How did large firms go from being a symbol of American strength to being the object of almost universal scorn? A series of high-profile corporate scandals—Enron’s accounting chicanery, Goldman Sachs’s manipulation of derivative markets, among others—certainly hasn’t burnished the image of Big Business. Nor has the rise of the shareholder-value movement, which tolerates no mission other than producing profits, preferably in the near term. The globalization of the economy has at the same time turned American corporations into multinational enterprises with interests that do sometimes run counter to those of their home country.
Small businesses, by contrast, have remained an exemplar of American ingenuity and pluck, the rare hero championed by both sides of the yawning political divide. To Republicans, they’re the purest expression of the creative potential of the free market; to Democrats, small businesses are a bulwark against the encroachments of greedy, heartless corporations.
Meanwhile, an influential school of scholars and advocates now blames a variety of ills—from stagnant wages and lagging productivity to growing income inequality—on the domination of markets by large firms. Channeling antique figures such as Louis Brandeis and William Jennings Bryan, this school claims that “monopoly” and “concentration” are rampant and that aggressive antitrust enforcement is the only cure.
Many of the evils identified by these reformers are real and must be addressed. But the diagnosis is wrong—and the prescription is malpractice. American admiration for small business is rooted in anachronistic ideals passed down from the nation’s preindustrial founding. Our reflexive disdain for large businesses exaggerates their malfeasance while misapprehending their vital role in continued American success. The problem isn’t merely one of perception: Feeding off the popular esteem for small business, policy makers are handicapping Big Business—in the process lowering productivity, dampening innovation, and hurting U.S. global competitiveness.
The new antitrust advocates tell us that monopolistic companies are threatening to use their market power to crush remaining rivals, cheat workers out of fair wages, and gouge customers. Senator Elizabeth Warren paints a near-apocalyptic picture: “Today, in America, competition is dying. Consolidation and concentration are on the rise in sector after sector.” Writing in Washington Monthly, Barry Lynn and Phillip Longman contend that “the degree of consolidation in many industries today bears a striking resemblance to that of the late Gilded Age.”
Corporate concentration has increased, albeit modestly, over the past few decades. From 1952 to 2007, the percentage of manufacturing industries in which the top four firms accounted for at least half of shipments increased, though only slightly: from 35 to 39 percent. (In about 40 percent of industries, including banking and electronic-product manufacturing, concentration rates have actually fallen.) But the majority of industries that have grown more concentrated remain highly competitive. Even in the retail sector, the top four companies in 2016—Walmart, Kroger, Costco, and Home Depot—held just 13 percent of the market combined. (Amazon, a favorite target of the new anti-monopolists, ranked seventh.)