(The following first appeared at the old Palace of Reason, in 1997.)

Part One: The Comedians.

Is Bigness to be distrusted? Well, yes, but not because of any difference of motives between the people who staff and run big organizations and the people who staff and run small ones. It’s more a combination of two other effects, cited by two great American thinkers:

Scott Adams: “People are idiots.” (The Dilbert Principle, from The Dilbert Principle)
Robert Anton Wilson: “A man with a loaded gun will never be told something that might cause him to pull the trigger.” (The Snafu Principle, from Illuminatus!)

The Adams observation isn’t really a denigration of human intelligence, as such. Properly set in its context, it highlights the tiny stock of competence and understanding each of us has, in comparison to the giant fund of knowledge that undergirds human existence — a condensation of Leonard Read’s famous “I, Pencil” essay, if you will. The Wilson observation is a simple statement of intuitively obvious fact, a survival property that helps to keep us alive.

Large organizations are inherently hierarchical, with authority, scope, and the assumption of expanding competence rising as one ascends the pyramid. If an organization does not possess this property, then it cannot proceed toward a
coherent set of goals. If it cannot proceed toward a coherent set of goals, then it is not in any functional sense a unitary organization.

When you test this property of large organizations against the Dilbert and Snafu dicta, you find some glaring weaknesses in the whole notion of large organizations:

  • The number of people who have a stake in deceiving or under-informing the people on top is such that the folks in the mahogany-paneled offices haven’t got a prayer of knowing what’s going on below them,
  • Even if they knew it all down to the last detail, the mahogany-office guys would have to be considerably smarter than Isaac Newton, James Clerk Maxwell and Albert Einstein rolled together to understand and direct what’s going on below them.

I’ve been in the business world since 1968, and have passed through a variety of companies large and small. From my own experience, I can attest that no organization with more than four levels of management (group leader, director, vice-president, CEO) can operate as intended by its “guiding hands” as much as half the time. Even with a millennial genius as CEO, the incentive his underlings have to withhold information that might make him frown at them will prevent him from having more than 50% effective control. The situation deteriorates geometrically with each added layer of management.

Since it has been established empirically that no one can effectively manage the activities of more than ten people “below” him, this limits the size of a more-or-less efficient organization with coherent objectives to no more
than 10,000 participants. In practice, even organizations of 2000 or 3000 people seldom function as intended.

Giantism in the private sector is only possible because of giantism in the public sector — and so we move to Part Two.

Part Two: The Incubator.

So: Large organizations have inherent deficiencies that conduce toward a generalized condition of incoherence and failure. Why, then, is the world’s commerce completely dominated by two or three thousand giant corporations?

Simply, because governments systematically tilt the field in their favor.

Ignore the propaganda about “monopoly” and “antitrust.” Nothing favors Big Business like Big Government. The occasional forays against specific targets in the private sector — mostly, companies that have been slow to bend the knee when the State commanded it — are mere flea bites, compared to the many ways the legal environment has been biased toward giant businesses.

Complex tax and regulatory law is one example. The larger a company is, the smaller the percentage of its expenses that will go to its overhead functions, in particular legal counsel and accounting. (For all that accounts payable and receivable are important functions, their complexity and cost pales in comparison to that of tax accounting.)

Liability is another example, and an increasingly important one. With all the ways in which suits against the providers of goods and services have been encouraged in the past thirty years, the fraction of a typical company’s
expenses that go to legal representation, tort insurance, and payoffs has swollen to Brobdingnagian size. (A tiny example: Dr. Ron Paul, Congressman from Texas and former Libertarian Party presidential candidate, told me that the cost of his malpractice insurance in his last year as a practicing obstetrician came to more than a quarter of his annual revenue.)

Finally, but far from least, there’s this: When governments seize and spend 45% of the nation’s Gross Domestic Product, businesses that sell to governments are going to get really, really rich. And governments, for sociological and organizational reasons I’ll delve into some other time, prefer to do business with the largest of corporations.

I can assure you that none of this is theory. As an engineer and project manager of more than three decades’ experience, who worked in the defense sector for fourteen years, I had the chance to observe it all at unpleasantly close range.

There’s no need for me to go into the pernicious effects corporate giantism has on consumers and the economy at large; anyone who’s progressed past the stage of counting on his fingers can see that larger companies will always mean fewer of them, with a corresponding decrease in competitive incentives and accountability to the consumer. I suggest that those who are interested in the economic progression of the U.S. look at the history of the thing, and try to correlate the swelling of the biggest players with the many statist trends of the 20th Century. I did. It opened my eyes.