When Bigger Is Not Better
Professor Thomas Philippon’s book the “Great Reversal” was reviewed in a recent Wall Street Journal column. The column stipulates that most Americans assume that America is the most competitive and innovative Country in the World. The idea that American’s leads the world in innovation and free market opportunity is quickly challenged, as he questions why Americans spend 3-4 times the money on internet as our French brothers, and why cell phone service in America is among the most expensive in the world.
His conclusions are as follows; #1. Through Lobbying and political donations, large American companies can buy protectionist legislation from both sides of the isle. #2. Because the competition is protected, large tech companies (among others) enjoy inelastic demand, that is to say they can raise prices without seeing a significant drop in demand and #3. American industry’s tends to concentrate into few large players in a platform, resulting in less competition for pricing and innovation.
This affects Santa Cruz County Commercial Real Estate as it curtails company formation – small business creates the vast majority of jobs and provides for much of the wage growth. In a prior, but related article, a Journal guest columnist notes that new company formations are at a sluggish rate, slower now than in the last decade. A bright spot would be that women and racial minorities, are starting new business’s at higher rates than ever before, however the gross number of company formations, when contrasted with business closures is down as a ratio.
