....liberty is the ability to fail as well as prosper

The entire point of capitalism is that increased competition and innovation will always prevent companies from ever becoming too big. That any man with an idea can create a viable business. If it turns out he was wrong he goes away.

Lefties argue that the end result of capitalism is always monopolies. If unfair practices and corruption are allowed to be the rule instead of the exception, then that is what you get. A monopoly is the result of socialism creeping into commerce. That one large collective is better than a multitude of individuals.

There is no such thing as a merger being better for business. A merger is however better for bottom line profit. Any merger reduces competition, increases bureaucracy, and increases corruption. IN order to compete other institutions must adopt the same corrupt practices.

In essence the growth of the mega corporation is fueled by the constant need to increase the bottom line at any cost in order to appease shareholders. Over time the growth must always continue. At some point growth can not naturally occur so steps must be taken to manufacture growth. Either by eliminating competition, reducing costs, or borrowing heavily to diversify operations and invest in other business sectors. Diversification creates "Too big to fail" because a failure will impact much more than the original singular business sector where new competition would benefit from the failure.

I have to take on this little bit of Leninist thinking:
"What the United States wants to avoid, of course, is a policy that would hurt the economies of scale, dynamism, innovation, and (at least historically) the more-efficient deployment of capital and resources that stem from increased operational size."

HURT THE ECONOMY OF SCALE:

The economy of scale allows a mega corporation to increase margin to the point where smaller competitors can no longer compete. The economy of scale also leads to the downward spiral of unemployment as the control shifts from the manufacturer to the end point seller. This corporation will always seek the path of lowest resistance, or in other words the cheapest outlet for product. Margin control also shifts from the producer to the buyer. This further suppresses the ability for manufacturers to compete.

Again good for the stockholders, not good for the true economy. Inflation is held in check by increased competition in manufacturing and keeping margin controls at the lowest level of the product food chain. Every step up the ladder that margin control moves adds greatly to the end price.

The move towards the economy of scale is what destroyed manufacturing in the United States and the principal offended in creating the mega retailer that has removed trillions in wealth from the middle class by lowering working wages.

DYNAMISM:

Easy. What is more dynamic a symphony orchestra or a trumpet solo? Dynamic expression and ideas come from the greatest pool of production possible. Allowing all to have a voice. The larger a company becomes the less dynamic it is, the more resistant to change. Only those at the very top are ever able to make decisions and they will always invariable make the decision which is good for their well being instead of the good of the company and its many employees. How can you care about your workforce when you will never hear a single voice of those that enable the operation. A CEO of a mega corporation is nothing more than a leech sucking off the success of the minds and abilities of those under him.

I met the CEO of a major retailer that didn't even know what products his company was selling in its stores. The company is so large that he doesn't even have to worry about the day to day operation of what enables his success, only how to manipulate his stock for the investors.

Dynamism comes from small business, from entrepreneurs, from everyone having a voice that can be heard.

INNOVATION:

Innovation follows the economy of scale and dynamism. The larger you become the less innovative you are. Over the past 50 years we have watched the evolution of the mega-corporation and the mega-retailer. Corporations grew larger and is it any coincidence that if you look at the first 50 years of the 20th century vs the last 50, the first 50 were far more innovative.

Competition spurs innovation. "Too big to fail" kills it. Why innovate and lose when you can stagnate and be rewarded.

The other side argues that mergers and acquisition increases innovation because it allows for greater amounts of capital to be spent on that pursuit. Wrong, a decrease in competition only allows for the most profitable innovations to make it to market in order to bolster the bottom line. It also squelches any competition from developing innovations that can harm the business of the monolith. I.E. the Tucker automotive company and Howard Hughes.

The economy of scale also allows non-innovative corporations to prevent competition by buying out the ability for smaller companies to produce and acquire what they need.

MORE EFFICIENT DEPLOYMENT OF CAPITAL:

Probably the worst offender of them all. Lower quantity means less work and less looking after assets. It also means less risk. By being deemed too big to fail and guaranteed a bailout those who deploy capital will be more likely to fund the larger corporation vs the small. With no capital competition dries up.

I don't know how you call the large corporation more efficient. The larger you are the more capital is wasted in the bureaucracy. What could fund a few hundred small business is lost filing paperwork in the massive corporation.

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Hopefully this shows how our current system is actually the farthest thing from free market capitalism you can get without being called communism outright.

To see the future you only need to look at Walmart. A company that brings in hundreds of billions in revenue, yet can only turn a couple billion dollar profit from that.

Soon Walmart will not be able to turn a profit. The business of running Walmart will cost more than the revenue it can generate. Unless of course a way can be found to reduce costs. Walmart already practices the economy of scale to the greatest extent. They already make due with the lowest paid and sparsest workforce. The average mom and pop store on Main Street had more employees per sq ft and per dollar sold than Walmart.

Corruption, bureaucracy, and skimming from the top brings down any empire. All stemming from growing too big to fail. Eventually you become so big that there is nothing left other than failure.

Iridium, just who is writing a book? You or Joe?

What you have to say is sure a tad lengthy, smells a little of Das Kapital, but is overall basically true. I guress the best example of too big to fail would be the Roman Empire and there is point in re-hashing history as the details are well known. I don't agree with you on Wal-Mart being replaced anytime soon. I DO think that their executives DO know what is being sold and are quite aware of day to day operations. I could be wrong, but I would be surprised. If you want a better example, try ebay. That is an operation that was never in touch with it's market and continues to distance itself. The saving grace there is that they were the first in this niche market and grew to an enormous size that puts any potential competitor at a great disadvantage. This is a great example of a monopoly that is not breaking any law.
Now let's get on to "too big to fail". Just who would get this designation? Actually, as you suggest, there is no such thing - under normal circumstance. Back in the days when 90% of this country's wealth was held by a scant 10%, back when laissez faire meant just that, if one of the "barons" had screwed up and went belly up, the remaining would feast on his bones. Times change. Today if one of the big financial houses goes down they are so interlocked with the rest of the financial system that you would get a domino effect, and hence, government intervention was the only solution to a melt down and subsequent depression. How do you prevent this? You don't. Regulating is only a short sighted solution. For awhile it will work, the same as the FHA, HUD and OFHEO did until all there became either corrupt or lulled to a sleeping state. This current mess/disaster has been coming since the 1990's. You cannot run a laissez faire economy without taking fraud into consideration. It's a square peg in a round hole and one cannot have both. It is not a case of too big to fail, it is a case of having financial dealings that are open to scrutiny. The OTC derivative market is the starting point of this disaster and the three musketeers of Greenspan, Rubin and Summers held the baton. The U.S. government is too big to fail - or is it?
We have one hell of a debt load and the next crisis will be in currency trading - a prediction that I think is a sure bet.