The Fear of Big Business

Many Americans are highly suspicious of big business. They believe that giant corporations exploit their workers, gouge their customers, oppress small business, abuse the environment, and operate without accountability to the people they harm. Vocal politicians are quick to seize on this public perception and call for the need to rethink and reshape public policy. They are constantly drafting new legislation to raise corporate taxes and impose more control

Big business stands condemned for making inordinate monopoly profits and thereby redistributing income shares from the workers toward the firms. But a sober analysis casts doubt on such charges. Big corporations are organizations of many thousands of stockholders who are the legal owners of the business. Most giant corporations have more stockholders than workers. Large profits are diffused among the thousands of individuals that own corporate stock. Some are retired people, widows, old men and women in nursing homes, laborers, and white- collar workers. A large share of corporate profits goes to income groups which earn less than the blue-collar workers in the plants.

In a free, unregulated economy, high business profits are generated by exceptional services rendered to customers. They are entrepreneurial profits resulting from innovative products and services or efficiencies and economies of production. The corporate managers who achieve such profits tend to receive much compensation, although their pay is limited by the profits they generate and the competition of other equally capable entrepreneurs.

In a hampered and emaciated economy plagued by government regulations and restrictions, even mediocre managers may enjoy inordinate incomes. Confiscatory estate taxation, levied repeatedly on concentrations of personal wealth, tends to deprive giant corporations of the leadership and responsibility so characteristic of family enterprises. When hundreds of thousands of stockholders are the legal owners of a firm, and no single stockholder owns more than an insignificant percentage of the voting stock, many people believe that no one but the directors and managers themselves are in control. It is common to suppose that the managers rule their “ownerless” businesses as they see fit. But this is only true when laws and regulations block “corporate raiders” from challenging the incumbents and replacing the corrupt and inefficient managers.

The managers of such corporations usually are no friends of the free market. To them, the multitude of stockholders is merely another interest group, perhaps the least important after labor and government. They preside over the corporate distribution, allotting income first to themselves, then to labor and government, and any leftover to stockholders. If it were not for corporate mergers, acquisitions, and hostile takeovers, these managers could stay in power until the sheriff presides over the final asset distribution.

Political concern with big business is not new. It goes back at least as far as the “robber baron era” in the last quarter of the last century when government eagerly subsidized the construction of railroads and then sought to regulate the abuses. In time, the regulators became the partners, protectors, and benefactors of big business. Large corporations quickly learn to turn to the authorities for handouts and special privileges. They get city councils, state legislatures, and Congress to pass legislation that grants special favors in regulation, taxation, and public works. Regulatory commissions establish entry-blocking rules that do not protect the consumers—rather they protect the firms from consumers. Import duties and import restrictions limit the entry of foreign firms into many American markets; licensing prevents the entry of new firms. Indeed, the list of government-imposed barriers and restrictions is a rather lengthy one.

The noisy call for government action regarding corporate profits and labor layoffs is an open invitation for more corporate welfare. It is visible in new proposals for costly school and retraining programs and for preferential tax treatment of “responsible corporations.” Any measure that favors corporations at the expense of both consumers and taxpayers also serves to increase the power of legislators and regulators.

In a hampered and regulated economy, large corporations are the intermediaries of political power and control. They signal the supremacy of politics over economics and stagnant standards of living.

In contrast, the existence of giant corporations in an unregulated market economy indicates the accumulation of productive capital which affords high labor productivity and rising standards of living. When the United States was the home of the largest corporations in the world, Americans enjoyed the highest standard of living.