Rethinking Mega-Corporations

When the Microsoft antitrust case came along, the issue seemed to be that Microsoft controlled too much of a market that needed to be substantially more free. But the problem was that people didn't like the government deciding how to partition up the space. The problem is that government intervention in how to divide up market spaces is too subjective, leaving open options for corruption, bad understanding of a market, etc. The sense was in some that this is something best decided by vendors, and yet the problem was that if you left it to Microsoft, it didn't seem to be deciding the issue well.

“EU Competition Commissioner Mario Monti could never build Microsoft Windows or successfully sell it, yet he and his antitrust regulators get to decide if a great American corporation may or may not improve its products,” said Nicholas Provenzo, chairman of The Center for the Advancement of Capitalism.

I thought about this a lot at that time and have continued to ponder it since. I always come back to the same conclusion—that there probably needs to be something like a maximum size company or at least an incentive for not creating ever larger companies. I don't quite have the entire idea fully fleshed out in my head, but I'm confident enough that there's a good idea in there that I think it's time to at least throw it out for discussion, even knowing it will be controversial. But the point is to have some objective measure or incentive that leads to the desire of a company to stop growing.

No matter how smart the leader of a company is, we should be encouraging that person to teach others his or her skill, not to acquire ever-more power for himself alone after the company is above a certain size.

As companies grow super-large, the number of them necessarily grows super-small. This implies reduced competition, which eliminates the exact reason we allow markets and competition in the first place. We need to incentivize companies to seek an intermediate size for many reasons; in light of recent events, one way to express this is as a need to avoid the “too big to fail” phenomenon.

It's my understanding that increasingly in recent years antitrust legislation is not pursued in cases where consumers seemed to be seeing lower prices, on the theory that no matter what the structure of the industry, lower prices for consumers is always unconditionally good. That sounds wrong, and the recent fiasco in the marketplace seems an illustration of why that might be.

The problem seems not just to be the inappropriate manipulation of markets, but merely the reliance on a single company at all; because this implies that really only one human mind—or a small number of human minds—is making decisions for too many people at once. In effect, it implements a kind of corporate dictatorship, or at best rule by a very few people.

In the best case, that leads to a single person having the power to make something extraordinary that others might not think to make. But the problem with that is that if any such individual fails, they bring their company and everyone in that company down with them. There is, of course, a risk that these super-leaders are truly unique souls and that no other person could possibly cause what they did to come to pass; but, if so, there will be huge confusion once they're gone. Worse, our structure also allows them to pass on the power they have amassed to someone who did not earn it. The company does not go back to being disorganized after they leave, the power they perhaps rightly assembled is now a simple commodity to be passed along to someone who didn't earn it by being truly unique. And yet there may be many people, not just one, who are at the next tier waiting to shine.

To see the problem, suppose a person could reliably be said to have ten times the combined intelligence and insight of five people who report to him. And so we allow him to be their leader for a time. Now it becomes time to step down. By definition, this same is not true of the five who stand to rise to his position. It may be that they are capable of stepping into the mechanics of the original leader's position, but the original justification of giving them this position based on the extraordinary thing that only they could do is no longer there. And certainly if it's the case that any one of them was close to the insight and intelligence of the person who dominated, the world would be better off with both of those people at the helm of a company rather than with only one.

Of course, you could iterate this truth all the way down and find that there was no justification that was ever a reason to make a company. And that would be wrong, too, but mainly because it isn't really objectively knowable who is the right person to lead. It's a gamble. And so having many companies of intermediate size allows a compromise between gambling on no corporate organization and on total corporate organization.

Perhaps individuals should be limited to having a majority share in only one company, and minority shares in other companies, again encouraging many human minds to have a serious say in the market. Underlying this thought is something I call my “many minds hypothesis,” that the world will work better if there are a lot of smart people competing rather than just a few. In effect, the current practice in the market involves big fish eating little fish until there is really only one fish and no remaining competition.

A company that has no competition is stifling the creative power of the people within it, who are asked to be conformists to a particular way of thinking. I don't think it's healthy for the individuals, for the company that has come to dominate, or for society.

Since establishing a maximum bound on a company size is hard to do, it seems to me that a possible alternative might be to allow tax rates on a company to increase as the company size increases, creating the possibility of companies consolidating to improve efficiency, but only if the efficiencies are really important.

People sometimes claim that we must have market efficiency, but I think the ultimate efficiency will come when we're all replaced by robots. I don't think that's going to do a lot of good for us or for the environment. And at some point, we may even find the robots think humans are superfluous. But, for now, we have a lot of people who need jobs, and it seems to me that a bit of inefficiency in the market, especially in the form of redundancy and competition, would help a lot.

We've been hurt very badly by the present super-banks losing. If they had been kept from ever getting this large, we'd be in much better shape because there would have been more brains involved and more chances that at least some of those banks would have protected themselves.

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Originally published March 15, 2009 at Open Salon, where I wrote under my own name, Kent Pitman.

See also my related post Fiduciary Duty vs. The Three Laws of Robotics.

Tags (from Open Salon): inefficiency, market efficiency, singularity, ai, robots, free market, market, robustness, diversity, many minds, many minds hypothesis, competition, maximum size corporation, maximum size company, megacorporations, politics, economics, business