5 ms·

Too big to fail is too big. Would it really be so bad if we simply outlawed companies exceeding a certain number of employees? HSBC recently had about a quart

by jzwinck 13y ago

Too big to fail is too big. Would it really be so bad if we simply outlawed companies exceeding a certain number of employees? HSBC recently had about a quarter of a million people, which is just insane. When things get that big, nobody fully understands what is going on anymore, even at a basic level, and it does become plausible that terrible actions are taken with literally no one to blame, either because nobody is sure where the blame lies, or because the would-be accusers are scared of the systemic risk (which these days is very real). I propose that twenty thousand people ought to be enough for any company. Having more, smaller firms will improve the job market for individuals, reduce the burden of mega-powerful interests in government acting against the population as a whole, and provide more genuine opportunities for real leadership to a greater number of people. A gradual phase-in could be used, say max 500K employees by 2020, 200K by 2025, 100K by 2030, 50K by 2035, and 20K by 2040. And no funny business: one person cannot have a controlling interest in companies whose employee counts exceed the limit in aggregate.

btian 13y ago
Not a good idea. Wal-mart has over a million employees, but is not too big to fail. Problem with the financial sector is that everything is inter-connected. Long Term Capital Management was deemed too big to fail, yet the number of employees was tiny.
- jzwinck 13y ago
  Are you sure Wal-Mart isn't too big to fail? Do you live in a place where it is dominant? A lot of Americans do now live in such places, where Wal-Mart has out-businessed smaller shops. If your choices of where to shop are pretty much limited to Wal-Mart, Costco, and Home Depot, where does that leave you if one of them does something really bad? Do you think the US would be all right if all the Home Depots closed tomorrow? It would not be all right. Twenty years ago there was no such thing.
  - btian 13y ago
    I live in Boston, MA, and I have not shopped at a Wal-mart except when I was in China. I'm quite optimistic that other supermarkets will be able to fill its shoes if Wal-mart were to fail. Perhaps Wal-mart is not a good example. My point is that when a 25000 employee company in any other industry fails (size of Lehman Brothers when it failed), the ripple is much smaller, and therefore, capping the number of employees is not a good idea. I do agree, however, that TBTF is bad. No entity should be TBTF and hold the country hostage.
  - freehunter 13y ago
    In my area (Midwest), Walmart, Costco and Home Depot have some competition that would love to pick up that slack. Meijer is a super store challenger to Walmart, with Spartan Stores/D&W/Family Fare and Kroger challenging Walmart for food. Home Depot has Lowes (pretty sure they're nationwide). Costco has Sams Club (part of Walmart) for general merchandise and GFS Marketplace for food. The real monopoly in my mind is Best Buy. I don't know how they stay open, but I certainly don't see any competitors in my area. Walmart may drive out mom and pop stores, but there are plenty of regional chains still around.
  - justincormack 13y ago
    It wouldnt matter if it failed, someone could buy it from bankruptcy and restart it. There are no real consequences.
  - ams6110 13y ago
    It's not like other retailers wouldn't move in pretty quickly if WalMart suddenly vanished for some reason. They are big, but they are not the only game in retail.
- deleted 13y ago
  [deleted]
- bradleyjg 13y ago
  They certainly are too big to fail. Do you really think the government would take steps that would lead to Wal-Mart going out of business and putting those million people out of work, and the communities that depend on Wal-Mart for retail service and tax revenue, in the lurch? I don't. Wal-Mart is TBTF, the question is whether there's anything the government could do that would cause it to catastrophically fail (and thus whether or not there's a moral hazard involved). In the case of Anderson, the government indictment killed the firm because no one wanted to be audited by a firm indicted for fraud. In the case of banks, there are automatic sanctions that go