I recently suggested to colleagues that I thought that we were looking at accounting in the wrong way. We were still seeing large companies (now commonly called PIEs, which stands for public interest entity) as if they were microeconomic entities.
But what if they were not? What if they were macroeconomic entities? Then what?
Macroeconomic doesn’t just mean big economic. It means whole economy. So, firms are not macroeconomic entities.
The evidence supports this suggestion. Many multinational corporations are much larger than many countries.
As every actual economist knows this isn’t really so. The very largest companies are about the size of small countries. Exxon is, roughly and the last time I did the comparison, about the size of Luxembourg. This is because, as every economist knows, GDP and corporate turnover are not comparable. The closest comparison would be with GDP and wage bill plus profits in the corporation.
And if that is true the whole ‘theory of the firm’ view of the entity is wrong when applied to it.
The theory of the firm is one of those things that economists really should know about. It is an elegant discussion that won half a Nobel. The theory of the firm is asking the question, well, why do firms exist? Why not just have a network of contracts and work allocation between individuals?
It’s nothing to do with the size of firms relative to the host economy, nor is it about how firms behave once they exist.
What the entity actually is, in that case, is a power bloc to rival government, and in the case of the big tech companies and others we do, of course, see that to be the case.
So why are we holding them to account as if they are still just companies?
So, having misunderstood all of the economic concepts he deigns to mention we come to the real point here. There can be no power centres outside the state. All within the state, all for the state, nothing against the state. And I’m not just joking with those echoes of Mussolini:
The shareholders (one or two founders apart) have very little control in most cases (and I will note the exception of Exxon in another blog). Those shareholders have no meaningful ownership stake in the firm: they simply own a right to an income stream the company might pay. And the obligation to stakeholders is, in most cases, greater.
So why not treat them for what they are? And why not regulate them as macroeconomic entities, accountable to all, and not just a few shareholders whose identity is, in any case, unknown because of the way in which modern shareholding is registered?
Thoughts are welcome.
That is flat out fascism. That is what Mussolini did, it’s largely what the Nazis did as well. The capitalists were allowed to keep their ownership. Collect their – regulated – dividends. But all the actual power over what happened belonged to government. In economic terms that’s actually what fascism is.
In general, fascist governments exercised control over private property, but they did not nationalize it.
An important aspect of fascist economies was economic dirigism, meaning an economy where the government often subsidizes favorable companies and exerts strong directive influence over investment, as opposed to having a merely regulatory role. In general, fascist economies were based on private property and private initiative, but these were contingent upon service to the state.
Fascist governments encouraged the pursuit of private profit and offered many benefits to large businesses, but they demanded in return that all economic activity should serve the national interest. Historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise because “the State pays for the blunders of private enterprise. […] Profit is private and individual. Loss is public and social”.
That is where he’s going with all of this. It’s astonishing that he doesn’t know this as well. He’d be most offended to be told that he was advocating the fascist system of control of an economy. For he’s a good bloke, right?
It’s just that he’s ignorant of economics, that’s all.