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Wednesday, 1 June 2016

Opinions wanted - link between global firm size and global economic growth (lack of)?

This is an area in which possibilities have been churning about under the Raedwald helmet for some time - but I am neither scholar enough nor economist enough to research properly. The matters bubbling around are roughly:-

1. Global growth has stalled. Firms continue to generate profits by a mix of mergers and acquisitions and exploiting new 'emerging' markets but yield seems to be diminishing

2. More big firms have more market share than ever before; WTO / TTIP are efforts to push the boundaries of global market share by increasing global competition but between the mega global corporates i.e. horizontal not vertical competition

3. Barriers to entry into all sorts of business have grown due to over-regulation favoured and sponsored by global corporates as a way of excluding competition. There is much less competition at the mid and bottom ends of the markets. Global corporates can offer consumers in particular price advantages that can't be bettered. 

4. Consumers and buyers / sellers in all markets are better informed than ever before - costs of risk have been radically reduced and market prices are more open and transparent than ever. If there's the prospect of a frost that takes out a yak harvest in Patagonia, London dealers on the yak market react instantly. 

Is there a correlation between the growth of firms and the shrinking of global economic growth? Are big firms actually killing growth? Are we at the limits of growth and there's nowhere now to go? Would the world be better off if we broke up all the 'Bells' into mini-Bells? Do more market risk, imperfect knowledge and fragmented markets actually drive stronger growth and make us all better off?

Feel free to shoot me down in flames - happy to crash and burn on this (or be constructively informed, as you will...) 


Dave_G said...

Sound reasoning Radders.

It is COMPETITION that drives down prices and gives people choices. Mergers do nothing to help and TTIP will only exaggerate the problem long-term.

Add in market share manipulation and there is a definite skewing of the picture.

Still, if/when the next economic collapse happens we may see a return to SME's leading the way as the corporates collapse under their own weight.

But, as with yourself, this is only personal opinion and needs expert input.

Demetrius said...

Bigger firms seeking ever bigger profits make bigger and more mistakes. Also, they are so busy planning and playing politics, internal and external, that they do not understand what is going on.

Anonymous said...

One of the major concerns that I have relates to over-large government rather than domination (alone) by large firms.

The spend of governments as a percentage of GDP has, overall, been increasing for years. On top of that, governments (including through globalisation issues) have been setting policy for their economies by indirect means, in addition to direct government spending - global warming alarmism being an example. Thus government control of the economies of the world is even larger than one might expect from the various percentages of GDP that is government spend for each nation state.

The trouble with this is the old one: government are pretty poor at choosing winners. Thus, the more of the economy that is controlled by governments (directly or indirectly), the less is the quality of (particularly technological) advancement. Hence, the less is the long-term growth.

Best regards

Sceptical Steve said...

I think your assessment is pretty accurate, though one of the major reasons why growth has stalled is that many large publicly quoted corporations (my own employers included) place a higher value on predictability than they do on entrepreneurial activity and innovation.

My own boss expected a pat on the back for achieving a better than predicted monthly profit, only to be slapped down because the company saw this as evidence that he wasn't in control of the business.

Apparently said...

Government is like a great big official mafia, designed to entrench the advantages that global companies have previously built through novelty, and now wish to hold onto through bureaucracy.

They work together against the interests of human inventiveness and novelty, with their patents and their muscle and their guns.

This is one of the main reasons that I want to see the EU implode, and one of the best ways to achieve this is for one of its biggest funding agents to withdraw.

Vote out 23rd June.

Anonymous said...

All good comments on here, inclusive of yours R.

I vehemently believe that, the only way out of this world take-over is through independent states asserting themselves by removing big government and introducing genuine competition from SMEs - encouraging the little guy is, the only way to power real economic growth. By thus and the only way to stimulate real growth; is to remove the corporate cartels, its onerous red tape and regulation which the big guys love but is strangling off the small enterprises, we need to get back to Retail banking and small banks.
Get politicians out - of the bloody way and break up and destroy large property owning sharks the likes of 'Land securities' represent and who have local Metropolitan councillors in their pockets - killing off town and city markets and traditional markets run by street traders is one of their big anxieties and purpose: they are fucking killing off the competition and not least the little boys - individual shops in town centres - think on that.

