Tyler Cowen on why the big get bigger and more boring

The Complacent Class: The Self-Defeating Quest for the American Dream by Tyler Cowen shares some data about the big getting bigger:

A recent Wall Street Journal analysis of data from the University of Southern California found that, by federal antitrust standards, there is a high degree of concentration in nearly a third of all industries, compared to about a quarter of all industries in 1996. Or to cite another metric based on the same data, nearly two-thirds of publicly traded companies were selling in more concentrated markets in 2013 than earlier in 1996. Yet another measure is this: Of the more than 1,700 public companies in existence in both 1996 and 2013, 62 percent saw their share of the market go up over that same period of time.11 What is driving these developments? Most likely, some leading firms have the ability and intent to launch well-known national brands backed by extensive marketing and product development, and other, smaller firms cannot match their pace. The result is that some markets have a greater element of winner-take-all, as is suggested by the data on corporate valuations. If we look at the S&P 500 stock index in 1975, the category of “intangible assets” accounted for about 18 percent of the value of American capital. Most American capital was in physical assets, such as machines and factories, tangible items that can be purchased and replicated if need be. Today, over 80 percent of the value of the S&P 500 is due to intangible assets, including trademarks, patents, brand name reputation, consumer goodwill, and other factors. That’s a big leap upward, from below 20 percent to above 80 percent for the value of corporate intangibles.

And if you’re big you tend to be boring…

Second, many intangibles rest on reputation and image. If Google alienated most Americans with an ongoing series of offensive remarks and behavior, users would jump to Bing or to other search engines, just as many customers have left Chipotle because of its association with E. coli outbreaks. Furthermore, if Google lost its image as a cutting-edge place to work, it could lose its ability to recruit top talent. Once companies have ascended the mountain, they play it safe. They have no interest at that point in “disruption,” and they try to offend as few users, or potential employees, as possible.

In 2014, the Mozilla CEO stepped down, basically for having donated to anti–gay marriage campaigns, even though at the time most Americans did not seem to favor the legality of gay marriage. Whether or not you worry about the constraints on speech brought by such firings, it’s a sign that some kinds of risk-taking are over. We’ve also seen a lot of companies end or postpone expansions into North Carolina due to the 2016 passage in that state of a law perceived as hostile to transgender individuals. Again, the net result is that companies will obsess all the more over legal matters and public relations, sometimes at the expense of growing their business or focusing on the physical product or taking chances. We see corporate cultures stressing the law and also public relations, two inherently conservative corporate departments that are rarely sources of major innovations.12 Still further evidence for growing monopolization, and for that matter the social stasis it feeds, is what is sometimes called “the investment drought.” That is, businesses just aren’t investing as much as they used to. Net capital investment, as a share of gross domestic product, has been declining since the 1980s. An alternative measure of the value of capital services, a ten-year moving average which avoids the “noise” in the data for any single year, has been declining since the start of the millennium. It hit almost 5 percent of GDP around the turn of the millennium, but since then it has fallen steadily and is now hovering at about 2 percent of GDP. This again means that America is not replenishing its future sources of innovation, growth, and ability to pay higher wages because the future capital just won’t be there to the same extent.

If we adjust for increases in the American working-age population, the United States creates 25 percent fewer triadic patents per person than it did in 1999. (A triadic patent is one filed in the United States, Europe, and Japan, and tends to be a relatively serious patent in terms of potential scope.)

The central planners in Washington, D.C. have hugely favored higher education over the past few decades, showering them with tax dollars in the forms of student loan guarantees, grants, etc. State and local governments have been pumping more cash into K-12 education as well. What’s the result?

Two of today’s most rapidly growing sectors seem especially hostile to turnover and business dynamism, and they are not even counted in the standard business statistics. If we look at higher education, the list of top universities is barely different from what it was seventy years or even one hundred years ago, apart from having added some West Coast contenders, such as Stanford and UC Berkeley. The sociologist Kieran Healy made an explicit comparison of today’s best schools using a listing of the best schools from a 1911 report by a Mr. Kendrick Charles Babcock. For the more mature regions of the United States, it’s all a bunch of recognizable first-tier names, including Harvard, Princeton, Columbia, and, well … do I need to give you the whole list?8 There has been considerable innovation in what has been taught and how universities are organized, but at the top, America’s higher education sector does not have a whole lot of turnover; nor have innovative unicorn firms or schools taken over. For primary education, of course, most school systems are municipal, and they hardly budge for decades, although there is some dynamism from a recent wave of charter schools. As mentioned, low turnover in this sector isn’t new, but education and higher education are taking on larger and more important roles in the American economy, and that represents an increase in stasis from a business point of view.

