By: Roy Shapira (CLS Blue Sky Blog)
Is big business ungovernable? Some of today’s calls to break up and intensely regulate big business do not hinge on harms to consumers as consumers, but rather on the claim that giant corporations with market power treat legal requirements as mere recommendations, and routinely engage in behavior that harms others as long as it maximizes their own bottom line. Importantly, the big-is-ungovernable claim has by now firmly entered policy circles. To illustrate, in 2020, a congressional subcommittee investigating the conduct of big tech platforms maintained that Google, Amazon, Facebook, and Apple leverage their power to shape the regulatory framework that governs them and repeatedly violate existing laws and court orders. This pattern of behavior, concluded the subcommittee, “raises questions about whether these firms view themselves as above the law, or whether they simply treat lawbreaking as a cost of business.”
Though the stakes could not be higher, the big-is-ungovernable claim as currently construed is underdeveloped. In fact, existing law-and-economics analyses suggest that big is more governable. Larger corporations are more publicly visible, increasing the probability that any misconduct would be detected. And they have more to lose from being caught misbehaving: from higher punitive damages in court to greater reputational fallout in the marketplace. If “big is ungovernable” is based on little more than anecdotes and riding a strong anti-bigness sentiment, we could end up with bad policies negating economies of scale.
My new article examines the extent to which super-large firms with market power are less governable. The article spotlights several unique institutional features of big business that dilute the effectiveness of deterrence across all systems of control – not just legal, but also non-legal controls such as reputation concerns or moral constraints.
Consider first the prospect of legal deterrence. Super-large corporations enjoy greater ability to influence the regulatory agenda not just via lobbying or campaign contributions but also via “soft” channels, such as “epistemic capture,” stemming from their ability to fund research that cloaks their self-interest in a noble, public-interest explanation. They can thus ensure that their behavior falls within regulatory requirements. When their behavior nevertheless transgresses the law, the unique institutional features of bigness hinder public enforcers’ ability to investigate, prosecute, and properly calibrate the sanction for misbehavior. As a result, enforcers often avoid taking big business to court, opting instead to settle early for what big defendants write off as the small costs of doing business. Further, super-large corporations can leverage their market power to force counterparties to sign class action waivers or gag clauses, thereby diluting the prospect of private enforcement as well…