The key to economic growth is not firms with many employees, it’s firms with highly productive employees. You want a system that kills off unproductive firms, so that better uses can be found for their capital and employees.
You don’t want a system that kills off highly productive firms just because they stay relatively small. As an example Renaissance Technologies was founded in 1978 and has only about 310 employees today. Yet I can assure you that the US economy would not have been better off without it.
Another example is Germany, even though the country has some massive companies there's a lot of quite productive medium/small companies (Mittelstand) doing specialised work.
At a national level, there are no single keys, there aren’t even major factors. You’re kind of trading in the same narrative rhetoric of the article you are ackshuallying.
The Renaissance Technologies example is funny anyway. My dude, literally nobody but bankers thinks hedge funds are good for the economy, let alone a good use of “productive employees.”
With all that aside, better liquidity and pricing of risk is the overall systemic value that all speculators in the market provide. You be the judge as to whether the remuneration is commensurate with that value.
Oh wait, there have been some years the normie fund actually underperformed the market, while the Medallion fund exceeded its expectations. So much that investors got real pissed (around 2018 iirc), and that's how the separation of funds structure actually came in the financial media spotlight.
It is possible to stare so hard at all the trees that you miss the forest, that’s true. But if you take a step back and look at the big picture it’s not that complicated. Adam Smith had most of it right in 1776.
> My dude, literally nobody but bankers thinks hedge funds are good for the economy.
These two beliefs explain each other. If you don't believe the control plane is productive you will struggle to see any major factors in growth. The reason economies grow is because powerful members of society can benefit directly, personally and excessively when there is growth. Otherwise they'd ban growth for environmental reasons (or similar). That reason is both necessary and sufficient.
Hence the value of things like hedge funds.
fantastic to see this delusional thinking spelled out today
It's not a line of bullshit. For every notable prop shop (that is, attempting to trade one's own money for profit, which you may view as an illegitimate market activity) there is in the market, there are 100x as many portfolio managers (who manage other people's money, such as pension funds, which you may view as a more legitimate use of the market).
Every trade that a "legitimate" entity puts on has a counterparty, and the more counterparties there are from speculative activity[0], the more liquidity there is and the more efficiently things can be transacted. Everyone ends up happier.
You could argue that the field of managing money in general pays more than it is "worth", but that's kind of an argument of cosmic morality. Who should be paid more, elementary school teachers or firefighters?
[0]: https://www.cmegroup.com/education/courses/introduction-to-f...
And of course the CME group has a positive view of speculators, because they profit from speculative activity.
How is it even possible to believe this? How do you think societies should manage their resources and plan for the future, if not a market? Soviet style central planning, or a cash and barter only economy? And if the answer is that we should have a market, then the market is providing some utility (because if it was providing neutral or negative utility then why have it) and is therefore not zero sum.
You can imagine other ways to do it (but good luck making these other ways "fair" or "efficient" or "fast") - or you can recognize that a market is an elegant (in the engineering sense) way to do it. Once you have a market, you also want liquidity. Anyone who tried buying or selling illiquid shares (or illiquid goods), knows how much of a pain is lack of liquidity. It truly is desirable.
tl;dr: (Actively managed) funds and investors are the Gosplan of capitalism.
1. Every big business started as a small business
2. Not everyone who starts a business wants a big business for many valid reasons,
3. The countries he uses as examples are flat or stagnating for many reasons other than firm size or productivity, and
4. In these countries, the only way to have a shot at becoming a big business is to be close to power (that tends to hoard wealth). Given that these countries also tend to have weak workers rights, "killing" small businesses == fewer options and opportunities for workers.
As it’s grown and expanded you can definitely tell that the ethics and how they treat workers / customers has gone down hill. Maybe it’s all the Amazon managers they’ve absorbed.
In the Vampire & Mage tabletop, there's Wild, Weaver, Wyrm, a direct parallel, which was a very fun cosmological tension.
Anyhow, this just feels like the lifecycle of companies. The young companies are dynamic & growing, but over times most orgs tend to ossify - even as they expand still becoming more deliberate & managed in their ways, punctuated by moments of renewed chaos & flourishing again. Extracting & preserving rather than growing. Until until until.
What are the assumptions underlying the article? What does it mean for a firm to be "stagnant"? How do "entrepreneurs" behave? What is "growth"?
My guess is that the model unspoken is how startups work in, say, the US. An entrepreneur is a person focused primarily on securing more funding/customers/exposure for the company. A stagnant company is one whose revenue/profit/funding/headcount is not steadily increasing. Growth, the opposite of stagnation, is one combination of measures that an investor might use to guess whether an investment in the company will yield favorable returns.
