The Stranglehold Big Business

Mr. Dykes is a businessman, free-lance writer and enthusiastic advocate of the free market.

A “corporation” was originally a form of organization granted by sovereigns in the Middle Ages to such entities as local governments and trade groups in order to facilitate the regulation of legal monopolies and the collection of taxes. Coming down to our own day, there are a tremendous number of “non-business” corporations; in the public mind, however, “corporation” and “business enterprise” are practically synonymous. And, despite the demonstrable fact that there are vastly more small corporate business enterprises than large ones, “corporation” and “Big Business” are frequently equated.[1]

In the early nineteenth century there were many Americans who regarded the business corporation with its grant of powers and ability to accumulate vast amounts of capital as a danger to the free society. Advocates of a small-holders agrarian society, following the lead of Thomas Jefferson, had an intense dislike for commercial corporations because of their tendency to grow into large aggregations of economic wealth. Not surprisingly there were relatively few corporations at that time.

Later, Thorstein Veblen declared the corporation to be primarily a device contrived by absentee owners in order to promote monopoly in their own interests. In the latter half of the twentieth century such influential men as John Kenneth Galbraith have told the world that the American economy is dominated by a handful of giant corporations. It is said that the managers of these commercial behemoths exercise enormous power over the civil government that is supposed to regulate them.

Galbraith maintains that this ruling elite—the managerial class, or what he calls the “technostructure”—manipulates consumer demand at will. He suggests, moreover, that American society is dominated by about 500 of these corporate business enterprises. As he sees it, these colossuses are freely able to “administer” prices and “maximize” profits even as they are manipulating consumer demand through advertising, which is sometimes termed “thought- control” by antibusiness elites.[2]

What about this? Concerning the charge that giant business corporations exercise vast powers over the civil government, let us start by noting that in the early 1970s there were about 1.6 million profit-seeking corporations in the United States, while the total number of business con cerns was around 5.1 million. The corporate sector as a whole accounted for only about half of the U.S. economy in 1974, which was about the same share it had in 1940.

Contrary to Galbraith, who claimed the 500 largest corporations produce close to half of all goods and services, the actual figure is around 25 per cent. The 500 largest employ less than 25 per cent of the labor force, and own only about 28 per cent of the nation’s tangible wealth, strangely enough about what they owned in 1929. Of course the list of corporations composing the 500 largest is not static, and has changed many times over the years.

Crucial Questions

Regarding the claim that “Big Business” dominates American politics by lobbying and campaign contributions, several crucial questions need to be asked. For instance, if the large corporations are so powerful politically, why were they impotent to stem the flood-tide of environmental and consumerist legislation of the 1970s—e.g., the OHSA and EEO Acts? The overwhelming majority of corporate giants opposed this legislation and yet they passed anyway. Further, it is a fact, capable of exact demonstration, that public policy for over 40 years, but especially since 1960, has been increasingly hostile to business. If the corporate leviathans are as powerful as men like Professor Galbraith allege, is it possible that government regulation would be all-pervasive as it is today, or that the tide of antibusiness sentiment throughout the land would be so virulent?

What about “thought control,” “the management of demand”—i.e., advertising—the supposed ability of “Big Business” to manipulate the consumer at will? It is enough to point out that it is relatively easy to teach people to want things; teaching people not to want things is quite another matter. All the noonday brightness of Madison Avenue genius would be powerless to persuade the mass of people to exchange their color television sets for black and white, or give up their cars and return to walking and public transportation.

There is no question that some sectors of the economy are dominated by a small number of giant corporations. According to scholarly investigations of the matter, concentration in manufacturing has centered in six industries of extremely high capital intensity in which enterprises of large scale are essential to realize economies of scale. Around 50 of the 100 largest corporations in the U.S. today are in automotive, oil refining, steel, nonferrous metals, industrial chemicals, and aircraft. What do they have in common? These industries are also the industries of highest concentration in the other industrialized nations of the world. This indicates they have common problems and that common causal factors underlie their development.

We would not pretend that giant business corporations as organizations are always exemplars of the spirit of liberty and personal initiative. As Michael Novak observes, “executives and workers in very large corporations necessarily encounter problems of morale, spirit, and efficiency quite unlike those present in small pioneering firms. Bureaucratic thinking may afflict them.”[3] Despite this tendency, corporate titans have played and continue to play an important role in the preservation of liberty.

