If you study business or pursue a business career, you might be praised for your prudence. It’s unlikely, however, that people will think you are doing something especially virtuous or praiseworthy, and indeed if you are really successful you might be expected to “give something back” either through philanthropy or by paying higher taxes — which suggests, of course, that you took something in the first place.
What if business is really virtuous, praiseworthy, and underappreciated? In Big Business: A Love Letter to an American Anti-Hero, the economist, foodie, and polymath Tyler Cowen joins other scholars like Deirdre McCloskey (in her “Bourgeois Era” trilogy) and James Otteson (in Honorable Business) in suggesting that being in business is not just tolerable but praiseworthy. In a very learned book that is nonetheless accessible to the general reader, Cowen dissects the ways in which American business supposedly has a baleful influence on the world. To the contrary, he notes, “business at its best is a fundamentally ethical enterprise” (p. 15).
Big Business is a comparative exercise that should make a lot of critics question their assumptions, to coin a phrase. Cowen is under no illusion about the perfection of business or even businesspeople, but at every stage he interrogates objections to and criticisms of Big Business and asks, “Compared to what?” Is business uniquely fraudulent? Compared to what? Does business corrupt people? Compared to what? Are CEOs overpaid? Compared to what? Does business have undue influence on Washington? Compared to what?
Big parts of the book are pretty straightforward myth busting. No, businesses aren’t especially fraudulent. CEOs aren’t overpaid (this will undoubtedly raise the hackles of a lot of people concerned about inequality). Work isn’t soul-crushing and exploitative. “Big Business” isn’t monopolistic. “Big Tech” hasn’t turned evil. Wall Street actually does create value. Capitol Hill and the White House aren’t wholly owned subsidiaries of large corporations. What you know about business, in other words, just ain’t so.
Make no mistake: businesses and businesspeople do a lot of very bad things, and Cowen is frank about this. A lot of things in the “supplements” aisle at your local grocery store are snake oil, and firms still sell (and people still buy) penis-enlargement products that don’t work (p. 22). Contrary to what the commercial tells you, you aren’t going to find love by drinking more of a particular soft drink or beer. However, he argues that they do not do these things because they are businesses and businesspeople per se but because they are human organizations run by human beings. People in business lie a lot, for example, because they are people and people lie a lot. As Cowen puts it (p. 13): “So many of the problems with business are in fact problems with us, and they reflect the underlying and fairly universal imperfections of human nature.”
What of the alternative institutions and organizations that bind us together and to which we might look for salvation? It’s hardly clear that they are any better. When compared to the actually existing political, cultural, social, and religious institutions and organizations we observe rather than the very best we can imagine, business comes out not only un-damned but looking positively praiseworthy. When you compare the honesty and integrity of business to government, religion, academia, media, entertainment, and the nonprofit sector, it actually comes out looking quite good. An old joke goes: “How can you tell when a politician is lying? His lips are moving.” Sex-abuse scandals have rocked major religious organizations. Colleges and universities promise “transformative experiences” that are likely selection effects rather than treatment effects. The news media tends to blow things out of proportion. Hollywood is rife with #MeToo stories (so, for that matter, is the professoriate). The world is filled with nonprofits that seem to exist for no real purpose other than fundraising.
If anything, the evidence suggests that business moderates these impulses and markets actually make us more trusting, trustworthy, and pro-social (pp. 28ff.). To the extent that businesspeople do bad things, it is because they are businesspeople, not businesspeople. Or, as Cowen puts it (p. 23), “The propensity of business to commit fraud is essentially just an extension of the propensity of people to commit fraud.”
Cowen next turns his attention to CEO pay and asks if the conventional wisdom about executive pay — that corporate-executive suites are Old Boys’ Clubs where the unscrupulous squeeze unjust compensation packages out of their shareholders and workers — is correct. He argues that it isn’t. According to Cowen, “The best model for understanding the growth of CEO pay is that of limited CEO talent in a world where business opportunities for the top firms are growing rapidly” (p. 43) And: “It’s not a popular thing to say, but one reason CEO pay has gone up so much is that CEOs themselves really have upped their game relative to the performance of many other workers in the American economy” (p. 44). In the language of an introductory economics class, CEO pay is high because of very, very high demand and very, very low supply.
