Disaggregating the economy/New Commanding Heights watch

A chart from Jeff Desjardins shows the largest employer in each state. The results: Wal-mart is the largest in 22 states. A health care network is the largest in 12 states. A university system is the largest in 11 states. That leaves 5 states with “other,” only one of which is a manufacturing firm (Boeing in the state of Washington).

I think that this reflects a Great Consolidation in retail and in health care. Mom-and-pop stores and small medical practices have been wiped out. That means you want to be really careful about interpreting statistics that seem to say that Americans aren’t starting new businesses the way that they used to. The opportunities are not what they used to be.

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6 Responses to Disaggregating the economy/New Commanding Heights watch

  1. Handle says:

    I’ve been discussing the trend towards greater consolidation and centralization here for a while.

    Now, the early progressive economists used to go into panics about the tendency of companies in certain industries (e.g., oil, steel, autos, railroads) to exploit economies of scale and the power of market dominance to form giant monoliths that, they claimed, were all tending toward monopoly or maybe duopoly or small oligopoly if one is lucky.

    My argument would be that opening up to foreign competition where production could occur in a more competitive social context and certain technological innovations and developments accounted for the relaxation of the conditions that gave rise to those fears, and may by the fact of their good timing had provided what was falsely interpreted as “support” for theretical economic arguments against the need for worry and state intervention.

    One of those arguments was the difficulty of collective obtaining critical local information which could be more easily known and more readily exploited or arbitraged by local entrepreneurs. When one is trying to manage Sears in some uniform way, it is hard to know and realize upon granular details like blue is in fashion in one part of the country while red is in fashion elsewhere. But maybe local entrepreneurs are more intimately connected with the market and know better and can manage smaller, more suitable entreprises in a manner so efficient that it compensates for lack of economies of scale.

    My argument is that IT and increasingly capable and sophisticated management information systems, which themselves benefit from massive economies of scale, and the management techniques they enable, has invalidated this argument. If anything, big companies now seem to have a clear advatange with regards to acquiring and leveraging ‘local knowledge’, and combined with the other advantages of brand recognition, size and sophistication and capacity for, e.g., rent-seeking and bearing the burden of compliance overhead, that leaves “the little, genuinely-independent guy” with zero chance in the long run, except in labor-intensive sectors that naturally support small operations of local management like a dentist’s office or small-time landlords or certain kinds of single-location restaurants (which anyway are infamously low margin).

    My guess is that in a free market we would be seeing much, much more consolidation across almost all big sectors were it not for the deterring influence of antitrust law. I think Libertarians have talked themselves into not taking this issue seriously, in part to preserve the focal point against intervention and regulation except in the most extraordinary cases, and that was a good idea a generation ago, but sticking to it is incresingly proving to be a mistake. Indeed, I think libertarians have been able to hide under the umbrella of anti-trust deterrence to argue fallaciously that the anti-trust system is unnecessary,. That’s like saying that because crime has dropped so much, we no longer need all those cops walking beats anymore. It’s only true in the latter isn’t the cause of the former.

  2. Jere Allen says:

    Actually the number is different in the map and the legend. On the map, there are 13 states with healthcare the largest employer and 10 states with education the largest employer on the map. The numbers for other and Walmart agree.

  3. Slocum says:

    “The opportunities are not what they used to be.”

    They’re not. But they’re not vanishing across all sectors, either. All kinds of building trades and home services have not consolidated (builders/remodelers, designers, architects, plumbers, electricians, roofers, landscapers). The restaurant business still has lots of small operators. Some kinds of medical practices (plastic surgery, optometry, dentistry/orthodontics) have not been merged into large systems.

  4. Peter Stahley says:

    I’d be curious what this looks like with state employees thrown in as a “firm” as well, although in many respects the state University employees already are in some respects.

  5. Butler T. Reynolds says:

    I’m surprised to see Walmart as #1 in New Hampshire. While not awful NIMBYs like their neighbors, my impression of NH is that there is enough NIMBYism to limit Walmart’s footprint.

    Or, perhaps other employers in NH are so small that even a small WM footprint makes it the largest employer.

  6. Ryan says:

    Indeed, those doing the research on declining entry have focused on this very issue; see http://www.rdecker.net/materials/DHJM_EER_2016.pdf. Evidence suggests that retail consolidation has been productivity enhancing, and prior to 2000 the decline in entry is very notable in retail.

    Since 2000, tech industries have joined the decline in entry. Moreover, after 2000 we see not only a decline in entry rates but also a decline in the skewness of the growth rate distribution, including among young firms.

    It is also worth noting that retail is not the only sector seeing consolidation recently. We see substantial consolidation in services too (see http://www.rdecker.net/materials/DHJM_Brookings_2016.pdf footnote 5).

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