Why Some Corporations Prefer a Bad Economy

A bad economy is supposed to be tough for businesses. In many ways it is tough for them. But even so, it is possible that they see a silver lining. Consider this post from the Wall Street Journal blog:

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.

So there you have it. Bad economic conditions seem to be more devastating to new start-ups than to older, more established firms. In a sense, a bad economy creates a sort of “cartel-like” condition because fewer firms end up dominating the industry.

[See also, “How Does Crony Capitalism Improve the Economy? It Doesn’t, but It Makes Cronies Richer.”]

This might explain why many businesses don’t seem too upset with Barack Obama or long for free enterprise. They don’t want competition.