The logos of automobile companies (LtoR) Abarth, Lancia, Fiat, Alfa Romeo and Jeep are pictured at ... [+]
Often enough here I write about income inequality issues that come from selfishness, unfair social systems, and a practical disinterest on the part of people with power and money in the welfare of those without.
But there are other conditions as well—market conditions in industries, for example. A new study from Ufuk Akcigit, a professor of economics at the University of Chicago, and Sina T. Ates, a senior economist at the Federal Reserve Board, look at how business dynamism—the process of new business formation, expansion, contraction, job creation and destruction—has been slowing. They try to develop a theory behind this.
This observation of slowing business dynamism isn't new. A Brookings study from 2014 found the same thing. But a set of observations in the new paper is particularly interesting. Here are the factors the authors said contribute to the slowdown:
1. Market concentration has risen.
2. Average markups have increased.
3. Average profits have increased.
4. The labor share of output has gone down.
5. The rise in market concentration and the fall in labor share are positively associated.
6. The labor productivity gap between frontier and laggard firms has widened.
7. Firm entry rate has declined.
8. The share of young firms in economic activity has declined.
9. Job reallocation has slowed down.
10. The dispersion of firm growth has decreased.
It's become common to think that almost everything is a vast plot of a small, powerful, and wealthy cabal. Sometimes it may be. But we often discount the degree to which the world works on automatic—the hand of the market, as it's often called. Although, ironically, it stems from combined individual behaviors that ultimately manifest themselves as a mindless force.
There is nothing benevolent or intelligent about this. Nothing magical in the resulting collection of individual psychology choices based on increasing personal advantage.
People want to make more money, so they push companies to be bigger. The companies charge more. They pay less and keep a greater portion of the profits rather than recognize that without help they couldn't make anything.
Bigger companies snap up more sales and market share, making it increasingly difficult for new companies to come into existence and thrive. And then the larger businesses do what they can to discourage competitors because they don't want to give up anything they have. Potential competitors get discouraged and squeezed to a point where they have trouble being viable.
Those with money influence politics to further lock in benefits to corporations and people at the top. The 2017 tax law was one of the most absurd examples ever, cutting taxes and piling on debt to a degree that was shocking even in our profligate collective financing.
People subtly push to redefine basic concepts in the world and help justify their interests. For example, from World War II until the late 1970s, it was considered normal for corporations to retain their earnings and reinvest them—of course in part distributing money to shareholders, but also expanding salaries and job security. Then Milton Friedman and others in the economics department of the University of Chicago, after sitting at the feet of Ayn Rand too frequently, argued how a corporation should only exist for its shareholders.
The position has become so inherently unsustainable that the Business Roundtable, a voice of large corporations, recently released a new view of corporate purpose, one that hearkened back to the 1950s (although even then often honored in the breach), in which shareholders are only one of five different groups to which companies have obligations. The others are customers, employees, suppliers, and communities in which the businesses operate. Many CEOs of big companies signed it.
Sincere? Maybe, maybe not. But there is certainly fear in the air over whether the stability that gave those at the top ridiculously large rewards for work so often done by others might be giving way.
Processes in nature work because they are complex systems that, over millions of years, have found ongoing stability. Well, until clueless people came along and started doing things like freeing amounts of carbon so huge into the atmosphere that they began to change climatic balance.
The collective human mechanisms of business and commerce have throughout thousands of years of history had major flaws because of a similar intervention. Extreme greed causes personal behavior among many that warps what could be a stable and reasonable system. The ultimate impact is on most people and on the economy because we starve a human field of the resources it needs to be fertile and sustain growth and then a small group eats the seed corn because, after they're gone, what does it matter?
