Our romance with ‘small is beautiful’ and how large businesses provide needed remedies

THE MAIN PROBLEM with large commercial establishments is the “too-big-to-fail” feature: when a commercial and industrial enterprise has become so large and encompassing, they achieve quasi-immunity from regulatory intervention by virtue of size and systemic reach.

- By Raul V. Fabella

They cannot be brought down without courting the collapse of the whole economic system. They become, as it were, exempted from the Schumpeterian “creative destruction” rule which is the anchor of capitalist dynamism. The 2008 Financial Crisis with the Lehmann Brothers collapse shows this clearly even under so-called cutting edge regulation.

But even more dangerous in environments with weak public ordering is the problem of “too-big-to-behave.” Being too big, they change their color and become political actors on top of being economic actors. They train their political clout not to enable, but to prey on weaker rivals - to suppress any form of competitive challenge. Large conglomerates may succumb to the temptation of employing political leverage for rent-seeking after the capture of political centers of power.

Many large business groups may indeed develop and maintain clandestine but mutually beneficial relations with political actors. This murky matrix of relationships and connected dealings became the favorite whipping boy of sanctimonious Western observers in the wake of the Asian Financial Crisis of 1998 which, for many, signaled the end of the proverbial East Asian Model (“In Praise of Rules,” The Economist, April 7, 2001).

This danger reemerged in the 21* century case of massive self-dealing of the Saigon Commercial Bank in Vietnam, and in the collapse of the state-supported “Evergrand” in the People’s Republic of China where some rules of law on selfand connected dealings were rendered inapplicable by political interference. We still do not know how much damage will be wrought upon these economies. And we do have problems of our own with too-big-to-behave entities in our midst. They are largely associated with political power blocks.