Big Eats Little – Why the Economy Will Never Take Off

Until last week we had the best trash disposal service we’ve ever had. It was a small, locally owned and operated independent company that not only charged much lower fees than the big haulers, but they also delivered superior customer service. But on Monday – the day that we normally have pick up from this company – we
received a letter from Waste Management telling us that they had purchased the routes for that company in our area, and they would be our carrier going forward.

Now Waste Management is the company we had for our trash hauling just before we signed on with the small local hauler. They simply offered a better package, and many of our neighbors were already using them. For two and a half years we had seamless trash hauling service at low cost. They didn’t even charge us for the removal of large items. But here we are – right back where we started two and a half years ago – with Waste Management.

Big Eats Little - Why the Economy Will Never Take Off
Big Eats Little – Why the Economy Will Never Take Off

The letter promised us that service and pricing would continue as it has been. But as we all know, anytime one company takes over another, it’s just a question of time before the positives of the acquired company are flushed out of the service. We fully expect that our monthly rates will increase by at least 50% within the next few months, and that we’ll be charged for anything extra – just the way it was before.

But here’s my point: any time big eats little, not only do consumers suffer, but so does the entire economy. I believe this is one of the primary reasons why the economy seems to be doing little more than bumping along the bottom, five years into a supposed recovery.

Here are just a few ways this plays out:

Big Eats Little Eats Jobs

I think this gets to the root of the soft job market. Whenever a big company takes over a smaller one, they’re looking to take advantage of economies of scale. That is to say what can we do to get the same production with fewer employees?

This scenario is replicated thousands of times each year across the country. Anytime big eats little, the net result is fewer jobs. And since smaller companies tend to generate more jobs, the impact of this arrangement is even more serious than surface factors indicate.

Big Eats Little Raises Prices

Anytime big eats little, a competitor is knocked out of the field of potential consumer choices. Fewer competitors means less price flexibility. If Waste Management – or any large company – can buy up its competitors, it sets the stage for future price increases. In the end, the big predatory company is able to increase its income without improving or expanding on the services that it provides. The customer has little choice but to pay the higher fees because eventually there are simply no competitors to turn as alternatives.

This is being replicated across the country and is no respecter of various industries. We’re seeing it happen with Internet/cable providers, car rental companies, cell phone services, airlines, various utilities – you name it. The end result is that the consumer will always pay more, even though  they’re not purchasing more services.

It’s a good deal for the big guys who are eating up the little guys. But for the rest of us, it has no redeeming qualities whatsoever.

Big Eats Little Eliminates Consumer Choice

Let’s say that you decide you want to drop a given service provider due to high prices or bad service. If there is only one provider available in your area, there is virtually no place to go. You’ll be stuck in a bad situation, and your only choice will be to move to another area that is not dominated by the company you are currently dissatisfied with. And even if there are two or three competitors available, it’s often the case that you’ve already been burned by one or both of the alternatives. That’s just what happens when competition is limited.

Big Eats Little Limits Investment Choices

The most exciting investments are usually small, aggressive upstart companies. They represent the kind of stocks you can buy for $3, and watch as they soar past $100. Those are even a kind of stock opportunities that can turn a small investor into a big one. They provide the opportunity to leverage a very small amount of money into a much larger amount.

This is not the case with the Fortune 500 and many of their close cousins in the tier just below. In a perfect world (such as the current stock market) we hope stocks will produce predictable gains of 10, 15, or 20% per year. Now if you have a six- or seven-figure investment portfolio, that is the perfect investment. But if you have only $10,000, you’ve got a long road ahead of you – particularly if life events force you to liquidate part of your portfolio early in the game. And when you’re small investor, that scenario is hardly unusual.

Big Eats Little Gives More Political Power to the Big Guys

There’s no secret here, bigger companies wield more political power than small ones. In fact, small competitors typically have no political power whatsoever. This makes it even easier for big to eat little. More political power means fewer obstacles for the big guy to acquire the little ones. This guarantees more of the same in the future. That’s exactly why if you’re hoping for a more robust economy in the future, you will most likely be sadly disappointed. The system is simply rigged against small competitors, and the rapid growth that they bring to the economy and to the job market.

