Through much of the 20th century, the world was bombarded with the collectivist idea that the individual is insignificant, and that human progress is the achievement of society as a whole. In “The Fountainhead” and “Atlas Shrugged,” novelist-philosopher Ayn Rand powerfully illustrated that progress is in fact the product of the individual through the use of his independent reasoning mind. Today, many economic and some political discussions have taken Rand’s individualist message to heart. More than ever, we hear about individual innovators creating economic growth through new discoveries, inventions, and products. We hear stories of small start-ups working on new cancer drugs, new Web 2.0 applications, new communications devices.
But there is one respect in which our understanding of individualism is as primitive as ever: in the widespread belief that big business is the enemy of innovation. Today, as throughout history, large corporations are seen as oppressors of individual creativity, both within their companies and economy-wide. The safest targets for criticism are the biggest businesses: Wal-Mart, Microsoft, big pharma, and big oil.
Rand blasted this notion in her novel “Atlas Shrugged” — which features corporate heroes like metal magnate Hank Rearden, who utilizes his ingenuity to bring to market a metal that is stronger, lighter, and cheaper than steel to revolutionize the field. In the process, he builds a big, innovative and ruthlessly competitive business. And we need only look around us to see that Rand was right about how innovative large corporations can be. Note that America’s most admired entrepreneurs — Steve Jobs, Sergei Brin and Larry Page, Michael Dell — built their start-ups into big businesses.
The reason these big companies are so innovative is that the corporate structure, utilized properly, is not an obstacle to, but a vehicle of, individual initiative. A corporation creates incredible possibilities for maximizing the creative abilities of everyone involved, from the CEO on down. Think about why individuals start working for corporations in the first place. Corporations provide employees with crucial direction, specialization, and resources to maximize their distinct abilities. Under large corporations, truly visionary leaders have the ability to integrate the creative talents of many people into a unified direction that makes everyone’s work contribute to something truly valuable on the market.
Now, if big business is so great, you might ask, why are so many corporations decidedly sluggish, bureaucratic, even authoritarian? The answer is not that they’re big: plenty of small businesses are equally stagnant, from myriad mom-and-pops to dot-com lemmings which just follow the herd into e-tailing or social networking. The reason that so many corporations can stagnate is that government control of the economy coddles and protects too many of them from the competitive pressures of a free market. In a truly free market, a corporation is continuously targeted by others if it underperforms — from takeover specialists, who will install new management, to nimble competitors, who will gladly snatch their customers. That is why from the 19th century onward, in the freer sectors of an economy, big companies have succeeded, not by stifling competitors’ innovations, which they have no power to prohibit, but by surpassing them. The most hated “monopoly” in history, John D. Rockefeller’s Standard Oil, earned a 90 percent market share by selling kerosene cheaper than anyone else could. Rockefeller achieved this by hiring and coordinating the most talented people he could find, and putting them to work revolutionizing the refining, transportation, and production of crude oil.
In the less free sectors of an economy, however, the success of large corporations is too often determined by their ability to game a system of regulations, taxes, and handouts, rather than by their ability to produce the best products at the lowest prices. (Not to mention the fact that these regulations and taxes render truly innovative companies much less innovative.) Corporations can get away with more stagnant behavior when their managers are protected from replacement by anti-takeover laws, when the largest businesses (e.g., banks) are deemed “too big to fail” by the government, and when hundreds of billions in government subsidies can help replace a real market profit.
It doesn’t have to be this way. Americans experienced a business and technology boom when less regulation, less taxation, and less corporate coddling replaced the corporate culture of the 1970s with the far more competitive and innovative corporate culture of the 1980s. But much more is possible and necessary. The more regulations and subsidies we end — the more we approach a free market — the more we will unshackle the individual mind. And then we will witness an explosion of innovative businesses, both small and big.
Yaron Brook is president and executive director of the Ayn Rand Institute. Alex Epstein is an analyst at the Ayn Rand Institute, focusing on business issues.