Big and Bad? Who Says So?

In the zeitgeist of contemporary America, anger and outrage are the currency of the day. Particularly ripe for attack are large corporations, which are picked off like low-hanging fruit by media-starved politicians and talking heads on TV.

Whether these attacks come from the ratings-driven populism of a Lou Dobbs, the anti-business nostalgia of a Pat Buchanan or the left-wing socialism of a Michael Moore, they come in a farrago of angry and simplistic one-sided screeds aimed at companies that, for all their sins, provide thousands of jobs and products to people all around the world.

For the perpetually outraged, the problem of large companies is clear — they're big and corrupt — and the cure is simple: tax, regulate, prosecute, break-up and kill.

What is the "correct" size of a company? What should be the correct size of an oil company? Or a financial-services firm? A grocery store? When is big too big? And on the flip side, can one be too small?

Take the grocery store, for example. We don't want a store that just sells milk and eggs, and another one that sells only bread and butter. On the other hand, we wouldn't want one big massive grocery store; we like having the option of Trader Joe's, Whole Foods or the corner grocery.

For many of the critics of "big oil" who decry the supposedly obscene profits of these mega-institutions, there is never any mention of what would be the effect of "small oil."

Instead of several large corporations that benefit from economies of scale, spreading their costs over a large asset base and benefiting from the efficiencies that can flow from eliminating redundant offices and functions, America would be populated with lots of small oil companies, dotting the landscape and producing oil much less efficiently.

Even though the result would be an increase in gas prices, hurting the average citizen in the pocketbook, the politicians would get their sound bite about the evils of "big oil," and the crusaders would feel virtuous. And the poor would be poorer.

Industries often evolve into the structure we see in the oil and automobile industry not because of the sinister machinations of evil billionaires, but because of the continuous interaction and negotiations of consumers and producers. At first, many different companies spring up in response to a new technology. After a while, the winners and losers get sorted out, with only a handful of players left, as consumers pick the ones that offer the best mix of product and price. The price is often a function of the efficiency and productivity of the company.

Size Matters!
Wal-Mart is the current whipping boy of today. It's big, rich, American — and ugly. It has displaced many stores that were small and possibly beautiful — stores that really did contribute to the charm of a neighborhood and, in many cases, represented the energy and pride of many generations.

However, its low prices — a product of size and efficiency — have added to the wealth of many citizens of this country by offering significantly better value to its customers. This is why it has been successful.

Large companies are an easy target for what the historian Richard Hofstadter called The Paranoid Style in American Politics, the unfortunate tendency among fact-challenged conspiracy theorists to see in certain institutions — an industry, the CIA, the United Nations, the U.S. government, a political party or, the perennial favorite, the Jews — a secret and sinister plot to control our freedoms and manipulate our thoughts.

The truth is usually much less dramatic. Companies, whether large or small, are mostly just a collection of ordinary, flawed human beings who get up in the morning with the modest goal of making it through the day without getting yelled at or fired.

It's a paradox of Americans that we love a success story, but we also love an underdog, and are suspicious of even the appearance of concentrated power. Sometimes, this suspicion is warranted. Companies can grow too big and too powerful, and can unfairly squash competition and pay off politicians. And companies of any size can become corrupt (think Enron).

But the suspicion should be at least equally directed at the ambitious prosecutor, the pandering politician or the narcissistic talking head, for whom there's nothing quite like a big, juicy company to whet their bottomless appetite for ratings, power and fame.

Fred D. Snitzer is chief operating officer in the investment-management firm of Prudent Management Associates, specializing in high-net-worth and tax-deferred asset management.



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