5 ms·

Related, and worth reading: http://www.moneyandbanking.com/commentary/2014/6/23/growth-and-dynamism-troubling-facts http://www.moneyandbanking.com/commentary/2

Related, and worth reading: http://www.moneyandbanking.com/commentary/2014/6/23/growth-and-dynamism-troubling-facts 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-business-dynamism-litan 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.

_delirium 12y ago
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. :)
- rodgerd 12y ago
  And the companies from the 70s (Apple, Microsoft, and Oracle) are doing their damndest to make sure they kill one from the 90s (Google).
muzz 12y ago
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). Noah Smith wrote a good rebuttal: http://noahpinionblog.blogspot.com/2014/05/declining-us-dynamism-story-or-non-story.html http://noahpinionblog.blogspot.com/2014/05/declining-us-dyna...
- ThomPete 12y ago
  It still means less jobs netto and this is only going to keep declining.
- UweSchmidt 12y ago
  Dominance of large players could be a major reason for a less dynamic economy, so your link is not really a rebuttal. Can you clarify?
  - muzz 12y ago
    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).
    - anigbrowl 12y ago
      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.
michaelochurch 12y ago
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.
Spooky23 12y ago
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.
- ArkyBeagle 12y ago
  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.
WalterBright 12y ago
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.)
- judk 12y ago
  That description does not match what I see with "reorganizations" of bankrupt companies. And assets being lootedby lawyers doesn't sound much worse than assets being looted by auction
  - WalterBright 12y ago
    There's a very large difference between stealing (looting) and selling at market value (auction).
ggchappell 12y ago
> 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?

_delirium 12y ago

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. :)

rodgerd 12y ago
And the companies from the 70s (Apple, Microsoft, and Oracle) are doing their damndest to make sure they kill one from the 90s (Google).

muzz 12y ago

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). Noah Smith wrote a good rebuttal: http://noahpinionblog.blogspot.com/2014/05/declining-us-dynamism-story-or-non-story.html http://noahpinionblog.blogspot.com/2014/05/declining-us-dyna...

ThomPete 12y ago
It still means less jobs netto and this is only going to keep declining.
UweSchmidt 12y ago
Dominance of large players could be a major reason for a less dynamic economy, so your link is not really a rebuttal. Can you clarify?
- muzz 12y ago
  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).
  - anigbrowl 12y ago
    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.

michaelochurch 12y ago

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.

Spooky23 12y ago

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.

ArkyBeagle 12y ago
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.

WalterBright 12y ago

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.)

judk 12y ago
That description does not match what I see with "reorganizations" of bankrupt companies. And assets being lootedby lawyers doesn't sound much worse than assets being looted by auction
- WalterBright 12y ago
  There's a very large difference between stealing (looting) and selling at market value (auction).

ggchappell 12y ago

> 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?