Big companies, diminishing competition, and the rigged game

by Ryan Streeter on March 26, 2016. Follow Ryan on Twitter.

The Economist has an interesting piece out on the bigness of American firms.

A very profitable American firm has an 80% chance of being that way ten years later. In the 1990s the odds were only about 50%. Some companies are capable of sustained excellence, but most would expect to see their profits competed away. Today, incumbents find it easier to make hay for longer.

The source of this trend? A lack of competition, the authors claim, rooted in the rigged-gamesmanship of big firms and regulators.

Our analysis of census data suggests that two-thirds of the economy’s 900-odd industries have become more concentrated since 1997…A $10 trillion wave of mergers since 2008 has raised levels of concentration further…Getting bigger is not the only way to squish competitors. As the mesh of regulation has got denser since the 2007-08 financial crisis, the task of navigating bureaucratic waters has become more central to firms’ success. Lobbying spending has risen by a third in the past decade, to $3 billion. A mastery of patent rules has become essential in health care and technology, America’s two most profitable industries. And new regulations do not just fence big banks in: they keep rivals out.

And then there’s the disconnect between politicians’ proposals and what’s really going on:

Most of the remedies dangled by politicians to solve America’s economic woes would make things worse. Higher taxes would deter investment. Jumps in minimum wages would discourage hiring. Protectionism would give yet more shelter to dominant firms. Better to unleash a wave of competition.