"Market economies are characterized by high turnover of both workers and firms. This “churning” is part of the process of “creative destruction” that shifts economic activity to more productive uses. The U.S. economy has typically stood out for its level of dynamism. But recent research has highlighted the long-term slowdown in the U.S. pace of gross job creation and job destruction (see top panel below), at least part of which has been associated with the decline in firm startups"
It's easy to get a rosy view of things, reading Hacker News, as Hacker News is attached to one of the few parts of the USA business community that remains dynamic. But it is important to take a wider view. The bulk of business activity in the USA has seen a decline in dynamic new formation. The decline started around 1980 and has gotten worse over the last 30 years.
Even in tech I think it's easy to overstate the level of dynamism. A lot of the buzz is around startups, but a huge amount of the industry is owned by fairly old companies.
Digging through the Forbes 500 list, there are 10 companies of the top 100 that I would consider "tech". They are (with year of founding): #5 Apple (1976), #17 HP (1939), #23 IBM (1911), #34 Microsoft (1975), #35 Amazon (1994), #46 Google (1998), #53 Intel (1968), #55 Cisco (1984), #69 Ingram Micro (1979), #82 Oracle (1977).
By decade that's: 2 from the '90s, 1 from the '80s, 4 from the '70s, 1 from the '60s, 2 pre-WW2. Looks like the '70s were a good time to do a tech startup. :)
I think when you see efficiency run amok and start to look like central planning, that's a sign that something is out of equilibrium.
Case in point: Wal-Mart. Wal-Mart used to be a great store -- until they won their commanding market position. In many areas, it's a gas station, CVS or Wal-Mart. Now they skinflint everything... they understaff, don't merchandise product, and have a shopping experience something like DMV.
And it isn't just the retail end that's a problem. Because of that dominant position, they've squeezed out the distributors that provided the supply chain to the retail economy.
Real competition is messy and inefficient on it's surface.
But that's natural. The innovator in retail is now Amazon. Wal-Mart was innovative when Sam hisownself ran it, and a little past that. The trope is that Sam had a daily report ( presumably on green fanfold paper ) on his desk every day. Very much a tech leader in the pre-Internet network sense.
I lived in a town that had no Wal-Mart and then it did. Before, you had to drive to downtown or a retail area across town and the stores closed basically at dark.
If you went to Penney's, it had hardwood floors, the clerk sent your transaction up a pneumatic tube to the cashier and got your change out of the same pneumatic tube. Banks still use these at drive in lanes.
Only the precursor to Wal-Mart - Gibsons - was open past 6:00ish ( I don't remember the exact figure ). You had to conform to the store's schedule. Mom would send orders with Dad to fill on lunch, back before we had two cars ( this was late '60s, early '70s ).
People invoke competition, but competition really only works out when the new guy has twice to ten times the impact that the incumbent has. Something has to cover switching costs.
The second paper is somewhat of a canard. There are fewer "firms" than 30 years ago largely because of fewer small players in areas like retail and construction (for example, fewer Mom-and-Pop shops and more market share to WalMart, etc).
Dominance of large players is indeed a reason for less "dynamism".
The flaw would be to assume that more dynamism, in and of itself, is better. For example it could come from many small players reinventing wheels (i.e. each Mom-and-Pop shop in my example above having their own supply chain).
That's somewhat inefficient, but it also creates lots of jobs. Arguably, what we are heading towards or perhaps already have now is an economy that's quite efficient but has large structural problems; a significant number of people no longer have meaningful jobs due to automation, Many more are underemployed to facing stagnant wage growth due to a skills gap, and there just aren't enough highly-skilled jobs to significantly increase employment.
Our economic top performers performer better, but any firm displaying merely good performance is regarded as a failure, so revenue flows become increasingly concentrated and markets uncompetitive, as incumbent advantages vastly outweigh competitive pressures. This is problematic in the round.
In isolation I agree, but it's tricky with globalization. For example my read of Greece is that it has too many mom-and-pop businesses which, even though they work 60-hour weeks, cannot compete with an efficient, modern German or Dutch company whose workers work a strict 40-hour week but in a well-managed Enterprise. Of course there are other big differences as well, corruption being one of them, but I think the cultural difference in company sizes is a big one: Greeks mostly want to work for themselves or in family businesses, whereas a typical German "small business" (as in the famous Mittelstand) has more like 50 employees (often 100-200), not <10. An economy built on tiny family businesses can't compete with a more modern economy built on Enterprises (in the sense of a corporation with division of labor, employees, professional operations & business management, etc.). SMEs in the 50-200 range are ok, but the tiny family businesses and one-person shops have trouble, and an economy dominated by those has few jobs and a poor economic base.
Also worth noting that big companies get unfair benefit of not paying VAT on internally created and consumed value. Greeks solve this problem by just not paying tax ;-)
Inefficient makework is a horrible form of welfare. The formerly employed should create new products/services to sell, or use their free time to organize and agitate for something like guaranteed basic income paid by the wealth concentrators.
Part of the problem is related to a change in the bankruptcy laws. This is documented in the 1992 book "America What Went Wrong".
Before 1978, bankruptcy laws were set up so when a business could no longer pay its bills, it declared bankruptcy. The business was dissolved, and its assets sold off and the proceeds given to the creditors.
In 1978, this was fundamentally changed to the idea that a bankrupt company could continue to operate with a judge acting as CEO. It's hard to imagine a person less qualified to run a huge corporation than a judge with absolutely zero expertise in business, finance, or the field the company is in. The result was ineptness, and a general looting of the company's assets by the lawyers.
The process of creative destruction was severely blunted by this, and the economy has suffered the consequences ever since.
(The book is rather hysterical, and its conclusions silly, but it well documents what the change in bankruptcy laws did.)
> It's easy to get a rosy view of things, reading Hacker News, as Hacker News is attached to one of the few parts of the USA business community that remains dynamic.
But isn't YC focused on proving some idea and then getting acquired? YC is thus primarily a pipeline for the enlargement of older, established companies, not a mechanism for creating new companies that will be viable in the long term.
So, if we consider the trend mentioned in these articles to be a problem (and clearly you do), then wouldn't YC -- and, by association, HN -- be more a part of the problem than part of a solution?
The bulk of business activity in the USA has seen a decline in dynamic new formation. The decline started around 1980 and has gotten worse over the last 30 years.
Income inequality seems one of those things that is "capitalistic" and beneficial, but it actually (a) provides an incentive for self-protection and corruption at the top, and (b) makes it far more likely that bad actors get away with it, because their superior resources allow them to move faster than they are discovered.
The problem is that capitalism requires inequality of results but the persistent, generational type of inequality that the world has now (and the US, post-1980s) is fundamentally anti-progressive.
http://www.moneyandbanking.com/commentary/2014/6/23/growth-a...
excerpt:
"Market economies are characterized by high turnover of both workers and firms. This “churning” is part of the process of “creative destruction” that shifts economic activity to more productive uses. The U.S. economy has typically stood out for its level of dynamism. But recent research has highlighted the long-term slowdown in the U.S. pace of gross job creation and job destruction (see top panel below), at least part of which has been associated with the decline in firm startups"
It's easy to get a rosy view of things, reading Hacker News, as Hacker News is attached to one of the few parts of the USA business community that remains dynamic. But it is important to take a wider view. The bulk of business activity in the USA has seen a decline in dynamic new formation. The decline started around 1980 and has gotten worse over the last 30 years.
Here is another one worth reading:
http://www.brookings.edu/research/papers/2014/05/declining-b...
That one looks at specific cities.
The news is troubling and grim. The trend is more than 30 years old, and appears to be accelerating.