Big doesn't work in a market economy

Laurel King's picture

The US economy is in a real mess. Most of us trusted that the regulations in place since the Great Depression and the run on banks would protect us from another such period of economic decline.  Now, it seems there is a chance for yet another catastrophe on that scale.  Triple helix collaboration is needed to solve and prevent problems such as these.  We cannot have capitalism without limiting the size and influence of organizations.  Input from industry, academia and government can help find a balance between size and democracy.

One of the reasons for the current crisis is that large companies have been allowed to merge so that we have only a few major players in many industries. Some of these companies would not have survived without being taken over by competitors, but anyone who has taken a basic economics course knows that the market mechanism requires competition and free access to markets and information to function. These assumptions are not met with so few companies in a given industry, such as investment banking where entry costs and barriers are so high. Also, in this time of global warming, huge disparities between the rich and poor, and large scale environmental harm, we need to consider Schumacher's "Small is Beautiful" philosophy as a path to a better and more equitable world.

Supersized firms cannot be allowed to fail because they wield too great an impact on the economy as a whole. Some argue that we should let them fail, but allowing Lehman Brothers to do just that last month set off our current crisis. As the US treasury gains a greater and greater stake in these huge companies trying to prop them up so they do not fail and cause problems for the global economy, the market can no longer be called self-correcting.  The government, not the market, is deciding which companies will survive and which will fail.  This does not mean that I am advocating that we sit back and see what happens.  I am just pointing out that it is much easier to let a company with a small market share and market capitalization fail than one with a big piece of the market, labor, and stocks in that one industry. And that is what the market mechanism relies on, that companies can be allowed to fail without the sky falling.  However, by allowing huge companies to be built, we have traded our right to allow them to fail.

In recent years, we have seen the fall of communism and the embracing of capitalism by the former socialist and communist regimes.  One cannot help but contrast this with the current move from market control to government control in the US.  This leads one to the conclusion that all countries may be moving toward a social capitalism, where big companies are allowed to form but the citizens and environment are protected by regulation and government control of these oligopolies. Alternatively, the market must be regulated to allow it to function properly with competition and an equal playing ground for all, not just a few large players.

We have seen that monolithic companies cannot properly police themselves nor be held accountable when they fail.  They need to be regulated or rescued because of the huge impact they have on the economy.  This is also true when disruptive innovations and technology threaten the markets of large companies. They have such a stake in the existing technology that they usually try to undermine such competing technologies, even if they hold great promise. The value of social and environmental gains must be part of this equation, not just the profits of large companies. So, while we are in the process of deciding how to rescue huge banks that were allowed to grow so big, lets see if we can change our valuation of these companies beyond economic to include the environmental and societal value and costs they represent as well.

This is why triple helix collaboration and communication is so important. Government, industry and acadamia can provide checks and balances on each other to protect against corruption, waste, and the stifling of disruptive innovation and technology.  However, they must remain true to their respective roles as regulators, producers and knowledge creators for this collaboration to be effective. It is time to include societal benefits in all cost-benefit analyses.