Much has been made of this Brookings Institution report showing that Americans are starting new businesses at a much slower rate than before.
The reason for the decline? We don’t know for sure, but the consensus seems to be the rise of the chains and the Internet. (Actually, that should be chains or the Internet; one might be more important than the other ... and the pre-Great Recession timing strongly suggests a late-1980s victory of the franchise.)
It isn’t a bad case. Here is the gist:
- Chains are good. They innovate more, provide things more cheaply, and grow faster.
- There has been no decline in the number of small companies that grow large. The fall has been concentrated in startups that do not grow much after their foundation.
These are reasonable points. But they have to overcome one piece of evidence:
(Data from here.)
Incomes really haven’t budged for anybody in the lower 95% since 1987, save for a brief period in the late 1990s. If the triumph of the chains really were all that, then one would expect to see the opposite, no? Ditto if the growth of winner start-ups trickled down to the average American in any sort of direct fashion.
Sadly, however, all we see is stagnation. This puts the burden of proof back on Jordan Weissmann; an unsubstantiated dig at Italy for combining economic failure with lots of mom-and-pop shops doesn’t convince, because it is not clear to me either that Italy has lots of mom-and-pop shops or that they are the cause of the country’s recent stagnation.
Still, it is possible that the rise of the chains prevented the stagnation in American living standards from being even worse. Perhaps they increased labor demand, paying above-median wages and only following other establishments down after their wages dropped. Or perhaps they offered cheaper goods on a large-enough scale to cushion income declines.
That should be testable. Has anyone tested it?