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Thursday, March 4, 2010

Antitrust Regulation Route to Economic Growth

Remind me to invite Philip Longman over for dinner. Last summer he provides a great article about how the Veterans Administration's leadership in innovations in electronic medical records has made VA hospitals the best care in America.

Now my D.C. friend Ned Hodgman gets me reading Longman's latest, a collaboration with Barry C. Lynn that asks "Who Broke America's Jobs Machine?" It's a lengthy, thoughtful, well-argued essay. I do it injustice milling it down to bullet points.

However, recognizing the impaired Internet attention span, I summarize possible take-aways from Lynn and Longman:
  1. Regulation—specifically antitrust laws—creates jobs. (See Ned's headline.)
  2. Bush didn't kill job growth in the last decade; Reagan did.
  3. Consolidation kills job creation.
  4. Industry concentration hinders innovation.
Lynn and Longman say monopolization is just one of numerous factors contributing to the the fact that the last ten years are the first decade since the 1930s that we've experienced anything less than 20% job growth. (Since 1999, America's job growth is zero.) They discuss many of those other factors, explain pretty clearly why those factors are mitigated as causes of our problems, then analyze the impacts of corporate consolidation. Lynn and Longman argue that for a real economic recovery, Uncle Sam must get serious again about regulating monopolies, busting trusts, and supporting the small businesses that have historically generated the most innovation and jobs.

Some choice passages from Longman and Lynn (but please, please, go read the whole thing!):

It is now widely accepted among scholars that small businesses are responsible for most of the net job creation in the United States. It is also widely agreed that small businesses tend to be more inventive, producing more patents per employee, for example, than do larger firms. Less well established is what role concentration plays in suppressing new business formation and the expansion of existing businesses, along with the jobs and innovation that go with such growth. Evidence is growing, however, that the radical, wide-ranging consolidation of recent years has reduced job creation at both big and small firms simultaneously. At one extreme, ever more dominant Goliaths increasingly lack any real incentive to create new jobs; after all, many can increase their earnings merely by using their power to charge customers more or pay suppliers less. At the other extreme, the people who run our small enterprises enjoy fewer opportunities than in the past to grow their businesses. The Goliaths of today are so big and so adept at protecting their turf that they leave few niches open to exploit.

...Even so, most Americans still believe that our economy remains the most wide open, competitive, and vibrant market system the world has ever seen. Unfortunately, the stories we have told ourselves about competition in America over the past quarter century are simply no longer true.

...One result [of the Second New Deal's focus on antitrust regulation] was a remarkably democratic distribution of political economic power out to citizens and communities across America. Another was an astounding burst of innovation. As the industrial historian David Hounshell has documented, the new competition among large corporations led companies like DuPont and General Electric to ramp up their R&D activities and fashion the resulting technologies into marketable products. Smaller firms, meanwhile, were carefully protected from Goliaths, enabling entrepreneurs to develop not merely ideas but often entire companies to bring the ideas to market.

Antitrust enforcers weren’t content simply to prevent giant firms from closing off markets. In dozens of cases between 1945 and 1981, antitrust officials forced large companies like AT&T, RCA, IBM, GE, and Xerox to make available, for free, the technologies they had developed in-house or gathered through acquisition. Over the thirty-seven years this policy was in place, American entrepreneurs gained access to tens of thousands of ideas—some patented, some not—including the technologies at the heart of the semiconductor. The effect was transformative. In Inventing the Electronic Century, the industrial historian Alfred D. Chandler Jr. argued that the explosive growth of Silicon Valley in subsequent decades was largely set in motion by these policies and the "middle-level bureaucrats" in the Justice Department’s Antitrust Division who enforced them in the field.

[Barry C. Lynn and Philip Longman, "Who Broke America's Jobs Machine?" Washington Monthly, March/April 2010]

Related: Thomas Friedman sees America's innovative competitiveness flagging and says we need better education and incentives to spur more capital investment and hiring... by big multinational companies. Hmm....

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