All cartels need breaking up inclusive of the 'Golden Circle' big five Law Firms, smash the big four accountancy giants....who didn't see the 2007 crash coming either and subsequently give glowingly false reports and still do so, about their buddies in the banking sector (think on that!). To, halt the flood of taxpayer largess into the likes of Crapita, G4S et al and a whole lot more besides.

Only SMALL is beautiful, Britain needs to get back to its roots and small style is best.

Fuck the corporates, they dictate to the market - and that's where the consumer looses out - think TV digitization - millions of tellies redundant almost overnight, CO2 emissions regulation (think VW and diesel cars!) and a myriad other such scams - the green agenda is a wet dream for the corporates - because only they can afford to implement such idiotic strictures (zero carbon).

FUCK to the EU, we need to get out!

Anonymous said...

Oh yeah, corporate cynicism; I forgot to mention "planned obsolescence" - how green is that - fucking hypocrites, the cunting lot of them.

Barnacle Bill said...

I often wonder if the reason why growth is stalling is because both the government and these big companies have drained Joe/Jane Public's pockets dry.

We see companies seeking the economies of outsourcing their labour to low cost countries. Yet what of the workers they have laid off? They have had to go from relatively well paid work to zero hours contracts on minimum wages. So these people have less cash in their pockets to spend.

Then again we have the government taking more from us in direct and stealth taxes to basically prop up those in employment stuck on these terms. Or to fund those who are thrown on the scrapheap on the dole.

AS for TTIP; don't get me started on that one I haven't got my tinfoil hat on!

bloke in france said...

Your idea has been around for a while, Raedwald. To be fair, it's probably less than half wrong.

Meanwhile we've seen advances in financing (VC, debt markets, and some pretty dodgy stuff as well) transport efficiencies, lower (believe it or not) tariffs, better quality.

For examples (and OK examples don't make a theory)
apple v music publishing
ineos making bulk chemicals better than ici ever did
coffee bars v greasy spoons
tata v british leyland

Past a certain age we all think the world is going to hell in a hand cart. But economic growth is as high as any other period you care to name. It's just happening in Mumbai, not Scunthorpe.

An example of Bastiat's "the seen and the unseen" in short.

Cuffleyburgers said...

Radders, this is a very good and relevant question.

My own view on the matter is that in particular in the western world we are in a situation comparable to Germany after the second WW when her economy was crippled by having been flattened but even more so by the crippling over regulation of the economy imposed by the victorious powers.

The lesson is that Erhard came along, deregulated everything and for half a century the whole world looked in amazement at the resulting economic miracle.

The western economies at present are in a straitjacket of over regulation due mainly to the ever proliferating levels of one world government, prescribing rules, norms, regulations which generally suit the large multinationals as it is they that have the armies of lobbyists in Brussels Washington and New York.

The large company thing is therefore correlated very strongly but the causality is indirect, and goes via big government, remotely administered by a largely unacountable political class.

Most lawmakers have no relevant experience of running businesses or even meaningful training as economists so are not in a position to improve the situation, even if they could give a shit.

Electorates do not in general clamour for free markets as they are associated with risk or with making profit, two words that are anathema in modern political discourse.

Under the current disposition those at the top of the business/political/banking nexus manage to cream off a handsome living for themselves and precious few of them have any real interest in the well being of the little guy.

At the risk of sounding like a tinfoil hat wearing card acrrying paranoid conspircay theorist the truth is simply that we are to an extent in a post democratic age in which rulers simply go through the motions, and collect their 200 pounds and each circuit, all to rarely go to jail, and the rest of us are too apathetic or outnumbered to do much about it.

Economies run the way ours is have no chance to grow, no chance.

Some sort of shock is required to get people thinking for themselves again but I am not optimistic.

Mark The Skint Sailor said...

1. Quite a lot of corporate profit is illusionary and a result of sharp accounting practices. Tesco's demise being a case in point.
Profit seems to be made by buying up new businesses with inflated valuations rather than making stuff and selling it for more than the manufacturing costs. More large corporations look to service provision to the exclusion of anything tangible. making money out of nothing is a common corporate trick.

2. When you say TTIP increases global competition, are you being ironic? It reduces competition as major players get to grab swathes of new markets stamping out local competition.

