Walter Adams and James W. Brock, The Bigness Complex: Industry, Labor and Government in the American Economy (Stanford University Press, 2004) (2nd ed.)
For many years Prof. Adams, of Michigan State University, was the leading economic analyst of what he called “The Bigness Complex” in America. Joined by his younger co-author, Prof. James W. Brock of Miami University, they summarized their analysis and arguments for decentralization of the American economy in this important volume.
Social efficiency is a broad measure of general welfare. It means producing the most desirable combination of goods and services from among those that are technologically feasible. It involves asking whether a different allocation of resources would be more desirable or more serviceable. As Federal Reserve chairman Alan Greenspan puts it, the ultimate “test of success of economic activity is whether, by directing an economy’s scarce resources to their most productive purposes, it makes consumers as well off as possible.” Hence, social efficiency is a concept much broader in scope than operating efficiency or innovation efficiency. The former is concerned with producing widgets at the lowest cost; the latter involves the search for superior widgets, or superior methods for producing widgets. Social efficiency, however, concerns the question of whether widgets should be produced at all—that is, whether society’s scarce resources might be more felicitously employed in other, alternative uses.
That bigness has assumed a great deal of society’s planning function in controlling resource allocation is not seriously questioned.
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According to the exponents of bigness, this concentration of control over the allocation of resources is as it should be. Bigness, they contend, is best able to perform society’s resource-planning function and, therefore, is best qualified to promote social efficiency. As a former chairman of Dow Chemical put it, the “problems of our times will require greater, bigger organizations than we have now, rather than smaller ones, for their solution.” For this reason, he implored us to “cast aside our outmoded notions of size and our fear of bigness.” Similarly, a former chairman of Exxon has asserted that “the large enterprise has the means, capabilities, and experience to perform large-scale economic tasks in a socially responsible manner when given the opportunity and flexibility to do so.”
But while bigness has arrogated unto itself the role of “making our entire system work,” the core questions of social efficiency remain: Work for whom? For what purposes? To what ends does bigness exercise its planning power in allocating society’s resources? Are these ends necessarily in accord with society’s best interests? What consequences flow from the exercise of this planning power, and for whom?
An examination of these issues in three areas—automobiles, corporate conglomerates, and tobacco—suggests that, contrary to the foregoing rationalizations, bigness can exert its planning power in ways and toward ends that subvert, not promote, social efficiency.
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Imbued by the brute facts of their colonial experience, America’s Founders understood that power and the control of power pose the greatest challenge to a free society. In drafting a constitution for the political governance of the new nation, therefore, they embraced two transcendental principles: It is the structure of government, not the personal dispositions or virtues of those who govern, that is of paramount importance; and, in Jefferson’s words, that “it is not by the consolidation or concentration of powers, but by their distribution, that good government is effected.”
These principles, we contend, are as relevant to the structure of economic institutions as they are to political affairs and are as relevant today as they were two hundred years ago.
The Challenge of Economic Structure
The challenge is to find a suitable framework—a framework attuned to the precepts of a democratic society—to address the core questions of political economy: who shall make what decisions, on whose behalf, at what cost and with what benefits, for whom, and with what social accountability? The challenge is to design and preserve a framework that has a built-in mechanism for compelling the kind of economic decision making that is most likely, in the long run, to best promote the public well-being. The challenge is to construct and maintain an economic system that provides for the maximum degree of individual freedom consistent with the collective liberty of all. The challenge is to construct an organizational framework that, at the same time, has a built-in mechanism for detecting and correcting the flawed decisions that inevitably will occur—a system of organization that in its operation will generate a minimum of economic problems, while rendering the problems that do arise more amenable to rational resolution. Finally, the challenge is to fashion an economic system endowed with public accountability, responsibility, and legitimacy.
In confronting these challenges, the major obstacle is the Bigness Complex. The reasons, we have sought to demonstrate, are manifold: despite the hubris in which it has come to be cloaked, economic power militates against good economic performance. Whether in its horizontal, vertical, or conglomerate guise, whether wielded by business, labor, or government—or by all three in coalition—it tends to undermine efficiency and obstruct technological progressiveness. It creates rigid, bloated bureaucracies that are defective instruments of social planning and that interfere with an intelligent Utilization of society’s resources. It is unproductive at best and a menace at worst. As Henry Simons put it, “Political insight reveals that concentration of power is inherently dangerous and degrading; economic insight reveals that it is quite unnecessary.”
The unpoliced “free market” does not automatically restrain economic power. The competitive market system of decentralized economic decision making is not an immutable artifact of nature. Economic power, we repeatedly have seen, does not arise solely because of superior economic performance, nor does it persist solely by virtue of economic superiority. Through monopolization, oligopolization, mergers, and disproportionate absolute size, economic power tends to subvert the competitive market as an effective social control mechanism.
Economic power, and the threats it poses, is inherently—and unavoidably—both political and economic in nature. Power does not dutifully confine itself to the “economic” realm, narrowly construed. It does not meekly submit to “the market” or passively obey the modern economist’s laws of geometry and calculus. It does not submissively play according to an unalterable set of rules for survival and success. Instead, it reaches out to dictate the rules of the economic game—or to dispense with them altogether—by capturing the state and perverting it to its own (antisocial) ends. It does so in a variety of ways: pleading for government protection from foreign competition; seeking privilege, preferment, and promotion at the hands of government and at society’s expense; demanding government bailouts as a way of avoiding the consequences of self-inflicted injury and delinquent economic performance.
