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Who else is too big to fail?

There has seldom been widespread agreement that certain companies really are so big, and so important, that they cannot be allowed to fail.

The notion that some companies are “too big to fail” — too large and too interconnected with the rest of the economy for their failure to be permitted by government — is lamentably familiar to most of us in the wake of the 2007-2010 financial crisis. The term has most famously been applied to the biggest American banks (e.g., Bank of America) and insurance companies (e.g., AIG), and it motivated the multi-multi-billion-dollar government bailouts of 2008/2009. In some ways, it’s a radical notion: for most of modern economic history, the assumption has been that the economy could operate according to something like survival of the fittest. If a company is so mismanaged that it fails, so be it. That’s life in a competitive market. Of course, governments have from time to time propped up companies seen as particularly important employers, but such moves are always divisive. There has seldom been such widespread agreement that certain companies really are so big, and so important, that they cannot be allowed to fail.

But outside of the financial industry, what companies might reasonably be thought of as “too big to fail?” Are there companies the failure of which would be truly catastrophic? What companies are there such that, if they suddenly ceased operations, the result would be disastrous not just for individual customers, employees, and shareholders, but for society as a whole?

I’ll mention a few possibilities, and then open the floor for discussion:

BP, Chevron, and the other very large oil companies. As unpopular as they are, it’s hard to deny that their product is utterly essential, at least for the time being. Any one of the biggest companies going out of business would, I suspect, have a terrible impact on the reliability of supplies of gasoline and heating fuel, and would most certainly result in increased prices. On the other hand, most of the world’s oil supply flows through the big state-owned oil companies of the middle east, rather than through private companies like Exxon and Shell the others, the ones that come most readily to mind for North American and European consumers.

Big pharma. Again, not a popular industry. And much of what they produce — treatments for baldness, erectile dysfunction, etc. — is far from essential. But some of their more important products, including things like antibiotics and vaccines, truly are essential and an interruption in their supply could have catastrophic consequences, from a public health point of view. But then, that industry has enough players in it, with overlapping product lines, that it’s unlikely the collapse of any one company would have a huge impact. But really, I’m guessing here. Perhaps the collapse of the maker of whatever the single most antibiotic is would be catastrophic. (Does anyone know?)

What about UPS? That one may surprise you, but the company handles something over 5 million packages per day, which I’ve heard adds up to a non-trivial percentage of American GDP. If UPS disappeared tomorrow, of course, Fedex and the USPS would take up some of the slack, but the short-term effect on American business (and hence consumers) would be significant.

Locally, surely, there are lots of companies that might be considered essential. Companies involved in ensuring the quality of municipal water supplies might count (including the ones that provide the chemicals needed for water purification). And in places where fire departments are privately-run, those would obviously count. But really, I’m looking for examples of companies the failure or disappearance of which would have widespread effects from a social point of view.

Of course, the phrase “too big to fail” isn’t just descriptive. In the world of finance, it is seem as having immediate policy implications. In 2009, Alan Greenspan, the former chairman of the US Federal Reserve (and no fan of government intervention in the economy), said “If they’re too big to fail, they’re too big.” Are there companies outside of finance where such an argument could be made?