Not everyone is getting fat…

when you zero in on male wages, the picture becomes truly disconcerting. The median male wage was higher in 1969 than it is today. That’s a shocking fact, given earlier expectations of ongoing economic progress, and not many economists of that time, of any political stripe, would have predicted that to happen without a major catastrophe or global war. A big chunk of our economic gains have been driven by women getting better educations and working longer hours. That is good news for many women, but if the American economy were more dynamic, we would expect the males to have rising real wages just because so many technological advances have been dumped in their laps.

Even the most recent trends are discouraging. If we take out the gains of the top earners, take-home pay for typical American workers has been falling since the Great Recession ended in 2009, an unusual path for an economic recovery. According to one good estimate, median wages for the American economy as a whole fell 4 percent from 2009 to 2014. There are also wage declines within a lot of occupations. For instance, median pay for restaurant cooks fell by 8.9 percent, and for home health aides, the median wage fell by 6.2 percent, even though the dining and health care sectors have been relatively robust in terms of both revenue and employment.

[As with most academic economists, Cowen attributes the lack of wage growth to stagnation in productivity.]

Can we expect a peasant uprising as these median earners watch the parade of Teslas passing them by? Cowen says no.

Many of the seminal events of the civil rights movement could not happen today, most of all because society is more bureaucratized, more safety obsessed, and also less tolerant of any kind of disturbance or disruption at all. Take the Selma marchers. It would be very difficult for a Selma-style march to happen today, and that is not because all civil rights grievances have been solved. In 1965, the Selma marchers had obtained the legal right, through petition, to conduct a fifty-two-mile, five-day march down an interstate highway. Of course, that blocked the highway, and for the most part such march permissions are impossible to obtain today, no matter how popular the political movement may be. Most motorists and truckers just don’t want the highway shut down. Starting in the 1970s, the federal courts began to assert that public spaces are not automatically “fair game” for marches and demonstrations, and so local governments have sought to please users of such facilities rather than marchers.

The disputes over a neo-Nazi march in Skokie, Illinois, made it clear to local governments that an undisputed de facto right of public assembly could be very costly. In 1977, a neo-Nazi group had petitioned for the right to stage a march in the predominantly Jewish community of Skokie.

local governments felt burned, in this case and in several others. If they could not prohibit undesirable marches, they would regulate them, if not out of existence, then into the less-visible and less-focal parts of their urban and suburban spaces. A new, slow war began, this one to make sure that demonstrators could not use the physical spaces they most desired. If arbitrary or capricious restrictions on demonstrations were not to be allowed, then regular restrictions, applicable to everyone, would take their place.

Washington, DC, is in some ways even more restrictive. The National Park Service controls about 25 percent of the city, including many of the focal protest spots. For those locations, any protest of more than twenty-five people requires a permit. Furthermore, if the event is expected to be of any note, the protest organizers will be required to meet with the Park Police and possibly the Capitol Police to plan it out, accompanied by lawyers in many cases. Still further complications arise if the Secret Service is involved.16 And post 9/11, Washington, DC, protests face yet another problem: They are possible sanctuaries for terror attacks, or at least they are perceived as such. If the City Park Service or some other bureaucracy sees some possibility of a terror attack connected to a protest, or even believes that a facility or public locale may become slightly more vulnerable, it can deny permission for the event, very often with impunity.

It is by no means impossible to receive permission, but you have to work through the bureaucracy. There now exists a mini-industry of “protest planners,” comparable to wedding or convention planners, and they charge fees to boot. They will help you coordinate with the police, set up stages and sound systems in the approved manner, and clean up after the event is over. These days, a DC protest is more of a bureaucratized event than anything else, and typically it is viewed by the media as such, or in other words it is ignored unless it has massive attendance. For better or worse, this whole process is a long way removed from the older custom of shouting and gathering an angry, demanding crowd in the local town square.

[Cowen does not address the question of Donald Trump’s connection to the neo-Nazis in Skokie circa 1977.]

Cowen suggests that ultimately there will be a reckoning here in the U.S. There actually might be a peasant revolt and the election of Donald Trump is a harbinger of that, according to Cowen. But he doesn’t seem to take seriously (or work to refute) the possibility of stagnation. Britain stagnated from the end of World War II until Margaret Thatcher came along. The U.S. is more or less modeled along British lines. Why can’t we stagnate? (in January 2009 I asked the same question and we have bumbled along with sluggish economic growth in the intervening years)

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