‘One capitalist always kills many’

The share of major conglomerates in economic activity appears to have been

declining rather than increasing over time. Total employment in the 500 largest

US companies fell from more than 14 million in 1984 to 12 million in 1994,

during which time employment in business services doubled to over 6 million._4

Figures for the UK reveal a similar picture. While between 1935 and the 1970s the

share of the 100 largest UK firms in total manufacturing output rose from 24 to

41 per cent, the concentration ratio declined significantly in the 1980s, especially

if allowance is made for the increased exposure of the UK market to foreign

trade._5 This is reflected in the increase in the proportion of UK manufacturing

employees at work in plants with fewer than 200 employees from 27 per cent to

39 per cent between 1976 and 1987. US Bureau of the Census figures show that

the share of small firms in total manufacturing employment rose from 24 per cent

in 1972 to 38 per cent in 1991.

    That concentration ratios, measured in terms of numbers employed, sales or

capital assets, appear to be on a downward trend is an important finding. It contradicts the Marxian prediction that big business, driven by the interaction of

economies of scale and the single-minded pursuit of profit, would eventually

dominate the industrial economies. In this view, larger firms, with low unit costs,

would have been expected to put smaller firms out of business. ‘One capitalist

always kills many’– the prediction being that economic power would become steadily more concentrated. This has not happened,notwithstanding popular concern about the sheer size and power of the new global corporations.

    Monopoly power and the relative growth of big business has been restrained

by six factors .First, in the previous chapter we referred to the role

of technology in facilitating small businesses. Second, this effect is strengthened

by the growing demand for customised goods. Third, the shift in demand in

industrial countries towards services may also be a significant factor.

Concentration is considerably lower in services than in manufacturing. For

instance, establishments with fewer than 100 employees account for 64 per cent

of non-manufacturing employment, but only 28 per cent of manufacturing

employment. Fourth, deregulation has exposed many formerly closed sectors to

competition. Fifth, the globalisation of trade and investment has impacted very

strongly on the market power of domestic firms. Sixth, and finally, anti-trust

and merger legislation has made monopoly power more difficult and costly to

maintain .

  These trends are consistent with the empirical finding that bigger size does not

always imply better profitability. The performance of industrial conglomerates in

profit terms has been very mixed. Mergers have had modest long-run effects, suggesting that efficiency gains from mergers are small. Periods of merger frenzy tend to be succeeded by downsizing and a reversion to smaller-scale and more focused activity. Successful conglomerates do exist but they are the exception rather than the rule. Perhaps the only consistent beneficiary of all the takeover activity has

been the deal-maker. Size alone, even within a single industry, is neither a necessary nor a sufficient condition for sustained competitive advantage.