3. Agree 100% that the costs to enter business have increased, whether its complying with greater regulation and legislation,, to wage costs, small businesses have larger than ever step to climb to just start up. But the regulation industry is doing a good job creating new jobs that don't create profit, just like the huge training industry that has sprung up in the past 15-20 years. Who'd ever heard of NVQs 15 years ago and why have they become essential when things were fine before?

4. Not sure I agree on that one. I think it's more to do with companies leveraging that last 1% and trying to get returns from diminishing markets.

The other thing is multi-national corporations picking and choosing which markets to declare profit and leveraging local rules to minimise costs. Like I say profit for these giants is all about moving money, minimising costs and killing competition. At the same time being so big that they are too big to fail.

Span Ows said...

Corporatism almost brought the world to its knees, many believe it will anyway, very soon. All the lefties blamed it on 'Capitalism' misunderstanding what has happened in the global markets.

Anonymous said...

"lefties blamed it on 'Capitalism' misunderstanding what has happened in the global markets."

Such a good point, why can't those Socialist geniuses work it out - corporatism is nowhere near nor does it wish to meet, free market economics.


"Past a certain age we all think the world is going to hell in a hand cart. But economic growth is as high as any other period you care to name. It's just happening in Mumbai, not Scunthorpe."

How can we compete with aught produced in Mumbai when, UK industry is strapped down by energy costs way above what the Indians have to pay, carbon floor price et bloody cetera. By any stretch of the imagination: it's not a level playing field - is it?

Tata took over Jaguar Land Rover, admittedly the British Leyland 'model' is not one to be proud of but how many large French auto manufacturers are these days - fully independent?

EU regulation, helps German car manufacturers win market share via the back door - that's called market manipulation.

And Apple todays' latest fad...... just make nice toys for big boys, what's coming down the line will make them all obsolete overnight, whose ever heard of Nokia - now?

True things are changing but we can still do the traditional stuff better than most, we need less government, to do it well.......
and that means OUT of the Brussels straitjacket.

Rossa said...

I would suggest that the future may take on another dimension altogether. Human wealth comes from our labour and time and ability to exchange that for what we need. Global corporations are removing all of that from the equation. I'd go a lot further than BB and say that with the increasing use of robots there will be a lot fewer consumers. Robots don't need money, food or the latest iPhone. Apple's manufacturer Foxcomm has replaced 60,000 workers with robots. Apple is moving from a 2 to a 3 year replacement cycle. There's no growth in that.

If human consumers' pockets are empty who's going to buy any corporation's stuff? Is this where the idea of social credits comes in? China is already trying that out now. Your 'income' from the Govt and access to resources is determined by your acquiescence to the ruling paradigm.

PS Just as well I'm not a robot so can tick the Captcha box.

Weekend Yachtsman said...

Size of firms is a proxy for growth limitation, because the proximate cause of low growth is excessive regulation and too much state meddling generally, and these things are encouraged by big firms as a competition-limiting strategy. In turn, the mere growth of the regulatory jungle enables established corporations to become market-dominating, because no real market then exists.

Weekend Yachtsman said...

And, of course, now that we have six million tax-eaters in the UK, it's little wonder we can't grow our economy; everything we produce goes to support non-producers. You don't generate much of a surplus that way.

Vlad the Impala said...

It is a totally valid question - beyond a certain size (which is influenced by the nature of the company and its leadership) - firms lose flexibility and the ability to have really effective two way communication. But I think i recent years, the exponential growth of a lot of companies has been compounded by greed at the top, management whose outsize rewards are wholly uncorrelated to company performance, and total unaccountability to shareholders and the market alike. It is part of the larger souring of attitudes towards corporatism.

Anonymous said...

Do we take our eyes off the impending, happening, the real disaster?

"And, of course, now that we have six million tax-eaters in the UK, it's little wonder we can't grow our economy; everything we produce goes to support non-producers. You don't generate much of a surplus that way."

"Tax eaters" and baby factories - multiple wives - breeding for the furtherance of the death cult, sooner rather than later: will turn the country into Northern Pakistan.
Now factor in, forty odd years of failed energy policy and now further fooked up thanx to the green agenda: will cause regular brownouts and very likely rolling blackouts.

Alas and as, the third world becomes to the UK - blackouts are very familiar to all new arrivals from the subcontinent - it'll like home from home.

UK, a Third world shit hole? And - is it already arrived?

