9 ms·

The missing middle: firms in developing countries

102 points by falcor84 2y ago

llm_trw 2y ago
[flagged]
- gruez 2y ago
  >If the last 80 years of growth have shown: following the advice of western academics is the surest way to stay poor, while following any other advice grows your economy much faster. I thought mainstream economists advocated for market liberalization reforms that lifted billions out of poverty in asia? Is there a score sheet of how many times "western academics" were right or wrong?
- dannyobrien 2y ago
  Odd that communism pulled that off the moment that it adopted the market reforms documented and explored by western academics (and eastern ones too, to be clear -- just not doctrinaire Marxist and Maoist academics)
  - llm_trw 2y ago
    Odd that the USSR grew faster in the 1980s than the EU did in the 10s and 20s.
    - gruez 2y ago
      Odd for you to cherry pick two different time periods and regions to compare against. At least comparing china pre/post market liberalization you're not comparing between two countries.
    - deleted 2y ago
      [deleted]
    - addicted 2y ago
      The growth was fake which is why the USSR collapsed.
    - inglor_cz 2y ago
      You have no idea about conditions on the ground in the USSR in the 1980s. No meat, no consumer goods, people queued up for everything. The only thing that the regime could produce, besides weapons, were throughly false impressive statistics. Relying on Moscow for its growth figures is like relying on Charles Ponzi to multiply your savings. There is enough Eastern Europeans here on this forum that this kind of pro-Soviet misinformation won't fly here. We know precisely how things were.
- WalterBright 2y ago
  China switched to a market economy 20 years ago, and abandoned the communist economy.
  - inglor_cz 2y ago
    They switched to a market economy more than 30 years ago. During the Xi tenure, e.g. in the last decade, they seem to be coming back to political control of the economy. It also seems that their growth is slowing down. Possibly those two developments are related. The government is notoriously bad at picking winners. For an example relevant to HNers, there was a government-run precursor of the Internet in France, called Minitel. It was an interesting technology, but horribly overpriced and unable to develop with the times.
    - foldr 2y ago
      Growth inevitably slows as an economy develops. China is still growing faster than the US.
      - inglor_cz 2y ago
        "China is still growing faster than the US." The bigger picture is not favorable to China. Especially the high unemployment among the young is troubling. China no longer publishes data on youth unemployment, the last known figure was 23 per cent. This would be comparable to Spain or Italy, mostly sclerotic economies of the troubled southern wing of the EU.
        gruez 2y ago
        They started publishing figures again, after they "improved" the methodology https://www.atlanticcouncil.org/blogs/econographics/youth-unemployment-in-china-new-metric-same-mess/ https://www.atlanticcouncil.org/blogs/econographics/youth-un...
        foldr 2y ago
        Sure, it's a complex picture. But you mentioned growth, and China's economic growth is still pretty high.
netfortius 2y ago
[flagged]
- personomas 2y ago
  [dead]
ookblah 2y ago
isn't firm growth just a symptom of the issue? which i guess the article is describing. sometimes i feel like the best short-term path forward for a poor country is just to have some kind of heavy handed gov't (like a "benevolent" dictator, hear me out lol) dictate policy and brutally subsidize and consolidate industries. of course you have to magically do this this with minimal fallout from corruption and then somehow make the transition to more of a democratic model. debatable if this nets out positive in the long run for the average citizen, but it will make your country "rich" (looking at you south korea). US is unique in this regard in that we have these huge firms and can also foster an environment for small/med to make that transition, although it's changing as well.
- antihipocrat 2y ago
  Sounds like Singapore.. without the transition to a more democratic model. Living standards there indicate it's been net positive for quite a long time.
  - ENGNR 2y ago
    And South Korea
    - throwaway2037 2y ago
      > without the transition to a more democratic model Are you saying that SK has not transitioned to a more democratic model since their colonial independence in 1945? I beg to differ. SK is not SG. Yes, I know they have chaebols. Since their transition in ~1988 to a full democracy, the President and parliament (whatever they call it) have certainly shifted between multiple parties -- peacefully. If you study the development of democracies, this is an important step to a long-lasting, mature democracy.
  - gruez 2y ago
    What type of industries were consolidated/subsidized in singapore? My impression is that they had the advantage of being a liberal financial center, whereas all their neighbors were not.
zoobab 2y ago
Politicians love Big companies. Look at the last EU's Draghi report, not a single small/medium company in the list of contributors.
- paganel 2y ago
  Too bad that European history is filled with former autocrats/dictators who had gotten into power especially on the back of disgruntled small/medium business owners, the Nazis themselves had in their programme at some point the dismantling of big (and Jewish-owned) general stores so that the small store owners could have a chance (that didn't happen once they got into power, they just took over ownership from the Jewish).
- vvpan 2y ago
  The guy who made Nomad List and a bunch of other websites said on twitter that he was contacted by Draghi for the report.
- WalterBright 2y ago
  In the 90's, Microsoft proudly gave no money to politicians. Look what happened - an attack by the government on rather nebulous anti-trust charges. (Really - giving away a free browser harms consumers?) This all stopped when Microsoft learned that when you're a big company, you'd better pay tribute (political contributions). The winning strategy is to contribute to both sides.
  - blackeyeblitzar 2y ago
