Firm Size and Growth Revisited

Some of you may remember that a while back I posted over some misconceptions, which I associate with the euro urge, about the inevitability of growth being associated with big. In fact the evidence is completely inconclusive, and the situation may at best be a random walk, or even a power law relation (the so-called Gibrat's law). In which case the old Coase-ian argument about the internalisation of information costs may be greatly over-stated in the world of distributed networks and ambiguity. Now Frans has picked me up on this, and with good reason. (Incidentally Frans' page, although still largely in Dutch, is now rife with references to Brad Delong, Paul Krugman and a certain fat man with a good word for no-one, as well of course as to the inevitable Bonobo). Frans has a page - in English - devoted to a proposal for the limiting of the size of firms which I must say makes a lot of sense. My arguments would perhaps be a little less on the side of a preoccupation with the US (the EU has more than it's share of intrenational corporations) and more on the side of encouraging growth, change and diversity. We have, after all, existing anti monopoly regulations, I don't think there's necessarily anything anti-market at all in tilting the rules a little more in the direction of favouring those who would unseat the incumbents. Microsoft is a case which comes to mind immediately. Well done Frans!

Rules should be made on the level of the European Union declaring an upper limit to the size of all enterprises that (want to) do business within the Union. If one of the boundaries, mentioned below, is exceeded the company will have to split up itself or stop doing business within the Union:

25.000 workers
€ 2.500.000.000 returns
€ 10.000.000.000 assets
€ 250.000.000 profit

Introducing these rules of course need transitional arrangements (a transitional period to be more specific). "Doing business" stands for selling products and services as well as starting or maintaining local establishments.

The intention of this proposal is nothing more and nothing less than restricting the power of the biggest enterprises. Aiming at the European Union to take the initiative is obvious. Countries like the Netherlands, India or even France do not stand a chance: they would simply encounter the power of the transnational corporations that this proposal is confronting. The economic importance of the EU is enough to face this confrontation. Even after the ENRON- and WORLDCOM-scandals there little can be expected from the USA in decades ahead. Some sympathy can be expected from the UN but the UN itself lacks the power. It's hardly necessary to elucidate on the reasons behind this proposal. The power of the transnational corporations, that are still growing in size and economic impact, is simply to big. Especially the poorer countries are powerless vis-à-vis the transnational companies, assuming that their government are interested in the well-being of the poor. The size of the biggest corporations serves no positive goal whatsoever. To prevent any misunderstanding I like to emphasise that it is not my opinion that bigger corporations are more likely to misconduct. If a correlation exists between size of the corporation and the norms of their behaviour I would rather expect an inverse relation. The temptation of misuse of power however, -both in domination of markets and in confronting governments and organisations of workers -, simply lies in another order when it concerns the corporations of extreme size.

Curiously enough implementation of these rules has no disadvantages !! Opposition can only be expected from people with pathological wealth or power.
Sufficient evidence exists that the best economic achievements do not emanate from the biggest corporations of all. That should be no surprise: the size does provide well for giant (investing) possibilities but for bureaucracy and sycophancy as well. Above that the centrally decreed strategy makes the divisions and branches operate below the optimum: because of the notorious "internal standard prices" and the related phenomenon of "tommy". A real nice aspect of this proposal is the fact that debating it can stimulate powers that will work in favour of its realisation: in the second rank of corporation-management ambitious people are going to realise that this proposal creates chances to add lustre to their careers and start acting in favour of it.