into place upon a criminal conviction that would constrict the ability of the bank to access capital markets, and thus could conceivably lead to rapid collapse. It's hard to see anything similar that could be done to Wal-Mart. If convicted of a crime most likely it would just pay whatever the fine was and keep doing business. On the other hand, take a business like Boeing -- that's both TBTF, largely because of it's giant workforce, and vulnerable to rapid collapse if government sanctions, such as those stemming from criminal conviction, made it ineligible for US government contracts (such contracts make up around 40% of revenue). As for the grandparent's proposal rather than a hard cap, I'd prefer to see some sort of feedback mechanism to counteract natural economy of scale effects. Perhaps some sort of escalating tax rate (per employee maybe or some combination of employee and revenue). For industries like banking with acute dangers something more tailored might be in order -- taking into account balance sheet size, nominal outstanding transactions, and counterparty centrality.
sz4kerto 13y ago
This is not a good approach. There are companies with extremely high number of employeees, but no real systemic risk, etc., especially in manufacturing (see Foxconn) and among large conglomerates (Siemens). Correlatedness (and leverageÖ must be dealt with, not merely company size.
- moron4hire 13y ago
  Not sure your examples are good ones. Foxconn isn't exactly known for maintaining good quality of life for its employees. I don't care if it's "good compared to the rest of China", it's not objectively good, and we continue to support dozens of corporations that do business with them. And Siemens was able to use their ever-expanding reach to be able to let the US government slip malicious code into unknown numbers of scientific equipment to jump the airgap into Iranian nuclear facilities. But that's just the stories we know.
jotm 13y ago
That seems really easy to circumvent. "No funny business" won't hold anyone back if they need it bad enough.
w_t_payne 13y ago
Across the political spectrum, considerable anger, frustration and range is directed either at big business or at big government. Clearly, the thing that unites these viewpoints is the presence of inhuman and impersonal scale, together with the inequitable concentration of power that this scale implies. For comedy effect, I shall conflate Mammoth and Mammon and term this fear of large organisations "Mammonthophobia". To this fear of the very big, I would add a second phobia, that of long-lived organisations; (Geriatrophobia?) for corruption comes to us all, and the longer lived an institution, the more deeply embedded the rot. The Peter principle captures the gist, but fails to convey the seriousness of the message, nor the sinister nature of the disease. Other commentators have pointed out that size is difficult to measure. This is true. To these cautions I would add the ever-pertinent one that legislation breeds corruption. Too many people already make a living by exploiting tax loopholes & legislative weaknesses (Private Equity, I am looking at you). Placing these practical concerns to one side, I think I would be rather more radical than you in my goals. Team sports give us a good idea of what a human-scale team looks like - between 5 and 20 individuals. I am less sure what the longevity of a business should be: between 2 and 8 years seems like as good a guess as any. The ability to invest in the long term and to take on big projects is less inhibited by these restrictions than you might think: even the largest of today's businesses still need to raise outside finance and work together with other businesses to solve large problems; placing severe restrictions on the size of businesses will only help to increase the level of automation and systematic discipline when it comes to organising the crowd of small business-teams to take on large projects. In any case, we could hardly do any worse than our current economy on long-term planning and investment. I am not sure how a government could encourage the formation of an economy formed largely of small, young businesses, I am only sure that it should.
- moron4hire 13y ago