    Yes giving a browser away harms consumers. It’s bundling and dumping to kill competitors.
    - benoau 2y ago
      It’s also worth noting at that time downloading an alternative browser probably over “dial up” was likely to take a couple of hours when you also had usage quotas and fees based on connection duration!
WalterBright 2y ago
[flagged]
- hmottestad 2y ago
  Coming from Norway I highly recommend finding oil and having a socialist government. Great way to make the country rich. Hard for others to reproduce though.
  - WalterBright 2y ago
    Any economy can be rich if it's floating on an ocean of oil.
    - gmac 2y ago
      And yet the Norwegians, unusually, have managed to do it in a way where ordinary people benefit.
      - WalterBright 2y ago
        It's still irrelevant to this topic as Norway did not create wealth, it just pumped it out of the ground.
        gmac 2y ago
        I strongly disagree, as long as you frame the topic more reasonably as 'Want growth (that doesn't only benefit a small group of kleptocrats)?'.
        WalterBright 2y ago
        Unless you allege that socialism can create an ocean of oil under the country, I'm not buying that.
  - MadDemon 2y ago
houseplant 2y ago
we gotta stop chasing the whole "line go up" ideology. I know that's all capitalism is and how it exists, but we need to be okay with just simply doing well for the sake of doing well. You don't need to instantly go berzerk with investors and stocks and shit. unfettered growth will never truly pay off.
- WalterBright 2y ago
  > unfettered growth will never truly pay off It did for the US, Japan, Hong Kong, Germany, China, everywhere that free markets were tried.
  - mschuster91 2y ago
    China is the worst example you can make for that point. They're sitting atop of a giant pile of debt, particularly in housing, and millions of people have lost their life savings as a result. China's economy is a house of cards just waiting to come crash down, and that's without the threat of the CCP wanting to take over Taiwan.
    - CorrectHorseBat 2y ago
      None of the problems China is facing is anywhere close to undoing 50 years of economic growth.
  - Woeps 2y ago
    Thank you for pointing this out! It did for them on the back of others. The line has to go up mentality just puts resources from place A to place B. Now lets get past that stage and make sure that it pays off for everybody.
    - WalterBright 2y ago
      On the backs of who? How free markets work is the creators of wealth get to keep it. I.e. it's on their own backs.
pyrale 2y ago
This article is thousands of characters long, but somehow doesn't manage to explain how exactly you're supposed to help "firms", especially without getting hammered by companies from developed countries, or without lining the pockets of people who will store that money in fiscal paradises. It doesn't dwell either on why companies stay small in developing countries. It's a surprise, because the author claims there are hundreds of papers on the topic.
twelvechairs 2y ago
This is a bit correllation / causation. Larger companies aren't better in themselves, otherwise state monopolies would be the best answer. Developing countries have lots of businesses sure. But "size" is not a problem itself. It's usually industry (e.g. lots of street vendors because it's the easiest way to make a living if you have nothing else) and lack of capital investment (e.g. people hammering steel by hand rather than having some machinery)
- deleted 2y ago
  [deleted]
- tormeh 2y ago
  A lot of capital investments only makes sense at scale, though. The machines are more productive when manned 24/7, and the machines are often more efficient the larger they become.
  - gottorf 2y ago
    Economies of scale are real, but there are also diseconomies of scale. Machines are often more efficient the larger they are, but organizations tend to become less efficient the larger they get!
otikik 2y ago
Those pesky moral principles are also getting in the way of growth. If you want real growth, force people to work for you for free. If they stop working you can always sell their organs.
- WalterBright 2y ago
  > If you want real growth, force people to work for you for free Countries with free labor bury slave economies. Every time. I see the notion that slaves are more productive than free labor all the time. What is missing is any evidence of it. For an example, the US initially divided itself into two countries - North and South, free labor and slave labor. Guess which one economically and then militarily buried the other. For another, Korea divided into two countries. One buried the other economically. Germany split in two. The free one buried the slave one. How much more evidence do you need?
  - JumpCrisscross 2y ago
    > see the notion that slaves are more productive than free labor all the time It's estimated "that emancipation generated aggregate economic gains worth the equivalent of a 4% to 35% increase in US aggregate productivity" [1]. To look at the slave economies favourably, you have to exclude slaves from per-capita measures of productivity [2]. That said, Southern farms were more efficient than Northern ones. Not because they used slaves. But because they embraced economies of scale. [1] https://bfi.uchicago.edu/insight/research-summary/one-giant-leap-emancipation-and-aggregate-economic-gains/ https://bfi.uchicago.edu/insight/research-summary/one-giant-... [2] https://faculty.weber.edu/kmackay/economics%20of%20slavery.asp https://faculty.weber.edu/kmackay/economics%20of%20slavery.a...
    - WalterBright 2y ago
      > Southern farms were more efficient than Northern ones I don't believe it. Evidence: they couldn't feed the Confederate army.
      - 2y ago
awongh 2y ago
What the article doesn’t explicitly state is that it’s talking about some kind of undefined sweet spot of growth and business size. It seems intuitively true that businesses that are too small and too local stagnate the economy. But they avoid talking about businesses that are too large (oligarchic monopolies) that can control wages and prices, or businesses that are not value add, (I’m thinking resource extraction like oil, gas and minerals) neither of these kinds of large businesses seem to contribute that much to a local economy.