Indeed, economic power almost inevitably militates toward greater government intervention in the economy. On the one hand, the Bigness Complex “invites” government to save it from itself—to help it evade the costs of its nonfeasance or misfeasance. On the other hand, government feels compelled to intervene in order to protect society from the adverse consequences of such nonfeasance or misfeasance. In either case, the Bigness Complex confronts policy makers with increasingly intractable trade-oils and irreconcilable dilemmas: job preservation through import restraints (which inflate the input costs of other producers and lead to further pleas for protection) versus tolerating the demise of some of the nation’s major industries; bailing out collapsing corporate giants versus suffering the widespread economic damage feared to follow their collapse; reregulating airline “hub monopolies” versus permitting the continuation of abusive airline practices that enrage political constituents; forcefully prosecuting financial giants that violate investor protection laws versus jeopardizing “confidence” on Wall Street and in the financial markets; asserting government buying power to rein in sky-rocketing prescription drug prices versus allowing the budgets of senior citizens and health agencies to be decimated by astronomical pharmaceutical prices. The difficulty of resolving such dilemmas is further compounded by the ability of the Bigness Complex to defy society—in effect in hold it hostage—with threats of shutdowns, layoffs, plant closings, or relocations unless its demands are validated by government action.
Nor is economic power a unidimensional phenomenon. Power blocs do not operate in isolation. They do not automatically neutralize or countervail one another. Instead, as we have seen, they tend to coalesce into even more potent power complexes. Thus, the Big Three automakers and the United Auto Workers join hands to resist efforts to raise the fuel economy of the Big Three’s fleets and lessen the nation’s dependence on foreign oil; the steel oligopoly and the United Steelworkers combine in hotly contested political states to obtain government protection from foreign competition; and professional sports team owners and athletes coalesce to extract billions of dollars from communities to subsidize teams and playing facilities while draining the budgets of state and local governments. Such coalescing power, blocs, and the economic and political power they wield, compound the challenges faced by policy makers in dealing with problems ranging from financing local schools and health care, to deficient national industry performance and flagging competitiveness, to crafting foreign policy, negotiating global antiterrorist coalitions, and providing for the national defense and security. Above all, they challenge the capacity of democratic government to govern in the public interest.
In the final analysis, economic power, and the problems it poses, are primarily structural in nature. They are fundamentally rooted in disproportionate size. It is disproportionate size, for example, that undermines operating, innovation, and social efficiency. It is disproportionate size in particular markets that erodes effective competition and good economic performance. It is disproportionate size in an absolute sense that enables the bigness Complex to manipulate the state and public policy. Many of today’s most pressing economic problems, we contend, are to an important degree symptomatic of this basic structural malady. They are, as economist Ben W. Lewis observed, problems of economic architecture, rather than “goodness” or “badness” in a conventional moral sense. As such, they cannot he finessed with superficial palliatives; left untreated, they become more, not less, intractable.
An Agenda for Action
If our analysis is correct, if our economic problems are to an important degree structural in nature, then we must lace up to the political economy of the Bigness Complex. We must confront the reality that concentrated power exists and that it has far-reaching social consequences.
The prominent “isms” that dominate our political debates— neoliberalism on the left, neo-Darwinism on the right—provide no viable answer. They may promise monistic (and relatively painless) solutions; they may have ideological appeal and command organized political support. But neither offers a system for controlling power. They differ only over who should have power and wield it. Neoliberals would trust a coalition of Big Business, Big Labor, and Big Government; neo-Darwinists would put their faith in the select few anointed by an untrammeled laissez-faire marketplace, Neither offers a persuasive answer to Lord Acton’s warning that power corrupts and absolute power corrupts absolutely. Neither offers a reliable social control mechanism.
There is, we contend, a non-ideological, pragmatic alternative— an integrated, coherent public policy founded on the principle of decentralization. Its objective would be to promote an economic structure in which power is dispersed to the maximum extent feasible, subject only to the constraints of technological and economic imperatives. The virtues of such a policy should by now be obvious: a structure in which power is subject to built-in checks and balances and therefore provides systematic safeguards against its abuse; a structure that disperses power among multiple centers of initiative and decision making and, therefore, fosters an environment receptive to imagination, creativity, and progressiveness; a structure that provides incentives for individual initiative and efficiency, with sanctions against bureaucratic lethargy and managerial arteriosclerosis; a structure in which power and performance are subjected to social accountability; and, above all, a structure that by its organizational architecture operates to frustrate politicization of economic power and the manipulation of the state by vested interests.”
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Here the authors offer specific proposals relating to mergers and acquisitions, regulation and deregulation, foreign competition and protectionism, prescription drug prices, professional sports monopolies, and government bailouts. The authors conclude:
The Choice: Self-Delusion or Realism
The foregoing examples illustrate the ways in which an organizational structure of economic decentralization can be implemented and maintained. Such steps as these—and the list is suggestive rather than exhaustive—are integrally linked with the antitrust philosophy as mutually reinforcing elements of a set of unified and, we contend, viable and acceptable guideposts for economic policy in a free society.
Above all, these policies, anchored in the principle of decentralizations represent a reorientation of current thought—a reorientation of our public philosophy. Yet the grip of the Bigness Complex is potent. The reigning “isms” of our time persist in discerning in bigness some miraculous alchemy for inducing productivity, innovation, and international competitiveness. Both surrealistically posit that antitrust policy has been too stringently enforced, despite the fact that the nation’s economy has been engulfed in one of the most massive merger-and-consolidation movements ever. Both are devoid of any credible scientific proof of the validity of their presuppositions. Both fail to confront the reality of the political economy of power a free society. Both thus attest to the durability of mythological belief and the addiction of ideological dogma.