Is that what is missing from poor countries?
To play the devil's advocate, I think that those things are more likely to occur in an environment flush with money, where there are many founders who will take a gamble, where there are many rich people who will fund the gambles, and where a corrupt state entity cannot easily be used to steal any good that comes from it.
Furthermore, it seems that organizations rich in either sustainability or growth can trade it for the other - vanity projects are trading away sustainability for growth so unusual that it would never happen normally, and financial crashes are effectively a growth-centric market forcing itself to become financially sustainable again. Perhaps human nature makes this cycle eternal...
It's a surprise, because the author claims there are hundreds of papers on the topic.
Countries with free labor bury slave economies. Every time.
I see the notion that slaves are more productive than free labor all the time. What is missing is any evidence of it.
For an example, the US initially divided itself into two countries - North and South, free labor and slave labor. Guess which one economically and then militarily buried the other. For another, Korea divided into two countries. One buried the other economically. Germany split in two. The free one buried the slave one.
How much more evidence do you need?
It's estimated "that emancipation generated aggregate economic gains worth the equivalent of a 4% to 35% increase in US aggregate productivity" [1]. To look at the slave economies favourably, you have to exclude slaves from per-capita measures of productivity [2].
That said, Southern farms were more efficient than Northern ones. Not because they used slaves. But because they embraced economies of scale.
[1] https://bfi.uchicago.edu/insight/research-summary/one-giant-...
[2] https://faculty.weber.edu/kmackay/economics%20of%20slavery.a...
I don't believe it. Evidence: they couldn't feed the Confederate army.
You can't feed an army with cotton, tobacco and sugarcane, the "main prewar agricultural products of the Confederate States" [1].
[1] https://en.wikipedia.org/wiki/Economy_of_the_Confederate_Sta...
BTW, the reason the South seceded was to protect itself from the Northern market economy.
The slave economy was also unable to supply its army with shoes, uniforms, guns, cannons, powder, etc. The reason General Lee was at Gettysburg is because he was marching towards Harrisburg, which had a shoe factory he wanted to loot to shoe his barefoot army.
They started. But as the article mentions, that happened amidst a drought and the beginning of the war, which destroyed distribution.
> slave economy was also unable to supply its army with shoes, uniforms, guns, cannons, powder, etc.
Sure. Not arguing for the strength of the Southern economy. Just pointing out that their farms were more efficient. But not because of slaves. Because of the thing this article is about.
They had trouble with feeding the people because Southern policy to deter the war (Cotton is King speech) was to stop the cultivation of cotton. The CSA decreed that all the cash croppers convert to food farming. This did not work very well, they self-collapsed their own economy, and the hoped for British intervention never happened.
That summary is overly simplistic. Northern textile mills did not get their cotton from free labor.
Also, "From an economical standpoint, the emancipation in the West Indies and the general abolishment of slavery was a failure for Britain", https://en.wikipedia.org/wiki/King_Cotton .
Opinions of course differ: https://en.wikipedia.org/wiki/Atlantic_slave_trade#Effects_o...
The US has non-free labor in the form of penal labor supplying some $10 billion in goods and services. Last I checked it was not being buried by countries with only free labor.
That seems a bit light as sources go and I suggest someone is misinterpreting the data. The slave owners are obviously going to be worse off in the short term. They used to have slaves, now they have to do the work themselves or pay for it. That much is pretty straightforward to see.
The issue is the slave owners are stuck in a local maximum where their society will be overwhelmed by the superior productivity of non-slave owning societies. There is a reason that none of the economic majors today are interested in re-instituting slavery - it is inefficient. The sort of thing you wish upon your enemies so that they can't challenge you. You'll note that after avoiding emancipation because of economic fears ... the economy of the South was then beaten up much worse than what happened to Britain! Which is what exactly what we'd expect to happen to the sort of state that commits to a system of slavery in a big way. It isn't going to be able to maintain a military edge.
The British government didn't pay off that debt until 2015.
While it sounds like you think the slave owners didn't get enough short-term compensation?
And don't just sob over the slavers. If the former slaves had gotten real and effective compensation, it would have been even more an economical failure for Britain.
> re-instituting slavery - it is inefficient
Please note that there are many types of non-free labor besides chattel slavery. I consider the penal labor system in the US a legalized form of slavery, while there are many who support it.
Nor were the British slaves only young men.
The North continued to prosper after the war, and their economy was not based on textiles. They also imported Egyptian cotton.
Just like how England didn't have slavery in the 1700s, but the English still profited from slavery elsewhere in the British Empire.
