Now that we’re one year deep in a recession and with things getting worse, it’s useful to think about is just exactly how we got here in the first place. One of those problems is, in my opinion, the “too big to fail” problem. Our economy has become so grossly interconnected that the collapse of even one or two big companies can lead to the collapse of many many others. How did this happen?
For one thing, there are simply way too many ultra-large companies. A creation, in part, of state and federal regulations that reward and encourage mergers, consolidations, and large companies combined with regulations that, quite frankly, discourage the creation of self-employed businesses, smaller companies, and the like. Not to mention subsidies that are much easier to take advantage of if you’re a bigger company.
To be sure, there are economy of scale issues that would, in a freer market, also allow for the creation of large companies (like the poor, we’ll probably have big box stores with us always, too). But government policy has skewed our economy in the “big business” direction much harder than what would have naturally evolved.
I say this because, let’s face it, in an information age where the costs of custom manufacturing continue to decline, small businesses with niche markets should be a no-brainer. Indeed, such businesses are on the upswing–but not like they could be. They have a difficult time competing because land use regulations, a maze of tax and business regulations, the 2005 bankruptcy act and our current nightmare health insurance market all truly inhibit risk-taking and the growth of new business. We are becoming a “service economy” in large part because government policy is encouraging that evolution–to our detriment. As Peter Schiff has said on more than one occasion, we can’t build a sustainable economy that isn’t based around “making stuff.”
If we’re going to truly grow an economy for the 21st century, we need to start with streamlining regulations and processes so that it’s much, much easier to operate a self-employed business and a smaller company. I’m sure it would take a book to describe how to get there, and the nuances could be endlessly debated, but this should be the goal.
