In a recent article that appeared in Bloomberg Businessweek, written by Charles Kenny, he seemed to extol the virtues of Big Business, particularly when it comes to comparing with Small Business. Here is one excerpt from that article:
‘If you’re looking for a lot of good-paying, stable jobs, you’d better hope there are some big companies around that want to hire. Kansas City Federal Reserve economist Kelly D. Edmiston’s analysis of U.S. data found that each year, 22 percent of staff in companies with fewer than 100 employees quit or are fired, compared with only 8 percent for companies with 2,000 or more workers. Edmiston also found that the jobs offered at large businesses were better than those at small businesses. Hourly wages at the largest companies, those with more than 2,500 employees, average around $27, compared with $16 in companies with payrolls of fewer than 100. Companies with more than 100 workers are almost twice as likely to offer retirement benefits and insurance, and considerably more likely to offer health care’
Charles Kenny further advocates that in the US, instead of providing subsidies to small businesses, he reckons that it is more economical to allow big Chinese and Indian businesses to open shop in the US.
Here is what he says:
‘ Although politically unpopular, attracting more large companies from China and India to set up shop in the U.S. could be a better use of resources than providing yet more tax breaks and loan guarantees for small business’
To read the full article:
Although the article discusses the US economy, the arguments can equally be applied to other economies such the UK.
In the first instance, the analysis in the article appears to make good sense, however it seems to only deal with the superficial aspects of Big/Small Business rather than dig deep into some of the underlying characteristics of Big Business.
Here are these characteristics:
Tax Avoidance: in 2009, Barclays Bank declared an annual global profit of £4.6bn (the bank also made an additional £6.3bn from assets sales), but only paid £113m in UK corporation tax i.e. just 1%. While the bank argues that it operates internationally and that it pays its due taxes, it is difficult to see how such a small amount of UK tax is paid when 60% of the bank’s operations are in the UK. However, once you realise that Barclays Bank has something like 300 off-shore companies; it becomes clear that they are able to use complex structures to make it difficult for tax authorities to untangle this web and track the money trail. Barclays Bank is not alone in this practice; almost all big companies employ these questionable tactics to avoid paying the true tax due. Small businesses have no chance of setting these expensive and complex tax avoidance structures.
For more information see: http://www.bbc.co.uk/news/business-12511912
Another worrying aspect is that big corporate not only manage to use ‘creative accounting’ practices to minimize the tax due, they also have the audacity to dispute and delay paying what taxes that have already been declared. According to recent Commons public accounts committee hearings, it seems that big corporations have managed to establish a ‘cosy relationship’ with the tax authorities. The committee says that it has uncovered “specific and systemic” failures in Britain’s tax-gathering agency while investigating deals with Vodafone and Goldman Sachs. It found that many firms had struck ‘deals’ with tax authorities, and suspect that these questionable deals are among £25bn of outstanding unresolved tax bills
For more information: http://www.guardian.co.uk/politics/2011/dec/20/inland-revenue-sweetheart-tax-deals
Too big to fail is a term that has become familiar to us after the recent financial crises. It implies that certain institutions are so large and so interconnected that their failure will be disastrous to the economy, and therefore governments have a responsibility to support them when they face difficulty. Indeed we all have seen how governments rushed with billions of tax payers’ money to prop up the banks. But this is clearly a flawed policy for these banks will seek to profit from these policies by taking an even higher level of risk. The policy is counterproductive, large banks or other large institutions should be left to fail if their risk management is not effective.
Monopolistic competition; we are given to believe that the big corporations are competing to give the consumer the best possible value. However, what they really do is that they actually control the market but give the impression that they sell different products—products that differ somewhat or are perceived to differ, but they serve the same purpose. For example we seem to think that there is competition between Coca Cola and Pepsi Cola, but in reality they just use this phoney competition to control the cola market. Likewise the utilities companies may offer us many different products, but they control the market with little price differential between them. You can apply this to many other sectors such as banking, oil, etc. These large organisations while seemingly in competition, they actually monopolise the market and charge exorbitantly for their products and services, effectively operating as a cartel shutting the door to any new genuine competition. Should this competition become troublesome, perhaps they make an offer that cannot be refused. News Corporation has over the years acquired hundreds of media titles and companies and has become so big and powerful that despite the scandals of late, it is able to weather the storm.
Global Reach: Most of the big corporations operate in many countries and are able to relocate to wherever suits their financial objectives, be it lower labour costs (as in India or China) or lower corporation tax (as in Ireland). They are even able to dictate their terms (such as developments grants and other sweeteners) upon the government of a country as a pre-condition before relocating to that country. They have no hesitation in closing down operations in one country and moving into another where production costs might be lower. In a recent and familiar case, Kraft of the US purchased Cadburys of the UK, and very quickly rescinded on their promises and proceeded to close UK factories. They can indeed use their power to play one country against another to gain maximum advantage. And of course they also extensively use tax heavens to avoid paying full tax.
I can say that the four points raised above (Tax Avoidance, Too Big To Fail, Monopolistic Competition and Global Reach) are actually weapons that big businesses use to fight and squeeze out Small Business. They deploy these weapons to enhance their profits and further their position and power. Furthermore, they are so powerful now they are able to cajole, dictate and even issue veiled threats to governments. This in my opinion is a real threat to our democracy. After the recent financial crises, there is now a prevailing feeling that our democracy has in many ways been hijacked by Big Business. Big Business now seems to have a bigger sway over the Government than the public. I believe that the time has come to reform our laws so that we can take into account the threat of Big Business and restore power to its rightful owners, the public.