Apr 19, 2019

Think You Hate Big Business? Tyler Cowen Will Make You Think Again

Andrea O'Sullivan Feature Writer , Christian McGuire Communications Associate

America has a big problem with big business. People don’t appreciate our corporate titans quite enough.

Come again? This is the unexpected premise of a new book by economist Tyler Cowen called Big Business: A Love Letter to an American Anti-Hero.

Cowen’s pro-business manifesto is a clarion call for our time. While big businesses are often used as political punching bags, Cowen will convince you that few other things have contributed so greatly to your overall quality of life. Plus, he adds, there are good reasons that you think you dislike big business more than you do, and even better reason to revisit those biases.

Here are just a few of the surprising arguments, insights, and myth-bustings that you will find in Big Business.

1) Big Businesses Are More Honest than Most Everyone Else

A common view holds that corporations are crooks, or at least are run by them. The bigger the firm, the bigger the fraud, and the less recourse you will have. Anyone who has had a frustrating experience on hold for hours with a major company’s customer service call center can attest to the incredible banality of such “evil”: big corporations can not only wrong us, they can make it as miserable as possible for wrongs to be righted.

But are you so sure that big businesses are your biggest problem when it comes to fraud and dishonesty?

Cowen argues that you are probably more likely to be ripped off or lied to by people you know personally than by McDonalds or Amazon. People routinely lie on resumes, applications for housing and benefits, and dating profiles. For example, the gap between the amount in taxes that individuals owe and what they actually pay is huge: Cowen reports an IRS estimate of around $264 billion a year. Then there are the day-to-day falsehoods and iniquities that people in our lives regularly commit, with or without our knowledge. Needless to say, legal recourse is often scant in these personal situations.

Compare this to businesses. Despite errors or misdeeds here or there, firms have strong legal and reputational incentives to be honest and fair. Indeed, big businesses spend billions each year on customer service, employee training, and lawyers to make sure they stay on the right side of the law and public opinion.

Cowen marshalls the evidence: For example, the tax gap for businesses is much lower than that for individuals, standing at only $41 billion. Laboratory economics experiments suggest that people in corporate leadership and market economies are more giving and trusting than others. Cowen also compares for-profit ventures to non-profits: the latter is often (sadly) characterized by dishonesty and fraud.

It’s not that businesses are always or even mostly honorable. Cowen notes that if he were to visit, say, a boat dealer, he would arrive at the lot “with the assumption that the sellers are trying to rip me off.” And those notorious call center wait times that so ruin our days are the result of a cold calculation that dealing with us costs more money than we’re worth.

The point is that businesses are usually more honest than everyone else, and that is worth our appreciation.

2) CEOs Are the Philosophers of Our Time

Cowen cites a multitude of studies that suggest CEOs contribute far more to the well-being of their companies—and society—than is commonly understood.

One way that we can measure this effect is by studying what happens when a sudden death robs a firm of corporate leadership. It turns out that, when CEOs die, their firms lose a significant portion of their market value: share price declines by 2.32 percent. If the CEO was a young founder, that loss amounts to almost nine percent. Cowen cites another study that uses these events to estimate that the quality of corporate leadership totals at about five or six percent of the total value of a company.

That contribution can have a massive effect on the overall condition of the economy. Cowen references some of the most high-profile CEOs of the last decade: Steve Jobs, Mark Zuckerburg, and Jeff Bezos. The opportunity cost that the world would have incurred had these men not held leadership positions at major firms would have been enormous.

How are CEOs able to contribute so much to the state of the world as we know it? By having intricate knowledge of human motivation, by adequately balancing long-term visions and short-term demands, by understanding the political ramifications of their actions, by knowing the needs and wants of huge swaths of the population, and by reasoning through how those needs and wants can be adequately met. This skill set is so diverse and requires such a comprehension of the human experience that Cowen concludes these men and women practice more philosophy than those in any other position.

3) You Live in a Hedge Fund

Despite the rancor directed at large banking institutions, there can be no doubt that intricate financial systems have been closely tied to the increase in human well-being over the centuries. From ancient Sumer to Renaissance Italy to today, the societies that mastered investment, accounting, and monetary exchange were most able to allocate resources efficiently. The economic status of New York is merely one example of a long lineage of cities that climbed the heights of economic development using large financial institutions.

Americans in particular should be thankful for the existence of the nation’s rich and powerful banking sector. The many technological and quality-of-life changes in cities like Silicon Valley, Boston, Brooklyn, and Austin, Texas are thanks to venture capitalists that risked their resources on new and uncertain experiments. The global influence of the US is in no small part due to our financial and monetary heft. Millions of Americans rely on the enrichment that well-performing stocks have provided them during retirement.

