When it comes to relations between consenting adults, size may not matter (or so one hears). But it’s a different story in regard to companies and the politically fraught area of antitrust law. 

Today, a number of policymakers, economists, and legal scholars connect a host of problems—excessive wealth inequality, wage stagnation, political dysfunction, market distortions—directly to the corporate “curse of bigness,” which they argue is a product of lax antitrust enforcement. But they may be misdiagnosing the cause of these diseases and, in so doing, offering up the wrong cure.

Instead of moving toward a new antitrust paradigm, we might do better to consider a more robust utility system of regulation that is “function-centric,” rather than size-centric. In other words, regulation that restricts the range of corporate activities (e.g., structural separation so as to prevent companies like Amazon and Google from owning both the platform as well as participating as a seller on that platform), or the prices such companies can charge (as regulators often do for utilities or railways). These considerations would be “size neutral”: they would apply independently of corporate size per se. Regulation, rather than antitrust, also better addresses other issues like privacy protection (via a national model that could replicate California’s Consumer Privacy Act of 2018), labor abuses (it shouldn’t matter whether workers are employed by Apple or mom-and-pop sweatshops), and controlling “fake news” dissemination (by placing social media companies under the purview of the Federal Communications Commission).

“Break ’em up” has great historical resonance in the United States. Yet one of the nation’s earliest trust-busters, President Theodore Roosevelt, argued that “the remedy for [corporate] abuse was not mindlessly breaking up big firms, but preventing specific abuses by means of a strong national regulation of interstate corporations.” Likewise, in the early days of the New Deal, his cousin, Franklin Delano Roosevelt, initially embraced the antitrust philosophy of Supreme Court Justice Louis Brandeis (who, like many of today’s modern trust-busters, prioritized power and business structure over consumer welfare). Ultimately though, frustrated that the incessant focus on corporate concentration was hindering World War II efforts to mobilize greater industrial production, FDR concluded that optimal outcomes were more likely to be achieved via “prudent government oversight and using antitrust laws to police abuses—not to break up every big company simply because it’s big.”

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After World War II, historian Richard Hofstadter noted a gradual public acceptance of big business. In large part, this was due “to the emergence of countervailing bigness in government and labor” that ultimately led to the “big three tripartite” model among government, business, and unions exemplified in the Treaty of Detroit agreement between General Motors and the United Auto Workers (UAW). 

From the 1950s through the 1970s, “Tripartism” was exceptionally successful at promoting economic growth and high wages (the wage growth was explicitly linked to rising productivity in the Treaty of Detroit). Big unions flourished alongside growing conglomerates that emerged as the new face of corporate consolidation (a prime example being International Telephone and Telegraph—ITT). Equally significant, as the economist Thomas Piketty observed in his sweeping account of rising inequality, Capital in the Twenty-first Century, a new wave of corporate consolidation did not exacerbate prevailing inequalities. To the contrary, this period coincided with a diminution of wealth inequality, as relative wealth gains for the top tier stabilized for the first time in decades. 

That all changed in the 1980s with the rise of Ronald Reagan’s market fundamentalist agenda. His presidency was characterized by a sustained attack on unions, cuts in public services, and the ascendancy of the doctrine of “shareholder capitalism,” used to legitimize the establishment of SEC Rule 10b-18. That rule engendered an explosion in share buybacks (until it was introduced, companies buying back their own shares was considered a form of stock manipulation). Rather than focusing on job-creating investment, corporate cash flow was thus directed toward stock repurchases to fatten executive compensation. 

The legacy of Reagan’s market fundamentalism persists today. It is the most cogent explanation we have for growing wealth inequality, wage stagnation, and reduced emphasis on corporate R&D. 

This period also coincided with the rise of the “Bork Doctrine,” when, citing Robert Bork, the Supreme Court asserted that the main focus of antitrust law should be on economic efficiency and consumer welfare, as opposed to granting the government broad discretion to shape the economy. That shift in priorities is a major source of the neo-Brandeisians’ criticism of Bork’s antitrust philosophy. It reflects their Jeffersonian vision of a social-economic order organized along the lines of small-scale businesses, with atomistic competition between a large number of equally advantaged units, in theory producing greater innovation and economic dynamism.

