The Political Economy Of Increasing Firm Scale

A blog about business and economics.
Jan. 24 2012 9:13 AM

The Political Economy Of Increasing Firm Scale

In a world of telephones and email and computer records and air travel, the economic logic to businesses becoming very large in scale is pretty clear to see. It's not so much that technology undermines the traditional truly small firm as that it undermines the position of the merely regional one. Once a company's lost the distinct charms associated with genuinely small scale, then either it's very successful and will gobble up other regional firms, or else it's unsuccessful and will be gobbled. But how does this alter the politics of a region? Steven Pearlstein argues that the D.C. area once had a community of civically minded business leaders who advocated for improvements in transportation infrastructure, education, job training, and other core elements of service provision but that the changing structure of the economy means there are no longer business advocates for better policy:

In the past, the backbone of these organizations were the presidents of local banks, utilities, retailers, construction firms and real estate owners and developers, along with the managing partners of the big local law firms. Because of two decades of mergers and acquisitions, however, many of the biggest homegrown companies have been bought up by out-of-town firms mostly either based elsewhere or whose leaders have no roots in region.
Meanwhile, the other big companies that have remained here or moved into the region have become so big and so national and global in their reach that their top executives have little time or instinct to get involved in regional economic issues. Such issues tend to be left to regional managers or vice presidents for external affairs who lack the visibility or the ability to commit their organizations to difficult or controversial initiatives.
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That's more speculation and anecdata than rigorous proof, but it's plausible and thought-provoking. A counternote is that the decline of the civically minded business executive is certainly something you see at the national level as well, where relative to the 1950s and 1960s you see much less interest in broad improvements in American life and much more of a specific focus on the class interest of business executives in paying lower income taxes. You could see that as undermining Pearlstein's thesis about the region in particular, but another way to read it is as Pearlstein offering a micro-level account of the broader trend. Regional executives had a specific focus on the quality of governance in the place where they and their business was located and that cultivated norms of what business engagement should look like in politics. But with regional firms' economic position undermined, the loop has been broken and you get the current dynamic.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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