Surely you know there's a long history of Yankees taught that they were on the good side, because they didn't want anything to do with slavery, because that's the more comfortable history to teach, rather than the real history of how many Yankees profited off of slave-made goods, just like those English not-so-gentle-men still honored today whose wealth was built on the backs of black slaves.
Surely you are also aware that apologists for the treasonous Confederacy say the Union should have just waited a few decades for slavery to reach its natural dead end, rather having all those poor white boys die for a few black folk.
Given that knowledge, please try to not sound like a supporter of either false narrative.
The size of the US economy is $29 trillion. $10 billion does not define it.
But people will discuss endlessly about what direction the causation goes.
sometimes i feel like the best short-term path forward for a poor country is just to have some kind of heavy handed gov't (like a "benevolent" dictator, hear me out lol) dictate policy and brutally subsidize and consolidate industries. of course you have to magically do this this with minimal fallout from corruption and then somehow make the transition to more of a democratic model.
debatable if this nets out positive in the long run for the average citizen, but it will make your country "rich" (looking at you south korea). US is unique in this regard in that we have these huge firms and can also foster an environment for small/med to make that transition, although it's changing as well.
Also, their petro-chemical industry is surprisingly large for a tiny country. I'm not talking about the simple trading of crude oil and gas; I'm talking about real value add by refineries and chemical plants. Again, I am not an expert here, but I assume that the SG gov't provided handsome benefits to the global supermajors to build huge refineries and chemical plants.
Early on in Singapores history, the government did seize a lot of land from farmers though. I believe they were compensated for it.
We also have these weird things called GLCs. China sort of copied this with their telecom industry. GLCs are corporations created by the government to handle certain things. They kind of have government level powers but corporate governances (worst of both worlds imo).
Singapores success was mirrored by china in the 2000s. The trick was free market capitalism with socialist political policies (in both cases). Also singapore has mastered the art of Government linked corporations - something that china copied. From 2000-2012 China probably had one of the least dictatorial governments in its history. Adding a dictator back in the mix has slowed growth although i wonder if thats a symptom of slower growth.
> without the transition to a more democratic model
Look at the last EU's Draghi report, not a single small/medium company in the list of contributors.
This all stopped when Microsoft learned that when you're a big company, you'd better pay tribute (political contributions). The winning strategy is to contribute to both sides.
Really, it does, and you were alive and on the internet at the time. You saw the rise of webpages that would only work on IE because it was bundled, you saw the demise of Netscape as a competitor because people wouldn't go through the motions of downloading another browser on a 28.8/56kbps connection.
Price dumping with extra steps is still price dumping.
Explorer was simply better.
Source? It seems equally plausible that it stopped because Microsoft won on appeal and the government got spooked and didn't want to prosecute a losing case.
And there you go. There was a picture just before that of Bill Gates riding on a golf cart with Bill Clinton. And then the case was dropped.
Things that make you go hmmmm....
I started out using Netscape (amazingly, it wasn't any trouble getting and installing).
The "harm" I experienced was Netflix crashed constantly. So I tried Explorer. Explorer crashed about 90% less. That was the end of Netflix.
The horrible, dirty deed Microsoft did was write a better browser.
No, the dirty deed was using their monopolist power to undercut another browser by bundling their offering with the OS.
Please, Walter, your takes are getting a tad way overboard with the anti-regulation stuff, you are stopping to think rationally to become an ideologue. You are smarter than that, at least by your technical achievements you should be.
Microsoft is one tough competitor. But I knew how to compete with them. I never had much sympathy for Netfix with their crummy (in comparison) browser.
Microsoft could have made their compiler free, and it wouldn't have made the difference. Lots of companies successfully competed with the free utilities Microsoft bundled with their operating system. They did it the old fashioned way - by making a better product, not a worse product.
BTW, did you know that the IBM PC came with a free BASIC compiler? That didn't even slow down competing languages.
And the Gnu stuff. All free. Doesn't that undermine competition? Isn't that so unfair? Why doesn't the DoJ go after Gnu for unfair trade?
Windows also comes with USB drivers but hypothetically I could drive down to Best Buy and choose from a number of different USB drivers I would have to pay for separately (I guess I should pick up a web browser too apparently). This would be preferable why?
A browser was a separate product at the time, not a feature. Microsoft bundled, as they have done many other times, for anticompetitive reasons.
[1] https://ftp.mozilla.org/pub/firefox/releases/1.0/win32/en-US...
And this was Netscape, not Firefox, you need to go back about ten years further.
