December 4, 2022

Is America Inc. Getting Less Dynamic and Global?

America Inc. is becoming less global and more monopolistic. This has been the trend for years now, but it seems to be accelerating in recent months. A new study from Boston Consulting Group shows that American companies are increasing their international exposure at a much slower pace than they did five years ago, and this is happening even as global trade agreements like NAFTA or TPP have been negotiated and implemented by other countries to open up markets and promote competition.

The change in America’s business climate can be seen in many places, including the success of Amazon Web Services which has led to the loss of jobs for thousands of IT workers who used to work on legacy enterprise software systems made by Oracle, IBM, SAP or HPE; Microsoft’s acquisition of LinkedIn will further reduce opportunities for jobs in the software industry; and Google’s dominance over internet traffic and advertising is leading to a decline in competition and increased difficulties for entrepreneurs who want to launch new services.

The same trend is apparent across dozens of other industries, from pharmaceuticals (pharma giants buying up or shutting down smaller companies), to groceries (similar to the Walmart era, we now have Amazon and Kroger competing for market share), to airlines (the same three carriers – American, Delta and United – control most of the US market).

The impact of this monopolization and consolidation is that more and more money tends to flow into fewer pockets. This has been going on in America since the 1970s, but it’s now so bad that the top 0.1% of earners now take home 8% of income, according to UC Berkeley economist Emmanuel Saez .

 

The impact on jobs is evident too: according to research firm CB Insights , almost all job growth in the United States since 2000 has come from companies founded after 1995. By contrast, almost 40% of companies founded in 2000 or earlier have since shut down.

The trend has been accelerating recently , because the rate at which new companies are being created used to be higher than the rate at which older companies were dying out. Now that’s not the case anymore because there are fewer opportunities for entrepreneurship and startups, what with the industrial monopolies of Amazon, Google and Facebook gobbling up all advertising revenue.

This has led to a decline in entrepreneurship, as documented by the Kauffman Foundation . A recent Gallup survey shows that only 14% of Americans are now interested in starting new businesses, versus 23% who want to be an employee. That’s an astonishingly low level of interest in entrepreneurship, especially compared to China or India where nearly half of all people want to start their own companies.

The impact will be felt for generations because it means that the next great wave of startups has yet to emerge. This might explain why America’s economic growth is stuck at 2% per year (try launching a new business if you’re not part of the top 0.1%!).

It also means that there are fewer opportunities for jobs, even though America’s unemployment rate has fallen to 4.3%. It might be deceptive because while some industries are still hiring (retailers at the moment), other sectors contribute much less to employment than they used to (e.g. media, finance).

The decline in entrepreneurship and startups is likely to continue for several more years because the damage has been done: an entire generation of startups (Facebook, Twitter) has emerged and become dominant; another generation of entrepreneurs (the PayPal mafia, the Google guys) already went through their formative years; and we’re