Many people worry about large corporations holding too much power. There is a sense in which I can share this concern. Regulatory capture by large corporations is a real thing, and its effects are undesirable. Likewise, when Pfizer works in league with the New London government to use the power of eminent domain to seize people’s homes, it certainly gives me the feeling that Pfizer and other similarly large companies now wield real power over me. They will not be without state benefits. By itself, Pfizer cannot force someone out of their home against their will. That is why they need government. To me, the best way to solve this problem is to have a government where economic power can be very limited.
But sometimes people talk as if companies have “power” just by being successful in this way. For example, Wal-Mart is often accused of being too powerful because it successfully outperforms many of its competitors in the market. But is this “power” worth thinking about in any sense? I almost never shop at Wal-Mart and have no plans to start. And there is nothing Wal-Mart can do to make me behave otherwise. They currently have a location less than two miles from where I live, and yet, they can’t make me spend a cent there if I don’t want to.
In response, I often hear something like the following:
Of course, right now Wal-Mart can do nothing to force you to shop there. But you are only looking at the short term. If the government doesn’t keep Wal-Mart in check, they will eventually drive all other options out of town. Soon, Wal-Mart will be the monopoly and your only option, and at that point you won’t be able to turn them down.
There are many mistakes in this story. For example, it fails to account for the fact that the vast majority of what Wal-Mart sells can be classified as inferior goods. Economists say, an inferior good is the one you buy less of as your income increases. (Conversely, eating more is a common thing as income increases.) When my income was much lower, I often shopped at Wal-Mart because the groceries there were cheap, if not high quality. As my income increased, the amount of low-quality groceries I bought from Wal-Mart decreased, and the amount of more expensive but high-quality groceries I bought increased. Wal-Mart is much less competitive than normal goods, which is why Wal-Mart may be closer to a Trader Joe’s or Whole Foods. This is just one reason why true monopolies, when they exist, almost always require government to develop and maintain them, whether through artificial barriers to entry or other state means.
But let’s ignore that. Let’s assume that the worst-case scenario described above comes true, and Wal-Mart becomes the only game in town. In that case, the situation will be comparable to the normal situation when working with the government. Where I live, have, and can only Never, a city council. If Wal-Mart becomes the only store available within the city limits, this worst case scenario would be on par with the normal situation when dealing with City Hall. And even then the situation is not really symmetrical. Although I can drive to the next town to do my shopping at any time, I cannot live under the laws of the next town without actually going there. Driving to the next town to do my shopping is at worst a minor hassle, whereas moving to a new location, even the very next town, involves a large expenditure of time, effort and expense.
One might suggest that as Wal-Mart faces the discipline of markets, City Hall faces the discipline of democratic elections. Unfortunately, in the real world, democratic elections affect government activity much less than people think.
I don’t worry too much about the power of private companies, at least when they’re not acting in league with state power. But in a way, those who express this concern are, without realizing it, paying a subtle tribute to the market. They implicitly recognize that the worst possible outcome of market action will be as bad as the normal scenario of matching government action. That’s a risk I can live with.
Kevin Corcoran is a Marine Corps veteran and a consultant in healthcare economics and analytics and holds a Bachelor of Science in Economics from George Mason University.