Not only is this wrong, but in fact the opposite is true. How do we know? History, for one. Standard Oil was broken up in 1911. Today, according to Forbes, two of the 10 largest companies in the world are ExxonMobil and Chevron, which emerged from the shards of Standard Oil. More recently, busting up "Ma Bell" in 1984 produced AT&T, No. 7 on on Forbes's list, and Verizon, No. 24.
In both these cases, not only did the breakups foster enormous competition, benefiting business and consumer alike, but they also produced a number of globally vital companies. And in spawning scores of other important enterprises they also helped preserve and extend American industrial dominance.
Defenders of the faith argue that the current generation of U.S. financial behemoths, while huge, aren't monopolies. Right, at least not by contemporary antitrust standards. But the issue isn't whether, say, an AIG can corner the market on credit default swaps. It's whether companies are so big that their gravitational force distorts markets, capital flows and government policy. It's whether the interests of individual firms should supersede those of entire industries. It is, finally, whether a little creative destruction might do us all some good.
This is an old story in this country, especially regarding what once upon a time was known as the "money trust." Here's Woodrow Wilson in 1911:
The plain fact is that the control of credit is dangerously concentrated in this country. The great monopoly in this country is the money monopoly. So long as that exists our old variety and freedom and individual energy of development are out of the question.A common misunderstanding about financial oligarchy is that it's good for business. Just how do you think all those roads, railroads and (in our era) computers would've gotten built if not for bankers steering capital to the most innovative parts of the economy, the question goes. That's absolutely right. There's little question that big companies have made American industry more efficient in all sorts of ways.
The mistake is in assuming that great size doesn't come at a cost and that there's no such thing as too big. Take General Electric, which tops Forbes's list of the world's biggest companies. Edison General Electric, as its founder, Thomas Edison, originally dubbed it, was a smallish company in the 1880s until the birth of the electricity business. After merging with another major power company (in a deal arranged by banking legend J.P. Morgan), the company was by the early 20th century dominant in virtually every domain that involved electricity, from making light bulbs to power generation to water utilities to household appliances (Another of its innovations emerging from these early years was the electric chair.)
By the 1920s, GE was making nearly 72 percent of all light bulbs produced in the the U.S. That led to the Justice Department filing antitrust charges against the company, eventually forcing GE to share its patent.
This pattern would repeat itself over the years. In 1930 the federal government forced GE, along with a handful of other companies, to loosen its grip on the broadcasting business, which it had gained by forming the Radio Corporation of America in 1919. In 1961, Sen. Estes Kefauver determined that GE was fixing prices for electrical equipment. Among his findings was that GE and its supposed electric industry rivals were submitting identical bids to major power companies.
Innovation stirs competition. It also frequently leads to control, either as monopoly or as oligopoly, which destroys competition. In 1927, there were some 180 electric holding companies in the U.S. By 1932, there were eight, and they ruled the utilities business. It took the Public Utility Holding Company Act in 1935 to restore a measure of competition. Such government interventions made GE stronger by forcing it to compete, rather than simply enjoying the fruits of a jury-rigged supremacy.
In banking, that dominance shows up, for example, as superior interest rates for the largest institutions, which hurts smaller players. Partly as a result of such preferential treatment, the four largest U.S. banking companies today -- Bank of America, Citigroup, JPMorgan Chase, Wells Fargo -- control more than 40 percent of all deposits and half of all bank assets.
So long as that exists, our old variety and freedom and individual energy of development are out of the question.