Tyler Cowen on His Love Letter to Big Biz

Hi, my name is Juliette Selgren, and this is my podcast, The Great Antidote. This podcast has been brought to you by the Center for Growth and Opportunity at Utah State University. To learn more, visit www.thecgo.org. Hi everyone, welcome to the first episode of my podcast. My guest today is Tyler Cowen. Tyler is a super well-known economist. He is an economics professor at George Mason University and he blogs at the The Great Marginal Revolution. But to me, Tyler is the guy who my mom would go to ask if it was okay for me to read The Hunger Games as a 10-year-old. He said yes, by the way. He's also the guy who would bring me nonfiction books to expand my horizons, and he's even the one who suggested the name for this podcast. Tyler has written many, many interesting books, but today I want us to talk specifically about his latest book, Big Business: A Letter to an American Antihero. Welcome, Tyler.

Hello, thank you for having me, Juliette.

Before we jump into talking about big business, I have a general question for you. What is the most important thing that everyone my age or in my generation should know that we don't?

I'm not sure what it is you all know right now, I'm sorry to say, but I would stress this point. We're in the middle of a major crisis having to do with the coronavirus, and actually big business is performing fairly well. We're counting on Amazon and UPS to ship us packages. We go shopping at Costco and Whole Foods. We rely on cable TV and the networks and other channels for our entertainment. Our government was very, you know, slow to the gate even being aware this was going on. The NBA cancelled the rest of its season while President Trump still was telling us everything was fine. So I think right now the performance of big business in this matter has been really quite good, and the performance of government has been pretty weak. Now, what your generation knows or doesn't, I would not hazard to say.

Very interesting, very good insight, I think, because a lot of people assume that businesses just jump in to ruin everything and to take your money, but they're the ones who were there in the time when the government wasn't. So jumping in, how do you define big business?

Well, I think it's a matter of degree. How big does something have to be before it's big? But if you think of the well-known brand name companies that you deal with all the time, typically those are big business. Pharmaceutical companies are big business. They've actually responded very quickly trying to get a vaccine in place. Trying to test different cures or at least remedies for coronavirus. Again, that would be an instance where big business seems to be ahead of the curve relative to government.

You say that business is at its best a fundamental ethical enterprise. Can you explain what you mean by that?

Well, there are bad businesses, certainly. Some are big, some are small. But most business, its nature is to produce a product that people find useful and then persuade people to buy that product and consistently deliver an excellent product over time. That's one of the most important things in our lives is to be able to get healthcare or food or shelter or entertainment. And business is doing that. So I'm not saying all businesses are good. But the essence of business and big business, in my view, is this notion of voluntary exchange and giving people goods and services they desire.

In your book, you write that 33% of young Americans support socialism, that there is more of an anti-business sentiment than at any time since the 1960s. If businesses are so beneficial, then why do people feel this way?

I think what's happened over the last 15 years is there's been a general collapse of trust. People sense, somewhat correctly, that just something is wrong. And the result is they've lost trust in all the institutions they're familiar with. That would include Congress, it would include the media, it also includes big business. I'm not sure there's a special animus against big business. If you just look, how are people spending their time? And I mean here, especially younger generations, they're actually spending more time with big business you know, looking at their smartphones or before coronavirus, taking Uber and Lyft rides. So in terms of demonstrated preference, we seem to like big business all the more.

It's very true. Do you think that it's a misunderstanding of what big business is and its impact on our lives?

Some of it is misunderstanding. I think some of it is a kind of frustration and rebellion But people are not sure whom or what to rebel against, and big business takes the brunt. Some of it is that big business has genuinely done some bad things, right? So big business had a role in the financial crisis, as did small business. Big business has had a negative role in some corporate scandals. So it's wrong to think that all of the objections are incorrect. That wouldn't be true.

What are some of the dangers or downsides that come with big businesses? Can they be avoided?

I don't think they can be avoided altogether. But if you think of big business as an engine of cooperation, sometimes those people cooperate, say, to break laws or screw over consumers. So if you think of Volkswagen falsifying the emissions records to be able to pollute more and earn more money and break the law and do something wrong at the same time, that was actually an offshoot of part of the productive side of big business, which is namely superior cooperation.

Interesting. And do you think that the government should play a role in maybe stopping them from doing this? Do you think if they stopped the amount that a business was supposed to— was allowed to grow, that it would, I don't know, um, like limit the amount of dangers that were faced?

Well, I think on the whole, as an average, big business is more honest than small business. If you try to have someone come over and repair your TV, the chance that they will rip you off is much higher than the chance that Amazon or Walmart somehow does you wrong. So I don't believe in any particular cap on the size of businesses. I think you can make a good case If they're found guilty of fraud, the penalties should be higher. I would agree with that in most cases, but I don't want to go after business per se.