But that’s a highly idealized vision that doesn’t comport with reality. Our modern economy isn’t comprised of village blacksmiths, yeoman farmers, and cobblers. A crucial component of the economy today is big business, including many large multinational corporations that operate globally. And it is questionable whether their size automatically equates to market power (in the sense of having the ability to manipulate prices at will and exclude competitors), especially in the context of a global economy featuring a multiplicity of competing national champions. Seldom do we hear calls to break up Detroit’s “Big Three,” despite global revenues in the hundreds of billions. Why? Because there is a widespread recognition that these companies face significant challenges in a global market dominated by similarly large competitors. 

Contrary to popular myth, big companies, not small businesses, can be engines of growth and innovation, as Robert Atkinson and Michael Lind explore in their book Big Is Beautiful: Debunking the Myth of Small Business:

On virtually every meaningful indicator, including wages, productivity, environmental protection, exporting, innovation, employment diversity and tax compliance, large firms as a group significantly outperform small firms.

That insight parallels the scholarship of Joseph Schumpeter, the intellectual godfather of the economics of innovation, who showed that R&D spending and productivity increase with scale. Latterly, Schumpeter’s insights have been validated by a recent study from Professors Ann Marie Knott and Carl Vieregger, who conclude (emphasis added):

Not only do large firms (using the U.S. Small Business Association definition of greater than 500 employees) conduct 5.75 more R&D in aggregate than small firms, they have 13% higher productivity with that R&D. However this merely captures the private returns to their R&D. A further benefit of large firm R&D is that it generates the spillovers upon which small firm innovation free-rides.

Size-centric antitrust proposals also ignore the increasing prevalence of economic network theory, which suggests that social networks like Facebook or search engines such as Google lend themselves to becoming natural monopolies in order to function optimally. Here again, function-centric regulation—i.e., separation between the control of content and distribution—makes more sense to rectify market abuse. And this could be achieved via utility-style regulation, as no less a figure than right-wing populist Steve Bannon has suggested, rather than creating a bunch of new mini-Facebooks or Googles via court-mandated break-ups (especially if the owners of the newly broken-up companies retain full control of algorithms to determine what people see in their News Feeds, what privacy settings they can use, and even what messages get delivered to news consumers, as Mark Zuckerberg does today). 

It is also the case that many businesses characterized by minimal levels of corporate concentration—construction, education, entertainment, accommodation, food, business services, transportation, warehousing—generally experience sub-standard productivity levels, sluggish growth, and low real wages, according to an INET-funded study by Professors Lance Taylor and Özlem Ömer. Working conditions are generally worse, and wages and employment benefits lower, as small business owners are often the first to protest increased regulation or “burdensome” mandates, such as health care provisions. The real point is not to beat up on small businesses, but simply to note that the abuses commonly ascribed to big business are just as, if not more, likely to manifest themselves in smaller industries less prone to corporate concentration.

What about the claim that corporate consolidation contributes to a corrosion of American democracy? It is true that as companies get bigger, it maximizes their abilities to “pay to play,” as Professor Thomas Ferguson asserts in his seminal work, Golden Rule. Ferguson says that powerful blocs of business elites, large and small, with durable (largely economic) interests, are a constant feature of American politics. All have an incentive to get bigger in order to maximize political leverage. That includes smaller businesses that scale up via trade associations to maximize the impact of their “political investment.” But again, what is needed here is not an antitrust remedy, but a change in the “pay to play” rules so as to ensure that money and corporate scale have less of a polluting impact on the American polity.

So it may be time to reconsider the simplistic notion that “big is bad.” Yes, we want a dynamic economy and a thriving democracy. But mindlessly breaking up big businesses may not be the best path to get us there.

Marshall Auerback is a market analyst and a research associate at the Levy Economics Institute at Bard College.

This article was supported by the Ewing Marion Kauffman Foundation.