Economics: Do Corporations Have Too Much Power?

 (Drivebycuriosity) - Recently I talked with a friend who claimed that "corporations have too much power". I don`t agree. 

Corporations have less power than people think and much less power than governments. Governments have state authority and they use armies and police to enforce their authority. Companies don´t. Governments are collecting taxes and imposing penalties. Corporations don`t. Government are passing laws and are setting rules for many things in life (regulations). Companies don´t.

 

                     Voluntary Exchange

Milton Friedman said once: "There is no way in which General Motors can get a dollar from you unless you agree to give it to the company. That’s a voluntary exchange. It can only get money from you by providing you with something you value more than the money you give it. If it tries to force something on you that you don’t want, ask Mr. Henry Ford what happened when Ford tried to introduce the Edsel. 

On the other hand the government can get money from you without your consent. They can send policemen to take it out of your pocket. General Motors doesn’t have that power. And that is all the difference in the world. It is the difference between a society in which exchange is voluntary and a society in which exchange is not voluntary. 

It’s the reason why the government, when it is in the saddle, produces poor quality at high cost, while industry, when it’s in the saddle, produces quality at low cost. The one has to satisfy its customers and the other does not" (hoover).

Companies try to influence public opinion and politics of course. They spend billions for public relationship and lobbying. But they can just coax, not coerce. Politicians may behave business friendly but they also want to be elected/reelected and they don´t want to offend their voters. Companies my bribe politicians. But corruption is illegal and often gets severely punished.

 

                Antitrust Crusade

 The history of Microsoft shows the limits of corporation power. Over more than a decade the US government fought an antitrust crusade against software giant and the European Union fined Microsoft $732 million for failing to respect an antitrust settlement with regulators. The EU also slapped Google with a $2.7 billion antitrust fine (money.cnn). The US government broke up Rockefeller`s "powerful" Standard Oil Company and split the American Telephone & Telegraph Company into separate companies (Baby Bells wikipedia). The history is repeating herself with fresh huge EU penalties against Google, Microsoft and other US technology corporations.

The greatest force against corporation power comes from other corporations. They are competing  against each other. When a corporation has success, her rising profits attract automatically others who want a share from the pie.  Microsoft had never a monopoly because everybody could by an Apple computer instead - which I have been doing. Coffee lovers don´t need to purchase their dose of caffeine at Starbucks, there are dozens of alternative coffee chains and other copy cats. Nobody is forced to purchase an iPhone, there are many other smartphones available. Amazon has to compete against WalMart, Target, Shopify and myriads other companies. Even Google & Facebook opened their own online shops and Asian E-commerce giants like Alibaba & Rakuten is expanding globally.

 

                     Just A Click away

The Internet makes it very easy to compare prices and to switch to other shops, sharpening the competition. The next offer is just a click away. Customers can choose the company which has the best quality, the best service and/or the lowest price which gives them a lot power. As a result, customers have more power than the corporations.

PS Just one example for how powerful even mediocre local governments are: 

In Coachella, a city in the Californian desert, a man was fined $900 for expanding his living room without getting a permit (reason). He paid his fine. Then more than a year later he got a bill in the mail from the law firm Silver & Wright for $26,000. 

They told him that he had to pay the cost of prosecuting him, and if he didn't, they could put a lien on his house and the city could sell it against his will. When he appealed the bill they charged him even more for the cost of defending against the appeal. The bill went from $26,000 to $31,000.