bjornsing 2y ago
The OP’s reasoning is based on a popular yet fundamental misunderstanding: an overvaluation of companies with many employees (a.k.a. “big” companies). The key to economic growth is not firms with many employees, it’s firms with highly productive employees. You want a system that kills off unproductive firms, so that better uses can be found for their capital and employees. You don’t want a system that kills off highly productive firms just because they stay relatively small. As an example Renaissance Technologies was founded in 1978 and has only about 310 employees today. Yet I can assure you that the US economy would not have been better off without it.
- piva00 2y ago
  > As an example Renaissance Technologies was founded in 1978 and has only about 310 employees today. Yet I can assure you that the US economy would not have been better off without it. Another example is Germany, even though the country has some massive companies there's a lot of quite productive medium/small companies (Mittelstand) doing specialised work.
  - fakedang 2y ago
    As a counter example, I see a shit ton of Indian firms in sectors such as pharma or tech, which employ hundreds or even thousands of people, but they collectively make much less in revenue than a similar competitor in the US, even though their business is mostly international.
- tormeh 2y ago
  310 employees is not very small. Anyway, the sweet spot for company size depends on what the company does, as productivity gains in certain tasks can be bought through capital expenditure. Heavy industry is an obvious outlier on the bigger-is-better side. Software, on the other hand, arguably has very low returns on increased company size.
  - bjornsing 2y ago
    And? From the tone of your comment I get the impression that you disagree, but the content is just trivia that I see no issue with.
PoignardAzur 2y ago
This article feels seriously below the standard of quality I've come to expect from Asterisk magazine. I don't think it should have made the cut. Some problems: - Lots of studies cited with no mention of replications or potential caveats. - Lots of effects measured where causation-vs-correlation would be a real concern (in one of them apparently the control group is "firms that dropped out because of a lack of budget"? Wtf?), but the articles never mentions confounders. - The whole article has a "for decades we've done development wrong" slant, but its ultimate conclusion is... We need less protectionism, more liberalization, and more information technologies? Hardly groundbreaking. Overall some observations are interesting, but they're really not conclusive enough to form a single narrative that would justify the incendiary title.
- nabla9 2y ago
  See my comment https://news.ycombinator.com/reply?id=41774909&goto=item%3Fid%3D41774467%2341774909 https://news.ycombinator.com/reply?id=41774909&goto=item%3Fi... This is 101 microeconomics. Not very controversial
- marcosdumay 2y ago
  > Lots of studies cited with no mention of replications or potential caveats. The one about Brazil got my attention because of the entirely absurd idea¹. Turns out it's a computer model trying to predict how to retrain people when industries change in size. 1 - International commerce liberalism? In Brazil? And unemployment at the same time? The only time Brazil tried the first on recent history, we got a strongly growing middle class and the least amount of unemployment of recent history. (Probably due to completely unrelated factors.)
JohnBrookz 2y ago
I’m an engineer at a grocery chain that essentially has a monopoly in most of Texas. The chain has a good and well earned reputation for the public but it definitely uses underhanded monopolistic tactics to maintain dominance. As it’s grown and expanded you can definitely tell that the ethics and how they treat workers / customers has gone down hill. Maybe it’s all the Amazon managers they’ve absorbed.
- jauntywundrkind 2y ago
  I have not even a rank neophytes understanding but these situations always remind me of the Hindu Trimurti, the balance of three powering the universe. Creation/dynamics gives way to preservation/ossification which eventually is destroyed/decays. In the Vampire & Mage tabletop, there's Wild, Weaver, Wyrm, a direct parallel, which was a very fun cosmological tension. Anyhow, this just feels like the lifecycle of companies. The young companies are dynamic & growing, but over times most orgs tend to ossify - even as they expand still becoming more deliberate & managed in their ways, punctuated by moments of renewed chaos & flourishing again. Extracting & preserving rather than growing. Until until until.
- nunez 2y ago
  How so? There are many grocery store chains in Texas (not that this matters, as they are all merging with each other).
  - JohnBrookz 2y ago
    If you’re in the major Texas cities you know there’s really only one.
- DontchaKnowit 2y ago
  H.E.B? cause yeah, I don't care if they're underhanded, HEB is the shit
nabla9 2y ago
The basic point of the article is correct despite everyone here in comments coming up with ad hoc arguments against it. This is Basic 101 microeconomics (pick some undergraduate text from economics and look it up.) There is also a whole subfield of economics called industrial organization that deals with this stuff. Firm size matters for productivity. Larger firms are on average more productive than smaller ones. Partly it is because gains from increasing returns to scale but better access to resources, organizational capabilities, and international reach also matters. Large companies tend to offer higher compensation. The average pay per employee increases with company size. This is good for the economy. Take for example Greece. People in Northern Europe like to think that Greeks are poor because they are lazy. However, they are among the hardest-working people in the EU—insane hours on average. But Greece has no large-scale industry. It can't compete within the rest of EU or internationally.
- logicchains 2y ago
