Big Business Will (Probably) Save Us

corporateHQIn the 1960s and 1970s, as South Korea and Hong Kong liberalized, India persisted in Jawaharlal Nehru’s vision of state planning and protectionism. No one deserves more blame than Nehru’s daughter, Indira Gandhi, the nation’s third prime minister.

One of Gandhi’s many sins was to limit capital investment. Most factories could not contain more than a few hundred-thousand dollars’ worth of equipment. At its height this control affected more than 800 products, including car parts, clothes, shoes, toys, and toothpaste. While China gained an economic foothold exporting cheap consumer goods, India could not even produce pencils efficiently.

By 2005 large firms employed more than half of China’s manufacturing workers, but only about ten percent of India’s. This is one reason why China’s GDP per capita was equal to India’s in the 1970s, but triple India’s by the 2000s.

In the abstract, at least, most Americans like small businesses and dislike big corporations. In Big is Beautiful: Debunking the Myth of Small Business, Robert D. Atkinson and Michael Lind argue for an attitude adjustment.

Although they offer much history and many case studies—e.g., India—Atkinson and Lind focus above all on data. And the data, they find, is lopsided. Big firms are much more productive than small ones. They pay employees more. They provide more training, more leave, and more medical and retirement benefits. They are more stable. They are more diverse. They export more. They donate more.

How does a business get big? Almost always through ingenuity and efficiency, Atkinson and Lind contend. Consider the Gilded Age, when robber barons supposedly grew rich by forming cartels, tripping competitors, and cheating customers. The reality is that successful oil, rail, and retail firms used new technology and economies of scale to cut prices. Standard Oil reduced the cost of refining kerosene by more than 80 percent. As its prices fell, its market share rose.

The upshot is that nations with larger companies enjoy greater prosperity. “If the United States had the same firm size distribution as Europe,” Atkinson and Lind conclude, its GDP per capita “would be $2,060 lower.”

If big business is good, big antitrust is bad. And so it is. Atkinson and Lind discuss some of the many mistakes made by our antitrust officials, who often do little more than discourage enterprise and drive industries overseas. After RCA spent billions of dollars developing color television, for instance, the Department of Justice demanded that the company share its technology with American competitors for free. Forced to look elsewhere for revenue, RCA licensed its patents to Japanese firms, which then destroyed the American television industry.

As transportation and communication become faster and cheaper, distant markets will open, efficiencies will compound, and the benefit of size will increase. Corporate consolidation will continue apace. There will be victims. In the last 25 years the median American dairy farm has grown from 80 to 900 cows. More economical farms means fewer farming jobs, which means more struggling ex-farmers, which means more isolation and despair in rural towns.

But large corporations are more important than ever. Big firms spend more heavily (up to a point) on research and development, and they invent more per dollar spent. Atkinson and Lind show, in fact, that more competition often results in less creativity. Breakthroughs tend to come from oligopolistic firms that, during their brief periods of dominance, can conduct bold, complex, and expensive pure and applied research.

Our duties over the next three decades will include improving the lot of billions of poor people, maintaining the wellbeing of billions of rich people, and welcoming billions of new people. We’ll need immense innovation. And we’ll need it as discoveries become more expensive. To continue proving the Malthusians wrong, we’ll need robust companies that push harder, move faster, and see farther.

Take our appetite for energy. No one can design, construct, or use a jet aircraft, a smart phone, an air conditioner, or an MRI machine without a lot of power. “The whole process of building a technological civilization,” the astrophysicist Adam Frank observes, “is really an exercise in harvesting energy from the surroundings.”

All energy use produces waste of some kind. The more inefficient the energy source, the greater the waste.

Sunlight crosses atmospheric CO2—waste from our power stations, factories, and cars—more easily than thermal radiation does. The CO2 therefore traps heat. This, of course, is a problem. The CO2 we emit could remain in the air, warming the climate, for a long time. And it could trigger feedback loops that cause the warming to accelerate. Ice reflects sunlight, for example, whereas water absorbs it. Heat could cause melting that exposes water that absorbs heat that causes melting.

So we need to use energy as efficiently as possible, and we need to temper the effects of our unavoidable inefficiency. We need major advances—things like fourth-generation nuclear reactors, lithium-air batteries, and electricity-producing plants.

The planet’s billion cows are releasing a lot of methane, but Tyson Foods is helping to create artificial meat. Global carbon emissions are higher than ever, but Exxon is working on carbon capture. The most dynamic companies—the biggest companies—can fund, develop, and commercialize the most revolutionary green products.

If we’re going to do more and more with less and less, we have to keep scaling up.

Also published by Forbes.com on WLF’s

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