How are small businesses more likely to rip you off than big businesses? How does that work?

They're not in it for the long haul as much. They're not out there to protect a national brand name. Odds that you deal with them repeatedly are much smaller, whereas Walmart knows if word gets out, oh, Walmart is ripping people off, they will lose a lot of business. But say your TV repair person comes into your house, pretends your TV is in worse shape than it really is, charges you $300 when it only should be $100. The repercussions to them for that are maybe not so large. Now, even that is changing in a world where Yelp and TripAdvisor and Google and many other internet-based companies are rating even small businesses. So I would say even small business fraud has become less of a problem. But overall, I think you're better off trusting larger, more established businesses. McDonald's, I don't like how their food tastes, but if I go there, I know what I'm gonna get and it is in fact what they give me, right? They don't rip me off.

So that seems to be a benefit of big businesses. You argue in your book that businesses are, especially big ones, are a great benefit to society. Why, what are those benefits?

Bigger businesses pay higher wages. They give the workers better benefits. On average, they're more productive. I think they do things to help global peace. It's not in the interests of multinational corporations to have wars across the different countries they're dealing in. So in essence, they're a lobby for peace. On average, big business supports free trade. Not always, and not always for their product. But still, on net, I think that's a positive influence. Big business, on net, tends to support freer immigration. So I think those net influences are all significant positives.

Do monopolies and political influence that big businesses hold, are they some sort of Are they a threat to our society? Will it impact our lives? Will it bias the government? Will it ruin what we have as a society? Because it's something that I hear a lot.

Well, that political influence of big business often can be bad. So if you look, say, at agricultural subsidies from the government, Most of those go to large agribusiness and not to the small family farmer. Those subsidies are bad. I would get rid of them. I think there's no good argument for them. But that said, in a typical year, they will cost around $20 billion. It is a lot of money, but in relative terms, it's far from one of the worst things our government does. So I think big business, like everyone else, tries to get benefits and privilege from the government. I would gladly eliminate all corporate welfare. I'm opposed to it entirely. But at the end of the day, it's very far from our number one policy problem. At the moment right now, our number one policy problem is a government that is slow to respond and has overly regulated potential private sector response to this pandemic. Big business is essentially our friend at the moment.

Do you think that restricting the amount of intervention the government has in the role of big businesses would help us in this crisis?

I'm all for doing that, but I don't know how to do it. It's hard to get government to pre-commit. So, you know, there will be ways in which big businesses latch on to the current stimulus plan and capture some of that money for themselves. That will be unfair. It will make the whole thing more expensive. It will be unjust. At this point, I don't know how to stop that, but yes, I'm certainly against it, and I plan on writing against it, as I think your mother will be doing too.

Yeah, I can tell you that that is true.

Yes, I'm not surprised.

I hear a lot that big businesses mistreat the workers and their consumers. Is that true?

Again, it depends what you compare it to. In an economy of $20 trillion— at least that's what it used to be— can you find a large number of abuses in any area? Of course you can. But again, I would stress the point: big business on average pays much higher wages. It gives people better benefits, more flexibility in terms of their job, more chances of promotion. If you're a minority or you're gay or you're in some way not exactly the same as everyone else or mainstream America, the chance that you can connect with other people in your workplace who are like you, that's much, much greater in a large business than, you know, say in a small coffee shop. So I think in all these regards, big business is treating workers better than the available alternatives.

You also say in your book that foreign countries compared to the US don't have the same productivity standards, and they don't come out on the top of, you know, just economics and business because they don't have the same structure with as much capitalism as we do. Is that a big factor? Is that Does the system of capitalism we have make sure that there is this system where people are treated nicely, where everyone is respected, as opposed to where people are oppressed or just not allowed to do what they want?

Well, I would cite the example of France, which is still a relatively wealthy country. It's a nice and indeed beautiful country in some ways. But the leading French businesses, they all date from before 1980. France does not really have major tech companies that are able to export their products to other places. And I think at some point you have to wonder, you know, what does the future look like? Will the lives of children be as good as the lives of their parents? I expect the income gap between the European Union and the United States to grow. So I think in most of Western Europe, there's a crisis of lack of innovation and lack of highly productive big businesses.

That's true. That is very frightening in a way because lack of innovation leads to, well, nothing.

At any point in time, it feels okay, but you let 20 or 30 years pass and all of a sudden you're way behind. You can't deal with your basic problems. Your citizens are poorer. It's harder to defend your country. And much of Western Europe has ended up in this position. If you look at Italy, They have not had per capita income growth now in 18 years, and they're hit by the coronavirus. Debt is very high. They have major, major problems right now because they did not have earlier enough economic growth and productivity.

