Too Big To Fail is a subtle issue. For many situations size does matter. Up to a point, a larger company may be (emphasis: may be) more efficient that a smaller one, providing lower prices to consumers, better profits, stability and more products. The issue is less in their size and more in their number. If there are to be large companies there better be many, many large companies and many more medium and small ones. A failure, in that scenario, would be permissible in that the other players would pick up the slack. "Big" becomes relative to the size of the economy and the number of other firms in that industry or region. The risk to employees of failure at any one firm is greater when that is the only company in town.
An anthropomorphic view of corporations appears to have take hold somehow. The Supreme Court has just decided that corporations are as entitled to free speech as voting citizens are. Alan Greenspan thought that firms would act in their own best interest. And the current administrations wishes to "...rein in risky behavior at banks..." Corporations are expected to be responsible citizens. This provides nice insulation for managers and stock holders, no person is responsible, it is the corporation. This attitude is more than little unhealthy. Corporations, governments, institutions of any kind are not people. They do not act autonomously. Only people act, only people have moral fiber, for good or bad.
Risk is part of life, as is reward. It is difficult to get people to "connect" with the risk caused by their actions. For many managers personal risk is separate from risk to the organization. For a partnership or a sole proprietor, assets are directly at risk. Good decisions have potential to really enrich the owner. A bad decision can, literally, wipe him out. In the large company the manager (or employee) manages two risks simultaneously: the risk to the firm and the risk to himself. Often he can take considerable risks for the firm with little or no risk to himself: he will either be a hero or else get another high paying job.
Join actual risk and reward to personal actions and we might just have more stable responsible organizations. I can tell you from personal experience that this is difficult to accomplish. For some years I worked on sales and a large part of my income was in commissions. When I (or my staff) made good decisions I did well. When I made bad decisions, I felt it in my paycheck. Much latter I proposed to my fellow stockholders/partners that the pay of the active partners be largely in relation to profits and sales results. The risk was that after bad decisions we would receive only a minimal barely adequate salary, but if results of good decisions proved out our pay could be terrific. The response: no takers.
It is natural to want to be "safe," to have no risk. A large, advanced economy is certainly able to (and should) help organize relatively safe lives for its citizens, a baseline of support for those who venture to take a risk by going to school, starting a business or entering some public service. And, support for those who encounter some misfortune. The people who sweep up are every bit as essential as the top managers and entrepreneur. Society does not work without them. And, those who are willing to take risks, personal as well as financial, should be encouraged.
The Separation of Risk and State has become of critical concern. To what extent should society (a government) take risks? The state should not undertake the risk of normal commerce (as in bailing out the banks). However, some risk, even substantial risk is the proper province of government: the space program, the internet, railroad, canal, and road building are all enterprises that were speculative and risky at one time. But the payout was tremendous. We must actively consider how to better connect people to the risks they undertake, and to those risk we take as a society.
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