  >Larger firms are on average more productive than smaller ones Do you have any references for this that demonstrate it empirically? Theoretically, larger firms have economies of scale, but they also run into the same internal coordination/incentive problems that communist countries do, due to internal resource allocation being driven by internal politics rather than a market. I.e. command economies (and the average corporation is a command economy internally) face diseconomies of scale.
- marcosdumay 2y ago
  > This is Basic 101 microeconomics Interesting. I've only read one intro to microeconomics book, but I remember it having a hand-waved graph with a clear peak on some unspecified point. And an explanation that the peak's position depends on a lot of factors.
surgical_fire 2y ago
lol large corporations were the least productive places I worked at. Growth came from the sheer inertia of a near monopoly paires with a bull run propped by very low interest rates. Much to the opposite, large corporations should be weighed down by more strict taxation, to give smaller competitors an edge.
- red-iron-pine 2y ago
  been my experience with F500 telco and mining orgs. they managed to jam their way into a sweet spot years ago, for whatever reason. now they're the antithesis of agile and productive, but they have so much inertia and marketshare they're hard to beat. the corporate structure means there is little reward for real changes internally, and in a lot of cases serious growth or losses came from externalities, like the Chinese economy demanding Australian iron... and then not. they paid for my certs, though...
nunez 2y ago
I see Karthik's point (that small businesses operated by people who just want to make an honest living doesn't grow countries like big businesses can), but: 1. Every big business started as a small business 2. Not everyone who starts a business wants a big business for many valid reasons, 3. The countries he uses as examples are flat or stagnating for many reasons other than firm size or productivity, and 4. In these countries, the only way to have a shot at becoming a big business is to be close to power (that tends to hoard wealth). Given that these countries also tend to have weak workers rights, "killing" small businesses == fewer options and opportunities for workers.
Eddy_Viscosity2 2y ago
By logical extension, the best growth model would then be a single big business that runs everything in the economy. I'm not sure that history would agree with that conclusion.
tharmas 2y ago
Its not size of Firm, its new work from old work. See Jane Jacobs, The Economy of Cities and her other book Cities and the Wealth of Nations.
MathMonkeyMan 2y ago
The article refers to one company as being "more stagnant" than another. It also mentions how people can behave "more like workers than like entrepreneurs." It refers to a firm's "growth." What are the assumptions underlying the article? What does it mean for a firm to be "stagnant"? How do "entrepreneurs" behave? What is "growth"? My guess is that the model unspoken is how startups work in, say, the US. An entrepreneur is a person focused primarily on securing more funding/customers/exposure for the company. A stagnant company is one whose revenue/profit/funding/headcount is not steadily increasing. Growth, the opposite of stagnation, is one combination of measures that an investor might use to guess whether an investment in the company will yield favorable returns. Is that what is missing from poor countries? To play the devil's advocate, I think that those things are more likely to occur in an environment flush with money, where there are many founders who will take a gamble, where there are many rich people who will fund the gambles, and where a corrupt state entity cannot easily be used to steal any good that comes from it.
- seabass-labrax 2y ago
  I think that 'growth' as a concept is in many ways the opposite of 'sustainability'. If there is a business that wants to survive, it would take fewer or smaller risks in proportion to its size, attempt to slow down change in revenue and headcount, and eventually start to influence its suppliers so that they do the same as well. Behaviour that marks a company that is, in the words of someone seeking growth, 'stagnant'. Furthermore, it seems that organizations rich in either sustainability or growth can trade it for the other - vanity projects are trading away sustainability for growth so unusual that it would never happen normally, and financial crashes are effectively a growth-centric market forcing itself to become financially sustainable again. Perhaps human nature makes this cycle eternal...
whatshisface 2y ago
>1. Growth in the number of firms 2. The average growth rate of each firm 3. The market share of high-growth firms relative to low-growth firms Accelerating any of these three factors will increase a country’s growth rate. I can’t emphasize enough how important this reframing is. [...] it is almost a mathematical truism that if a country’s firms are growing on average, then that country’s economy will grow. A truism? That's false. Consolidation increases the number of employees per firm, but reduces the number of firms.
dzonga 2y ago
most rich countries have the big firms -> without the big firms, difficult to become a rich country. data doesn't lie.
andriesm 2y ago
How to turn poor countries into rich countries? How about the Argentina (Javier Milei) model? Could be worth a shot. It's not patented, and we can all stand back and verify firsy that it works, before copying it. Plenty of well known economic ideas accelerate growth, but most people vote against these winning ideas because of feelings and not understanding economics or refusal to accept basic economics. People don't like to hear it, but it is pretty factual that the more of a society's money gets plucked out of the main economy and centrally spent and distributed by its government, it tends to lower economic growth, and similarly for being over-regulated. People can argue, but we have a realtime. experiment in the form of Argentina in front of us right now to prove these ideas. Other success stories could be plucked from recent history, as right now these ideas are not so popular. People want to hate the rich, and figjt inequality much more than they want tk reduce absolute poverty or increase economic growth. One can sacrifice a lot of growth to boost equality. So it's a matter of what people want to prioritize.

