Curtailing Consolidation and Re-Invigorating Innovation

By: Dock Treece | Fri, Apr 25, 2014
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The past two centuries - since the Industrial Revolution hit its stride - have seen consolidation among American businesses at an ever-quickening pace, with the result that the US economy has stifled innovation and depressed America's entrepreneurial spirit. When this country first began, people almost all worked for themselves. Some ran their own small farms, producing enough food for their families and selling any excess harvest for revenue. Others - merchants - hung out their own shingles, under which they provided goods and services for members of their communities or transients.

Since then, the American public has played witness to consolidation in its private sector on a mass scale. The past century has seen large industrial firms transformed into large multinational corporations, conglomerates, and the like. It may be true that small business remains a major contributor to US GDP (46% of private-sector output according to SBA.gov) but the fact remains that entrepreneurialism has been curtailed in this country. Private businesses make up over 99% of employing US firms, but employ less than 43% of private sector workers - which means that the 0.3% of US companies that are not small businesses employ nearly 60% of American private sector workers (SBA.gov).

In other words, innovation in the United States is now relegated to large corporate R&D departments, academia, and the occasional odd-ball startup.

Perhaps the more interesting aspect of this phenomenon is that over the same time of US private sector consolidation, innovation has spurred dramatic increases in worker productivity. A more recent effect of this trend has been that growth in real household income has failed to keep pace with gains in productivity. The result is that workers have been able to put out more and more production, while their real incomes have stagnated; this has caused a gradual slide of middle class Americans toward the lower end of the economic spectrum and a widening wealth gap as earnings from higher worker production concentrate at the top of the corporate ladder.

These developments have also left Americans with an economy that relies, and will become increasingly dependent, on foreign demand, since domestic laborers are left with less and less discretionary income (relative to their faster growing productivity) with which to supply demand for the domestic producers which employ them.

The lesson to take away from these long-term trends and their results is that the United States needs to back away from the consolidation among private sector firms that has stifled small business and innovation. Rather, the US needs to actively encourage entrepreneurialism on a mass scale, much in the same way we have invented programs to attract new college graduates to government employment by offering relief of student debt. After all, people will always seek the maximum reward for their labor, so the challenge is to make entrepreneurialism a more attractive option.

It is true that, to some extent, entrepreneurialism will be encouraged indirectly by the recent stagnation of real household income. Americans, pursuing their own self-interest, will become discouraged by the leveraged results of their productivity ending up in the hands of lackluster executives or far-flung corporate shareholders, and will elect to leave employment at large firms and go into business for themselves.

However, the more we can do to encourage people to strike out on their own, the better. The sooner we can encourage a new trend, the quicker we will be able to spur dramatic economic growth in this country and the less economic pain we'll be forced to endure. New innovation will allow us to address issues worrying hoards of people; among them energy independence, a widening wealth gap, corporate malfeasance, pollution, and genetically-modified foodstuffs required to sustain developed countries that have become overpopulated.

Economic prosperity can permit us to solve many problems in the world today, but America will not be led to prosperity by consolidated multi-national corporations led by nefarious executives or nameless shareholders. Entrepreneurialism, hard work, and a pervasive drive for innovation of any type or scale will do what they cannot.

 


 

Author: Dock Treece

Dock David Treece

Dock David Treece

Dock David Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and is licensed with FINRA through Treece Financial Services Corp. He provides expert content to numerous media outlets. The above information is the express opinion of Dock David Treece and should not be construed as investment advice or used without outside verification.

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