We live, after all, in an age which is witnessing the rampant growth of state power. “Government in America has become an industry, greater, more dynamic, wealthier, and more expansionary than ever the capitalism of the Harrimans and Rockefellers was in its nineteenth-century heyday.”[4]

A Protective Barrier

The large business corporation stands, among other mediating structures, as a powerful barrier between the individual and the omnipotent ambitions of the messianic political state. “Were the state to acquire control over the large corporations, the political system would thoroughly dominate the economic system. The likely result would be a productive capacity run at about the efficiency of the U.S. Postal Service. The most destructive would be the diminishment of liberty.”[5]

What future has “Big Business” in America? As David M. Smick has pointed out, “the Fortune 500 have experienced virtually no net job growth for more than a decade. The newest research shows instead that nearly all new jobs are coming from firms with precisely the opposite characteristics.”[6] Smick goes on to observe that these firms “are not only small, but minuscule. Nearly 70% of new jobs come from firms with 20 or fewer employees.”

And just as corporate giants are not providing new jobs for the American work force, neither are they providing many new innovations in technology. Most new developments in an industry are launched commercially by small firms. The indispensable role played by industry giants is to rationalize and mobilize the breakthroughs of inventive genius and entrepreneurial vision and to create economies of scale together with efficient channels of distribution which bring the fruits of innovation and vision to consumers in quality form at affordable prices.

Mediating Structures

However much some of us may lament the bureaucratic tendencies of large business corporations, however frequently it may be necessary to counter the myth of their dominance of the American economic order, still, it is crucial that their vital role as efficient producers of eco nomic goods and services be appreciated and defended. But even more important is their position as mediating structures between the individual and the state. And unlike the state, whose decrees are enforced by its police powers, the large business corporation has no power to make anybody work for it, invest in it, or buy its products.

Whereas the state forces us to subscribe to its services whether we want to or not, the giant corporations—and all other business enterprises large or small—cannot make consumers buy their products if they don’t meet their needs or the price is too high. No matter how wasteful or destructive government bureaucracies may be, they tend to grow ever larger and more mischievous. Business enterprises, on the other hand, that do not produce products or services which consumers need at prices they can afford, go bankrupt, or are taken over by better managers, with the result often being a radical reorganization.

In this context, where the freedom to succeed or fail is very real, some business enterprises are not only successful in surviving, but emerge as the leaders of their industry. Thus the competition that breeds excellence not only provides many of the necessities of life and other good things at affordable prices to ordinary men and women, but a mediating structure is established which can serve as one more barrier between the liberty of the person and the coercive bureaucratic state which would limit that precious liberty.

The hostility of most politicians and government bureaucrats to the free market in general, and to “Big

Business” in particular, is well known. This is in many ways a strange and disturbing phenome non. Walter Berns illustrated powerfully the irony of this attitude several years ago: “I put it to you that we shall never see President Carter—or any other president of the United States—embrace and indeed plant a kiss on the cheek of the chief executive officer of a major oil company, even though we have already seen him embrace and kiss the chief executive officer of what is now the greatest tyranny on the face of the earth. Secretary Vance has said that Mr. Carter and Mr. Brezhnev ‘share the same dreams and aspirations’; he would never be so impolitic as to say that of Mr. Carter and the president of Exxon Corporation, even though in this case it is probably true.”

In defending “Big Business” against its enemies, it is not required that we approve of all its ac tivities, or admire the actions and life styles of all its representatives. Many times we may find these reprehensible. It is imperative, however, that we understand and make clear to others that the stranglehold of”Big Business” is a myth; and that, indeed, the large business enterprise, whether consciously or unconsciously, occupies a strategic place in the defense of liberty.

1.   Robert Hessen, In Defense of the Corporation (Stanford, Calif.: Hoover Institution Press, 1979).

2.   The New Industrial State (Boston: Houghton Mifflin, 1967).

3.   The Spirit of Democratic Capitalism (New York: Simon & Schuster, 1982), p. 235.

4.   William Bentley Ball, “Mediating Structures and Constitutional Liberty,” Worldview (September 1978), p. 41.

5.   Novak, p. 178.

6.   "What Reaganomics is All About,” The Wall Street Journal (July 8, 1981).