The issue about whether large companies should be controlled to stop them from gaining an unfair advantage has become a contentious issue amongst the citizens in recent years. Large companies are consecutively buying up smaller companies in order to monopolize the industry. According to The Economist (2016c), Facebook bought Whatsapp for $22 billion. Some agree that government should not regulate large companies because they contribute to the improvement of the economy of the country. However, in retrospect, it was proven that they should be regulated because they conduct business in an unfair manner. This essay will first examine the two main claims and argue that government should start regulating large companies, followed by an argument against it.
Argument For: Merger and Acquisition give large companies advantage
It is debated that government should implement regulations to stop large companies from gaining inequitable advantages. Large companies have been enlarging their share in the market by merging with other companies (The Economist, 2016a). This is to make sure that they are always placed in the top. Merged company can take advantage of their very best minds of both companies. Another strategy they used was recruiting talents with high wages (ibid). This has resulted to a low rate of startups since the 1970s (The Economist, 2016a) ; (The Economist, 2016c) because there are less talented young adults outside to start businesses. In addition, large companies are also actively involved in acquisitions in recent years. Kerr (2017) states that Amazon expanded its business by acquiring a new startup called Souq.com with 650 Million dollar. Amazon had been considering its entry into the Middle East, therefore buying Souq not only can provide it an existing customer base, it also can use Souq’s infrastructure to store and deliver products (ibid). This acquisition that resulted to speedy ecommerce growth has caused small traditional retailer to worry about their mall-based businesses (ibid). They feel that this is a threat to them as large companies like Amazon can offer a greater range of products and services than them. Kerr (2017) also stated that this acquisition is the main rationale in the decline of business of small companies in Middle East. However, The Economist (2016a) suggests that bad government is responsible for the decline in entrepreneurialism. There was an increment of 20% in the share of jobs that require licenses in the past 50 years (ibid). This made it difficult for young people to create startups, as it is a well-known fact that obtaining a license requires an individual to go through long processes.
Argument For: Utilization of consultants to avoid tax
It is undeniable that large companies should be regulated in order to create a fair business environment for every business. The Economist (2016b) ; The Economist (2016c) claim that large companies are generally better at tax and regulations because they recruit the best lawyers and consultants to provide them advises. They make use of these professionals to help them to avoid taxes. This could be done by a method called transfer pricing which is the price charged by one member of multinational organization to another member of the same organization for the use of a property, including intangible property (The Economist, 2016b) ; (Clausing, 2009, p. 10). There is an assumption that profits that were shifted from the United States to low tax countries would normally escape U.S. taxation (Clausing, 2009, p. 10). Apple saved itself 13 Billion pounds in taxes during the past ten years by shifting most of its non-American sales and profits through unique corporate entities (The Economist, 2016b). While on the other hand, Google achieved an effective tax rate of 2.4% on its non-American profits by transferring its profits to Bermuda (ibid). Due to the high amount of money involved, the European Union has implemented policies to force these megacorporation to pay unpaid taxes (The Economist, 2016a). Furthermore, large companies also gain advantage by having Washington insiders and lobbyist. These people are paid persuaders who are responsible to influence the decisions of government. In 2003, the pharmaceutical industry successfully introduced a new drug to the public with the help of lobbyist (The Economist, 2016b). According to Friedman (as cited in The Economist, 2016b), the estimation of resulting benefits to drugmaker was 242 Billion dollars, a healthy return on 130 Million dollar the industry spent on lobbying in the year the law was passed. Government is actually responsible for this issue as there are no legal barriers to restrict government insiders from trading on political information with large companies (Jerke, 2010, p. 12). Therefore, government should implement policies to prevent this from happening again. Nonetheless, government intervention could backfire. Once this happens, it might discourage big companies from making long-term investment in research. However, regulations should be done to prevent large companies from gaining unfair advantages.
Argument Against: Contribution of large companies to the economy
Nevertheless, corporate giants should not be regulated because their contribution in improving the economy of the country is important. 80% of the world’s profits are generated by 10% of the public companies (The Economist, 2016c). Moreover, as proportion of GDP, the American corporates such as Google and Amazon have profits higher than other businesses since 1929 (ibid). The nominal GDP rose from 33% of GDP in 1994 to 46% in 2013 (ibid). This could cause an economic growth in the long term, thus reducing the rate of unemployment. Additionally, corporate giants can also solve economic and social problems that are too complicated for small companies and governments (The Economist, 2016a). It is a well-known fact that Research and Development (R&D) plays a critical role in the innovation process. Based on a book called “Capitalism, Socialism and Democracy” (1942) written by Schumpeter (as cited in The Economist, 2016a), large companies make use of the super profits they earned from temporary monopolies to invest in R&D. Therefore, government should not regulate big companies as this might stop them from making investment in R&D. However, R&D that will result in advancement of technology could cause people to lose their job because machines are undoubtedly more productive than human. This type of unemployment is called structural employment. According to The Guardian (2016), technology has put millions of jobs in jeopardy, causing the rate of structural unemployment to rise precipitously. In addition, big companies employ fewer employees than they used to nowadays. Exxon cut down its labour from 150,000 in 1960s to 75,000 today (The Economist, 2016c). To solve this problem, government can probably take advantage of the money earned from the increased in GDP to create more jobs for the unemployed employees.
Conclusion
To conclude, large companies contribute to the economy by increasing the GDP and solving complicated economic problems. However, they are gaining iniquitous advantage by avoiding tax and merging with other companies to achieve economies of scale at the same time. Therefore, large companies should be regulated with implementation of government policies. Nonetheless, government should be careful and not overdo it as it might cause an opposite effect.