102 points by falcor84 2y ago

llm_trw 2y ago

[flagged]

gruez 2y ago
>If the last 80 years of growth have shown: following the advice of western academics is the surest way to stay poor, while following any other advice grows your economy much faster. I thought mainstream economists advocated for market liberalization reforms that lifted billions out of poverty in asia? Is there a score sheet of how many times "western academics" were right or wrong?
dannyobrien 2y ago
Odd that communism pulled that off the moment that it adopted the market reforms documented and explored by western academics (and eastern ones too, to be clear -- just not doctrinaire Marxist and Maoist academics)
- llm_trw 2y ago
  Odd that the USSR grew faster in the 1980s than the EU did in the 10s and 20s.
  - gruez 2y ago
    Odd for you to cherry pick two different time periods and regions to compare against. At least comparing china pre/post market liberalization you're not comparing between two countries.
  - deleted 2y ago
    [deleted]
  - addicted 2y ago
    The growth was fake which is why the USSR collapsed.
  - inglor_cz 2y ago
    You have no idea about conditions on the ground in the USSR in the 1980s. No meat, no consumer goods, people queued up for everything. The only thing that the regime could produce, besides weapons, were throughly false impressive statistics. Relying on Moscow for its growth figures is like relying on Charles Ponzi to multiply your savings. There is enough Eastern Europeans here on this forum that this kind of pro-Soviet misinformation won't fly here. We know precisely how things were.
WalterBright 2y ago
China switched to a market economy 20 years ago, and abandoned the communist economy.
- inglor_cz 2y ago
  They switched to a market economy more than 30 years ago. During the Xi tenure, e.g. in the last decade, they seem to be coming back to political control of the economy. It also seems that their growth is slowing down. Possibly those two developments are related. The government is notoriously bad at picking winners. For an example relevant to HNers, there was a government-run precursor of the Internet in France, called Minitel. It was an interesting technology, but horribly overpriced and unable to develop with the times.
  - foldr 2y ago
    Growth inevitably slows as an economy develops. China is still growing faster than the US.
    - inglor_cz 2y ago
      "China is still growing faster than the US." The bigger picture is not favorable to China. Especially the high unemployment among the young is troubling. China no longer publishes data on youth unemployment, the last known figure was 23 per cent. This would be comparable to Spain or Italy, mostly sclerotic economies of the troubled southern wing of the EU.
      - gruez 2y ago
        They started publishing figures again, after they "improved" the methodology https://www.atlanticcouncil.org/blogs/econographics/youth-unemployment-in-china-new-metric-same-mess/ https://www.atlanticcouncil.org/blogs/econographics/youth-un...
      - foldr 2y ago
        Sure, it's a complex picture. But you mentioned growth, and China's economic growth is still pretty high.

netfortius 2y ago

[flagged]

personomas 2y ago
[dead]

ookblah 2y ago

isn't firm growth just a symptom of the issue? which i guess the article is describing. sometimes i feel like the best short-term path forward for a poor country is just to have some kind of heavy handed gov't (like a "benevolent" dictator, hear me out lol) dictate policy and brutally subsidize and consolidate industries. of course you have to magically do this this with minimal fallout from corruption and then somehow make the transition to more of a democratic model. debatable if this nets out positive in the long run for the average citizen, but it will make your country "rich" (looking at you south korea). US is unique in this regard in that we have these huge firms and can also foster an environment for small/med to make that transition, although it's changing as well.

antihipocrat 2y ago
Sounds like Singapore.. without the transition to a more democratic model. Living standards there indicate it's been net positive for quite a long time.
- ENGNR 2y ago
  And South Korea
  - throwaway2037 2y ago
    > without the transition to a more democratic model Are you saying that SK has not transitioned to a more democratic model since their colonial independence in 1945? I beg to differ. SK is not SG. Yes, I know they have chaebols. Since their transition in ~1988 to a full democracy, the President and parliament (whatever they call it) have certainly shifted between multiple parties -- peacefully. If you study the development of democracies, this is an important step to a long-lasting, mature democracy.
- gruez 2y ago
  What type of industries were consolidated/subsidized in singapore? My impression is that they had the advantage of being a liberal financial center, whereas all their neighbors were not.

zoobab 2y ago

Politicians love Big companies. Look at the last EU's Draghi report, not a single small/medium company in the list of contributors.

paganel 2y ago
Too bad that European history is filled with former autocrats/dictators who had gotten into power especially on the back of disgruntled small/medium business owners, the Nazis themselves had in their programme at some point the dismantling of big (and Jewish-owned) general stores so that the small store owners could have a chance (that didn't happen once they got into power, they just took over ownership from the Jewish).
vvpan 2y ago
The guy who made Nomad List and a bunch of other websites said on twitter that he was contacted by Draghi for the report.
WalterBright 2y ago
In the 90's, Microsoft proudly gave no money to politicians. Look what happened - an attack by the government on rather nebulous anti-trust charges. (Really - giving away a free browser harms consumers?) This all stopped when Microsoft learned that when you're a big company, you'd better pay tribute (political contributions). The winning strategy is to contribute to both sides.
- blackeyeblitzar 2y ago
  Yes giving a browser away harms consumers. It’s bundling and dumping to kill competitors.
  - benoau 2y ago
    It’s also worth noting at that time downloading an alternative browser probably over “dial up” was likely to take a couple of hours when you also had usage quotas and fees based on connection duration!

