Michigan Law Review Michigan Law Review
Volume 86 Issue 6
1988
The Bigness Complex: Industry, Labor, and Government in the The Bigness Complex: Industry, Labor, and Government in the
American Economy American Economy
James R. Steffen
University of Michigan Law School
Follow this and additional works at: https://repository.law.umich.edu/mlr
Part of the Business Organizations Law Commons
Recommended Citation Recommended Citation
James R. Steffen,
The Bigness Complex: Industry, Labor, and Government in the American Economy
, 86
MICH. L. REV. 1247 (1988).
Available at: https://repository.law.umich.edu/mlr/vol86/iss6/18
This Review is brought to you for free and open access by the Michigan Law Review at University of Michigan Law
School Scholarship Repository. It has been accepted for inclusion in Michigan Law Review by an authorized editor
of University of Michigan Law School Scholarship Repository. For more information, please contact
mlaw.repository@umich.edu.
May
1988]
Tort and Commercial Law 1247
THE
BIGNESS
COMPLEX:
INDUSTRY,
LABOR,
AND
GOVERNMENT
IN
THE
AMERICAN
ECONOMY.
By Walter Adams and James
w.
Brock
New York: Pantheon Books.
1986.
Pp.
vii,
426. $22.95.
Over the past decade, economists, economic journalists, and politi-
cians have commented endlessly on the inability
of
American firms to
compete in international markets. Although analyses and policy pre-
scriptions vary, many commentators have suggested that the nation
should abandon its "antiquated" notions
of
antitrust to restore the
competitive position
of
its firms.
1
These commentators, representing
positions all along the ideological spectrum, argue that given modern
economic conditions and production technologies, economic organiza-
tions
of
extremely large scale are necessary to achieve economically
efficient production (pp. 27-29). Commentators on opposing ends
of
the spectrum disagree about the optimal make-up and nature
of
these
giant organizations, but not about the need for great size (pp. 4-7, 351-
67).
In
The Bigness Complex, Walter Adams
2
and James
W.
Brock
3
argue that the gigantic size these commentators advocate is part
of
the
nation's economic problem, not part
of
a solution to that problem.
The Bigness Complex systematically debunks what its authors label
the "mythical assumptions" on which the pervasive belief
that
"bigger
is necessary" rests. The authors' analysis shows that gigantic size not
only fails to produce the assumed efficiency gains, but more often re-
sults in reduced efficiency. Adams and Brock argue further that even
if
Bigness did result in some efficiency gains, the apologists
of
Bigness
fail to consider the deleterious effects
of
the power that accrues to the
gigantic economic organizations they advocate. The giants use this
power to influence the government and to avoid the discipline
of
the
marketplace. All in all, the book presents a readable and spirited de-
fense
of
the virtues
of
controlled competition and the traditional
American concept
of
antitrust
at
a time when these values are ne-
glected, and even rejected, in almost all
of
the literature accessible to
the layperson.
Adams and Brock divide their exposition into
five
parts.
In
part
1,
the authors contrast the importance
of
power - economic and polit-
ical, private and public - with the dearth
of
recognition accorded
power in traditional academic economics (chs. 1 &
2).
The authors
suggest that
it
is largely the recognition of'the role
of
power that leads
1.
See,
e.g.,
Baldridge,
Rx/or
Export
Woes:
Antitrust Relief, Wall St. J., Oct.
15,
1985,
at
28,
col.
3;
Thurow, Let's Abolish the Antitrost Laws, N.Y. Times, Oct.
19,
1980, sec.
3,
at
2, col.
3.
2.
Distinguished University Professor and former president, Michigan State University,
member
of
Attorney General Brownell's National Committee to Study the Antitrust Laws. B.A.
1942, Brooklyn College; M.A. 1946, Yale University; Ph.D. 1947, Yale University.
3.
Associate Professor
of
Economics, Miami University (Ohio). B.S. 1973, University
of
Wy-
oming; M.A.
1975,
University
of
Wyoming; Ph.D. 1981, Michigan State University.
1248
Michigan
Law
Review [Vol. 86:1247
them to reject the "Bigness Complex" (pp.
7,
14-21). Although the
authors' attempt to define the term power may not be entirely satisfy-
ing as a matter
of
formal theory, most readers will have little difficulty
accepting the proposition
that
the ability
of
gigantic organizations to
influence government is a manifestation
of
power.