It's very interesting to look at the data for this because you can see how much innovation and businesses, like the emergence of new businesses, kind of impacts the trajectory of the well-being of a country, which kind of reinforces the idea that capitalism and lack of government intervention in that sense allows for growth. Turning to Big Tech, I hear a lot about the— that there is a threat posed by it. Some say that they're biased and some say that they're not doing enough. But what do you think about the breaking of big tech companies? Do you think that it is necessary? Do you think that it would do us good? Do you think that it would have a negative effect?

In my view, most of big tech gives us amazing products, very often for free. Now with so much of the physical world shut down, I mean, it's big tech that's saving us. It's how we order things, we communicate over Zoom or over Zencastr as we are doing now. People spend time on Facebook, Facebook. If you imagine facing this crisis without big tech, it's almost unimaginable. And scientists are using Twitter and preprints and other institutions on the internet to solve this problem much quicker than they would be able to do otherwise. So I think the internet and big tech in particular will come out of this crisis looking very, very good indeed. They already do.

Yet the public seems to have a big dislike of these businesses. Do you think that maybe this crisis will lead them to understand the necessity of the presence of businesses in our world or not?

I do think this crisis will have that effect, but I don't think the public ever hated Big Tech. The intellectuals and the media often dislike Big Tech. Uh, it's a competitor for the media. But normal Americans love Facebook, love Google, Amazon. You talk to people about it, it's like, my goodness, this is fantastic. They see the day-to-day reality of what these companies do for them.

That's very true. Do you think that the media has influence over the, over the public, even though the public likes the technology? They like Apple, they like Microsoft. Do you think that the way that big tech is reported and kind of presented in the media has any effect on their view of it?

Well, it has some effect. I think in particular the coastal intellectual class will say, read the New York Times, and then take their cues from certain segments of the media and then go out and repeat the same. But again, I think normal Americans on average pay less attention to those media sources and make up their own minds. Not always for the better, right? People can come up with some wacky notions. Uh, but I think, uh, people more and more look to social media and their friends and acquaintances when forming opinions, and less say to Washington Post and New York Times, which is understandable.

I guess that makes sense. Um, we often hear that CEOs are paid too much, and since we're now in this pandemic, legislators are kind of trying to restrict executive pay and try to bail out other people and other businesses. What do you think about this?

Well, if you look at the data on CEO pay, it goes up pretty much in lockstep with the stock market. So if the companies are more valuable, the CEOs are paid more because in essence they hold equity or options in those companies. That's how you motivate people, right? I don't think there's anything wrong with the CEO being worth more money if his or her company does well. Right now the stock market is down a lot. CEO pay is also down a good deal, maybe, you know, on average 20%. So I think the current system, while imperfect, is actually— it's been working fine. And America has on average the best CEOs in the world and the most productive companies. We also pay the most.

That's true. What do you think— what role do you think big businesses can play in helping us face this crisis? What have they done and what do you think they can continue to do in the future?

Well, I think Walmart and CVS and Rite Aid, they will become community centers for sharing and healthcare information and getting, you know, cures and information out to people quickly. Food delivery services and takeout restaurants have already converted our economy from contagious forms of interacting to less contagious forms of feeding people. Supermarkets will need to make more adjustments, ways you can just pick up your packages, you know, maybe even stay in your car and just do drive-through. It's now about like March 20th. It's been astonishing to me just how quickly how many businesses have adapted to give people safer alternatives when our government still really hasn't done very much. So I find this heartening, but I think ultimately in terms of coming up with a vaccine and pharmaceutical, again, remedies or even cures, we're mostly relying on business for that.

That's true. That's very accurate. Also, you can kind of see how businesses are adapting in this climate and how even though demand is lower and people are freaking out, how they're still kind of trying to pull through, trying to adapt to the demand of the market. So kind of looking back into the past and at some big business titans, I guess you could say, like Rockefeller— was he good or bad?

Well, like every human being, he seems to have been a mix of good and bad. And I don't approve of all the lobbying the Rockefellers did of government, but they produced a great deal of oil and sold it at a time where that built up, you know, this nation from the ground up and gave us the high standard of living we have today. So the influence of the Rockefeller companies, I think, has been strongly positive. I'm not saying the Rockefellers as humans were in every way saints. They were not.

So would you say the same for Andrew Carnegie or Ford or Bill Gates, Steve Jobs?