WalterBright 2y ago

[flagged]

hmottestad 2y ago
Coming from Norway I highly recommend finding oil and having a socialist government. Great way to make the country rich. Hard for others to reproduce though.
- WalterBright 2y ago
  Any economy can be rich if it's floating on an ocean of oil.
  - gmac 2y ago
    And yet the Norwegians, unusually, have managed to do it in a way where ordinary people benefit.
    - WalterBright 2y ago
      It's still irrelevant to this topic as Norway did not create wealth, it just pumped it out of the ground.
      - gmac 2y ago
        I strongly disagree, as long as you frame the topic more reasonably as 'Want growth (that doesn't only benefit a small group of kleptocrats)?'.
        WalterBright 2y ago
        Unless you allege that socialism can create an ocean of oil under the country, I'm not buying that.
- MadDemon 2y ago

houseplant 2y ago

we gotta stop chasing the whole "line go up" ideology. I know that's all capitalism is and how it exists, but we need to be okay with just simply doing well for the sake of doing well. You don't need to instantly go berzerk with investors and stocks and shit. unfettered growth will never truly pay off.

WalterBright 2y ago
> unfettered growth will never truly pay off It did for the US, Japan, Hong Kong, Germany, China, everywhere that free markets were tried.
- mschuster91 2y ago
  China is the worst example you can make for that point. They're sitting atop of a giant pile of debt, particularly in housing, and millions of people have lost their life savings as a result. China's economy is a house of cards just waiting to come crash down, and that's without the threat of the CCP wanting to take over Taiwan.
  - CorrectHorseBat 2y ago
    None of the problems China is facing is anywhere close to undoing 50 years of economic growth.
- Woeps 2y ago
  Thank you for pointing this out! It did for them on the back of others. The line has to go up mentality just puts resources from place A to place B. Now lets get past that stage and make sure that it pays off for everybody.
  - WalterBright 2y ago
    On the backs of who? How free markets work is the creators of wealth get to keep it. I.e. it's on their own backs.

pyrale 2y ago

This article is thousands of characters long, but somehow doesn't manage to explain how exactly you're supposed to help "firms", especially without getting hammered by companies from developed countries, or without lining the pockets of people who will store that money in fiscal paradises. It doesn't dwell either on why companies stay small in developing countries. It's a surprise, because the author claims there are hundreds of papers on the topic.

twelvechairs 2y ago

This is a bit correllation / causation. Larger companies aren't better in themselves, otherwise state monopolies would be the best answer. Developing countries have lots of businesses sure. But "size" is not a problem itself. It's usually industry (e.g. lots of street vendors because it's the easiest way to make a living if you have nothing else) and lack of capital investment (e.g. people hammering steel by hand rather than having some machinery)

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tormeh 2y ago
A lot of capital investments only makes sense at scale, though. The machines are more productive when manned 24/7, and the machines are often more efficient the larger they become.
- gottorf 2y ago
  Economies of scale are real, but there are also diseconomies of scale. Machines are often more efficient the larger they are, but organizations tend to become less efficient the larger they get!

otikik 2y ago

Those pesky moral principles are also getting in the way of growth. If you want real growth, force people to work for you for free. If they stop working you can always sell their organs.

WalterBright 2y ago
> If you want real growth, force people to work for you for free Countries with free labor bury slave economies. Every time. I see the notion that slaves are more productive than free labor all the time. What is missing is any evidence of it. For an example, the US initially divided itself into two countries - North and South, free labor and slave labor. Guess which one economically and then militarily buried the other. For another, Korea divided into two countries. One buried the other economically. Germany split in two. The free one buried the slave one. How much more evidence do you need?
- JumpCrisscross 2y ago
  > see the notion that slaves are more productive than free labor all the time It's estimated "that emancipation generated aggregate economic gains worth the equivalent of a 4% to 35% increase in US aggregate productivity" [1]. To look at the slave economies favourably, you have to exclude slaves from per-capita measures of productivity [2]. That said, Southern farms were more efficient than Northern ones. Not because they used slaves. But because they embraced economies of scale. [1] https://bfi.uchicago.edu/insight/research-summary/one-giant-leap-emancipation-and-aggregate-economic-gains/ https://bfi.uchicago.edu/insight/research-summary/one-giant-... [2] https://faculty.weber.edu/kmackay/economics%20of%20slavery.asp https://faculty.weber.edu/kmackay/economics%20of%20slavery.a...
  - WalterBright 2y ago
    > Southern farms were more efficient than Northern ones I don't believe it. Evidence: they couldn't feed the Confederate army.
    - 2y ago

awongh 2y ago

What the article doesn’t explicitly state is that it’s talking about some kind of undefined sweet spot of growth and business size. It seems intuitively true that businesses that are too small and too local stagnate the economy. But they avoid talking about businesses that are too large (oligarchic monopolies) that can control wages and prices, or businesses that are not value add, (I’m thinking resource extraction like oil, gas and minerals) neither of these kinds of large businesses seem to contribute that much to a local economy.

