
Dynamism in Retreat: Consequences for Regions, Markets and Workers - prostoalex
http://eig.org/dynamism
======
turbobuckeye
Regulation is certainly a problem, but the unfettered growth and merging of
many companies over the last decade has been nothing short of breathtaking.
Amazon, Google, Facebook are all essentially monopolies in their space. Banks
have combined to form behemoths (and good luck starting a bank these days with
Dodd-Frank on the books). Until the government addresses unfair and
anticompetitive behavior and concentration, this trend will continue.

~~~
chapium
I'd be careful to include facebook in that group. Several mobile apps are very
strongly keeping them in check.

~~~
wil421
Agreed I keep Facebook for legacy support meaning older family and their
friends.

Snapchat is my go to for my friends or just plain group text. Snapchat is nice
because I can post freely in my groups and not be worried about random people
seeing the posts like FB. I doubted Snapchat for years. Trying to do more
Instagram next...

~~~
sharemywin
ooops...moving back to a facebook product.

------
randcraw
I'm guessing much of this "failure to thrive" among startups is driven by the
inability of a small US company to deliver services that are commercially
sustainable. Most startups don't make a product; they resell or provide a
service. So their profitability devolves to the margin between their hourly
service charge rate and their hourly labor cost. And that profit margin has
continued to shrink due to continuing optimizations by large/foreign players
in our hyper-optimized global marketplace.

Though the article doesn't propose specific causes, since 2008 I suspect the
causal changes in small US business to be:

1) domination of product sales and distribution by a handful of on-line mega-
retailers (Amazon, Alibaba, Walmart) due to their high efficiency and ever
broader _and_ deeper market penetration and hyper-efficient distribution
networks, and

2) increased mobility and adaptability to quickly fill newly created market
niches from low labor cost foreign firms (still 2X-5X cheaper), and

3) the rising cost of US employees (esp. healthcare).

As such, the ability of the traditional ma and pa startup company to eke out a
positive cash flow has become more difficult than than it was in 2008.

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garethsprice
What's the correlation between rate of forming new businesses and the rising
costs of healthcare?

Quit your job to start a business and not only do you have to figure out your
own insurance (at a vastly inflated rate), but you have to figure out how to
play medical provider for anyone you hire. It's crazy that in the US,
healthcare is so closely tied to employment. Single payer healthcare detached
from the employer would vastly increase the opportunity for people to become
entrepreneurs.

~~~
prostoalex
ACA's goal was to de-couple insurance from employment by having exchanges that
anyone can enroll, and in theory you gain some negotiating power by
participating in a plan that thousands of others have chosen.

I think one problem is perception - when you don't see the health insurance
premiums on your pay stub, you tend to think of them as $0, so going from $0 a
month to $800 a month does seem outrageously expensive.

The other problem is the tax treatment of health insurance premiums - they're
deductible for the employer, but not deductible for an individual. One of
those inconsistencies needs to change, most likely deductibility on the
corporate front, as that somewhat contributes to the rise of total costs ("who
cares if it's 5% more expensive this year, it's a write-off") and is a
corporate subsidy - the money that could've gone to the benefit of all
citizens is funneled to large corporations to help those nice fellows cover
their costs of doing business.

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komali2
Small businesses are important:

Small businesses make up:

99.7 percent of U.S. employer firms,

64 percent of net new private-sector jobs,

49.2 percent of private-sector employment,

42.9 percent of private-sector payroll,

46 percent of private-sector output,

43 percent of high-tech employment,

98 percent of firms exporting goods,

33 percent of exporting value.

Source: U.S. Census Bureau, SUSB, CPS; International Trade Administration;
Bureau of Labor Statistics, BED; Advocacy-funded research, Small Business GDP:
Update 2002- 2010, www.sba.gov/advocacy/7540/42371.

~~~
dozzie
> Small businesses make up:

> 98 percent of firms exporting goods,

> 33 percent of exporting value.

In other words, 2 percent of firms exporting goods (the part that is not
"small businesses") make the remaining 67 percent of exporting value.

~~~
komali2
Well, I'd imagine Oil is a pretty huge chunk of that, which is pretty much
impossible to export as a small business. I only suggest it because I used to
work in Oil and the numbers I saw across my spreadsheets were truly absurd.

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moomin
Something that seems to have been happening for some time is people promoting
"pro-business" policies when we should really be aiming for "pro-market" and
"pro-competition". An extreme version of this is the recent championing of the
coal industry, which is frankly already dead. Tax breaks for large
multinationals fall into the same category.

It seems to me that we've been constantly performing short-term hacks on the
economy, and the bill is coming due.

