Jason Checks in On The Size of Corporations

John,

I agree with the theme of your message that the size of corporations is a consequence of NDA, NCA, intellectual property, and other government monopoly privileges. To your list I would also add the tax code (both its overall complexity and its specific provisions), regulations, subsidies, and licensing. However, I got the impression from your message, perhaps unintended, that corporate size is perceived to be an unintended side effect of these things. I do not believe that it is unintended at all, rather it is the primary aim.

It is obvious that human beings are much more comfortable working in small organizations with lots of individual autonomy, rather than in large command and control structures like large corporations and the government. Language tells a very compelling story here. You never hear someone who is successful in their own small business talk of "chucking it all for my dream mid-level corporate job". Quite the contrary, it is only the people who are encountering extreme difficulties in a small organization, and their talk is always of the form "I might be _forced_ to _give this up_ and _settle for_ a corporate job in order to feed my family." Now flip the coin and consider the reverse: the successful corporate executive who nevertheless wants to "chuck it all and follow a dream of owning my own business" is a modern day archetype. When people speak of corporate jobs the language is very prison-like, with tales of backstabbing and endless dreams and plans for escape. And of course the best metaphor for a safe, good paying corporate job ever is "golden handcuffs". Retirement = release, and early retirement is parole for good behavior. :-) This language reflects an underlying attitude that persists even at high compensation levels. In fact, the more successful people become within the corporate world, the more likely they are to express a desire to escape it. It thus takes a large compensation differential to overcome the natural human aversion to working in such organizations.

This fact has been known for a long time. It applies to investments as well. All else being equal, people would prefer to invest their excess resources in endeavors that they control, or at least can see and interact with and directly benefit from, rather than numbered stock certificates in some huge, distant corporation. It is only the promise of substantially greater and more assured returns that convinces people to invest in corporations instead of small local businesses.

Nevertheless, the argument has been made that certain endeavors are impossible to undertake by small organizations either singly or in partnership. These are large, capital intensive projects.

The argument for big governments and big corporations is thus essentially the same. The government claims a monopoly on force, then uses that monopoly on force to carve out other monopolies for the benefit of big corporations. This is a deliberate act, not an unintended consequence. The rules of the game are deliberately skewed to favor the big organizations over the small ones. This is not all nest-feathering (although plenty of that goes on too). The belief is that if this is not done, almost no one would want to invest money in or go to work for a large corporation (and that much is true). The belief is, if everyone invests in their own or their friends' businesses, and everyone either works in their own business or as an employee of a small local business, no one will undertake the big projects that move society forward. So, the argument goes, government must skew the playing field enough to incentivize enough people to participate in otherwise unpleasant big organizations that can accomplish big projects that small ones can't. Whether that is a valid proposition or not is debatable, but most of American public policy since Thomas Jefferson was president has had that assumption at its base.

--Jason

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