Well, each is a bit different. I think Carnegie has one of the strongest net positive records, and his philanthropy was also remarkably effective in setting up a higher education and libraries around the United States. We're a much smarter and better educated nation because of Carnegie. I would really give him very strong marks. The Gates Foundation— Bill Gates has had a phenomenal role in philanthropy, fighting off disease in Africa, making major progress there. I still use Microsoft products to this day. They're extremely useful to me. Steve Jobs, of course, led two different revolutions. One was the personal computer and the other was the smartphone. And both of those influenced my life every single day. So, uh, there are people who say Steve Jobs wasn't such a nice guy. I never knew him, but I know people who actually worked at Apple, and they say those pictures, those portraits of him, are somewhat misleading. I would be agnostic on that, but I would just say, when it comes to business people, you really cannot always believe everything you read. Especially the negative. Henry Ford, it seems, was not a nice man from what I've read.

It's interesting to look at people's perceptions of these people, of the business titans, the people who have brought around change and great innovation, and to see how they're viewed as opposed to how their innovations are viewed and kind of what their I don't know, their whole, like, first legacy. Yeah, like their philanthropy. Like Bill Gates, he's really well known for that, but also— so he's held at a very, like, high value in people's minds. They see him very well, but he also has great innovations. And then it's just interesting to see how people's view of a certain CEO or like creator of something doesn't entirely affect the way that the entire brand is viewed. It still does, but just not— it's not completely indicative of the future of that company.

So Bill Gates is one of the smartest human beings I've ever met, one of the 3 or 4 smartest. He's extremely impressive. If you debate development economics with Bill Gates, he knows that topic better than almost any PhD economist, and that's really pretty awesome, deserves a lot of respect.

So Elizabeth Warren wants all big businesses to be more under the control of the federal government. What do you think of this proposal?

Well, I'm not a fan of that proposal, as you might guess. Uh, the government will not do a perfect job regulating big business. In fact, the government will be captured by some group of big businesses to keep down others. That has been a common pattern in American history. And if someone wants to say, well, big businesses who break the law and pollute, they should be penalized more, uh, I very much would agree with that. I do see some businesses getting away with breaking laws or receiving only minor penalties, uh, but the goal of that should be to strengthen the system of big business we have and not to break it up or overturn it or bring it all under political control.

What aspect of political control would make big business worse?

Well, if you split up the major tech companies into multiple parts, they would spend years just recovering from the shock. Going through antitrust trials can take 10 or even 20 years. It's a phenomenally complex and costly and time-consuming process. Those companies get taken over by their lawyers. They stop innovating. And at the end of the day, you know, what threats are really removed if we say split up Facebook? Do we somehow magically achieve privacy? I really don't think we do. Those problems are generic. They're not the fault of any single company.

Big tech is talked about a lot in the aspect that they're listening and that there's a lack of privacy between us and them. For example, like Alexa, from Amazon. What do you think would change, or would anything change, if the government was in control and if the government had access to that information?

Well, the government spies on us all the time. You know, I advise people not to buy Alexa. I haven't bought it. You don't have to buy it. Uh, I would just point out the real threat to your privacy is actually your friends and family for the most part. You know, not Facebook or Google, that they gossip about you, they circulate untruths about you. If you're worried about privacy, it's the people you know. Mark Zuckerberg is not sitting up at night, you know, thinking how can he take the secrets of Juliet Salgren and spill them out to Juliet's friends because he doesn't like Juliet. It's really not his concern. That company has made some mistakes, but their core incentive is actually to protect the information they are collecting about you and not to have it spill out there.

Because if Amazon leaks all my information, then I don't trust Amazon, then I don't buy from Amazon, and they lose customers. So it's basically in their best interest to keep customers happy and to make sure they're safe and secure, right?

Yes, and Amazon is more likely to have the talent and resources to protect your information than, say, even the federal government is. There have been hacks into the federal government's data files, probably by the Chinese. That happened. Government didn't protect you from that. Don't think government is the savior here. Most of the tech talent is in these major companies.

A final question before we go. Will you please name 3 of your favorite big businesses today and explain why?

Well, I spent so much of my money at Amazon They send me books and I love books, as you know. And Amazon owns Whole Foods. That's my favorite place to go food shopping. So that would be high on my list. I've been using the service WhatsApp to chat with people about how the pandemic is developing. That's owned by Facebook. WhatsApp is really a major advance in person-to-person communications. That would be a favorite. And then I would just mention a car company like Toyota. Cars to me are important for my life. Cars are much more reliable than they used to be. They're much cheaper relative to wages than they used to be. And Toyota, Hyundai, many other companies, foreign, American, they've really put in an impressive performance. So off the top of my head, those would be 3 picks.

Thank you for sharing. Thank you so much for being on my first episode of this podcast, and thank you so much for inspiring me and coming up with the name for it. Like, that— it's insanely cool. I'm so grateful. Thank you so much.