Читать книгу The New Builders - Seth Levine - Страница 24

Milton Friedman's theories reshaped corporate practices, resulting in companies that were huge, not in terms of employees but in terms of resources, power, and access to capital. In 1964, the nation's most valuable company, AT&T, was worth $267 billion in today's dollars and employed 758,611 people.¹⁰ Today, Apple is worth more than $2 trillion but has only about 147,000 employees – less than a fifth the size of AT&T's workforce in its heyday.¹¹

Simply put, today's entrepreneurs face a nearly impossible uphill climb because large businesses are increasingly unchecked in their market power and profitability. At the same time, rising income inequality means fewer and fewer people have the savings to start businesses, a process that often means forgoing income for several years.

Almost like a living organism or a healthy forest, economies stay healthy by constantly building and changing. New firms are created, established firms grow, and outdated firms fail and close down. It's a balancing act between growth and consolidating market power and new businesses and new ideas nipping at the heels of incumbents. As just one example of this process in action, consider that the half‐life of companies on the Fortune 500 list of America's largest corporations is just 20 years, meaning that 20 years from now we can expect 250 from today's list to no longer be among the top 500 companies in the country. This is dynamism at work, and it's a powerful force in our economy.

But there are signs that dynamism in the United States is waning. A 2019 recent study by Ufuk Akcigit, a professor of economics at the University of Chicago, and Sina T. Ates, a senior economist at the Federal Reserve Board, developed a theory as to why dynamism is slowing.¹² They noted 10 factors:

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.

All of these factors are important, but several have direct implications for New Builders. Specifically, increasing market concentration, increasing profits, the correlation between the rise in market concentration and the fall in labor share, new firm entry rate, and the declining share of economic activity from newer firms all describe how larger firms are making up a greater share of the market and wielding more market power.

Many of these factors reinforce one another. Economic activity from newer businesses is going down (factor 8), which is related to the fact that fewer newer firms are being formed and entering the market (factor 7). This leads to a greater concentration (factor 1) and the consolidation of power of incumbent firms (which is causing profits to be increasing – factor 3 – at the same time these firms are relying less and less on labor – factor 4). It's a virtuous cycle. Or perhaps more aptly put, a vicious cycle.

Harvard economist Larry Katz described the increasing concentration of American business as one of the leading factors in the decline of dynamism as well, describing to us that “there has been really big growth in economies of scale…many traditional businesses can't compete with the large firms.”¹³

Of course, businesses create and shed jobs all the time. Critics of the idea that small businesses are an irreplaceable piece of the dynamic American economy have argued that studies that profess the power of small business job growth gloss over job losses incurred by those same startup firms after their first year of operations. The net job numbers for startups include only companies adding jobs; after year one, they include companies that are adding new jobs and companies that go out of business or shrink, in each case, shedding jobs.

Robert Atkinson and Michael Lind argued the case in their book, Big Is Beautiful. It's a provocative work that argues that small businesses are in fact not responsible for most of the country's job creation and innovation. In Atkinson and Lind's worldview, the only kind of small firm that contributes to innovation are technology startups – who, they point out, ubiquitously have the goal of becoming big businesses. They believe that the idea that small businesses are the foundation of our economy is a relic of past times and nostalgic thinking. They argue that both consumers and workers are better off buying from, and working for, large businesses. In their view, new small businesses create new jobs; however, they argue that these jobs are lost over time as those businesses eventually close.

While important to acknowledge differing views – especially ones that are well formulated and argued – for us, these arguments fall short and ring hollow. It is absolutely true that businesses fail at a relatively high rate. To us, that is not a limitation of small businesses but, in some regards, a feature to them. Of course, new businesses create a large share of jobs. But to argue that if they simply didn't exist, larger companies would create those same opportunities defies logic and sense. If that were true, larger businesses would be creating new jobs irrespective of what is currently taking place at small companies. Big businesses would be setting up shop on Main Streets, financing the first chocolatier in Arkansas, or starting a guiding company in the Bob Marshall wilderness. They are not.

Small businesses have a larger appetite for risk, and by virtue of their owners' passions, are sometimes willing to live with lower profits. An economy devoid of small businesses is a flat, uninspired landscape of sameness. To continue to thrive, America needs both big and small business and grassroots entrepreneurs of all backgrounds to create a living, vibrant entrepreneurial economy.

To be clear, large companies are important to our economy as well, and nothing in our experience meeting New Builders or in our work as a venture capitalist and journalist suggests that they're not. But by abandoning our startup economy, by failing to support New Builders, we risk a critical part of America's economic engine. Importantly, the struggle we're describing is not one of big business in conflict with small business. In fact, many of today's biggest businesses sell products and services to small businesses, which makes the danger even greater. Our economy is not a zero‐sum game and we don't need to choose sides. In fact, our economy should be viewed as positive‐sum.¹⁴ The American economy has thrived with both big and small businesses in balance. That balance ebbs and flows over time, but we need to recognize that we're in danger of letting that balance get dangerously, perhaps irreconcilably, out of whack. Stories of well‐loved small businesses closing their doors because they cannot compete with larger, and larger‐than‐life, businesses have become all too common.

Over the past 50 years, the US regulatory and political landscape has changed significantly. Those changes have generally helped larger businesses and hurt smaller ones. As much as politicians love to talk about their love of Main Street and the importance of small businesses, their actions largely have shown otherwise. So while we don't subscribe to the blanket “‘big is bad” mantra that some in the media like, even as they celebrate “scale” and high returns, we recognize through our research and reporting that our systems have become skewed too much in favor of large businesses. And in the places we've tended to support smaller enterprises, we've been overly focused on that tiny portion of new companies that have both the goal and the potential to become large businesses. In doing so, we've destroyed the level playing field that fits the entrepreneurial mythology of the American Dream and created one that stacks the odds against grassroots entrepreneurs.

There is another cost to our love affair with big. Over the past decades, we've narrowed our focus as to where innovation happens, and in doing so, we miss seeing where creativity occurs. Especially if it's on a smaller scale.