Ed’s Daily Notes for August 5th   4 comments

Wall Street Journal: Why It’s Worrying That U.S. Companies Are Getting Older

This chart says it all:

Companies closing and opening

Not only is the American population aging, businesses in the U.S. also are growing older.

Older firms are increasingly controlling the largest market share in different sectors of the economy, according to a paper by the Brooking Institution’s Robert E. Litan and Ennsyte Economics’s Ian Hathaway. By 2011, the portion of U.S. businesses aged at least 16 years reached 34%, compared to 23% in 1992. Moreover, those mature companies went from employing only 60% of private-sector workers in 1992 to employing nearly three quarters of the private-sector labor force in 2011.

The report attributes this trend to declining entrepreneurship, among other reasons. The rate of new business creation in the U.S. has been constantly shrinking in the past three decades. “The decline in new firm formation rates had occurred in every U.S. state and nearly every metropolitan area, in each broad industry group, and in all firm size classes,” the authors explain.

Moreover, it has become more difficult for younger companies to survive and compete with the bigger ones. Business failures are more frequent and likely among start-ups, which may account for the fall in business creation after the 1990s. The economy has grown more advantageous for incumbent firms and less helpful for fledgling ones.

The authors argue that younger companies are crucial to attaining a healthier economy as they have had the largest contribution to past “disruptive and thus highly productivity enhancing innovations” across different sectors ranging from airplanes and automobiles to computers and internet search.

In the highly regulated business environment in the U.S., this trend will continue, as the larger companies can more easily afford to comply with the regulations, basically moating themselves from competition.

The Guardian: World’s top PR companies rule out working with climate deniers

Some of the world’s top PR companies have for the first time publicly ruled out working with climate change deniers, marking a fundamental shift in the multi-billion dollar industry that has grown up around the issue of global warming.

Public relations firms have played a critical role over the years in framing the debate on climate change and its solutions – as well as the extensive disinformation campaigns launched to block those initiatives.

Now a number of the top 25 global PR firms have told the Guardian they will not represent clients who deny man-made climate change, or take campaigns seeking to block regulations limiting carbon pollution. Companies include WPP, Waggener Edstrom (WE) Worldwide, Weber Shandwick, Text100, and Finn Partners.

I know when I want to learn about climate science, the first place I go is PR companies (tongue firmly planted in cheek)…


Posted August 5, 2014 by edmcgon in Economy, News, Politics

4 responses to “Ed’s Daily Notes for August 5th

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  1. Ed – I am unconvinced on the chart. When I look at it I see a marked impact by the global financial crisis which rally hit hard in 2007 and 2008. That had (in my view) a large follow through so exits spiked and new formations slowed in the several years following. I believe that will be an aberration (we are having record numbers of IPOs in 2014) and we’ll move back towards the previous ormal.

    • Marshall,
      Normally, I might agree with you, except that chart goes all the way back to the late 1970’s. That covers three recessions where the exit rate never exceeded the entry rate. I’d call that a bad sign.

  2. Ed – my view is the 2007-08 crisis would have to compared with what happened in the 1930s, not 1970s. We went right to the abyss. AIG, LEH, BS, Wachovia, Washington Mutual were all bankrupt and many many other teetering. I would be really curious to see this chart for 2013 and 2014, that should be far enough away to see a reversal if there would be one.

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