Wednesday, April 4, 2012

Does Too Big Help Or Hurt The US Economy?

Today's opinion article in the Wall Street Journal, "How Huge Banks Threaten The Economy" could easily be applied to every other oligopoly operating in the economy.  Certainly, we have all felt the effects that the banks have had on the housing market and mortgages and how the US Government was needed to protect them as they were "too big to fail".  The editorial position is that too big is anti-competitive and that small can "improve competition and market discipline, important forces that were reduced as the industry consolidated."

So should this movement to limit consolidation be applied to other industries?  If we are consistent in our approach, then shouldn't the same principals be applied to the wireless industry.  The FCC did stop AT&T from acquiring T-Mobile but they haven't stopped Verizon and AT&T from having the majority of the market.  Wasn't the break up of AT&T into the Baby Bells that first step only to find the Baby Bells merging into a bigger powerhouse than the original parent.

We've seen consolidation in the airline industry too.  United has merged with Continental and USAir wants American.  The result, less competition and higher fares.  Like the banking industry, the airlines have little competition to alter the marketplace.

And what about the consolidation of cable operators.  Time Warner Cable just acquired the assets of Insight Communication.  Comcast, Time Warner, Cox, Charter, and Cablevision have risen to control almost the entire marketplace.

Each of these industries and company leaders would tell you that big drives employment, innovation, cost efficiencies, and better products.  They would argue that government interference only hurts growth and profitability.  Of course in the case of the banks, without the bailout, most may have gone bankrupt and the economy might have been ruined for a decade or longer.

Limiting the size of companies within industries may be a noble attempt, but eventually the big fish always eat the little fish and subsequently keep getting larger.  Just like the breakup of Ma Bell tried to make the communication smaller, it eventually led to consolidation again.  We may think that small is preferable; but eventually, companies either get bigger, get acquired, or go out of business.

No comments:

Post a Comment