BIG BUSINESS IN THE ECONOMY

Ours has been called a business economy.Most of us earn our livings by working for busi-nesses. We buy most of our products from businesses. Many of us own parts of businesses, directly or through ownership of stock.

In total, there are some ten million business firms in the United States. About nine million of these are relatively small businesses run by indi-vidual owners, three million of them in agriculture and most of the others as small-scale retail outlets, cleaning establishments, service stations, the professions, and the like. About one million are business “corporations.” These business corporations, generally owned jointly by many people, do the bulk of the nation’s business, employ over
60 per cent of its workers, and account for about two-thirds of all privately produced output. The biggest modern corporations are true Goliaths. In 1967, for example, the assets of the American Telephone & Telegraph Company (the world’s largest business) exceeded $30 billion, and General Motors’ sales of over $20 billion were larger than the entire national output of most of the world’s economies.

Why has big business thrived so mightily in some parts of our economy (especially manufacturing), while little businesses continue to dominate other sectors like retailing, beauty shops, and personal services? Should the American consumer and the American worker welcome huge businesses or fear them? \Vhich sorts of businesses give the best services to the consumer at the lowest cost?

In some industries a few large firms dominate the entire market. Figure 1-5 shows the dominant market position held by the four largest firms in five major industries. By contrast, in agriculture no one firm produces more than a tiny fraction of the total national output, and in most areas of retailing there are many firms seeking the consumer’s business. In between these extremes are many industries which have a moderately large number of firms, but far from the huge number of small firms that characterize agriculture.

What are the results of market concentrations like those pictured in Fig. 1-5? Is such concentration a danger to the consumer? ‘What kinds of firms and market arrangements are most efficient in producing the goods and services we as consumers want? Again, these are questions on which economic analysis focuses.

UNEMPLOYMENT AND INFLATION

Over the past two centuries, the American economy has been the greatest economic success story in the history of mankind. The evidence is vividly presented in Table 1-1. But American history also tells a story of intermittent booms and depressions.

Figures 1-6 and 1-7 picture two sides of this problem. In a private enterprise economy we have never completely eliminated unemployment, and intermittently the percentage of our labor force out of work has risen to 5, 10, and even, in the
Great Depression of the 1930’s, to nearly 25 percent. Depression and massive unemployment bring immeasurable hardship and waste. Idle men and idle machines mean hunger and desolation, famine and want in the midst of potential plenty, the erosion of human dignity.

On the other hand, there have been intermittent “booms,” with sharply rising pricesinflation. When prices rise, the amount of goods and services you can buy with a dollar falls correspondingly, though incomes rise so most people
have more dollars to spend. Figure 1-7 shows the intermittent erosion over the past century in the purchasing power of a dollar as prices have, on the average, risen much more than they have fallen. A close look at the chart suggests that the
big inflations (that is, the big drops in the purchasing power of a dollar) have come during and soon after major wars—in the early 1920’s and again in the 1940’s and 1950’s; but remember that these have also been periods of booming pros-
perity, which has also often been associated with inflation. Clearly, inflation is a more complex issue than merely looking at how much less one dollar will buy when prices rise.

Why does our economy intermittently gencrate periods of unemployment and depression,and then periods of prosperity and inflation? Must a private enterprise economy accept such economic instability or have we now learned how to eliminate unemployment and inflation through the use of government monetary and tax-expendi-ture policies? Dare we risk increasing the national debt to increase government spending aimed to fight unemployment? These questions have loomed large in economics since the 1930’s. They pose again interacting questions of economic analysis and economic policy.