Edit: redoing the maths properly makes the 15 megabyte download in the late 90s take approximately:
- 45 minutes at 56.6kb modem
- 90 minutes at 28.8kb modem
- 180 minutes at 14.4kb modem
http://www.oldversion.com/windows/netscape/
https://en.wikipedia.org/wiki/Netscape
> Microsoft released version 1.0 of Internet Explorer as a part of the Windows 95 Plus Pack add-on. According to former Spyglass developer Eric Sink, Internet Explorer was based not on NCSA Mosaic as commonly believed, but on a version of Mosaic developed at Spyglass[33] (which itself was based upon NCSA Mosaic).
> This period of time would become known as the browser wars. Netscape Navigator was not free to the general public until January 1998,[34] while Internet Explorer and Internet Information Server have always been free or came bundled with an operating system and/or other applications. Meanwhile, Netscape faced increasing criticism for "featuritis" – putting a higher priority on adding new features than on making their products work properly. Netscape experienced its first bad quarter at the end of 1997 and underwent a large round of layoffs in January 1998.
> Netscape Navigator was not free to the general public until January 1998
Software tends to get bigger as time goes on, not smaller. Therefore the size of firefox in 2004 should be an upper bound for a browser back in the 90s.
It seems like by the late 90s the Netscape installer was already around 15 megabytes.
If Amazon redirected all search results of a product to their own version of it, omitting all others - would that be nebulous as well?
That's why people switched to Explorer. Netscape ran crying to the government.
That whole shtick about Explorer being uninstallable was ludicrous and irrelevant. Nothing stopped a user from installing another browser and using it. These days, a free browser is included with about every device.
And this wasn't "these days" when "a free browser is included with every device", it was 1998.
I think you're being dense on purpose.
People don't like to hear it, but it is pretty factual that the more of a society's money gets plucked out of the main economy and centrally spent and distributed by its government, it tends to lower economic growth, and similarly for being over-regulated.
People can argue, but we have a realtime. experiment in the form of Argentina in front of us right now to prove these ideas.
Other success stories could be plucked from recent history, as right now these ideas are not so popular.
People want to hate the rich, and figjt inequality much more than they want tk reduce absolute poverty or increase economic growth.
One can sacrifice a lot of growth to boost equality. So it's a matter of what people want to prioritize.
It seems intuitively true that businesses that are too small and too local stagnate the economy.
But they avoid talking about businesses that are too large (oligarchic monopolies) that can control wages and prices, or businesses that are not value add, (I’m thinking resource extraction like oil, gas and minerals) neither of these kinds of large businesses seem to contribute that much to a local economy.
This is Basic 101 microeconomics (pick some undergraduate text from economics and look it up.) There is also a whole subfield of economics called industrial organization that deals with this stuff.
Firm size matters for productivity. Larger firms are on average more productive than smaller ones. Partly it is because gains from increasing returns to scale but better access to resources, organizational capabilities, and international reach also matters. Large companies tend to offer higher compensation. The average pay per employee increases with company size. This is good for the economy.
Take for example Greece. People in Northern Europe like to think that Greeks are poor because they are lazy. However, they are among the hardest-working people in the EU—insane hours on average. But Greece has no large-scale industry. It can't compete within the rest of EU or internationally.
Do you have any references for this that demonstrate it empirically? Theoretically, larger firms have economies of scale, but they also run into the same internal coordination/incentive problems that communist countries do, due to internal resource allocation being driven by internal politics rather than a market. I.e. command economies (and the average corporation is a command economy internally) face diseconomies of scale.
Interesting. I've only read one intro to microeconomics book, but I remember it having a hand-waved graph with a clear peak on some unspecified point. And an explanation that the peak's position depends on a lot of factors.
2. The average growth rate of each firm
3. The market share of high-growth firms relative to low-growth firms
Accelerating any of these three factors will increase a country’s growth rate. I can’t emphasize enough how important this reframing is. [...] it is almost a mathematical truism that if a country’s firms are growing on average, then that country’s economy will grow.
A truism? That's false. Consolidation increases the number of employees per firm, but reduces the number of firms.
Much to the opposite, large corporations should be weighed down by more strict taxation, to give smaller competitors an edge.
they managed to jam their way into a sweet spot years ago, for whatever reason. now they're the antithesis of agile and productive, but they have so much inertia and marketshare they're hard to beat.
the corporate structure means there is little reward for real changes internally, and in a lot of cases serious growth or losses came from externalities, like the Chinese economy demanding Australian iron... and then not.
they paid for my certs, though...
data doesn't lie.
Some problems:
- Lots of studies cited with no mention of replications or potential caveats.
