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Tokyo, Japan
Originally from San Francisco I now run a small company importing US software into Japan. As an expatriate I find I get a different perspective on American events and politics. Like President Obama, I'm a mutt. Go Mutts!


DaveInTokyo's Links
FEBRUARY 23, 2011 6:41AM

The Case Against Too Big

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It's been a while since the financial crisis of 2008 but we're still dealing with the repercussions of it.  One of the points that was brought out by that crisis was the notion of entities that are "too big to fail".  These included the mega-banks, GM and Chrysler at the time.  Unfortunately "too big to fail" was not true - it was "too big to be allowed to fail."  We bailed out these large entities at enormous cost to avoid tanking the entire economy.  Our payback?  No substantive changes, bonuses for all at the financials and a big FU for everyone else.


I've been thinking about the subject of "too big" for a while and coming at it from different directions.  My conclusion is that "too big" is a problem for multiple reasons and we need to start making some structural changes to avoid this.  The "too big" principle applies not only to companies but to government as well.


1) Too big is dangerous to the economy.  As we've seen, companies that are "too big to fail" can hold the economy hostage, demanding and receiving bailouts to avoid catastrophe for all.  If CitiBank, for example, were 50 banks instead of 1, perhaps 20 would have been mismanaged and we probably could have gotten away with letting them fail.


2) Too big is bad for our social structure.  There's a rising gap between the very rich and everyone else.  I'm not against wealth.  I also don't want to redistribute wealth via taxation.  However, I think that 10 CEO's making 10 million dollars a year are a lot better for our society than 1 CEO making 100 million dollars a year.


3) Too big is impossible to manage.  I run a small company and I'm a fairly smart guy.  I have met CEO's running larger (much, much larger) companies.  They are not 500 or 1000 times smarter than I am.  What we have seen, over and over, is that extremely large companies have management that is completely unaware of what is actually going on.  


4) Too big can be dangerous to our infrastructure.  We saw this with GM.  The uncontrolled bankruptcy of GM would not only have destroyed GM but also many of the auto parts suppliers that supply both GM and the other auto makers.  What if Microsoft were to be in financial crisis?  How about WalMart?


5) Too big amplifies mistakes.  Large entities like to make policy at the top and then have lower levels execute.  If the policy is bad, it is repeated over and over again with no means to moderate it.  Again, if you have 50 StateBank CEO's instead of 1 CitiBank CEO you have 50 different viewpoints and the opportunity to make different (some good, some bad) decisions.


6) Too big is dangerous politically.  Concentrating so many resources in the hands of a few gives them power to push their own agenda, not the agenda of those they purportedly represent (stockholders, union members).  When government gets too big it gains its own political power.  Are we already at the point where's it's impossible to deny government workers their salaries and benefits because they have enough political power to demand them?


What can we do to combat too big?  Break up the big banks.  Return to the limitations of Glass-Steagal.  Aggressively enforce anti-trust regulation.  Come up with new impediments to large business and ease the restrictions for small business.  Raise taxes on the very rich (yes, people will not have incentives to become multi-billionaires.  That's a good thing).  "Right-size" the government.  Return more control to the state and local governments.


The road will be long and hard but the first step is to recognize that there is a problem.  

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