After discussing generally the role they believe power should play
in economic theory and analysis, the authors proceed in part 2 to ex-
amine the empirical foundations
of
the assumption on which most
economists ground their support for Bigness -
that
Big is efficient.
The authors note
that
there are three facets to the concept
of
efficiency
- operating efficiency, innovation efficiency, and social efficiency -
and divide their discussion accordingly.
The authors first tackle the relationship between size and operating
efficiency (ch.
3).
The question here is whether production costs fall as
size increases. Operating efficiency requires
that
both production units
(i.e.,
factories) and administrative units
(i.e.,
firms) be
of
optimal scale.
Adams and Brock accept the notion that modern production tech-
niques require production units
of
some considerable size. Studies by
Joe
S.
Bain in the 1950s
4
and F.M. Sherer in the late 1970s,
5
however,
have shown
that
production unit efficiencies do not require firms
of
the
size
that
many advocate today. A defense
of
Bigness resting on oper-
ating efficiency, therefore, must be grounded on the more controversial
notion
that
large firm size produces significant administrative
efficiencies.
Administrative efficiencies are said to result from the ability to
spread administrative expenses over several production units, elimi-
nating duplicative administrative functions. Adams and Brock
ex-
amine evidence from several industries and conclude that
administrative efficiency fails to justify Bigness.
6
The authors find that
after a firm achieves the size necessary to employ production units
of
efficient scale, a size considerably smaller than the average firm in
many industries today, increased firm size not only fails to create fur-
ther efficiencies
but
may often result in efficiency losses.
4. See J.
BAIN,
BARRIERS
TO
NEW
COMPETITION
73, 85-88 (1956).
5. See F.M.
SHERER,
THE
EcONOMICS
OF
MULTI-PLANT
OPERATION
339 (Harvard Eco-
nomic Studies, vol.
145,
1975).
6.
Pp. 42-45.
The
authors first note
that
despite the steel industry's need for enormous pro-
duction units,
it
is the single plant "mini-mill" firms that are meeting foreign competition while
domestic giants such as USX are successful only in obtaining ever higher tariffs from an ever
more pliable Congress. Pp. 34-38. The authors then consider the automotive industry where
General Motors has recently established its Saturn division with the goal
of
making the new
venture as independent as possible from the stifling
GM
bureaucracy. Pp.
40-41.
Finally the
authors examine the recent trend toward conglomerate Bigness and argue that the evidence sug-
gests
that
the combination
of
functionally unrelated firms in a single conglomerate structure has
resulted in significant efficiency losses. The authors believe that the recent trend toward divesti-
tures reflects the business community's delayed recognition
of
the inadvisability
of
conglomerate
structure. Pp. 41-45.
May
1988)
Tort and Commercial Law 1249
The authors next consider the relationship between firm size and
innovation efficiency (ch. 4). The appropriate inquiry here
is
whether
a firm's virtuosity in developing and improving products and methods
of
production increases as a function
of
firm size. Contrary to the
image carefully cultivated by the largest corporations' advertising de-
partments,
7
the authors' data suggests that smaller firms expend
greater efforts in the pursuit
of
innovation and achieve a greater inno-
vative output
at
a lower cost (pp. 50-57). Thus, despite the theoretical
advantages
of
large firms, small firms and even individuals are more
prolific innovators.
8
In
chapter 5 the authors
tum
to the final facet
of
the concept
of
efficiency, the question
of
social efficiency. The question here
is
whether, given certain technological limitations, an economy
of
large
firms produces a more desirable combination
of
goods and services
than an economy
of
smaller firms.
In
the academic economist's world
of
"perfect competition," the market mechanism coordinates the activ-
ities
of
the economy, allocates scarce resources, and achieves optimal
economic outcomes.
In
an economy
of
concentrated industries, how-
ever, much
of
this planning
is
taken from the impersonal forces
of
the
market and placed in the hands
of
the corporate giants. Thus, an
economy dominated by a
few
giant firms will produce a less desirable
combination
of
goods and services and will skew the allocation
of
soci-
ety's resources in favor
of
the giant firms themselves.
9
One goal
of
the
antitrust laws
is
to create an economy approximating.this model
of
"perfect competition"
so
that the market may perform these coordi-
nating and allocative functions. Hence, the authors urge that the anti-
trust laws be strictly enforced to create more competitive markets,
7.
Many economists have also suggested
that
large firms are better innovators.
See,
e.g.,
J.K.