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frgtpsswrdlame
Well we're crushing the middle and lower class. Refusal to tax the rich and
redistribute it downward, the constant weakening of unions, ineffectual
antitrust enforcement, all of these contribute. Our economy depends on people
who have a high marginal propensity to consume having enough money to spend it
on discretionary goods.

~~~
RodericDay
I agree with you and it's frustrating that this is sunk without a substantial
response.

A few months back, Matt Bruenig nailed it: "The unwritten story of the Juicero
debacle is that high income inequality causes capital to be misallocated
towards luxury production."

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ygfvvhygvn
I have been trying to start my own business for years now. The hoops you have
to jump through in every industry I have looked at are not insignificant. It
makes a huge barrier to entry which makes the risk vs. reward ratio a little
more skewed towards risk than I can handle. We really need to do something
about unnecessary overregulation. We can protect our environment without
needing a team of lawyers to open a lemonade stand (hyperbole).

~~~
learc83
What are some specific examples of regulations that made it too burdensome for
you?

In my experience, losing employer provided healthcare has been the number one
thing preventing people from starting a small business.

~~~
ygfvvhygvn
I'm young and healthy so that wasn't an issue for me. I have looked at
everything from starting shooting ranges to specialty chemical companies. Most
regulations are local. Just look at your local zoning and building codes. It's
probably 500+ pages. The other main ones are dealing with taxes.
"Straightforward" ventures like algotrading suddenly become not worth it when
you realize you will spend more time writing code to ensure that all of your
transactions are meticulously recorded than you will actually analyzing data
and writing trading algorithms. Not to mention you probably need a team of
accountants for the million+ trades that can happen in a year. Without a
specific industry I can't really explain the regulations as each has their
own. I'll try to come back later and explain more but I'm pretty busy today

~~~
evgen
Regulations regarding shooting ranges, chemical companies, and algotrading
seem burdensome to you... Somehow I think you are exactly the person that we
create laws to protect ourselves against.

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redm
I heard about this on NPR. My thought is that most new businesses never go
beyond a couple of people. I think many of them are related to local services,
such as realtors, small shops, and services. The Internet's allows a
relatively small team to reach and impact a lot of people. We see new
industries disrupted all the time. These industries have real small businesses
that are impacted.

Just as Walmart put small retailers in a bind, Amazon is going to put Walmart
in a difficult spot. IMHO.

~~~
sharemywin
Wal-Mart earnings top Street estimates as retailer's digital sales jump 63%
Here's what the company reported vs. what the Street was expecting: Earnings
per share: $1.00, excluding items, vs. expectations for 96 cents, according to
Thomson Reuters analysts. Revenue: $117.5 billion vs. a forecast for $117.74
billion, analysts said. Same-store sales: 1.4 percent growth at U.S. stores

[http://www.cnbc.com/2017/05/18/walmart-reports-first-
quarter...](http://www.cnbc.com/2017/05/18/walmart-reports-first-quarter-
earnings.html)

What does Amazon have that Walmart can't buy?

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redm
Pretty much every stat on small businesses in one place from the Small
Business and Entrepreneur Council:

[http://sbecouncil.org/about-us/facts-and-data/](http://sbecouncil.org/about-
us/facts-and-data/)

"In 2012, according to U.S. Census Bureau data, there were 5.73 million
employer firms in the U.S. Firms with fewer than 500 workers accounted for
99.7 percent of those businesses, and businesses with less than 20 workers
made up 89.6 percent. Add in the number of nonemployer businesses – there were
23.0 million in 2013 – then the share of U.S. businesses with less than 20
workers increases to 97.9 percent."

The majority was 23 Million sole proprietorships, or people working for
themselves, in 2013.

------
agitator
I think a lot of people here are focused on tech startups, but I think what is
really apparent is the domination of large corporations in many other aspects
of our economy. So many mom/pop restaurants are being pushed out by
corporations, same goes for all the small grocery stores and retail stores
that existed in the past. Everything is being collected under massive
corporations who have the lobbying power to maintain their positions. I'm not
sure there is much you can do about that. The distribution of wealth is
affected by this too. You don't have as many owners and entrepreneurs making a
living running their businesses, instead its going to the top tier at these
corporations.

------
throwawayjava
From the article: _> We don’t know why people stopped moving and became more
settled in their work arrangements. We don’t know why the returns to
incumbency have increased._

What if the answer is the obvious one? What if the incumbents in the big
cities are full of more efficient, better educated, richer, and smarter
people?

A lot of big companies suck. But the ones that have concentrated wealth in the
past decade or two -- Google, Facebook, Apple, Amazon -- are _remarkably_ good
at what they do. And the people I know who work at those places are, on
balance, remarkably smart/educated/efficient. There are equally good or even
better people at smaller shops in smaller cities, to be sure, but the sheer
number of great engineers at Microsoft and Google alone is mind-boggling. And
even among small shops there's an enormous geographical concentration of
talent.

I don't know a lot about other industries, but maybe this is true elsewhere in
the economy as well.

If that's true -- that incumbents aren't just big but also _better_ \-- then I
fear our only hope for increased dynamism is access to new markets or new
technologies. Both of which are identified in the report as contributors to
decreasing dynamism. Hm.

~~~
maxerickson
Those companies don't really employ very many people. They won't explain
widespread demographic trends.

