ICYMI: David Wessel Lays Out Economic Scoreboard – And Tech Does Well
Yesterday, in Harvard Business Review, Brookings Institution Senior Fellow David Wessel provided four “warning signs” to guide policy discussions on industry concentration trends. Concerns of economic concentration reflect real challenges in our economy, but the tech sector is bucking the trend:
1. Business dynamism: The tech sector is growing faster than GDP with new companies and innovations changing consumer habits every year. The decline in small businesses economy-wide is a four-decade trend that predates the internet.
2. Business investment: Tech leaders are investing more in R&D than any other sector, while, more broadly, low business investment has plagued the economic recovery.
3. Prices: AEI’s Mark Perry finds the more a sector is exposed to tech, the more prices have fallen.
4. Profits: McKinsey research finds the technology sector generates large profits, but time at the top is short, especially with a rising middle tier of companies in the sector.
1. Business Dynamism: Tech Sector Is Leading Economy In Dynamism
McKinsey Global Institute In 2011: Over The Past Five Years, The Internet’s Contribution To GDP In Advanced Economies Doubled To 21 Percent. “In the advanced economies we studied, the Internet accounted for 10 percent of GDP growth over the past 15 years, and its influence is growing. Over the past five years, the Internet’s contribution to GDP growth in these countries doubled to 21 percent.” (James Manyika And Charles Roxburgh, “The Great Transformer: The Impact Of The Internet On Economic Growth And Prosperity,” McKinsey Global Institute, 10/11)
American Enterprise Institute’s Jim Pethokoukis Highlights Research Showing Strong Competition And Innovation Across Sectors. “Relatedly, it is also an open question as to whether the modest increase in corporate concentration has hurt US productivity growth. On that, here is the new finding from the McKinsey Global Institute’s new mega-study on productivity: ‘We find evidence of increased business concentration and consolidation but do not find that rising concentration has contributed to the decline in productivity growth. We continue to find evidence of strong competitive pressure and innovation across industries.'” (Jim Pethokoukis, “Business Gigantism Probably Isn’t Squashing US Economic Growth. Yet,” American Enterprise Institute, 2/23/18)
2. Business Investment: Leading Tech Services’ R&D Spending Outpaces Other Industries
(Rani Molla, “Tech Companies Spend More On R&D Than Any Other Companies In The U.S.,” Recode, 9/1/17)
3. Prices: Tech Sector Is Driving Down Prices For Consumers
The Price Of Tech Products – Like Software, Cellular Plans, And Televisions – Has Decreased Dramatically From 1997, Per Economist Mark Perry. (Mark Perry, “Chart Of The Day (Century?): Price Changes 1997 To 2017,” American Enterprise Institute, 2/2/18)
4. Profits: Tenure At The Top Is Short-Lived Among Tech Leaders
McKinsey Research Finds Across Industries 60 Percent Of Leaders In Economic Profit In 2000 Remained In 2015, But Only 45 Percent Did Among Tech Giants. “While the top 20 percent of TMT companies consistently capture an outsized share of profits, life at the top can be short. Taking our data set as a whole, across all industries, nearly 60 percent of companies that were in the top quintile in terms of economic profit in 2000 were still in the top quintile 15 years later. In TMT (tech, media and telecom) industries, though, only 45 percent of top players from 2000 remained in the top quintile in 2015. The flip side is that over the same period 25 percent more companies that started at the bottom ended up in the top quintile.” (Tushar Bhatia, Mohsin Imtiaz, Eric Kutcher, and Dilip Wagle, “How Tech Giants Deliver Outsized Returns— And What It Means For The Rest Of Us,” McKinsey, 9/17)