Executive “power” likely has a lot less to do with it than we might think in light of the relationship between CEO pay and firms’ market capitalization and earnings (p. 44). Cowen makes another sure-to-be-unpopular assertion: CEOs might actually be underpaid relative to the value they create for their organizations:
CEOs capture only about 68 to 73 percent of the value they bring to their firms. For purposes of comparison, one recent estimate suggests that workers in general are paid no more than 85 percent of their marginal product on average; that difference is attributed largely to costs of searching for workers and training them to become valuable contributors. (p. 55)
The phrase “no more than” is important here as it suggests an upper bound on worker compensation relative to marginal product (with a wedge coming from transaction and training costs), but this certainly suggests that top executives are anything but overpaid — nor do they have more “power” than other workers to extract resources from their employers. Even the despised “golden parachute” packages that seem to reward unsuccessful CEOs for lousy performance have at least a plausible explanation.
They encourage CEOs to take bigger risks — which shareholders might want to encourage — and sometimes, simply paying a bad CEO to go away when things don’t work out might be a lot easier and less destructive than trying to organize an ouster. Due to the limits of space and the kind of book Big Business is, Cowen has to paint with a broad brush that leaves out details and nuance, but at the very least he makes a pretty convincing case that CEO pay lines up reasonably well with and is explained by CEO performance.
We should also love Big Business more than we do, Cowen argues, because it gives us the opportunity to do productive work — a source of meaning, contentment, and happiness for a lot of people. Importantly, work isn’t disappearing, and I wish Cowen had explored this in greater detail. John Maynard Keynes predicted that we would spend a lot less time working. In one sense, he was wrong: people still spend a lot of time on the job.
However, the nature of “work” has changed. In his 1999 presidential address to the American Economic Association, the economic historian Robert Fogel differentiated between earnwork — the work we do to sustain our most basic functions — and volwork, which is the work we do to acquire the things we want rather than the things we need. The latter is now the lion’s share of the work we do, and importantly, to the extent that work provides us with a sense of meaning and accomplishment, places to socialize, and so on, the line between “labor” and “leisure” gets blurrier and blurrier.
One of the most interesting chapters in the book looks at Big Tech and asks if it has turned evil. While he pays appropriate attention to privacy issues — facial-recognition surveillance — he argues that Big Tech has been and still is largely a force for good.
I have done multiple web searches to verify things in the course of writing this review (the date of Fogel’s 1999 AEA presidential address, for example).
As I was reviewing my notes earlier today, I changed my default search engine from Google to Bing. This was trivially easy, and it would be trivially easy to switch from using Chrome to Firefox, Safari, or another browser. The ease of switching browsers or social networks suggests to me (and Cowen) that fears of tech “monopoly” are likely overblown.
Fears of a population manipulated by “fake news,” Russian bots and covert influencers, and out-of-control tech giants are also overblown. First, fake news and falsified reports are trivial bits of what happens on Facebook, and if anything, the veracity of what you see on Facebook compares favorably to “plenty of misrepresentations on television, in tabloids, in forwarded emails, in dinner table conversations, and in personal gossip” (p. 112).
The thesis that social media per se divides us is also inconsistent with the observation that “the most politically polarized Americans are the elderly, the group least likely to be getting its reporting from social media and the most frequent watchers of cable television news” (pp. 112-13). Finally, “from [Cowen’s] naive, long-term historical perspective, Facebook hasn’t come anywhere near doing the damage that the printing press (and radio) did by helping communicate the ideas of fascism, Marxism, communism, and so on” (p. 113).
Cowen also dispenses with two other things a lot of people believe: the view that high finance is predatory rather than productive (it isn’t) and the view that business controls government and bends it to the will of unscrupulous executives represented by unscrupulous lobbyists (it doesn’t). This isn’t to say that there aren’t a lot of problems and a lot of things to fix, and Cowen is clear about this.
For the most part, however, financial intermediation successfully moves resources from areas of lower to areas of higher yield and, in the process, makes possible a lot of creativity and innovation. The $3 billion corporations spend on D.C. lobbying looks like a lot of money, but it’s small change compared to the $200 billion they spend on advertising (p. 171). If the search for special privilege were as lucrative as a lot of people think, firms would probably be spending a lot more on lobbying than they actually are (parenthetically, if it were so easy to manipulate people, they would probably spend a lot more on advertising, as well).
Cowen isn’t telling a Panglossian tale about how literally nothing could be better than the world we inhabit. For example, he is skeptical of people’s tendency to develop actual loyalty to firms, and he thinks that customer-loyalty programs might have some anticompetitive tendencies. For all its imperfections, however, American business does a pretty good job — a much better job, Cowen argues, than most people think, and I, for one, agree.