bjornsing 2y ago

The OP’s reasoning is based on a popular yet fundamental misunderstanding: an overvaluation of companies with many employees (a.k.a. “big” companies). The key to economic growth is not firms with many employees, it’s firms with highly productive employees. You want a system that kills off unproductive firms, so that better uses can be found for their capital and employees. You don’t want a system that kills off highly productive firms just because they stay relatively small. As an example Renaissance Technologies was founded in 1978 and has only about 310 employees today. Yet I can assure you that the US economy would not have been better off without it.

piva00 2y ago
> As an example Renaissance Technologies was founded in 1978 and has only about 310 employees today. Yet I can assure you that the US economy would not have been better off without it. Another example is Germany, even though the country has some massive companies there's a lot of quite productive medium/small companies (Mittelstand) doing specialised work.
- fakedang 2y ago
  As a counter example, I see a shit ton of Indian firms in sectors such as pharma or tech, which employ hundreds or even thousands of people, but they collectively make much less in revenue than a similar competitor in the US, even though their business is mostly international.
tormeh 2y ago
310 employees is not very small. Anyway, the sweet spot for company size depends on what the company does, as productivity gains in certain tasks can be bought through capital expenditure. Heavy industry is an obvious outlier on the bigger-is-better side. Software, on the other hand, arguably has very low returns on increased company size.
- bjornsing 2y ago
  And? From the tone of your comment I get the impression that you disagree, but the content is just trivia that I see no issue with.

PoignardAzur 2y ago

This article feels seriously below the standard of quality I've come to expect from Asterisk magazine. I don't think it should have made the cut. Some problems: - Lots of studies cited with no mention of replications or potential caveats. - Lots of effects measured where causation-vs-correlation would be a real concern (in one of them apparently the control group is "firms that dropped out because of a lack of budget"? Wtf?), but the articles never mentions confounders. - The whole article has a "for decades we've done development wrong" slant, but its ultimate conclusion is... We need less protectionism, more liberalization, and more information technologies? Hardly groundbreaking. Overall some observations are interesting, but they're really not conclusive enough to form a single narrative that would justify the incendiary title.

nabla9 2y ago
See my comment https://news.ycombinator.com/reply?id=41774909&goto=item%3Fid%3D41774467%2341774909 https://news.ycombinator.com/reply?id=41774909&goto=item%3Fi... This is 101 microeconomics. Not very controversial
marcosdumay 2y ago
> Lots of studies cited with no mention of replications or potential caveats. The one about Brazil got my attention because of the entirely absurd idea¹. Turns out it's a computer model trying to predict how to retrain people when industries change in size. 1 - International commerce liberalism? In Brazil? And unemployment at the same time? The only time Brazil tried the first on recent history, we got a strongly growing middle class and the least amount of unemployment of recent history. (Probably due to completely unrelated factors.)

JohnBrookz 2y ago

I’m an engineer at a grocery chain that essentially has a monopoly in most of Texas. The chain has a good and well earned reputation for the public but it definitely uses underhanded monopolistic tactics to maintain dominance. As it’s grown and expanded you can definitely tell that the ethics and how they treat workers / customers has gone down hill. Maybe it’s all the Amazon managers they’ve absorbed.

jauntywundrkind 2y ago
I have not even a rank neophytes understanding but these situations always remind me of the Hindu Trimurti, the balance of three powering the universe. Creation/dynamics gives way to preservation/ossification which eventually is destroyed/decays. In the Vampire & Mage tabletop, there's Wild, Weaver, Wyrm, a direct parallel, which was a very fun cosmological tension. Anyhow, this just feels like the lifecycle of companies. The young companies are dynamic & growing, but over times most orgs tend to ossify - even as they expand still becoming more deliberate & managed in their ways, punctuated by moments of renewed chaos & flourishing again. Extracting & preserving rather than growing. Until until until.
nunez 2y ago
How so? There are many grocery store chains in Texas (not that this matters, as they are all merging with each other).
- JohnBrookz 2y ago
  If you’re in the major Texas cities you know there’s really only one.
DontchaKnowit 2y ago
H.E.B? cause yeah, I don't care if they're underhanded, HEB is the shit

nabla9 2y ago

The basic point of the article is correct despite everyone here in comments coming up with ad hoc arguments against it. This is Basic 101 microeconomics (pick some undergraduate text from economics and look it up.) There is also a whole subfield of economics called industrial organization that deals with this stuff. Firm size matters for productivity. Larger firms are on average more productive than smaller ones. Partly it is because gains from increasing returns to scale but better access to resources, organizational capabilities, and international reach also matters. Large companies tend to offer higher compensation. The average pay per employee increases with company size. This is good for the economy. Take for example Greece. People in Northern Europe like to think that Greeks are poor because they are lazy. However, they are among the hardest-working people in the EU—insane hours on average. But Greece has no large-scale industry. It can't compete within the rest of EU or internationally.

