by Tyler Cowen
on October 8, 2012 at 2:14 am
in Data Source, Economics, History |
That is from The Economist, via Michael Mandel and Paul Graham.
What would the population growth graph look over a similar period?
I guess this is part of your “There is no great stagnation”-campaign, but (coming from Germany) I wonder what this is telling us.. That relying on “old big companies” and often even older Mittelstand firms is somehow a bad thing? In Germany, these old companies are globally successful exporters, and they wouldn’t survive without a great deal of innovation. Creative destruction is fine, but when an economy does well with a rather stable set of companies.. So what?
I get two points from this:
1. (Not surprisingly) 1876-1900 was a golden age of new big companies due to the second industrial revolution in both Europe and the U.S.
2. Krugman’s point about economic geography is relevant as to why the U.S. has more large companies today. The U.S. is a huge, integrated market so any company that sets up there already has 300+ million people to sell to who are not separated by tariff, language, regulatory or currency barriers. The E.U. has tried to replicate this success but hasn’t quite succeeded.
Why has Europe been getting worse? If it is because American startups are outcompeting globally (e.g. we only need one Google…France, I’m looking at you), then that would seem to undermine a domestic factors argument.
Europe appears to be getting worse because it started out with more big companies that didn’t get broken up by anti-trust rules or go bust as often as American firms.
WWI wasn’t good for business in Europe, neither was WWII.
One might have expected that a long peacetime period since 1945 would make change, but with the advent of bloated welfare state in the mid 1970’s, Europe’s growth potential essentially came to a halt.
Are there more European companies on the FT500 list or American? Hard to say from this graph; but it looks like EU wins by a bit. Interesting.
European states with well developed welfare system such as Denmark, Germany, Sweden, Norway, the Netherlands and Austria are among the richest in the world. There is little evidence for the “welfare states hurt growth”-story, but it seems to be treated as conventional wisdom in certain Anglo-Saxon (academic) circles.
“…in certain Anglo-Saxon (academic) circles”
If only. *sigh*
Did the well-developed welfare state part precede the rich part? Clearly, Antarctica has few people and low growth, so the biggest factor is people. Next would have to be type of people. Holding everything else constant…
Every country is a little different, but sometimes “sort of” for varying definitions of ‘rich’. Compared to American living standards I think we can argue that Western Europe was definitely not as developed.
In England and France the welfare state was set up either during the war or immediately afterwards. Germany came about in mid to late ’50s*, tho they’ve had some kind of ‘Medicare’ since the 1880s.
Keep in mind post WW2 the continent was devastated; England was heavily indebted and would not recover until the 60s? if I recall. West Germany had to rebuild huge portions of its economy (and had lost a huge portion of its territory to East Germany).
*West Germany didn’t have an autonomous, independent gov’t until about then.
So, sort of. The economic boom of the post-war period was also fueled by huge demographic shocks – you had a lot of babies compared to the much reduced population that was left behind. Also worth keeping in mind the huge stimulus that the Marshall Plan provided.
The causality goes exactly the opposite way. Scandinavian states, Germany, etc., were first rich, then they could have built their welfare systems. It’s not that you introduce high taxation and generous benefits to almost anyone, and hey presto, your economy gets rich.
Welfare state does indeed hurt growth, look at Europe today and fifty years ago.
Aren’t you French, btw?
I’m more curious as to what it would look like if you take the west and non-western companies. I’m guessing that Asia is one big reason for the decline of the total in the cited graph.
swag gives me 140 European, 180 US, so that leaves 180 out of the 500 for SA, Africa, Asia.
And “decline” requires that the older a firm, the faster they stagnate or fail. I’m not sure if Merrill Lynch, Bear Stearns, et al, firms founded in the 1876-1925 buckets were in the FT 500 in 2007, but they certainly aren’t today. GM must have been in the FT 500 in 2007, but that GM is not and the GM today was created in 2009 by Obama.
The British economy is more conservative because old successful firms remain successful over the long term, while in the US old successful firms are pillaged and plundered by speculators and thus fail. Like those old successful investment banks that had their wealth liberated so they failed in 2008.
This graph can also be interpreted as: European companies have great survival rates, as many of Europe’s “big” companies were founded more than 200 years ago.
In other words, we cannot say much without survival rates.
Finally, we also need to think what is exactly “a company”. If a pulp milling company turns into a rubber products company and over the century into a telecommunications company, and then a global communications company (yes, you guessed). Can we consider that to be the same “company” because they share a name and some legal continuity?
It would be interesting to see a state version of this for the U.S.
Do foundation dates matter? Nokia was founded in the 1870s; Nintendo, the 1880s. This chart may be more informative of capital market structure and competitiveness than innovation. (Not to mention European state intervention in commercial enterprises.) We all know that competitiveness and innovation aren’t always positively correlated. This subject needs more than the usual gnomic Tyler post.
One thing to keep in mind is that it defines a ‘big’ company as one in the FT Global 500. This is a ranking based measure of who has the top 500 big companies and when they were founded. This might distort the data a bit. Imagine in 1876 you establish a ‘big company’ during a period where the world is still somewhat new to ‘big companies’. You may keep yourself inside the top 500 by buying up small and med. sized companies that seem like they have new and innovative products. You may keep yourself in the list of ‘big companies’ almost forever and it will appear that all the ‘innovation’ happened around 1876 or so! In reality the modern era may be seeing huge growth as millions of small and med. sized companies blossom and grow.
One might want to look at a graph showing the GDP produced by the FT Global 500 over time versus total GDP produced by the world.
I’d be curious to see what the graph looks like for some other various mesures of big such as:
1. Over 50,000 employees
2. Sales of at least a billion US dollars (adjusted for inflation and currency variaiton of course)
3. Sales consisting of at least 1/10th of 1% of host country’s GDP….or world GDP etc.
I don’t know how you even count start date. Many corporations are formed by the merger of other corporations or by the spin-off of a division of a corporation. Viacom claims to have been founded in 2006. Another FT500 company, Cognizant Technology Solutions was founded in 1994 as a division of Dunn & Bradstreet, a much older company. It was later spun-off. Neither one of these companies should count as having been founded in the period from 1976 to 2007, but I am not sure how the Economist counted up the names. There are many examples of this all over the list.
It is also difficult to identify the country of origin for a number of corporations. TransOcean is a Swiss company with most of its operations headquartered in Texas, whereas ACE Limited is American even though its headquarters is in Zurich. Accenture, which also suffers from the date of founding difficulty described above, is headquartered in Dublin, but is considered a U.S. company. Tyco International is incorporated in Switzerland, but has its operational headquarters in the U.S. and is considered by FT to be a U.S. company. And, on and on and on.
The success in the U.S. is clearly a result of the 2001 cut in capital gains and dividend rates.
Comments on this entry are closed.
Previous post: Arvind Subramanian is pessimistic about Indian growth prospects
Next post: Truth Bounties
Email Tyler Cowen
Follow Tyler on Twitter
Email Alex Tabarrok
Follow Alex on Twitter
Subscribe in a reader
Follow Us on Twitter
Marginal Revolution on Twitter Counter.com
Get smart with the Thesis WordPress Theme from DIYthemes.