Is There a Limit to the Size of Corporation?
The size of the US government in 2016 was $3.54 Trillion. Apple computer just became the largest Corporation with a market capitalization near $820 Billion. Is there an upper limit to how large a corp. can be?
- June 2017
When I started working in 1974 right out of college, I landed a great job with IBM. I remember at one of the internal meetings, one senior executive gave a pep talk to the new hires. He said to a group of us that IBM is aiming to grow 10% per year. That was there objective-goal. At the time, IBM was already one of the top 10 Fortune 500 list. I remember commenting to a colleague, how can that work? Even then, I was skeptical. Sure enough, after a few recessions, and an anti-trust suit by the government, IBM was cut down to size. Today in 2017, it is ranked 32nd and dropping.
There is something called the law of diminishing returns. At some point, an organization will grow to a size that cannot be sustained effectively. The question for today's corporations should be, what is that limit?
Recently, Amazon has announced that it is buying Whole Foods for $13 Billion. Is it getting too big?
The Top 5
Here are the current top 5 companies by market capitalization.
There combined market capitalization is almost equal to the size of the US government.
The federal government is a monopoly. Have you ever wonder why our government seems so bureaucratic and ineffective in so many ways? Partly, it is due to the size of government and partly it is due to the monopoly nature. When you are big and the only game in town, you tend to be a bit arrogant and will not respond to customers or criticism.
We have laws on the books that prevent monopolies. Long ago, we realize that healthy competition among companies is good. This will drive them to improve and result in lower prices and better services and products. These laws apply to companies operating in the same business. However, recent trends and technology have blurred the line between businesses. For example, what business is Amazon in? It started as an online book company and quickly branched out and became an internet commerce business and now it is taking over shipping and retail business. What's next?
The internet has changed many things. It has changed our shopping habits and how we get our news. It is an open space with good and bad effects. On the one hand, we get the world at our feet and convenience and instant access...all good stuff. On the other hand, we also get spam, scams and fake news...
I have no issues with any company growing and making profits. That is capitalism at its best. However, when a company like Google and Amazon dominates its space overwhelmingly, I get nervous. We need a healthy dose of competition to keep things in check.
To answer my original question, there should be a limit on the size of a corporation. We found this out the hard way in 2008 recession. The idea a financial company can be "too big to fail" is so destructive to society. We should never allow that to happen again in any industry.
© 2017 Jack Lee