Explore Harvard's Nieman network Nieman Fellowships Nieman Lab Nieman Reports Nieman Storyboard

Challenging corporate mythology

COMMENTARY | December 06, 2011

Large multinational corporations, unlike small businesses, are run on a 'lifeless model,' writes Sam Smith, who argues that journalists and policymakers should be focusing their attention on small business needs instead.

Excerpted from an article in Sam Smith's Progressive Review"Some ways to occupy the future. . . and our economic system,"

By Sam Smith

The right has successfully convinced people that multinational corporations operate in the same way as your friendly neighborhood druggist. In fact, it is hard to find examples where the former even slightly replicate the latter. Yet this myth is perpetuated not only by politicians but by the media.

In fact, large corporations repeatedly drive smaller firms out of business.

Large corporations don’t treat customers as fellow members of their communities but merely as a market to exploit.

Large corporations, unlike small businesses, are run on the lifeless model described by John McKnight: “The structure of institutions is a design established to create control of people. On the other hand, the structure of associations is the result of people acting through consent. . . You will know that you are in a community if you often hear laughter and singing. You will know you are in an institution, corporation, or bureaucracy if you hear the silence of long halls and reasoned meetings.”

Large corporations, unlike small businesses, do not constrain their ambitions in order to maintain respect and honor within a community.

Large corporations are not the major job creators; small businesses are. As the Small Business Admininstration noted in a 2010 report, “While small and large firms provide roughly equivalent shares of jobs, the major part of job generation and destruction takes place in the small firm sector, and small firms provide the greater share of net new jobs.”

Large corporations are, in fact, the nation’s major job exporters, not to mention all the money they launder overseas while avoiding domestic taxes. Yes Magazine recently put it this way:

“Between 2000 and 2009, U.S. transnational corporations, which employ roughly 20 percent of all U.S. workers, slashed their U.S. employment by 2.9 million even as they increased their overseas workforce by 2.4 million. ...

"A series of Kauffman Foundation studies find that nearly all job growth in the United States comes from entrepreneurial startups, which by their nature are products of Main Street. It is equally significant that more than 90 percent of the entrepreneurs responsible for job growth come from middle-class or the top end of lower-class backgrounds. Less than 1 percent of America’s job-creating entrepreneurs come from extremely rich or extremely poor backgrounds.”

The carefully concealed truth is that Wall Street and corporate America hate free markets. That's why these welfare fathers keep tens of thousands of lobbyists in Washington -- to protect them from the random effects of the competition they so frequently extoll. That's why they invented welfare programs for multinationals such as GATT and NAFTA, and why they have their own branch of government -- the Federal Reserve -- to keep the economy working the way they want it.

The least free of all markets is to be found at the Pentagon, where defense contractors have become so dependent on their single customer -- the military -- that more than a few simply wouldn't know how to survive in normal business competition.

Generally speaking, the smaller the business the more it resembles the great myths of capitalism. If you want to find out what free enterprise is really about talk to a street vendor and not a Fortune 500 executive.

Typically, members of the 1% are not there because they are smarter or more creative than those in small business. As C. Wright Mills noted:

“If we took the one hundred most powerful men in America, the one hundred wealthiest, and the one hundred most celebrated away from the institutional positions they now occupy, away from their resources of men and women and money, away from the media of mass communication . . . then they would be powerless and poor and uncelebrated. For power is not of a man. Wealth does not center in the person of the wealthy. Celebrity is not inherent in any personality. To be celebrated, to be wealthy, to have power, requires access to major institutions, for the institutional positions men occupy determine in large part their chances to have and to hold these valued experiences.”

Most free workers in this country were self-employed well into the 19th century. Further, until the last decades of the 19th century, Americans believed in a degree of fair distribution of wealth that would shock many today. James L. Huston wrote in the American Historical Review:

"Americans believed that if property were concentrated in the hands of a few in a republic, those few would use their wealth to control other citizens, seize political power, and warp the republic into an oligarchy. Thus to avoid descent into despotism or oligarchy, republics had to possess an equitable distribution of wealth."

