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perts-lawyers, engineers, marketing men-are at hand to point out all the things that can go wrong. These objections will have both merit and force; a corporate officer will have to take them seriously. Only the entrepreneur, with little to lose, can boldly ignore them.
But small business is even more important politically than economically. It is integral to that diffusion of power and wealth, and to the economic and social mobility which are the hallmarks of a liberal society. It is the small businessman who builds up those large fortunes which then sustain the not-for-profit sector-the universities, foundations, philanthropies-which is so important a buffer between the public and private sectors. (Corporate executives almost never accumulate that amount of capital, despite their high salaries.) It is the successful small businessman who maintains his roots in a local community, becomes a visible symbol of success to everyone, gives the politicians in our smaller towns and cities their own access to funds (and therefore a greater independence from national organizations), supports all those local activities-social or cultural-which keeps community morale high. And it is the small business sector that those who are discriminated against, whether it be for their politics, race or religion, can find, and have traditionally found, sanctuary.
Indeed, when we talk about "liberal capitalism," we are talking specifically about a political-economic system in which small business is given the opportunity not only to survive, but to prosper. If Yugoslavia or Russia were, tomorrow, to permit their major nationalized industries to sell shares to the public, in order to raise capital, it would not involve any grand reformation of their systems. On the other hand, if they gave entrepreneurial freedom to small business, it most certainly would. Then, and only then, could one talk seriously about "liberalization."
Similarly, in the "capitalist" countries the very largest of our corporations are already, and will surely remain, "quasi-public" institutions. That is the way they are described in all the business-school texts; that is the way they are referred to casually by politicians and the media; and, in truth I have yet to hear the chairman of a major corporation publicly insist that what he commands is a species of private property, in the traditional sense of that term. (The exact meaning of "quasi-public," of course, is unclear, and its definition is what the fighting is all about.)
Small business, in contrast, even where there is public ownership of shares, is still generally perceived to be a species of private property and to possess the legitimacy which most Americans are still willing to concede to private property. In this respect, the United States is very different from Western Europe. Here, it is only big business that public attitudes are likely to be hostile to. There, all business falls under a shadow of distrust and disfavor. Popular opinion there is inclined to be antibusiness per se-that is, anti-capitalist. We are still, in principle and to a large degree in actuality, a liberal-capitalist society. And it is small business that makes it so.
It is therefore all the more paradoxical that, in our taxation and regulatory policies, so little attention is paid to the needs of small
business. I note that the House Ways and Means Committee has just decided to continue a lower tax rate on the first $50,000 of corporate income, after which the full 48 percent rate applies. What a pitiful gesture! Why shouldn't the corporate income tax be far more graduated than this, so that the full 48 percent rate applies only when a firm reaches, say, the $2 million income level? That would make a difference. Why doesn't a Republican administration, concerned about the survival of liberal capitalism, press for such a reform? Why does it persist in trying to lower the tax ceiling for all corporations-a proposal which Congress will certainly ignore, while it just might be willing to give smaller business a break? The answer, I suggest, is that it is so concerned-we are all today so concerned-about "macroeconomic" phenomena that the economic and sociological and political importance of the smaller businessman or smaller business firm has simply been overlooked.
One also may properly wonder why no greater efforts are made to protect smaller businesses from the horrendous burden which the newer regulatory agencies impose on them. Big business finds it difficult enough to cope with all the expensive changes required to meet new rules governing air pollution, water pollution, noise, safety, and so forth. But, in the end, big business has the resources to survive this experience, harrowing as it is. Small business will not survive it, and is not. All over the Nation, smaller firms are being pushed into liquidation of mergers by their inability to cope with these new burdens. They need more time, more generous (albeit temporary) exemptions. Why don't we hear more voices, and louder ones, demanding that they receive such differential treatment?
If small business is going to survive in this country, it is going to have to organize itself more effectively so that its interests are respected. Just why it has so far failed to do this, I do not know. But I do know that unless it does, it will perish from neglect. And much that is precious to the American way of life will perish with it.
