The case for big business in America

Big companies are under the microscope.A spate of mega mergers and the growing power of onlin...

Posted: Apr 8, 2018 8:19 AM
Updated: Apr 8, 2018 8:19 AM

Big companies are under the microscope.

A spate of mega mergers and the growing power of online giants like Amazon and Facebook have spurred calls for greater oversight of large corporations and stricter enforcement of antitrust rules.

But that couldn't be further from the truth for small businesses, which remain popular across the political divide. The federal government offers no shortage of incentives and programs for US mom-and-pops.

Robert Atkinson thinks that's all wrong. As the head of the Information Technology and Innovation Foundation, a Washington, D.C.-based think tank focused on economic competitiveness and funded in part by tech giants like Google and IBM, he has long argued that big business is the driving engine of the American economy.

Along with New America Foundation co-founder Michael Lind, he's written a book from MIT Press called Big is Beautiful: Debunking the Myth of Small Business. It's an unabashed defense of corporate consolidation, on the grounds that big businesses create more jobs, pay better wages, and - by some metrics - comply better with environmental and workplace laws.

The only valuable small businesses, they argue, are those that eventually succeed in becoming large, especially if they do so with disruptive technology that makes the economy overall more efficient.

Related: Big companies used to pay the best wages. Not anymore.

CNNMoney recently hopped on the phone with Atkinson to discuss his views.

CNNMoney: The idea of small business being good and big business being bad is not new. So why are you making this argument now?

Atkinson: I think what is somewhat new is, particularly since the Great Recession, is this increasing demonization of large companies.

We cite an article that Speaker Paul Ryan wrote [in 2009], and the title of the article was Down with Big Business. And you never would have seen that article from a Republican 15 years ago, but now [post-recession] you do.

It's even more worrisome on the left, where you have a really growing narrative that large corporations are not loyal, that they're only maximizing profits and hurting public welfare. So I saw all that, and said 'Boy oh boy, it seems to be leading us in the wrong direction.' Big and small are both good, why demonize one and say another is next to God?

CNNMoney: I get that the deification of small businesses is over the top, but I do think small businesses are valuable because they are rooted in communities, and the ownership and the capital stays local. You dismiss that idea as "sentiment." Why?

Atkinson: It depends on your perspective. In your world, you'd have a lot of small businesses. But in the rest of the US you have big companies, because all of the things you couldn't provide locally - cars and clothes - they'd be provided really, really well and cheaply [by big companies].

And then you've got all these nice, touchy feely, 'Hey Jim, how's business?' stores. If people want that, they can have it, but there is going to be a price for it in terms of lower productivity and lower wages.

Related: As Whole Foods merges with Amazon, local suppliers watch and worry

CNNMoney: So, the problem here seems to be that we want cheap goods, so we'll shop at Walmart over our local retail store, which undermines healthy communities. Isn't that an argument for government fostering businesses that stay small rather than get very large?

Atkinson: There's two components of what you're saying here. One component is overall benefit. And I think we would be better off with fewer retailers, and the reason is because they're so much more productive. You talk about Home Depot and Lowe's, there's so much more choice for consumers [because their massive scale allows them to stock more products].

And I don't think we should start privileging the small business owner. When you look at the wages, for example, in retail, Walmart pays an average of 12.5% more than a mom-and-pop retailer, and that's true for most big retailers. So those workers would be better off working for large firms.

And the Main Street argument [that small businesses bolster communities] is true only for retail. Maybe there would be some small banks, but it wouldn't apply for things like insurance companies, wholesale trade, and manufacturing that aren't physically on a Main Street.

CNNMoney: One aspect of scale and prices is being able to command labor and suppliers at lower prices. How do you reckon with the idea that if you create a few employers in a labor market, that makes it difficult for workers to bargain for better wages?

Atkinson: If you really look at that study that finds monopsony power holding back wages, there are two major problems. One is that all the labor markets that they're looking at are really small. Small, rural towns where maybe you've got a big paper mill or pig processing facility. I don't doubt that there's less competition for workers, so they don't bid up wages. But to say that's a problem across the whole economy, it's just not true.

The second thing is, what's the solution to that? Break up the paper mill into two mills? There's a reason these companies are big. So I don't see any evidence that labor monopsony is a problem. It's a solution in search of a problem that the new anti-monopoly groups are pushing.

Related: The US needs to do a better job training its workers

CNNMoney: So, one of the policy prescriptions of the book is that we should get rid of all preferences and subsidies for small businesses. Why?

Atkinson: What we desire in the book is really to have a level playing field. There's always going to be political economy factors that determine industry structure. What we argue in the book is that there should be less of that, favoring small companies for example through the tax code.

CNNMoney: Do you think big businesses are really harmed by that?

Atkinson: It's not that big businesses are harmed. We talk about in the book a really good study by an economist in Argentina who studied the grocery store industry there. And what he found is that Argentina, 10 years ago, was one of the only countries in the world where you had declining productivity in the grocery store industry, which is really hard to do. And the reason was that the exemptions and the benefits to the small mom-and-pop grocery stores were so huge that they got a lot more market share than they would have been if they were competing on a level playing field with the larger stores.

That's, to me, the bigger issue here.

It's not that the bigger companies are actively being harmed, it's that the small companies, because they're able to cut prices more than they would if they had the same obligations and the same taxes, fewer subsidized bank loans from the SBA etc., they would have marginally lower market share. And the end result of that would be slightly higher US productivity and wage growth.

Editor's note: This interview has been edited for clarity and length.

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