This is the second installment in a four-part series on the financial and economic crisis facing the United States.
As significant as the policy shifts described in the first installment of this essay
are, they only tell part of the story. A couple of additional key changes took place in recent decades. First, government policy changes that were designed to fuel consumerism to benefit large corporations created an envy complex that impacted a majority of lower and middle-income Americans. Statistics have shown that consumerism has significantly impacted poorer Americans, especially minorities. In short, with new wealth, and cheap goods imported from Mexico and China, more Americans could afford more items, including clothing, electronics, and other things that once had been limited to more wealthy Americans.
It did not take long before new baselines of "necessity" were created in order to reduce or eliminate the perception that one was poor or of limited means. This also had the adverse effect of contributing to the decline in savings - or the habit Americans had in previous generations of being frugal and conscious of the need to save.
Second, there were technology-driven societal changes that moved the U.S. economy from a "second wave" or industrial era economy into a pseudo- "third wave" or technological economy. The changes that took place included movement away from accepting standardized goods and services, and growing preference for more personalization. This wave of interest in personalization continues to force change to everything in our lives. It follows the belief that people want things tailored for their needs.
However, the only place people were getting more personalized service from was larger corporations who had the capital to invest in new computer systems, create algorithms and software for harnessing data, and then use mass distribution systems from an earlier era as well as modern technology (eg, the Internet) to deliver products and services in ways that small to mid-sized companies could not. Hence, a great paradox began to emerge about the kind of Third Wave society the United States was turning into.
Third Wave societies thrive when their institutions are smaller and more agile, and not massive and centralized. So, at a time when the U.S. should be turning away from a strong, centralized, federal government, and large, centralized corporations, to more local governments and small and mid-sized businesses, the opposite has taken place. The federal government has grown larger and more powerful as have a small number of large corporations.
The other benefit of a Third Wave society is that people should have more control over decisions impacting their lives. However, when it comes to politics or how personal information is handled, the base of power is instead a select group of politicians and executives for large corporations.
Government advocacy for large corporations has reduced new business growth. While other institutions are undergoing dramatic changes and being adapted to align to a Third Wave society, government and big business have done an excellent job of eliminating the competition.
We often hear about the U.S. being a land of opportunity, and a place where one's entrepreneurial spirit can thrive. And while that is still true to an extent, over the last 30 years the U.S. has actually regressed in the number of new businesses it creates. In fact, the percent of all businesses that are new has declined from the 12% to 14% range that was enjoyed in the late 1970s and early 1980s, to just about 8% today. The number of new businesses being created is barely off-setting the number of companies that exit or cease to exist.
One of the reasons for this trend is federal, state and local government support for larger corporations, which look for tax and regulatory benefits to gain strategic advantages over small to mid-sized businesses. In support of large job gains for a community, governments routinely offer tax or regulatory incentives, and/or strike deals on infrastructure costs in exchange for other perks.
People also have to remember, the over 90% of all legislation is influenced by lobbyists. Large corporations employ over 35,000 lobbyists and run thousands of political action committees in an effort to influence legislation in their favor. The truth of the matter is - they do not lobby Congress to pass laws that benefit smaller or mid-sized competitors.
A study from Good Jobs First provided detailed analysis on more than 4,200 government contract awards dating back to 2007 that targeted 14 states. The awards were designed to stimulate economic activity and business growth. The study found that 70 percent of the awards – and 90 percent of their monetary value – went straight to large businesses.
Another advantage lies in the special service arrangements big corporations receive. The Postal Service, which is another large organization with a monopoly on all letter mail, plays favorites by providing larger corporations, like Amazon, discounted shipping which provides a strategic advantage. The Post Office also provides discounts to Chinese businesses that export to the U.S., which can make the delivery of international cargo sent from China to America less expensive for Chinese businesses than for U.S. companies to ship domestically.
Lastly, the decline in financial options for small to mid-sized businesses has prevented growth. According to American Banker, the number of community banks with assets under $100 million dropped from 13,000 in 1985 to 2,625 in 2010. The number of small, local banks that used to support small businesses is now under 1,800. Much of this is due to the tighter financial regulations that have been introduced for new banks and smaller banks. Meanwhile, larger banks were considered "too big to fail" and received significant taxpayer support following the Great Recession to ensure they would continue to lend to businesses - a result that largely did not materialize.
With fewer banking options available, and large banks less likely to lend to higher-risk businesses, funding for business operations can be elusive for most entrepreneurs, or even for existing businesses trying to compete. In fact, studies have shown that once a larger corporation or chain store enters a market, new and existing competitors have less ability to get funding to compete. What's more, when larger corporations or chains enter a market, the amount of new businesses that get created drops.
The lack of new business growth in the U.S. is significant when describing the state of the American economy because increased competition across all scales of business not only impacts prices and costs, it also has an impact on employment, wages, and other businesses. Some have begun to suggest that for the U.S. economy to truly be considered growing, we need to recognize that we do not have a jobs problem, but we have a lack of new businesses. As new business creation has fallen, wage growth for Americans also has been falling
In fact, overall wage growth has been on the decline since the 1970s and undergone a continuous decline over the last 30 years. The Great Recession caused significant damage to wage growth, which the economy is attempting to recover from - but won't be able to achieve before the next recessionary cycle. Given the growing disparities in wealth, income and debt, current government policies from the Democrats and Republicans simply are not going to fix the problem.
Next time – Part Three – What About Growth In The Labor Force?