Tuesday, 4 October 2011

Corporations are the barrier to growth

Globalisation and the increased economic role of transnational corporations have trashed classical economic theory. Not only are the corporations and their central Statist allies the enemy of that laissez-faire capitalism that once defined Conservatism, but their distortion of the laws of supply and demand also frustrates national economic policy measures. As Edward Nell wrote;
An economy of family firms and family farms might once have functioned like an Idealized Free Market. But the modern system of corporate industry does not. It behaves differently in regard both to output and employment and to pricing: output and employment are adjusted to current sales, but prices are planned with an eye to the financing of investment, so are governed by long-term considerations, and tend to be unresponsive to shot term changes. So, the automatic and anonymous rule of supply and demand in the market came to be replaced by a form of private administration.
And when the corporation's decision span covers the globe, when capital flows internationally, individual governments are about as powerless to stimulate their national growth as an entrepreneurial new fruit-stall. Or perhaps less so. 


Our instinct is that an apple bought from a street trader has a greater multiplier effect in the economy than an apple bought from Tesco, that the change in the endogenous variable is greater given the same exogenous variable. Our instinct may be correct; I'd be interested in pointers to econometric research on this. And if this is the case, the answer to economic growth may lie in maximising the multiplier effect of the internal economy, as clearly the corporate - government complex will not answer, despite Dave's brave words. Discuss. 

6 comments:

Oldrightie said...

"the answer to economic growth may lie in maximising the multiplier effect of the internal economy"
This theorem will and does get labelled "protectionism". Like climate change scepticism, to argue logic in the face of greed and self-interest incurs an "ism"!
I totally agree, however, that corporate greed allied to political self-seeking of a slice of it is the cause of our malaise, big time.

TheRagingTory said...

There is nothing intrinsicaly bad with corporations, even those that manage to obtain a functional monopoly.
The problems occur when they are able to defend those monopolies, not with excellent performance, but with government diktat.

I live near a mega tesco, they built it 10% larger than the planning permission allowed, and told the local authority to get bent when it complained.

Thats clearly wrong, but is the problem Tesco, who flouts the law, or the Council, who accepts such actions, but enforces the law to the absolute extreme on anyone weaker than Tesco?

Competing with the mega marts is basicaly impossible, because planning departments decide where stores go, how many are needed and how big they should be

The quote is, quite frankly, rubbish.
Price is far more variable than output, and employment is virtualy fixed. Its takes 90 days to make a significant number of staff redundant, at the very least.

Size matters, big is powerful, but its also slow, Tesco only very recently launched its own brand of electronics, but now it has, its basicaly unstoppable (40" flat screen, £270).
The advantage small business once had was they could be very very quick, but government regulation has stripped them of that, and so they now wait for the colosus to turn its attention to them, and stomp them flat.

outsider said...

I am old enough to remember one of the first Tescos, a single slightly grubby shop on a big London suburban High Street, where cans of food were literally piled high and sold cheap. This was a small family business, boosting growth and efficiency.

You now seem to think Tesco is an evil transnational, stifling growth and ruling politicians. At what point, do you think, Tesco switched from being good to being bad? To me it is still an innovative entrepreneurial business, stimulating growth and boosting efficiency. It has become big, and therefore perhaps a bit too powerful, by being successful and more efficient than its rivals.

I am also reminded of a private remark by Stanley Kalms, who built Dixons/PC World from a single small shop on a suburban station forecourt. He said that when he started, he aimed to drive his staid, inefficient competitors out of business "but if I did that now I would go to gaol".

Most (not all) big businesses started as small businesses. They grew big by adding to real incomes. As they develop, the rules change and they adapt. But there is no real distinction.

Maybe you agree with Ed Miliband that there are good and bad businesses that should be treated differently by all-seeing government, only you apply a slightly different test.

Anonymous said...

When businesses have to answer to shareholders instead of their customers, that is the start of the slippery slope.

TheRagingTory said...

Outsider
I think Tescos great.
The problem is, I couldnt today, start a business, and overthrow Tesco by being better than it.

No matter how more efficient I was, it could never happen, and not because Tesco is naughty, but because the law is set up to prevent such a thing happening.

Fausty said...

I recently read that in the US, corporations created precisely zero jobs in the US (oh, they created jobs alright - in China) but took 90% of taxpayer-funded corporate welfare.

They've also managed to divert funding into their own coffers from schemes set up to help small businesses.

Given that these corporations are global, owing allegiance to no country in particular, there's a good chance that this is happening over here, too ... except that our government, with the help of the MSM, probably hides it better.