Big Business: Tyler Cowen’s Compelling Case for Large Corporations

Professor Tyler Cowen of George Mason University and the Mercatus Center — and Marginal Revolution, and the New York Times, and much else — is consistently one of the most interesting and original thinkers on human affairs that our public discourse has to offer. He is an economist, but an economist who understands economics in the very broad sense of praxeology — “human action,” as Ludwig von Mises put it. And so you can read Cowen on street food in Singapore; the “market underpricing of autistic labor”; art collecting (his review of Doug Woodham’s Art Collecting Today contains this quibble: the author “should have done much more to explain how art is used for money laundering, and also tax arbitrage through donations at inflated prices, based on corrupt appraisals”); and, from time to time, on more straightforwardly economic questions as such.

Professor Cowen has a reputation as a contrarian, but that is not exactly right. He has a great talent for revealing truths that are right under our noses but oddly overlooked — or willfully obscured. His latest book, Big Business: A Love Letter to an American Anti-Hero, is an excellent, easily digestible exercise in exactly that. Why is it, he asks, that Big Business is not more widely admired and appreciated? Large-scale corporate enterprises provide a great many jobs; relative to smaller firms, they typically pay their workers more and treat them better, invest more in research and development, are more productive and more innovative, and conduct their business at least as ethically. He knocks down a series of myths about excessive executive compensation, “quarterly capitalism” obsessed with short-term profits, monopolistic temptations, and the purportedly outsize role of finance in our economy.

On the last of those, Professor Cowen offers one of his extraordinarily useful, obvious-if-you-think-about-it insights: The argument that finance has grown too large as a share of U.S. economic activity is based in part on the fact that in the 1960s finance accounted for about 4 percent of GDP whereas it recently has been above 8 percent. That’s the wrong comparison, he argues: Finance is engaged in the business of managing wealth, not in the business of managing current income flows exclusively; it makes more sense, then, to examine the share of assets that the financial sector controls, which, as is turns out, has not changed very much over the years, floating around 2 percent. While other social critics have written great volumes about “financialization” — where it comes from, what it means, whether it is desirable — Professor Cowen first stops to ask whether the thing that everybody knows is happening is in fact happening.

Big Business is particularly useful at the intersections of these questions. For example, the belief that CEOs are paid too much is closely linked with the belief that corporations are excessively and unproductively oriented toward the short-term concern of quarterly reports and share prices. But the evidence does not support that conclusion. The reality is that firms undertaking aggressive and in the end unprofitable expansions into China were, like many investors in technology start-ups, suffering from excessively long-term thinking and

failed to be hardheaded enough about short-term limitations. Tesla in 2017 achieved a higher market value than either Ford or General Motors, even though there are no visible signs that the company is capable of selling electric cars at an affordable price for a profit. . . . You can see the same kind of price spikes with a lot of biotech stocks, often before they have brought their products to market.

From where I sit right now in 2018, I don’t know which of these high valuations are the mistakes, and that is part of the point — most critics don’t either. But for sure, in many of these cases the market is thinking too long-term and should be worried about the lack of revenue today. More generally, price-to-earnings ratios are historically high. . . . My point is that these currently high P/E ratios are directly inconsistent with the charge of excess short-termism. In essence the price has been high because the market is expecting high forthcoming earnings, not because earnings are high enough today to justify those valuations.

He goes on to consider the case of Amazon and Jeff Bezos, who has become the wealthiest man in the world while famously forgoing short-term profitability goals in favor of reinvesting revenue in the company and its remarkably ambitious long-term strategy. He notes that in 2015, the average Fortune 500 CEO had been in his job for eleven years, the longest average tenure in more than a decade. And CEO compensation increasingly is performance-based, with pay structures that reward the achievement of long-term goals: Very few billion-dollar fortunes are built on salaries and quarterly bonuses

Professor Cowen has a great gift for simplification. His subject here includes complex and nuanced questions of economics and business organization, but his presentation of them is perfectly lucid. In an introductory note to his famous Brief History of Time, Stephen Hawking relayed his publisher’s observation that every equation in the book would cost him half his readers. Professor Cowen here spares the reader equations and most economic and financial jargon: If you can read the Wall Street Journal, nothing in this book will prove esoteric.