Anonymous said...

When Henry Ford was building his business he improved the manufacturing process by building larger, integrated factories. He also split the benefits three ways, the company got a profit to re-invest, the customer got a better car at a lower price and the worker got a higher wage. As a result the worker became a customer too.

Contrast that with the UK. When the native car makers were doing well the government stepped in and made them build satellite factories in Scotland and Wales. Can you imagine Henry Ford shipping parts 200 miles for no reason? Then the government created BL which attempted to patch the mess all together, destroying all the cells of innovation and creativity in the process.

When the Japanese set up their plants in the UK they went for green field sites, well away from 'Red Robbo' and 'Marxist Merseyside'.

The hand of government is fatal.

Dan said...

Every so often, a country or indeed the world goes through an economic contraction. To recover, the various companies of the country need to employ more people and grow.

Past experience has shown that small companies grow faster than large ones. A one-man-band taking on one employee has effectively doubled in size; said company then employing two more people has doubled again. Most economic growth comes from small firms becoming slightly less-small firms.

Big outfits and multi-nationals on the other hand do not seem to grow by accumulating more employees, but by taking over smaller companies to add to their total. Very big companies thus only grow acquisitively, not organically, and if there is a dearth of small firms to buy, they do not grow at all.

The dead hand of government regulation is what limits the numbers of small start-ups. A big outfit can easily employ a few people to ensure compliance with pettifogging regulation; it can also easily afford lawyers to stave off accusations of non-compliance or to muddy the issue. A small outfit cannot do this so easily.

The EU and US EPA are the two main producers of vast amounts of essentially useless regulation, and this huge amount of regulation, combined with high-level fiscal incompetence on a grand scale, is the reason the EU is slowly dying.

Essentially I see the Brexit campaign as little more than a sideshow to the main event, which is the inevitable slow demise of the EU. The Euro is the main agent of this, since it places such pressures on most of the Club Med countries that they simultaneously cannot afford to be in it, and cannot afford to walk away from the fiscal security blanket that it seems to offer.

Eventually, something will crack and the first symptoms are the rise of far-right nationalist political parties. We are seeing this right now. The EU is going to die, and given that nobody seems willing to step in and do the decent thing to give it a clean death, the ending of the EU is going to be long, painful and operatically melodramatic.

Cascadian said...

And right on schedule zerohedge answers your question.....

The ECB will corporate bonds, so a new round of bond issuance will fill corporate coffers, they will then buyback their own shares to boost the earnings per share, everybody thinks the economy is healthy...yippee. In fact there is NO IMPROVEMENT.

Look at ECCB projections, growth 1.6%, inflation which they notoriously get wrong 0.6% who believes that? Inflation is easily running at 2% therefore there is zero growth despite all the follderoll.This is proved time and again by all the "fantastic", "cutting-edge" city investment firms struggling to make 1% return on their investments despite their criminal abuse of FX fixing, HFT schemes, LIBOR fixing etc.

The system is fucked, you (and your hoped-for pension scheme) are being robbed blind.

The major banks, large corporates, ECB, the fed,BoE all circulating pretend money skimming pennies on every transaction. Growth is illusory, tankers full of crude sit rusting at anchorages, the Baltic dry index has never been lower, the yuan fix is breaking down. It's time to panic folks.

Big corporate issuing bonds to big government to "secure" the debt is how we got here.

The ECB is about to blow up (again), bank bonds from Italy, France, Germany, Greece are all next to worthless and may even default.The securities the fed holds are no better and zero downpayment mortgages are re-appearing.

anon 2 said...

What is "Far Right"? Is that when the commies who consider themselves 'Alpha' come full circle and meet themselves as 'Omega' --just because they're in some other form like "Nazi" or "fascist"? I mean, the rest of us do know that Social Democrats et al are Socialists - ergo commies - don't we?

Certainly in the West as I know it, there's no longer any difference between Left and Right. These are just 'trompe l'oeil' labels used to blind the electorate to the legerdemain of the trickster classes: politicians and corporates.

Anyway, if Raedwald will allow, and just in case some you haven't yet caught this video or Paul Manning's book, Gosling explains an interesting view of Nazi corporate buy-ups after WWII:

Anonymous said...

Any flooding round your way mate?

Mountains, heavy prolonged precipitation - not a good mix.