(In fact, I imagine they tend to counter the specific trend, attracting people
to high paying jobs)

~~~
throwawayjava
_> They won't explain widespread demographic trends_

I know this, but I wonder if the same thing is happening in other industries.
E.g. is Monsanto doing something similar to small seed distributors/providers?
Are large banks doing something similar to small credit unions? Are large
construction firms doing something similar to smaller ones?

 _> In fact, I imagine they tend to counter the specific trend, attracting
people to high paying jobs_

Maybe. But what if these firms are really so efficient that they're replacing
100 migrants to regional hubs with 10 or even 1 migrant to a national/global
hub?

Again, I'm just asking questions :)

------
CryoLogic
Interestingly enough, starting a c-corp is actually quite difficult and
expensive.

You are probably looking at minimum 5k in legal fees to do it "right". You
have incorporation paperwork, post-incorporation, trademarks, copyrights,
patents, foreign qualifications, a lawyer to draft out founders agreement and
employee agreements etc.

That's not chump change. Maybe to some HN developers, but to the average joe
starting a company is very expensive. Especially if you go by the new age
motto of trying a bunch of shit and failing and trying again.

After those legal costs you have to consider the costs of the average
business, and the fact the financing is not avail. for the average joe. VC
capital is not based off of merit, or much aside from connections and
friendships. It's basically "bros funding bros".

There are opps. to get govt. funding, but not enough to support almost any
business today. A 20k grant means nothing when you can't even afford a 280sqft
studio on that

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tabtab
There are several unanswered questions, such as which kind of businesses are
failing more, or starting less; and how do US trends compare to other
countries? And, are they counting everybody? For example, volume Ebay sellers
could be considered "entrepreneurs" but may not formally register as a
business.

Online and "big-box" stores have almost certainly reduced mom-and-pop retail,
at least physical stores. Does this account for the entire drop, or just a
part of it?

As far as blaming "regulations", I'd like to see some specific examples. Many
times they are state or local regulations. Don't focus only on Federal regs.

~~~
ygfvvhygvn
I'm not sure if you were referring to my comment but if you were, they are
state and local regulations. Federal regs that made roadblocks were usually
tax related

------
sparkling
How exactly is the number of people employed by startups related to the
economy as a whole?

~~~
AnimalMuppet
Disclaimer: I am not an economist.

But as I understand the theory, job growth mainly comes from smaller
companies. Of those, startups are the fast-growth ones. (Mom-and-pop
businesses aren't where the growth is.) The number of people employed by
startups can therefore be regarded as an approximation of the first derivative
of the economy (or, perhaps, of employment).

------
justinzollars
One small problem in California that needs to be fixed is the Franchise Tax on
Corporations. This is a huge tax for a small startup. Its another example of
taxing the small and poor rather than taxing the rich.

~~~
tabtab
What kind of numbers are we looking at?

~~~
justinzollars
$800/year.

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mtgx
Probably not the only factor, but I imagine inequality and the reduction in
the middle class' purchasing power plays a big role in this, too.

More money goes to a handful few = less money for everyone else to buy stuff =
weaker economy = fewer companies that can be successful.

[http://www.oecd.org/newsroom/inequality-hurts-economic-
growt...](http://www.oecd.org/newsroom/inequality-hurts-economic-growth.htm)

~~~
solatic
New businesses require capital to get started. That capital doesn't need to
come from middle-class consumers - it can also come from large companies with
hoards of cash to invest.

Such hoards of corporate cash are easy to find, there's trillions of it
collectively across American corporate accounts [1]. There just aren't many
start-ups for them to invest in. From an access-to-capital point of view,
there's never been a better time to start a company.

[1] [https://www.nytimes.com/2016/01/24/magazine/why-are-
corporat...](https://www.nytimes.com/2016/01/24/magazine/why-are-corporations-
hoarding-trillions.html)

~~~
mtgx
That's a false conclusion, in my opinion. There are plenty of startups in
which money could be put in, but of course "smart investors" don't invest in
all startups that may show-up at their doors. So they choose to save their
billions and billions of dollars in Cayman Islands. That money goes largely
unused in the economy.

Also, the vast majority of startups aren't funded by VCs or angel investors,
but through personal economies and loans - again, an issue that depends on the
strength of the middle class.

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draw_down
Can't quit your job to start a business if you need health insurance. Which
you do.

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dcroley
So a group with Innovation in its name says that decreasing innovation is the
"core economic problem America faces today." Hmmm. Color me skeptical.

~~~
randomf1fan
That's not really fair. The data should speak for itself, and I for one found
the argument cogent. Did you find any errors or bias?

Otherwise you might as well say the CDC saying something about Disease is
invalid.

~~~
bdcravens
The CDC is a government entity, and "disease" is well-defined.

"Innovation" is a bit more nebulous, and the EIG appears to be quasi-non-
profit, but is a private company.

Also, parent comment said "skeptical", not "invalid".

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wnevets
We just need to give more tax cuts to the mega rich, they're surely use it to
create new jobs!

~~~
downrightmike
But make sure poor people don't get their services or they'll become dependent
on the government!