logicchains 2y ago
>Larger firms are on average more productive than smaller ones Do you have any references for this that demonstrate it empirically? Theoretically, larger firms have economies of scale, but they also run into the same internal coordination/incentive problems that communist countries do, due to internal resource allocation being driven by internal politics rather than a market. I.e. command economies (and the average corporation is a command economy internally) face diseconomies of scale.
marcosdumay 2y ago
> This is Basic 101 microeconomics Interesting. I've only read one intro to microeconomics book, but I remember it having a hand-waved graph with a clear peak on some unspecified point. And an explanation that the peak's position depends on a lot of factors.

surgical_fire 2y ago

lol large corporations were the least productive places I worked at. Growth came from the sheer inertia of a near monopoly paires with a bull run propped by very low interest rates. Much to the opposite, large corporations should be weighed down by more strict taxation, to give smaller competitors an edge.

red-iron-pine 2y ago
been my experience with F500 telco and mining orgs. they managed to jam their way into a sweet spot years ago, for whatever reason. now they're the antithesis of agile and productive, but they have so much inertia and marketshare they're hard to beat. the corporate structure means there is little reward for real changes internally, and in a lot of cases serious growth or losses came from externalities, like the Chinese economy demanding Australian iron... and then not. they paid for my certs, though...

nunez 2y ago

I see Karthik's point (that small businesses operated by people who just want to make an honest living doesn't grow countries like big businesses can), but: 1. Every big business started as a small business 2. Not everyone who starts a business wants a big business for many valid reasons, 3. The countries he uses as examples are flat or stagnating for many reasons other than firm size or productivity, and 4. In these countries, the only way to have a shot at becoming a big business is to be close to power (that tends to hoard wealth). Given that these countries also tend to have weak workers rights, "killing" small businesses == fewer options and opportunities for workers.

Eddy_Viscosity2 2y ago

By logical extension, the best growth model would then be a single big business that runs everything in the economy. I'm not sure that history would agree with that conclusion.

tharmas 2y ago

Its not size of Firm, its new work from old work. See Jane Jacobs, The Economy of Cities and her other book Cities and the Wealth of Nations.

MathMonkeyMan 2y ago

The article refers to one company as being "more stagnant" than another. It also mentions how people can behave "more like workers than like entrepreneurs." It refers to a firm's "growth." What are the assumptions underlying the article? What does it mean for a firm to be "stagnant"? How do "entrepreneurs" behave? What is "growth"? My guess is that the model unspoken is how startups work in, say, the US. An entrepreneur is a person focused primarily on securing more funding/customers/exposure for the company. A stagnant company is one whose revenue/profit/funding/headcount is not steadily increasing. Growth, the opposite of stagnation, is one combination of measures that an investor might use to guess whether an investment in the company will yield favorable returns. Is that what is missing from poor countries? To play the devil's advocate, I think that those things are more likely to occur in an environment flush with money, where there are many founders who will take a gamble, where there are many rich people who will fund the gambles, and where a corrupt state entity cannot easily be used to steal any good that comes from it.

seabass-labrax 2y ago
I think that 'growth' as a concept is in many ways the opposite of 'sustainability'. If there is a business that wants to survive, it would take fewer or smaller risks in proportion to its size, attempt to slow down change in revenue and headcount, and eventually start to influence its suppliers so that they do the same as well. Behaviour that marks a company that is, in the words of someone seeking growth, 'stagnant'. Furthermore, it seems that organizations rich in either sustainability or growth can trade it for the other - vanity projects are trading away sustainability for growth so unusual that it would never happen normally, and financial crashes are effectively a growth-centric market forcing itself to become financially sustainable again. Perhaps human nature makes this cycle eternal...

whatshisface 2y ago

>1. Growth in the number of firms 2. The average growth rate of each firm 3. The market share of high-growth firms relative to low-growth firms Accelerating any of these three factors will increase a country’s growth rate. I can’t emphasize enough how important this reframing is. [...] it is almost a mathematical truism that if a country’s firms are growing on average, then that country’s economy will grow. A truism? That's false. Consolidation increases the number of employees per firm, but reduces the number of firms.

dzonga 2y ago

most rich countries have the big firms -> without the big firms, difficult to become a rich country. data doesn't lie.

andriesm 2y ago

How to turn poor countries into rich countries? How about the Argentina (Javier Milei) model? Could be worth a shot. It's not patented, and we can all stand back and verify firsy that it works, before copying it. Plenty of well known economic ideas accelerate growth, but most people vote against these winning ideas because of feelings and not understanding economics or refusal to accept basic economics. People don't like to hear it, but it is pretty factual that the more of a society's money gets plucked out of the main economy and centrally spent and distributed by its government, it tends to lower economic growth, and similarly for being over-regulated. People can argue, but we have a realtime. experiment in the form of Argentina in front of us right now to prove these ideas. Other success stories could be plucked from recent history, as right now these ideas are not so popular. People want to hate the rich, and figjt inequality much more than they want tk reduce absolute poverty or increase economic growth. One can sacrifice a lot of growth to boost equality. So it's a matter of what people want to prioritize.