The title of Tyler Cowen’s paean of praise for big business might strike even a pro-business reader as quixotic. Loving an abstraction is hard enough. But this particular abstraction inspires a remarkable lack of trust. According to a 2016 Gallup poll quoted by the author, an economist at George Mason University, just 6 per cent of Americans trust big business “a great deal”. Congress alone, out of a list of other US institutions, scores less.
This is, then, a courageous, contrarian book. It deserves a hearing, not least because one of the most striking economic phenomena of the past 30 years is how capitalism, with big business in the driving seat, has raised millions out of poverty. Also striking, says Cowen, is that business produces most of what we enjoy and consume, and provides us with jobs.
While admitting his discomfort in ceding so much of daily life to profit-maximising companies, Cowen feels it is a better bargain than is generally understood: at its best, he writes, business enables us to satisfy our creative desires and improve our lives.
That is a bold claim but not, I would argue, an outrageous one. And it is hard to dispute the assertion that much commentary on business, especially in relation to scandals, is unbalanced and selective. Yet, in handling the more contentious issues surrounding the trust deficit, he is open to the same accusation.
On the financial sector, the book trumpets the global superiority of the US venture capital industry, the extension of investment opportunities through low-cost mutual funds and the pre-eminent role of New York in international finance, which is fair enough. But it also argues that measuring the bloated size of the sector in relation to gross domestic product is inappropriate and that its recent record size reflects previous economic success and stability.
This seems bizarre, when twice in the past 100 years — before the 1929 Wall Street crash and before the bursting of the credit bubble in 2007-2009 — record size in relation to GDP coincided with disaster.
Cowen mentions the subprime mortgage scandal only in passing and eschews a detailed look at scams such as the big banks’ rigging of the London Interbank Offered Rate (Libor), foreign exchange market fixing and money laundering. Nor does he tackle the excessive risk-taking of 2008. He pleads in mitigation that business’s propensity to misbehave is just an extension of people’s propensity to misbehave. Well, maybe. Yet these and other rackets were indicative of an ethical and governance hole at the heart of the financial system and a fundamentally rotten culture that has done huge damage to the cause of business and wealth creation.
Similar reservations apply to the discussion of inequality and sky-high executive pay, which Cowen sees as simply a reflection of supply and demand for talent, as in top sports. The difference is that in sport the measures of success are clear cut. Performance-related pay in business, by contrast, relies on such flawed metrics as total shareholder return and earnings per share — imprecise measures of personal performance and easily manipulated. In reality, boardroom pay determination is a non-market process in which the players are heavily conflicted.
On the big technology companies, the arguments are more nuanced. While dazzled by the innovative capabilities of Amazon, Apple, Google, Facebook and their ilk, the author paints an Orwellian picture of how new tech could jeopardise our privacy and the quality of our democracy. Yet he is insouciant about concentration and lobbying power in the sector. On business and the environment there is no argument at all.
The book’s central thesis is that we anthropomorphise business and are thus inevitably disappointed by what in reality are abstract legal entities devoted to commercial profit. There is something in this, but a simpler explanation might be that capitalism’s business cycle is cruel. In bubbles, unethical behaviour is extreme. After they burst, recession creates insecurity. People feel revulsion at the role of the profit motive — greed, in a word — in driving economic growth.
While the manifesto is undoubtedly thoughtful, its injunction to love companies more will fall on many deaf ears in the post-crisis world.
The reviewer is the FT’s senior editorial writer
Big Business: A Love Letter to an American Anti-Hero, by Tyler Cowen, St Martin’s Press, $28.99
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