The Increased Competitiveness of the US Economy

Deloitte has just released The Shift Index, a study of long-term trends in the U.S. economy.   Two interesting graphs follow which put some numbers on conventional wisdom.  The US economy has become much more competitive over time. We can see this in the economy wide Herfindahl-Hirschman Index, a measure of market concentration, which has halved in the latest forty years (click to enlarge) and also in the topple rate.

The topple rate is a measure of how the rank of large firms on return of assets changes over time.  The topple rate has increased by about 60% over the past forty years (ignoring the recent blip up).  What this means is that the firms on top are less likely to stay on top today than in the past – the recent blip up indicates the upheaval in firm rankings during the current recession.  Notice also that an increased topple rate implies an increase in stock market volatility which we have also seen over the long-run (not just in recent years).

As a result of increased competition and also, I believe, greater wealth and reduced interest rates, the economy wide return on assets has decreased by 75% (see the report).

If the return on assets has decreased but productivity and wealth are up then where has the wealth gone?  To consumers and the creative class.  Thus, increased competition in the economy has driven down the return to capital and at the same time has increased the return to the complementary input which is in greatest fixed supply, creative labor.  More data in the full report.