Big Eats Little Sentences Us to Low Quality Service

Once a company reaches the point of critical mass – which is where the consumer has essentially no option to terminate services from the company – low quality service become the order of the day. The company has no competition, and therefore no standard against which to measure itself from a standpoint of customer service. The monopoly sets in, and the consumer is stuck dealing with the corporate equivalent of a government bureaucracy.

Large competitors in nearly every field are rapidly morphing into oligopolies (industry fields with a very small number of very large competitors) or outright monopolies. This is the exact opposite of true free enterprise. We can think of it as large competitors simply surviving because they are more efficient than the little guys. But once they gain critical mass, which is to say that they have both money and political power, they can roll over everybody else. And that means prices are doomed to rise, there’ll be fewer jobs available for workers, and consumer will have less choice.

And that’s why the economy will never take off – well, one of the main reasons – no matter what we read or hear in the media as articulated by the powers that be.

( Photo by lwpkommunikac )

2 Responses to Big Eats Little – Why the Economy Will Never Take Off

  1. Big eating little also works very hard to eliminate independent thought, entrepreneurship and true business skills. The bigger a company gets, and the more business it does, the more they will move to relying on systems instead of people. For example, every single facet of a company’s operations will be distilled down into systems with very few steerable parts, so the employees operating it have little input or decisions into the operation of the business. So once you get to a certain point, people who have entrepreneurial spirit and the desire to operate outside of a narrow range of policy suddenly turn into massive liabilities.

    So companies move to hiring people who have have a history of quietly tooling along with whatever the program of the week is, rather than questioning procedures and operations. This also leads to an extreme level of specialization, where each job opening may get 150 applicants, but only 2-3 actually have the exact experience the company desires to have pressing buttons/pulling levers. One of the companies which I have had the fortune to have since departed has since taken on the attitude of “we do not want managers in our locations who have too much knowledge of finance or accounting, nor do we want them getting their hands on too many financials for the business they are supposed to be running. This is not the “official stance”, but as companies grow in size and dysfunction, much more information is often conveyed by what is being said by being left unsaid than through formal channels.

    When suddenly the business finds it hard to compete (because all they have hired are dedicated button pushers who only know how to succeed in a narrowly defined set of rules) the solution is to hire some (AWESOME!!!) executives, who will rapidly move to rectify the problem by spending money on stock buybacks to jack the share price and make the company look like its been fixed. If that does not work, a few lobbyists who can get laws “To ensure a fair and equitable marketplace within the industry” passed can prove to be quite the highly profitable investment, as that fair and equitable marketplace is now encircled in a moat filled with writhing lawyers, laws and licensing which makes it highly difficult for any new competitors to enter the market.

    This breeds something of the repetitiveness of work which can be noticed in popular culture mocking the business world (office space, etc). All companies have an equilibrium point in the chain of command, below which this type of media is viewed as hilarious and true, above which it is viewed as offensive and “not how we do things here!”

    Also, as the big get bigger, things that once were free rapidly become items which either are charged for or are utilized as a way of monetizing the customer interaction in some way. For example, one company I know of used to routinely send out a large flier with coupons in it when you signed up for their mailing list. Now, said company has one flier for those merely signing up for the list (free) and a different flier filled with coupons for those willing to drop $30 a year on it. It amazes me that this company is able to get people to pay for the privilege of getting coupons to come shop at that company. And yet…people do drop the $30 for a years worth of coupons, so it must be a pretty nice revenue stream to be on the receiving end of.

  2. Hi Jared – You went deeper than I did with the original article. I focused mainly on the visable affects, mostly from a consumer standpoint. But I completely agree with all that you’ve written, especially on how big businesses work with stock buybacks to juice stock price, etc. Buying up small competitors is another method along the same line (buying “growth”).

    My experience working in large organizations matches what you’ve said. They seem to like drone-type employees who happily go along with the program, rather than innovators. All the “the secret to our success is our people” crap is just window dressing. So is the company handbook – it’s just a legal defense just in case the “way we do things around here” turns out to be something harmful or less than legal. They’ll simply blame rogue employees who were working outside guidelines.

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