The book does have a slightly catalogue-ish feel to it, as though Professor Cowen has been (as I suspect) keeping a list of college students’ most common complaints about Big Business (and about capitalism generally) and addressing them in series: “Are the Big Tech Companies Evil?” “What Is Wall Street Good for, Anyway?” “How Monopolistic Is American Big Business?” Etc. It goes: Here you go. Next? Here you go. Next? Not boom. There is nothing of the cable-news/social-media mode of discourse here, and there is no temptation to write “Tyler Cowen DESTROYS!” . . . this or that argument. If it seems like the book does not build to a dramatic conclusion, that is because the case is pretty clear from the beginning.

In fact, Professor Cowen’s approach to these questions as a matter of argumentation is, while neither fussy nor even formal, pleasantly anachronistic. Another way of putting that is to say that he is unusually evenhanded and intellectually honest. Of course, there is plenty of evidence that runs contrary to his theme: Big businesses and their executives sometimes do awful things. (But are they more unethical than the rest of us? Cowen asks.) He is forthright on the issue of crony capitalism, noting, for instance, oil companies’ tolerance (or encouragement) of corruption in badly governed African countries. He does not attempt to explain away real abuses but puts them in context: “On the whole, American corporations would rather invest in Canada than in Bhutan or Cameroon, and that is a more important reality than any stack of anecdotes.”

The book offers a good return on investment, even when its conclusions and sense of proportion seem not quite right. There are certain homogenizing effects of Big Business that are of immediate present concern, and Professor Cowen is a good deal more comfortable than I am with Silicon Valley’s emerging role as global arbiter of political speech (and other kinds of speech). He asks important questions about our relationship with our employers (“is work fun?”) but is more blasé than he might be about the cultural consequences of employment’s growing role as a locus of meaning, especially when the corporation is being programmatically transformed into an explicit instrument of political and social discipline. Perhaps these issues are not as easily treated with economic argument. Or perhaps Professor Cowen thinks better of general corporate culture than some less generous observers do. Consider his observations on monopoly power:

The American economy today does have some pretty notable superfirms. At the time of writing the list would include Google, Facebook, Amazon, Walmart, Apple, Exxon, the major auto companies, United Health, CVS, and AT&T, to name just a few.

But most of those companies are not best understood by invoking the traditional theory of monopoly. Rather, they are dynamic organizations that track markets and innovate repeatedly. . . . You could say these organizations are receiving a lot of intangible capital at very low expense, often in the form of expertise about information technology, but also in the form of pretty healthy corporate cultures. For that reason, these businesses often make high profits without charging high prices; furthermore, it will be hard for competitors to copy them. Individual products perhaps can be copied, but the idea of superstar firms as potent learning organizations indicates that the underlying formula is quite complex and involves a lot of expertise in finding, hiring, cultivating, and then retaining talent.

It is difficult to disagree with that in any particular, but it is not necessarily the excessively cynical alone who are not much looking forward to the Kafkaesque culture of the corporate HR department — its aggressive conformism, its petty obsessions — taking on even more weight as an enforcer of social norms and general gatekeeper. F. A. Hayek and Erich Fromm were as politically different as two men could be, but both worried about the dominance of salaried work in large organizations as a mode of public life and the subsequent elevation of corporate habits of mind and manners. Professor Cowen writes with admiration about the ways in which purportedly cold-hearted and greed-bound corporate executives actually pursue missions with a social or even religious character, and that is admirable — up to a point. Starbucks does coffee better than it does social justice.

Professor Cowen’s book may not be quite the “love letter” of its title, but he makes his case with style, care, and earnestness, and his prose is a pleasure to read. Big Business is an issue that tends to produce big polemics — big rhetoric and big claims that are in many cases bigger than reason or experience will justify. This book is a smart contribution to a subject all too rarely treated with the depth or intelligence here brought to bear.