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The personal blog of Al Stevens. Focus is overrated.

If it’s too big to fail, isn’t it too big to exist?

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I’ve heard a lot of recent talk about companies being too big too fail, sometimes euphemised as “systemically critical”.

It now seems blindingly obvious that if a company is “too big to fail”, it needs special treatment. Unfortunately, this discovery seems to have been made only because several of these systemically critical organizations were about to take the “system” down with them. When the system in question is the economy of the entire world, there’s not much choice left except for the governement to step in and spend whatever it takes to avoid catastrophe.

Bernie Sanders raised this issue in September, 2008. See his speech posted on YouTube: Any company that is too big to fail is too big to exist!

Robert Reich asked the question in October on his blog: “Pardon me for asking, but if a company is too big to fail, maybe – just maybe – it’s too big, period.”

A more entertaining essay is on The New York Crank: “Too big to fail” is too big, period!

The most analytical comments I’ve found so far are by Duncan Watts, a professor of sociology at Columbia University and a principal research scientist at Yahoo Research. In the post  Too Big to Fail? How About Too Big to Exist? on the Harvard Business Publishing Blog writes “Having studied the dynamics of cascades in complex systems, I suspect that the most damaging ones are impossible to anticipate with any confidence. The solution may therefore be to make the system less complex to start with, in part by limiting how big companies are allowed to become.”

It’s clear to me that we need our governments to get a lot smarter about how they regulate private companies. We inspect and regulate power plants, dams, bridges, airports, ships, trucks, factories, food, drugs and all sorts of other things. It’s time to develop a coherent policy that identifies systemically critical companies and regulates them so that they don’t damage the “system” we all depend on.

Written by Al Stevens

March 6th, 2009 at 1:11 pm