POLITICAL ISSUE #301: EXCESSIVELY LARGE CORPORATE EMPIRES

PRESENT CONDITION: The private sector is dominated by large corporations that far exceed the minimum size needed to conduct their line of business.

IDEAL CONDITIONS: Company size should be socially controlled to within roughly a factor of two of the size needed to efficiently conduct their line of business.

ISSUE JUSTIFICATION: Companies that significantly exceed the critical size needed for their industry become bureaucratic and non-innovative. Their large size permits them to control the free market for their supplies of material and labor (resulting in lower wages to suppliers) and also to control the free market for distribution (resulting in higher prices and inferior products for society).

AUTHOR: UWSA SANTA CLARA CO EMAIL:humphrey@aimnet.com

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BRIEF DESCRIPTION: Congress shall authorize the Commerce Department to study and define the stable corporate size for all commercial and industrial activities in the United States starting with the largest. Congress shall review and approve the evolving list of stable industrial sizes. Congress shall develop a formula for required corporate division based on excess size and pass laws to impliment that division. The following is an example of a possible formula. Corporations involved in a single line of business (e.g. steel production, automobile production etc) may not exceed three (3) times the stable size. Corporations in excess of this size shall be required to divide into separate and independent corporations. Corporations involved in multiple lines of business may neither exceed four (4) times the stable size for their largest activity nor may any single activity exceed three (3) times the stable size for that activity. For example a steel company conglomerate could not exceed four times the stable size for a steel company nor could any of the non-steel product lines exceed three times the stable size for that activity.

JUSTIFICATION: The American people must balance the positive economies of scale (i.e. larger companies potentially operate more efficiently) with the social diseconomies of scale (larger companies are able to control their markets resulting in bureaucracy, lack of innovation, poor product quality and higher prices to consumers). The social solution is to allow companies to be large enough to efficiently perform their function, but to divide them when they become excessively large.

AUTHOR: UWSA SANTA CLARA CO EMAIL:humphrey@aimnet.com

OPTIONS FOR SOLUTION # 301.1 CORPORATE SIZE CONTROL

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SOLUTION DEFINITION STATEMENT
FOR
SOLUTION # 301.2 SMALL BUSINESS SUBCONTRACT INCENTIVE

BRIEF DESCRIPTION: Companies would be allowed to deduct for federal taxes up to 120% of normally deductible business expenses for services which were subcontracted to small independently owned and operated businesses. The normal small business size/incentive criteria would be 120% for less than 25 employees, 110% for less than 100 employees and 105% for less than 200 employees with no credit for subcontracts to businesses with over 200 employees.

JUSTIFICATION: While the corporate make/buy decision should be made solely on economic considerations, human greed for money and power leads companies to become oversized, bureaucratic, inefficient and non-innovative. These human weaknesses promote large corporate empires that poorly serve the American people. Providing a financial incentive to subcontract services to small independently owned small businesses will provide a disincentive to the growth of inefficient corporate structures.

Promotion of independent small businesses spreads economic opportunity and independence throughout American society and prevents the concentration of wealth and power in the hands of a few individuals. Broader empowerment of the American people promotes both economic efficiency, innovation and social unity through broad ownership and economic participation in American society.

AUTHOR: UWSA SANTA CLARA CO EMAIL:humphrey@aimnet.com

OPTIONS FOR SOLUTION # 301.2 SMALL BUSINESS SUBCONTRACT INCENTIVE

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SOLUTION DEFINITION STATEMENT
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SOLUTION # 301.3 COMPENSATION CAP FOR CEO

BRIEF DESCRIPTION: Congress shall limit the total compensation that can be paid to any corporate officer.

JUSTIFICATION: The explosive growth of corporate bureaucracies like all the other empires of human history is driven by the incentive of greater return. If these large companies passed that return on to society by being more efficient and more innovative, then their bureaucracies would serve society. Unfortunately these organizations tend to be non-innovative and have lower than average return despite (or actually because of) their ability to substantially control their markets. Limiting corporate compensation substantially reduces the incentive for creating ever larger corporate empires in search of wealth and power. While limiting CEO compensation is a substantial intrusion on the ideal of a free market, this approach should result in fewer giant corporations without the need for their forced breakup by government.

AUTHOR: UWSA SANTA CLARA CO EMAIL:humphrey@aimnet.com

OPTIONS FOR SOLUTION # 301.3 COMPENSATION CAP FOR CEO

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SOLUTION DEFINITION STATEMENT
FOR
SOLUTION # 301.4 STOCKHOLDER APPROVAL OF CEO SALARY

BRIEF DESCRIPTION: Congress shall require that all corporations receive approval of their stockholders for any increase in total compensation of the highest paid corporate officer. Mutual funds would be required to obtain their fund holder's vote on any requested CEO salary increases in the shares they held.

JUSTIFICATION: The explosive growth of corporate bureaucracies like all the other empires of human history is driven by the incentive of greater return. If these large companies passed that return on to their stockholders and to society by being more efficient and more innovative, then their bureaucracies would serve society. Unfortunately these organizations tend to be non-innovative and have lower than average return despite (or actually because of) their ability to substantially control their markets. In most cases the salary of corporate officers is determined by a Board of Directors substantially controlled by those same corporate officers. This conflict of interest results in higher than free market compensation which accentuates the incentive for ever larger corporate empires. Requiring that the stockholders (i.e. the owners of the company) approve any increase in the highest compensation package provides a fully democratic solution to helping control the growth of corporate empires. Stockholders will reward management that is more productive (greater return on investment) and not reward management that simply forms large corporate empires.

AUTHOR: UWSA SANTA CLARA CO EMAIL:humphrey@aimnet.com

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