Monday, February 4, 2013

What's wrong with chains? (II)

The Washington Post and the Washington City Paper have recently had many articles about the buying up of local businesses by corporations. I call this the "corporatization" of local businesses. Since the 1970s, for a variety of reasons, businesses have become increasingly concentrated in large corporations. This global consolidation has created very large corporations in finance (banks too big to fail), IT, retailers like Wal-Mart and Target, and even beer production. These large corporations seek to gain control of local markets, so they are investing in local businesses in a wide range of "global cities" like DC. What is wrong with this corporatization? Here I look at some of the recent newspaper articles and the concerns they voice:
  • Corporatization can drive up prices and drive out independent businesses. As discussed in Steven Pearlstein's excellent Post article yesterday, corporations like Anheuser-Busch InBev buy up a wide-range of beer brands -- including Budweiser, Stella Artois, Boddington's, Michelob -- while its competitor SAB Miller Brands buys up another bunch of beer brands -- such as Miller, Blue Moon, Peroni, Pilsner Urquell -- and they create a kind of oligopoly. The market looks competitive because there are so many brands out there, but it is not, and thus these corporations can easily raise prices. These large corporations can also drive out independent brands, which cannot compete because, as Pearlstein discusses, the oligopolists benefit from economies of scale, control of distributors, and even control of space on shelves in liquor stores and chain retailers. As a result, we see global concentration and fake competition among brands, which Pearlstein describes as: "the market nirvana that corporate executives have dreamed about forever -- the appearance of competition without any real competition."
  • Corporatization can reduce the quality of products and service. In his Post article on corporate wines, Dave McIntyre expresses the anxiety among many that corporatization will result in poorer quality wines, in the name of mass production and cost savings. In McIntyre's words, "Those of us who spend too much time thinking about and drinking wine still prefer the small-scale ideal of the winemaker toiling over the fermenting juice with purple-stained hands, wielding makeshift tools." He also gave examples where corporate ownership did not lower  quality.  
  • Corporatization can create standardized businesses with a shopping mall type feel.  In her Washington City Paper article "Live and Let Dive: Does renovating a beloved bar mean quashing its charm?," Jenny Rogers also expresses this anxiety about losing dive bars, when they are cleaned up and their prices are jacked up. University of Maryland sociology professor George Ritzer has written about what he calls the "McDonaldization" of life: "the process by which the principles of the fast-food restaurant are coming to dominate more and more sectors of American society as well as the rest of the world." These principles are efficiency, calculability, predictability, and control through nonhuman technology, which undermines other principles. One person commenting on the article even called the new Hawk and Dove one of the "McRestaurants," while another wrote, "it has NO soul. It's the suburban mall-ification of the Hill." 
  •  Corporatization can remove the control and creativity from the workplace. This concern was voiced in an article about a new restaurant, which will go unnamed here because I have to find the article again. The owners of this restaurant almost gave up their plans because it was so difficult to rethink the restaurant's regional cuisine to fit investors' narrow perception of the preferences of the "creative classes." Speaking more about the general staff of restaurants, Ritzer writes, "The people who work in McDonaldized organizations are also controlled to a high degree, usually more blatantly and directly than customers. They are trained to do a limited number of things in precisely the way they are told to to do them."
  •  The financial influence of corporations might outweigh other non-commercial values. In a Post article yesterday on whether governments will rename roads and overpasses after corporations that pay them, Ashley Halsey asked, "If you sat in traffic on the Burger King Capital Beltway, would that make you hungry for a Whopper?" Corporations could definitely outbid regular residents who wish to name various forms of infrastructure to highlight non-commercial values like democracy or community creativity.
  • Corporations may not be concerned with local issues like trash or community problems. This concern is expressed most by residents, such as those living near Barracks Row on Capitol Hill. In his book Capitalism and Freedom, Milton Friedman wrote, "there is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits...The corporation is an instrument of the stockholders who own it." According to Friedman, it is wrong for corporations to care about anything beside shareholder value, though they must work within the "rules of the game."  We should thus be concerned about corporate interests in relation to the many different community interests.
Any other concerns? Corporations may take its profits out of the locality to a far-away headquarters and to their shareholders? Corporations may avoid risks and creativity, privileging proven profit makers or stability? Others?

P.S. See my previous post "What's wrong with chains?"


  1. "Corporate" and "Oligopoly" are not the same thing. In your beer example, none of those brands being purchased by either Busch or Miller were local, small scale breweries - they were all already corporate brews in and of themselves.

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  3. I think oligopoly is one of the potential problems of corporations, but not the only, or even necessary problems of corporations. The post lists many problems, of which oligopoly is just one. The fact that the brews were already corporatized before concentration continued further should not make us less, but more concerned about corporate takeover. The arguments that Alex B. makes are further examples of how weak arguments in favor of corporate capitalism are -- that it has so much power is a tribute not to efficiency or any other economic value but rather to the strength of dollars over democracy in our system.


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