  Well, it could start by not unduly burdening the small companies with regulations that the big companies wrote, and in some cases even exempted themselves from. My state, Virginia, recently passed a law that software contractors will need to be licensed in Software Engineering by the IEEE. The license test is only offered twice a year, costs several hundred dollars, and covers no topics on programming. And, if you're a corporation of a particular minimum size (that is particularly large), you're exempt from the requirement because supposedly such a large company would already be interested in protecting themselves from liability, so would conceivably be vetting their programmers. Except we know they don't, because there is no way to vet programmers like that, if the IEEE test is being held up as the standard.
wreegab 13y ago
I have been entertaining this idea a lot, and I think it makes a lot of sense, and not just because of the potential failure. When a company becomes too big, the virtue of free market economy disappear more and more the bigger the company. This and their undue influence on governments due to their sheer size. Don't allow them to become too big, this will create a healthy free market economy because of all the added competition. Some would argue "economy of scale" etc. but I argue that more healthy competition is what helps customers, not giving more power to these monsters.
chollida1 13y ago
> I propose that twenty thousand people ought to be enough for any company. This seems foolish. Better tell McDonalds, IBM, Target, HP, GE, Pepsi, Coke, Home Depo, and Berkshire Hathaway they are now too big to fail. Oh and dont' forget google, they have more than 20,000 employees, better break them up. Actually why not just look down this list to see just how foolish your 20,000 person proposal would be: http://money.cnn.com/magazines/fortune/fortune500/2012/performers/companies/biggest/ http://money.cnn.com/magazines/fortune/fortune500/2012/perfo... Note that by the time you get to company 49 they still employ more than 126,000 people. EDIT Sorry I guess my point wasn't clear. My point is that employee size is a very poor measure of a company being "too big to fail". Let me lay it out like this. Consider a fictitious burger company with 20,000 employees. With 50 states it can only employ 400 people in each state. If it went bankrupt it's very hard to see how this is "too big to fail".
- nimble 13y ago
  Responding to your edit: I don't think his point was that 20,000 was too big to fail. The point is that 20,000 is too big, period. Any company over a certain size (certainly way less than 20,000) institutes internal procedures for smaller groups within the company to coordinate. How would we not all be better off if those smaller groups were independent competing actors?
- jzwinck 13y ago
  The proposal is foolish because it would impact a substantial number of businesses? I don't understand the logic: if it impacted few or no businesses, then it would be pointless. Since it is impactful, then it is foolish? Recall that I gave a timeline of some two decades for phased implementation. Also note that a franchise model could serve many retail stores well. Subway sandwich shops are roughly as numerous as McDonalds, but the corporations themselves have nowhere near the same number of employees. A franchise model could be used for roughly half the companies in your list. Isn't it more foolish to have dozens of companies that would destroy large parts of the country if something went really wrong with them? Haven't we learned that lesson by now?
- justincormack 13y ago
twobits 13y ago
This is wise. It's not govs or corps that are too blame. It's the "too big" part.
dictum 13y ago
Corporations would just use robots to circumvent these restrictions. https://en.wikipedia.org/wiki/Perverse_incentive https://en.wikipedia.org/wiki/Perverse_incentive Speaking of banks, Goldman Sachs has around 32k employees.
eloisius 13y ago
Should we cap the government to 20,000 employees, too, then?
ebonfortress 13y ago
While some corporations are too big to fail, managers aren't. The article mixes these to things - it's probably ok (given current economic climate) to leave the bank be and fine it, but it's definitely not ok to not prosecute and send to jail people responsible for laundering. Prosecution of high-ranking bank officers would launch a political career, so I guess there just wasn't enough evidence.

