Or should I have titled this post "Against National Champions"? Here is Kathy Fogel, Randall Morck, and Bernard Yeung:
What is good for big business need not generally advance a country’s
overall economy. Big business turnover correlates with rising income,
productivity, and (in high income countries) faster capital
accumulation; consistent with Schumpeter’s (1912) creative destruction
and recent formalizations like Aghion and Howitt (1992). Turnover
appears to “cause” growth; and disappearing behemoths, more than rising
stars, drive our results. Stronger findings suggest more intense
creative destruction in countries with higher incomes, as well as those
with smaller governments, Common Law courts, smaller banking systems,
stronger shareholder rights, and more open economies. Only the last
matters more in lower income countries.
Here is the paper.
Maybe businesses are also smaller, on average, in such countries? It stands to reason that a smaller businness is easier to destroy creatively than a large one.
For developed countries, a large banking system implies that capital deals occur in bank offices rather than the floor of the exchange. It’s easier for bank deals to be influenced, either politically or for purposes of cartelization. Having medium-business finance occur through bank loans rather than IPOs certainly seems like it would lower the amount of creative destruction in an economy.
Well of course, that’s obvious. Big businesses are chronic rent-seekers, they use their power to advance a monopoly position in subtle and not so subtle ways, and sometimes have the power to dominate entire populations by eliminating alternative employment prospects. None of these things are good for the economy as a whole.
Turnover in the American accounting sense is sales/(avg. inventory), or how many times in a year you sell or “turn” your inventory. Turnover in the British business sense is revenue, initially confusing for American readers of the Economist. Turnover here seems to be applying the accounting concept to an “inventory” of existing businesses – how fast they die and are replaced by new ones.
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