6. "THE BIGGER, THE BETTER?" BY RALPH NADER, THE WASHINGTON STAR, NOVEMBER 8, 1975
[From the Washington Star] THE BIGGER, THE BETTER?
(By Ralph Nader)
For over 100 years the slogan, "the bigger, the better" has guided the business community.
Even today, few executives would question the validity of such a slogan. Banks with assets exceeding $30 billion, oil companies with sales over $30 billion annually and insurance companies with millions of policyholders are believed to be big because they are better for consumers and the country.
Are they? Let's look at the bigness issues a little more closely :
1. Smaller companies can do a better job for the consumer than the giants are doing in the same industry. This is true, for example, in the pricing of life insurance or servicing by truck companies. Small businesses, whose owners know they can win under fair competition, are unable to fight the political and predatory market practices of their opposing goliaths.
2. Companies can become so large that government cannot allow them to fail. While small business is perfectly free to go bankrupt, big business can go to Washington-for a bailout. Apart from the more sensational welfare case of the Penn Central, big corporations are in Washington all the time asking for handouts on the grounds that if the don't get them they will go broke and damage the economy.
3. Giant corporations very often mean giant monopolies or giant monopolistic practices, which fleece consumers out of billions of dollars, as detailed by the Senate anti-monopoly subcommittee over the years. Frequently big business forces small business to go along with their anti-monopoly violations.
4. Big corporations, historically without much of an innovative record, just as historically have lunched off lone inventors or small firms. A Department of Commerce study in the mid-'60s showed that individuals were the source of most inventions that helped build the economy, not the fabled corporate laboratories.
In 1964, Donald Frey, vice president of Ford Motor Co., noted that auto suppliers, not the big auto companies, were the prime source of innovation.
5. Big corporations gravitate toward massive technologies because it is more profitable for them and more expensive for consumers. Recently, big technology is more likely to induce tax concessions or government subsidies.
In the quest for energy adequacy, why develop the abundant agricultural wastes and residues or other solar energies when there are more complex, expensive and government supported technologies like nuclear power around?
6. Big companies can resist more strenuously the displacement of their existing technology by a more abundant form of new technology that is cheaper for the consumer. AT&T has prefered underseas cables at the expense of satellites; the three television networks-long opposed cable TV development with its dozens of channels.
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7. Big companies can control government and abuse significant political power more easily. Du Pont in Delaware, Union Camp in Savannah, Ga., and U.S. Steel in Gary, Ind., are only a few of the company states or company towns where bigness becomes virtual government. It is hard to think of small business overthrowing South American countries.
8. Conglomerate companies can afford to ignore one consumer sector if they can profitably shift to other consumer sectors, compared to firms rooted entirely in a smaller community. In such a case, only small business can fill the gap.
9. Large corporations encouraged widespread community rootlessness by requiring constant moving of families between branch offices or plants.
10. Big companies are more likely to be inefficient than smaller-scale alternatives. Prof. Joe Bain has shown how, in several major industries, it is plant size. not company size that determines efficiencies. The steel industry is a case study of that point. One giant publisher recently contracted for a series of books to a tiny publisher because it was cheaper than doing it in-house.
The whole question of efficiency needs a fresh review in other contexts as well, such as the side effects, maintenance costs, or injuries to consumers.
There need not be a reverse dogmatism in favor of all small enterprises to justify a critical examintion of business bigness in our economy. Or to justify asking what such bigness is doing to our society's preferred values of individual initiative, responsibility and freedom from the giant organization's conforming pressures.
7. "BUSINESS AND FREEDOM," ADDRESS TO ECONOMIC CLUB OF INDIANAPOLIS, IND., BY ADM. HYMAN G. RICKOVER, U.S. NAVY, Nov. 7, 1975
BUSINESS AND FREEDOM
(By Adm. Hyman G. Rickover, U.S. Navy)
Over a period of many years I have spoken and written about such issues as education, freedom, science, engineering, and technology— all of concern to many Americans.
But since this audience is especially interested in business and economics, I thought I would share with you some of my thoughts on these, based on my experience in dealing with many segments of American industry for more than 35 years. Part of my work has involved the procurement from private business organizations of billions of dollars worth of machinery, electrical equipment, and nuclear components for ship propulsion and for civilian powerplants.