- Lots of effects measured where causation-vs-correlation would be a real concern (in one of them apparently the control group is "firms that dropped out because of a lack of budget"? Wtf?), but the articles never mentions confounders.
- The whole article has a "for decades we've done development wrong" slant, but its ultimate conclusion is... We need less protectionism, more liberalization, and more information technologies? Hardly groundbreaking.
Overall some observations are interesting, but they're really not conclusive enough to form a single narrative that would justify the incendiary title.
This is 101 microeconomics. Not very controversial
The one about Brazil got my attention because of the entirely absurd idea¹. Turns out it's a computer model trying to predict how to retrain people when industries change in size.
1 - International commerce liberalism? In Brazil? And unemployment at the same time? The only time Brazil tried the first on recent history, we got a strongly growing middle class and the least amount of unemployment of recent history. (Probably due to completely unrelated factors.)
It did for the US, Japan, Hong Kong, Germany, China, everywhere that free markets were tried.
https://www.cia.gov/the-world-factbook/field/real-gdp-purcha...
Country wide GDP figures (PPP adjusted or otherwise) are worthless for comparing quality of life. You need to compare per capita figures.
Pick any measure you like. Free markets are the most prosperous.
> India and Russia
Do you really think their standard of living is higher than the US? Why is Seattle full of Russian and Indian immigrants? Why do you think zillions of immigrants are coming to the US? Because the US is a hellhole?
> GDP != happiness or success.
If you're happier being poor, just give away all your stuff to your favorite charity. Nobody is forcing you to be prosperous.
Now lets get past that stage and make sure that it pays off for everybody.
How free markets work is the creators of wealth get to keep it. I.e. it's on their own backs.
IBM Sears RCA Intel GE Disney Kmart Kodak Novell Lotus Wordstar AT&T Microsoft
without any push from the government.
> Even good social safety net enhance freedom of economic activity
No actual evidence of that. The US boomed for 150 years before there was a social safety net. The greatest lifting of people out of poverty ever seen.
How some mighty monopolies have fallen. Your examples don't refute GP's point, unless you'd like to assert that monopolies and oligopolies don't exist anymore.
> The greatest lifting of people out of poverty ever seen.
How do you square that with the fact that United States, with your platonic ideal of economic policies, has the highest rate of poverty in the developed world?
> has the highest rate of poverty in the developed world?
The poverty rate in the US was declining until 1968, when it started going back up. What happened in 1968? Welfare.
The social safety net was a continent's worth of land to settle and develop.
How has Disney fallen? Last I checked, they seem to be doing better than ever, and have gobbled up so many IP franchises they look more like a monopoly than ever (Star Wars, Marvel, etc.).
Microsoft sure hasn't fallen either. Windows isn't quite as dominant as before, but MS got even bigger by moving to cloud stuff instead of just relying on Windows/Office.
Sears was never a monopoly of any kind, that I remember. Neither was Kmart, or Wordstar, or GE. AT&T, formerly Bell, was a monopoly and got a huge push from the government in the form of a forced break-up in the 80s. The AT&T of modern times (the cellular company) was never a monopoly of any sort.
It is usually quickly followed by dictatorship though, since force must be used to keep people living under it. Otherwise productive people will naturally pursue prosperity for themselves and their loved ones, which leads straight to capitalism.
There’s China though. Their party is at least called a communist party. I wouldn’t call their politics communism, except for their land ownership laws. Basically a dictatorship, since anyone opposing the government seemingly ends up in prison. Hasn’t seemed to hinder their economic growth.
See the list of failed monopolies in another post here I made.
I thought mainstream economists advocated for market liberalization reforms that lifted billions out of poverty in asia? Is there a score sheet of how many times "western academics" were right or wrong?
There is enough Eastern Europeans here on this forum that this kind of pro-Soviet misinformation won't fly here. We know precisely how things were.
During the Xi tenure, e.g. in the last decade, they seem to be coming back to political control of the economy. It also seems that their growth is slowing down. Possibly those two developments are related.
The government is notoriously bad at picking winners. For an example relevant to HNers, there was a government-run precursor of the Internet in France, called Minitel. It was an interesting technology, but horribly overpriced and unable to develop with the times.
The bigger picture is not favorable to China. Especially the high unemployment among the young is troubling. China no longer publishes data on youth unemployment, the last known figure was 23 per cent. This would be comparable to Spain or Italy, mostly sclerotic economies of the troubled southern wing of the EU.
https://www.atlanticcouncil.org/blogs/econographics/youth-un...
Seriously, it's borderline funny to see what gets derided as "communist" in the US... If you're not in that country and having to do without health insurance etc...