GALBRAITH, AMERICAN CAPITALISM:
THE
CONCEPT
OF COUNTERVAILING
POWER
86
(2d
rev. ed. 1956).
8.
Adams and Brock suggest that the red tape, specialization, conformity, and general con-
servatism associated with bureaucratic structures are contrary to the spirit
of
innovation. Pp. 55-
57.
The
authors further note that large organizations may have the power and the motivation to
suppress innovations that could alter the market in which the firms operate. Pp. 61-64. The
authors' discussion
of
the suppression
of
innovation focuses on the pain-control drug industry.
Pp. 62-64.
9.
Adams and Brock illustrate the influence
of
gigantic corporations in social planning by
considering the role
of
General Motors in the development
of
urban transportation, pp. 67-69,
automotive fuel consumption, pp. 69-72, and automotive emissions and air pollution, pp. 72-74.
In each
of
these three areas, GM's interests differed significantly from what most would consider
society's interests. The oligopolistic structure
of
the auto industry and
GM's
tremendous eco-
nomic and political clout nonetheless allowed the corporation
to
impede the development
of
pollution-free electric trains in favor
of
GM-produced cars
a.nd
buses in urban transportation, to
restrict production
of
more fuel efficient but less profitable small cars, and to slow the develop-
ment
of
pollution control devices despite increasing evidence
of
the damage automotive emissions
caused.
The authors also discuss the role
of
Big Oil in securing oil import restraints that artificially
accelerated the rate
at
which America's domestic oil reserves were depleted, and the role
of
these
same companies in the suppression
of
alternative energy sources. Pp. 74-78.
1250
Michigan
Law
Review (Vol. 86:1247
resulting in a more desirable combination
of
goods and services than
results from our current economic structure.
After dispensing with the arguments
of
those who attempt to jus-
tify the power
of
Bigness by reference to efficiency gains, Adams and
Brock ask in part 3 how a society can be structured to avoid the con-
glomeration
of
power inherent in a political
or
economic system domi-
nated by a
few
large-scale structures.
For
Adams and Brock, the
answers to this architectural question were framed in the years after
·
1776.
In
chapter
6,
the authors discuss how the founders constructed
a governmental system
of
separated powers such that no one branch
of
government could
tum
the coercive power
of
the state against another
or
against the people. The American constitutional system, however,
provides only for the control
of
public power; it does not concern itself
with the undue conglomerations
of
private power that may pose a
greater threat today (pp. 94-95).
For
a plan to control great concentrations
of
private power, Ad-
ams and Brock look to Adam Smith's
1776
work, The Wealth
of
Na-
tions.
As the authors interpret Smith's work in chapter
7,
the '
competitive market scatters economic power widely among the people,
leaving no individual
or
group
of
individuals capable
of
exerting undue
private power. The market itself
is
said to serve as society's regulatory
authority and planning mechanism (pp. 101-03). The authors submit
that the political blueprint
of
the American Constitution and the eco-
nomic blueprint
of
Smith's The Wealth
of
Nations still provide the best
available plans for avoiding concentrations
of
power antithetical to
both efficiency and individual liberty (pp. 85-86).
Adams and Brock, contrary to the proponents
of
the Chicago
School, do not interpret Smith's blueprint to mean that the competi-
tive market
is
a self-perpetuating product
of
nature (pp.
110-13,
211-
12).
They
see
the competitive market
as
a delicate mechanism that
can easily be subverted by private interests wishing to escape its disci-
pline
or
desiring to take over its planning function. In part
4,
the au-
thors maintain that a society that seeks the benefits
of
a free enterprise
system must vigilantly protect the competitive market from "subver-
sion and erosion."
In
chapter 8 the authors argue that in the United
States, this protection
is
accomplished through the antitrust laws. Ac-
cording to the authors, "Just
as
the purpose
of
the U.S. Constitution
was to prevent cartels or monopolies from controlling the coercive
power
of
the state,
so
the basic objective
of
antitrust
is
to prevent them
from controlling economic decision-making in a free society."
10
After establishing the importance
of
antitrust to the proper func-
10.
P.
108.
As the passage indicates, Adams and Brock believe that the "basic objective"
of
the antitrust laws is the control
of
the economic and political power that arises from economic
concentration. Other commentators reject the notion that the antitrust laws should be used to
control corporate power, arguing that they should be concerned solely with greater economic
efficiency.
See,
e.g.,
R.
BORK,
THE
ANTITRUST
PARADOX
(1978). The view that economic
effi-