This experience, combined with a lifelong interest in Government, philosophy, and history have given me a unique vantage point to observe many aspects of business conduct.
I feel especially indebted to our country for the opportunities it has given me education, a profession, observing other cultures, and a variety of experiences. In every respect America has been good to me.
I am deeply concerned, however, that the opportunities we have had in the past may not exist in the future. As a Nation, we are burdened by internal problems unparalleled since the Civil War: The energy crisis, the threat to the environment, the problems of the cities, the abuse of and consequent loss of respect for traditional institutions and values.
Compounding these problems and exacerbating them is a condition of increasing moral decay which seems to be spreading throughout our society. This exists in many areas, but I will focus on business, and the state of business ethics.
Although I shall be critical of certain business practices, I am not hostile to business, to free enterprise, or to capitalism. I believe in the capitalist system. No other system offers as much opportunity for individual freedom. I criticize only because I do not want to see this system destroyed.
Business is an essential part of society. Throughout history, societies have recognized its importance and have established standards for its conduct. The code of Hammurabi 4,000 years ago governed contracts, loans, debts, deposits, and other areas of commerce in ancient Babylon. The Old Testament forbade stealing-one of the Ten Commandments-also bribery, short measure, false dealing, lying, fraud. During the Middle Ages, the Church prohibited usury. From the Protestant Reformation emerged the idea of business as a Godly calling in which the businessman conducted his affairs as a public service, of
benefit to himself and to his neighbors. From the earliest days of recorded history man has struggled to reconcile the pursuit of profit with honest dealing and useful service, to balance self-interest with the common good.
Because of industrialization and urbanization, the effect of business on society is now greater than it ever was. A half century ago Calvin Coolidge said: "The business of America is business." Its influence is no less pervasive today. Our society honors those who excel in business. Labor leaders, doctors, lawyers, accountants, engineers emulate them. Business leaders, as much as anyone, set the moral tone of society.
Yet the image business leaders convey has not always been flattering. In 1912, Charles Francis Adams, Jr., descendant of two Presidents, said of business in the United States: "I have known, and know tolerably well, a good many 'successful' men-'big' financially-men famous during the last half-century; and a less interesting crowd I do not care to encounter. *** A set of mere money getters and traders, they were essentially unattractive and uninteresting ***" This quotation from Adams is as important as that from Coolidge, for Adams warns that business leaders may lack the vision to see their obligation to the society which nourishes them.
What example are businessmen setting today? Can you remember a single week in recent months when the press was not filled with accounts of business wrongdoing? Here are a few recent ones: Nineteen companies convicted of making illegal political contributions; the fertilizer industry investigated for price-fixing and other anti-trust violations; a well-known ice cream manufacturer indicted on charges of knowingly marketing tainted ice cream; a major oil company making unlawful payments to foreign officials; six securities firms disciplined for stock manipulation; prominent bankers indicted for unauthorized speculation in foreign currencies; a leading truck manufacturer found guilty of conspiring to evade taxes.
In the area of defense contracting where I have firsthand experience, the problems are similar. The Justice Department is investigating the possibility of fraud in contract claims; Congress held hearings on the refusal of one of America's largest corporations to comply with Defense procurement regulations; some contractors have refused to honor Government contracts; there were charges of conflict of interest involving former military officers working for defense contractors.
Because unlawful actions are more newsworthy than lawful ones, one might contend that news accounts are not an accurate measure of the prevailing moral climate in American business. On the other hand, unethical though not illegal conduct often goes unreported. I have observed such unethical practices first-hand : Use of deceptive accounting techniques, refusal to honor contracts, attempts to subvert laws and regulations. Such practices are commonplace: I doubt they are confined to the defense industry.
The business community has evidenced little concern about transgressions within its ranks. Criticism of business conduct typically comes from outside. Even ethical businessmen appear to feel no obligation to speak out against less scrupulous colleagues. Nor is this silence broken by so-called experts in ethics. A recent survey of theologians and professors of business ethics about bribery and political meddling overseas by American corporations resulted in inconclusive answers.