by jzwinck 13y ago

btian 13y ago

Not a good idea. Wal-mart has over a million employees, but is not too big to fail. Problem with the financial sector is that everything is inter-connected. Long Term Capital Management was deemed too big to fail, yet the number of employees was tiny.

jzwinck 13y ago
Are you sure Wal-Mart isn't too big to fail? Do you live in a place where it is dominant? A lot of Americans do now live in such places, where Wal-Mart has out-businessed smaller shops. If your choices of where to shop are pretty much limited to Wal-Mart, Costco, and Home Depot, where does that leave you if one of them does something really bad? Do you think the US would be all right if all the Home Depots closed tomorrow? It would not be all right. Twenty years ago there was no such thing.
- btian 13y ago
  I live in Boston, MA, and I have not shopped at a Wal-mart except when I was in China. I'm quite optimistic that other supermarkets will be able to fill its shoes if Wal-mart were to fail. Perhaps Wal-mart is not a good example. My point is that when a 25000 employee company in any other industry fails (size of Lehman Brothers when it failed), the ripple is much smaller, and therefore, capping the number of employees is not a good idea. I do agree, however, that TBTF is bad. No entity should be TBTF and hold the country hostage.
- freehunter 13y ago
  In my area (Midwest), Walmart, Costco and Home Depot have some competition that would love to pick up that slack. Meijer is a super store challenger to Walmart, with Spartan Stores/D&W/Family Fare and Kroger challenging Walmart for food. Home Depot has Lowes (pretty sure they're nationwide). Costco has Sams Club (part of Walmart) for general merchandise and GFS Marketplace for food. The real monopoly in my mind is Best Buy. I don't know how they stay open, but I certainly don't see any competitors in my area. Walmart may drive out mom and pop stores, but there are plenty of regional chains still around.
- justincormack 13y ago
  It wouldnt matter if it failed, someone could buy it from bankruptcy and restart it. There are no real consequences.
- ams6110 13y ago
  It's not like other retailers wouldn't move in pretty quickly if WalMart suddenly vanished for some reason. They are big, but they are not the only game in retail.
deleted 13y ago
[deleted]
bradleyjg 13y ago
They certainly are too big to fail. Do you really think the government would take steps that would lead to Wal-Mart going out of business and putting those million people out of work, and the communities that depend on Wal-Mart for retail service and tax revenue, in the lurch? I don't. Wal-Mart is TBTF, the question is whether there's anything the government could do that would cause it to catastrophically fail (and thus whether or not there's a moral hazard involved). In the case of Anderson, the government indictment killed the firm because no one wanted to be audited by a firm indicted for fraud. In the case of banks, there are automatic sanctions that go into place upon a criminal conviction that would constrict the ability of the bank to access capital markets, and thus could conceivably lead to rapid collapse. It's hard to see anything similar that could be done to Wal-Mart. If convicted of a crime most likely it would just pay whatever the fine was and keep doing business. On the other hand, take a business like Boeing -- that's both TBTF, largely because of it's giant workforce, and vulnerable to rapid collapse if government sanctions, such as those stemming from criminal conviction, made it ineligible for US government contracts (such contracts make up around 40% of revenue). As for the grandparent's proposal rather than a hard cap, I'd prefer to see some sort of feedback mechanism to counteract natural economy of scale effects. Perhaps some sort of escalating tax rate (per employee maybe or some combination of employee and revenue). For industries like banking with acute dangers something more tailored might be in order -- taking into account balance sheet size, nominal outstanding transactions, and counterparty centrality.

sz4kerto 13y ago

This is not a good approach. There are companies with extremely high number of employeees, but no real systemic risk, etc., especially in manufacturing (see Foxconn) and among large conglomerates (Siemens). Correlatedness (and leverageÖ must be dealt with, not merely company size.

moron4hire 13y ago
Not sure your examples are good ones. Foxconn isn't exactly known for maintaining good quality of life for its employees. I don't care if it's "good compared to the rest of China", it's not objectively good, and we continue to support dozens of corporations that do business with them. And Siemens was able to use their ever-expanding reach to be able to let the US government slip malicious code into unknown numbers of scientific equipment to jump the airgap into Iranian nuclear facilities. But that's just the stories we know.

jotm 13y ago

That seems really easy to circumvent. "No funny business" won't hold anyone back if they need it bad enough.

w_t_payne 13y ago

Across the political spectrum, considerable anger, frustration and range is directed either at big business or at big government. Clearly, the thing that unites these viewpoints is the presence of inhuman and impersonal scale, together with the inequitable concentration of power that this scale implies. For comedy effect, I shall conflate Mammoth and Mammon and term this fear of large organisations "Mammonthophobia". To this fear of the very big, I would add a second phobia, that of long-lived organisations; (Geriatrophobia?) for corruption comes to us all, and the longer lived an institution, the more deeply embedded the rot. The Peter principle captures the gist, but fails to convey the seriousness of the message, nor the sinister nature of the disease. Other commentators have pointed out that size is difficult to measure. This is true. To these cautions I would add the ever-pertinent one that legislation breeds corruption. Too many people already make a living by exploiting tax loopholes & legislative weaknesses (Private Equity, I am looking at you). Placing these practical concerns to one side, I think I would be rather more radical than you in my goals. Team sports give us a good idea of what a human-scale team looks like - between 5 and 20 individuals. I am less sure what the longevity of a business should be: between 2 and 8 years seems like as good a guess as any. The ability to invest in the long term and to take on big projects is less inhibited by these restrictions than you might think: even the largest of today's businesses still need to raise outside finance and work together with other businesses to solve large problems; placing severe restrictions on the size of businesses will only help to increase the level of automation and systematic discipline when it comes to organising the crowd of small business-teams to take on large projects. In any case, we could hardly do any worse than our current economy on long-term planning and investment. I am not sure how a government could encourage the formation of an economy formed largely of small, young businesses, I am only sure that it should.