These facts and others lead Cowen to remark that Americans benefit daily from the nation’s status as perhaps the world’s most successful hedge fund. Without the wonderful surpluses generated by an efficient distribution of capital (mediated by complex financial systems and large banks), denizens of the United States and elsewhere would be measurably worse off.

4) Populists, Not Big Businesses, Own Washington

Tyler Cowen tackles another damaging misconception about big business: its relationship to politics. While grossly exaggerated claims about the power of large companies pervade American discourse, he writes that the reality is quite different.

Generally, large corporations want free trade, relatively open immigration, and political predictability. Politics in this nation, as well as in many others, has taken a decisive turn in the opposite direction despite the protests of Wall Street. Rich CEOs were notably disinclined to support President Trump during the 2016 election; not a single CEO of a Fortune 100 company donated to his campaign by September of 2016, despite the fact that nearly a third had done so for Mitt Romney four years earlier.

That isn’t to say that crony capitalism isn’t a real problem. Subsidies, regulatory capture, and protectionism are threats to economic efficiency and the justice of our economic system. Nevertheless, Cowen catalogs that most government expenditures reflect the will of voters, not the rent-seeking of special interests. In other words, programs like Social Security, Medicare and Medicaid, K-12 education, and similar services—not handouts to powerful businesses—dominate government spending on every level.

5) Work Is Good for You

Everyone gets frustrated with their job from time to time. As artistic works like Office Space portray, working for big businesses can seem especially soul-deadening. Sometimes the prospect of full-time leisure seems irresistible. After all, it’s not called “work” for nothing: as Cowen notes, telling your partner that “being with you is work” is not exactly a serenade.

But although companies need to pay you to be there, Cowen suggests that you might enjoy working more than you realize.

First, we should consider the lot of those who cannot find work. There are well-known psychological costs to long-term unemployment. It damages people’s self-esteem, health, and happiness. One study found that involuntary unemployment is more traumatic than divorce or separation for one’s happiness.

But work is not just merely the better of two bad hands. Much of what is positive in our lives comes from our work. We socialize and make friends, engage in creative activity, and grow as human beings.

Oftentimes, work environments are just pleasant places to be. Employers compete to provide nice office spaces, enjoyable perks, and employee activities to boost morale and attract top talent (especially in today’s tight labor market.) In some cases, work is actually a welcome respite from the chaos of home life.

Some of the most important determinants of long-term happiness and satisfaction are actually a drag in the day-to-day. Think of things like child-rearing or attaining a degree. Work too is one of those factors, and we shouldn’t let our daily frustrations or occasional boredom cloud the fact that it is one of our greatest sources of pride and lifelong production.

Why It Matters

Cowen’s book provides a unique perspective on how big businesses affect our lives and psyches that even dogged corporate critics should find insightful. If we don’t take seriously the underlying message Cowen lays out to heart, our societies could pay dearly.

The simple fact is this: big corporations are responsible for the bulk of our growth, technology, and social form. Many of us spend most of our working days at one; let’s not forget that “making payroll is a heroic act.” Even if we don’t, most of the daily necessities that we need to survive, as well as today’s little luxuries, come thanks to big businesses.

Perhaps most significantly, they drive innovation and investment; thanks to the logic of compound interest, shaving off a slight percent off either variable means a much different future.

It is fashionable to shake our fists at “Big Tech,” “Big Banks,” and “Big Pharma,” to name a few. Yet we do so using an Apple computer purchased via one of our many large financial institutions. If our blood pressure rises too high in the course of our condemnations, we can be revived with one of the many life-saving drugs on the market. In a way, it is big businesses’ very successes that enable us to so efficiently turn the mobs against them.

Why the disconnect between this bounty and our lamentations? Cowen points out that we actually feel like we have a deeply personal relationship with big corporations. We simply don’t have a good way to conceptualize a multinational business structure comprised of thousands of employees, so we anthropomorphize them into human beings, even friends.

When something goes wrong, and a package gets lost, or a device prematurely wears down, or a social media post gets wrongly censored, we don’t default to the probabilistic explanation that something inadvertently broke down in an impressive global chain. Rather, we feel like we have been personally and intentionally wronged, and our endocrine system kicks in accordingly. Yet in the miracle of the day-to-day when everything works as planned, we carry on without particular note.

We can’t help our psychology. But we can seek to understand and even overcome our tendencies to underrate some things and overrate others. It’s not that they are perfect, but Cowen thinks that big businesses are far too underrated, perhaps dangerously so. By the end of the book, maybe you will too.

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