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.
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.