Too Big Fails

In the last few years we have been regularly treated with the phrase TOO BIG TO FAIL.

That term was used to describe certain types of financial institutions which, IF they failed, would likely wreak such havoc throughout our economy and the world that they could NOT be allowed to fail.

And, governments would step in and prop them up financially until conditions changed enough for them to proceed again independently under stricter rules.

Now we seem back to business as usual and concerns about size have receded back to their historical invisible corners of consciousness.

Left behind from that intense period of TOO BIG TO FAIL were the questions of why institutions were allowed in the first place to get too big and what could/should have been done to prevent them from getting that big.

The questions then that drew the most attention were more regulations about balance sheet management and regulation, not the many other serious questions of problems with gigantism.

As we look back at the past 100 years there are several amazing examples of TOO BIG FAILS.

The first point to address is lack of nimbleness and inability to adapt to changes in the world around them.

Sears may be example A. In 1900 they were still tiny but they saw the catalogue business and RFD and mass buying of product and rapidly became the largest retailer in the US. After WWII Sears was impregnable. Then Sam Walton came along with Walmart seeing opportunity in small town America enabled by brilliant inventory and logistical management and low prices. Today Sears is all but dead selling itself off piece by piece. And, now Amazon is out there knocking on Walmart doors saying, “let your fingers do the walking”.

Example B is IBM. It became the biggest and best computer company in the world. In the late 1970s personal computers were getting started. A young man named Gates was in over his head and early in the 1980s he was prepared to sell his Microsoft to IBM for $50,000,000. IBM declined seeing no future in personal computers and software by itself. WOW? Most likely if IBM had acquired Microsoft, the Microsoft story we know would never have happened. But Apple would have.

And, then came Google with a fantastic search tool but no obvious way to monetize it. That all changed and now Google is the biggest innovator in its field. But, they too got blindsided by social media.

In financial services similar problems occurred. AIG got too big for its britches and Merrill Lynch did the same. Some money managers — Fidelity — got so big they could barely buy or sell without distorting the markets they were in. Those problems are ongoing.

Similar things happened in the steel and auto industries. We all are generally familiar with the causes and consequences of those problems.

The second point to address is what if anything either the private sector or government could or should do to dampen the effects of gigantism.

Teddy Roosevelt 100 years ago more or less attacked the problem based on the underlying issues of illegal restraint of trade. Size was obviously an issue as well. Today antitrust issues are a lot less relevant in this arena for several reasons–political as well as economic. Doctrine today disbelieves in government playing any role of consequence in managing issues relating to size of private enterprise.

That said there is growing evidence as indicated above that strongly suggests there are serious questions about the impact of size of enterprises on the progression of innovation and progress in society.

The simplest way to deal with TOO BIG TO FAIL is to start by understanding that TOO BIG FAILS in and by itself.

That suggests to me that we should begin to seriously address how to deal with just plain and simple TOO BIG!


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