moron4hire 13y ago
Well, it could start by not unduly burdening the small companies with regulations that the big companies wrote, and in some cases even exempted themselves from. My state, Virginia, recently passed a law that software contractors will need to be licensed in Software Engineering by the IEEE. The license test is only offered twice a year, costs several hundred dollars, and covers no topics on programming. And, if you're a corporation of a particular minimum size (that is particularly large), you're exempt from the requirement because supposedly such a large company would already be interested in protecting themselves from liability, so would conceivably be vetting their programmers. Except we know they don't, because there is no way to vet programmers like that, if the IEEE test is being held up as the standard.

wreegab 13y ago

I have been entertaining this idea a lot, and I think it makes a lot of sense, and not just because of the potential failure. When a company becomes too big, the virtue of free market economy disappear more and more the bigger the company. This and their undue influence on governments due to their sheer size. Don't allow them to become too big, this will create a healthy free market economy because of all the added competition. Some would argue "economy of scale" etc. but I argue that more healthy competition is what helps customers, not giving more power to these monsters.

chollida1 13y ago

> I propose that twenty thousand people ought to be enough for any company. This seems foolish. Better tell McDonalds, IBM, Target, HP, GE, Pepsi, Coke, Home Depo, and Berkshire Hathaway they are now too big to fail. Oh and dont' forget google, they have more than 20,000 employees, better break them up. Actually why not just look down this list to see just how foolish your 20,000 person proposal would be: http://money.cnn.com/magazines/fortune/fortune500/2012/performers/companies/biggest/ http://money.cnn.com/magazines/fortune/fortune500/2012/perfo... Note that by the time you get to company 49 they still employ more than 126,000 people. EDIT Sorry I guess my point wasn't clear. My point is that employee size is a very poor measure of a company being "too big to fail". Let me lay it out like this. Consider a fictitious burger company with 20,000 employees. With 50 states it can only employ 400 people in each state. If it went bankrupt it's very hard to see how this is "too big to fail".

nimble 13y ago
Responding to your edit: I don't think his point was that 20,000 was too big to fail. The point is that 20,000 is too big, period. Any company over a certain size (certainly way less than 20,000) institutes internal procedures for smaller groups within the company to coordinate. How would we not all be better off if those smaller groups were independent competing actors?
jzwinck 13y ago
The proposal is foolish because it would impact a substantial number of businesses? I don't understand the logic: if it impacted few or no businesses, then it would be pointless. Since it is impactful, then it is foolish? Recall that I gave a timeline of some two decades for phased implementation. Also note that a franchise model could serve many retail stores well. Subway sandwich shops are roughly as numerous as McDonalds, but the corporations themselves have nowhere near the same number of employees. A franchise model could be used for roughly half the companies in your list. Isn't it more foolish to have dozens of companies that would destroy large parts of the country if something went really wrong with them? Haven't we learned that lesson by now?
justincormack 13y ago

twobits 13y ago

This is wise. It's not govs or corps that are too blame. It's the "too big" part.

dictum 13y ago

Corporations would just use robots to circumvent these restrictions. https://en.wikipedia.org/wiki/Perverse_incentive https://en.wikipedia.org/wiki/Perverse_incentive Speaking of banks, Goldman Sachs has around 32k employees.

eloisius 13y ago

Should we cap the government to 20,000 employees, too, then?

ebonfortress 13y ago

While some corporations are too big to fail, managers aren't. The article mixes these to things - it's probably ok (given current economic climate) to leave the bank be and fine it, but it's definitely not ok to not prosecute and send to jail people responsible for laundering. Prosecution of high-ranking bank officers would launch a political career, so I guess there just wasn't enough evidence.