Almost exactly 10 years ago, the federal government bailed out some of the nation’s largest financial institutions with an emergency infusion of $700 billion — a figure that would eventually reach into the trillions — in order to prevent what some economists predicted would be an economic meltdown several magnitudes larger than the Great Depression of the 1930s.
Of course, that didn’t stop any of these companies — AIG, Goldman Sachs, Bank of America among many, many others — from paying out multimillion-dollar bonuses that year and every year since. These bonuses, which literally came out of the pockets of taxpayers, were paid out to the very people responsible for nearly bringing the U.S. (and, by extension, the world) economy to the brink of disaster.
The high-risk, institutionalized gambling via mortgage-backed securities and other obscure and deliberately complex investment products resulted in the U.S. losing more than $20 trillion in GDP, caused millions of Americans to lose their homes to foreclosure, birthed the longest and most profound recession since the 30s, and led to a slew of new financial regulations (Dodd-Frank among them) to ensure that nothing like this could ever happen again.
Today, many of these same safeguard regulations are under attack. Some have already been neutered or watered down, creating an environment that’s rife for abuse yet again. This pattern of socializing the losses — through government bailouts in this case — and privatizing the profits — record profits combined with corporate tax cuts and stock repurchases — is one that bears much closer scrutiny across all industries going forward. Then again, good luck with that.
It was a just a decade ago. And while most of these same banks and insurance firms have been reporting record sales and profits yet again, these companies are far from the only ones that are “too big to fail.”
Consider the likes of Amazon, and particularly its Amazon Web Services subsidiary. With more than 34 percent of the world’s cloud services business and well over 1 million customers of all stripes and sizes, it’s fair to say if Amazon somehow were to collapse, it would take entire sectors and a fair chunk of the U.S. economy with it.
You could say the same about a lot of technology companies. Microsoft, Google, Apple, Salesforce … the list goes on and on. The impact and reach of these tech firms’ tentacles is almost impossible to measure or ascertain. Even more frightening is the sheer amount of data — personal and business — that this handful of tech heavyweights possess, support and (hopefully) secure. Forget Wall Street. These are the companies that are now simply too big to fail. And that’s not a good thing for anyone.
“Size matters,” says Rachel Botsman, a lecturer at Oxford’s Saïd Business School and the author of “Who Can You Trust?,” adding that governmental and regulatory agencies really need to begin “figuring out what to do with companies that got too big and the unintended consequences that happen as platforms scale.”
Just like their banking counterparts, these monolithic technology companies have been raking in billions and billions of dollars in profits. They’ve become so integral to our society in so many ways, there’s good reason to believe that parts of society itself — at least as we’ve come to know it — would deteriorate beyond recognition if any one or more of these companies pulled a Bear Stearns and went belly up overnight.
“Economic theory and history suggest that such inquiries will lead these business leaders to adopt a very specific business strategy: grow really big at all costs,” Peter Crabb, a professor of finance and economics at Northwest Nazarene University, wrote in a recent Op-Ed.
Facebook has grown explosively and there have been all kinds of costs. Yet, as anyone who watched Mark Zuckerberg’s appearances before Congress can attest, often the lawmakers charged with safeguarding our economy as well as our physical and virtual security seem to be lacking the technical expertise needed to evaluate the threats, why they matter and how to even begin laying the foundation for meaningful regulation of these critical industries.
Botsman offers some measure of hope, predicting that tech companies will eventually back-burner growth at all costs in favor of maintaining integrity of scale. “I think you’re going to see more and more cultures say, “How big is big enough?” she said. “How big do we want this thing to become before it’s outside of our control?”
Perhaps. But the obvious options don’t look great. “If we decide to increase regulation of the technology giants … we can expect fewer choices and higher costs for these products and services,” Crabb warns. “Only large firms that can handle the many compliance issues will be able to compete, and these same firms will control pricing and be beholden to government regulators.”
The game is changing and we need new frameworks in order to coexist with these companies in our business, government and personal spheres. Perhaps we can look at the family unit for inspiration. Shared responsibilities come to mind.