Such a distribution, in theory at least, came from enjoying the "fruits of one's labor" but no more. Businesses that sprung up didn't flourish on competition because there generally wasn't any and, besides, cooperation worked better. You didn't need two banks or two drug stores in the average town. Prices and business ethics were not regulated by the marketplace but by a complicated cultural code and the fact that the banker went to church with his depositors.

Although the practice was centuries old, the term capitalism -- and thus the religion -- didn't even exist until the middle of the 19th century.

Americans were intensely commercial, but this spirit was propelled not by Reaganesque fantasies about competition but by the freedom that engaging in business provided from the hierarchical social and economic system of the monarchy. Business, including the exchange as well as the making of goods, was seen as a natural state allowing a community and individuals to get ahead and to prosper without the blessing of nobility.

In the beginning, if you wanted to form a corporation you needed a state charter and had to prove it was in the public interest, convenience and necessity. During the entire colonial period only about a half-dozen business corporations were chartered; between the end of the Revolution and 1795 this rose to about a 150. Jefferson to the end opposed liberal grants of corporate charters and argued that states should be allowed to intervene in corporate matters or take back a charter if necessary. With the pressure for more commerce and indications that corporate grants were becoming a form of patronage, states began passing free incorporation laws and before long Massachusetts had thirty times as many corporations as there were in all of Europe.

Still it wasn't until after the Civil War that economic conditions turned sharply in favor of the large corporation.

These corporations, says Huston, "killed the republican theory of the distribution of wealth.”

Concludes Huston:

"The rise of big business generated the most important transformation of American life that North America has ever experienced."

Support small business

One good way to draw sharply the contrast between large corporate practices and those of the kind of commercial activities that Americans admire is to support small business. Strangely, neither major political party does and therefore many issues get ignored. For example, the number of laws in this country have more than doubled in the last few decades and many of these have meant more headaches for small business. For a corporation with a staff of 10,000, doing the extra legal and paper work is not a problem, but for a business with a staff of six it can be a significant new headache. Here’s just one example, described by Ehow Money:

"Starting January 1, 2012, the number of Form 1099s that will be processed will be required to increase. The Patient Protection and Affordable Care Act, commonly referred to as Obamacare, set new requirements for issuing IRS Form 1099s to taxpayers. Under the old regulations, certain financial transactions were excluded from Form 1099 and federal tax reporting. Under the new law, any vendor accumulating $600 over the year, regardless of the source of income, will require a Form 1099 if the income is not IRS Form W-2 reportable.

A CPA will be required to generate additional Form 1099s to be distributed to vendors. Current software programs will need improvements to perform Form 1099 production under the new regulations. Small business owners may require a full-time certified public accountant to handle the new reporting and recording procedures. Every Form 1099 received that has a value greater than zero dollars will be reported on the tax return for the filing period. ||||

Unfortunately, many well intended laws – often the product of grad school liberals lacking any small business experience – produce substantial new problems for small businesses that helps their owners to think, albeit wrongly, that the Republicans are their solution.

Politicians of both parties also tend to favor larger firms with various forms of subsidies such as tax relief, while showing little interest in helping smaller ones.

Liberals and progressives need to learn much more from small business operators, find out about their problems, and respond to them in a sensible way. The potential payoff is major.

Read the rest of Smith's article: "Some ways to occupy the future. . .and our economic system".


Posted by Don Greenwood
12/06/2011, 01:41 PM

Mr. Smith: Your contentions have been rendered irrelevant by the Supreme Court, which has established that corporations are people and have the same rights of free speech. Never mind that the playing field of influence and power has never been more tilted toward the advantages of large corporations.

Let's not hold our collective breath waiting for any large corporate entity to attend the same church en masse, or show up for a local chamber of commerce meeting.

The NiemanWatchdog.org website is no longer being updated. Watchdog stories have a new home in Nieman Reports.