and processes. For corporate bureaucrats, compliance is a huge word.

Loss of Speed

Large companies are organized. They have divisions, functional departments, regions, and subsidiaries, as well as hierarchies and levels. Speed is at odds with structure. Time is utilized and squandered when an individual or team must obtain approval, request funds, submit for compliance, and check for authorisation before proceeding. In the digital age, rapidity of action and reaction to market and competitive developments are critical. Loss of speed equals loss of production. It's a loss inflicted on both the company and the economy.

Regulation

Big firms attract and, in many circumstances, start regulation. It's known as crony capitalism. Corporations achieve three things by agreeing with government on how to regulate their industry: (1) a known environment in which to operate (the inverse of systems innovation); (2) employment for an expanding bureaucracy (big banks, for example, have massive compliance bureaucracies); and (3) competitive insulation, because smaller entities can't afford to divert resources into their own compliance bureaucracies.

Of course, regulation is a big drain on production and a huge impediment to innovation. It is one of the most significant ways in which the government damages the economy, and huge firms are involved.

Financial Engineering

The establishment, maintenance, and profitability of large organizations are frequently driven by financial engineering rather than customer service and innovation. Financial engineering encompasses those operations that appear to improve financial reporting on paper while providing no additional value to customers. Stock repurchases are a prime example. Stock buybacks serve no benefit for customers. The activity is only for the purpose of adjusting pro forma "per share" ratios. The same is often true for mergers and acquisitions—most acquisitions do not improve customer value because they are not executed with customers in mind.

Generally, the financial-engineering mentality of today’s big corporation is not customer favorable.

Defensiveness

Once organizations reach a certain scale, they must protect their size (investors insist on growth), revenues (the top line, as it is known, must slope upward), market share (they must not "lose" share), and influence (more lobbyists). Their attention has shifted from innovation and better customer service to maintenance and "sustainable." Defensiveness does not lead to development.

Contracapitalist

Big corporations are not anticapitalist. But they often get capitalism a bad name. Robert Bradley Jr. created the term contracapitalist when describing the corporate behavior of Enron (for whom he once worked). This company abandoned and subverted capitalist practices, often with the support of institutions like the Ex-Im Bank, and mostly stayed within the law. Freewheeling accounting practices, contorted debt structures, hyped projections, and hubristic imprudence all contributed to Bradley’s realization that his former employer practiced contracapitalism. 

Do we need large firms in this linked digital era of dispersed capital control? No, not at all. We should never consider large firms as models of capitalism and free markets; they are much too often anti-capitalist.

Follow us on Google News