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<\/p>\nRobert Litan writes: \u00a0We\u2019re going to hear a lot from 2016 presidential candidates about the need for faster economic growth.\u00a0Jeb Bush\u00a0says\u00a0annual growth of 4%\u00a0would be his goal; that\u2019s almost double the 2.2% U.S. growth rate\u00a0since June 2009.\u00a0Hillary Clinton\u00a0has called for \u201cinclusive\u201d growth, or economic expansion that is distributed more fairly. (I suspect that many Republicans agree with her objective, while differing on what government should do to achieve it.)<\/p>\n
Presidential elections are occasions for debating government\u2019s role, so it\u2019s natural to focus on things government can do to affect economic growth, such as simplifying the corporate tax code, removing distortions, and, for some, lowering rates; investing more in infrastructure and early-childhood education; and easing regulatory burdens, especially for new businesses, which have been the source of many major technological advances.<\/p>\n
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While some or all of these things should help growth, government has limited ability to influence the appetite for taking risks among entrepreneurs, investors, and larger companies. And without risk-taking, we are unlikely to see the kinds of major new innovations that will propel our economy toward a higher growth trajectory.<\/p>\n
Two recent essays define this challenge. One is a thoughtful piece by Bloomberg View\u2019s Barry Ritholtz\u00a0on the decline in publicly traded companies\u00a0in the U.S., from a peak of more than 7,300 in 1996 to just 3,700 in 2014. After surveying multiple possible causes for the nearly 50% decline\u2013including the much-criticized Sarbanes-Oxley Act, which tightened public company reporting rules\u2013Mr. Ritholtz cites academic research showing that mergers have played an outsize role in reducing the number of public companies.<\/p>\n
This is important because when big companies swallow up others, it signals that acquiring companies have essentially outsourced their ideas rather than growing internally. It also suggests that the safer thing to do is to buy someone else rather than develop new products and services yourself. The merger trend is a sign of a collective failure of nerve, the risk-taking that historically contributed to much higher economic growth rates, such as the roughly 4% average from 1948 to 1973.<\/p>\n
\\Fortune editor Alan Murray\u00a0reports that revenues of the Fortune 500 companies combined equal 71.9% of U.S. gross domestic product, or more than twice the 35% it totaled in 1955. In other words, despite continuing turnover in the Fortune 500\u2032s composition, big companies are more important than ever as a share of the overall economy.<\/p>\n
This wouldn\u2019t be so worrisome for future growth were it not for the\u00a0decline in the start-up rate, or share of new companies in the number of overall firms, which I have\u00a0written about before. Despite the continuing emergence of new billion-dollar start-ups (\u201cUnicorns\u201d), the execs of big companies don\u2019t appear to be especially worried. According to the Fortune survey, only 20% think their greatest challenges will come from start-ups.<\/p>\n
At the top of their worry list, Fortune found, is the \u201crapid pace of technological change,\u201d which is ironic since, so far, hype has exceeded reality. As Princeton professor\u00a0Alan Blinderhas noted,\u00a0productivity growth since 2010 has clocked in at just 0.4%\u00a0a year, down from 2.6% over the preceding 15 years.<\/p>\n
Unless a big boost in start-ups puts real pressure on large companies, the answer to the growth challenge lies mostly with large companies and those who head them.<\/p>\n
Robert Litan writes: \u00a0We\u2019re going to hear a lot from 2016 presidential candidates about the need for faster economic growth.\u00a0Jeb Bush\u00a0says\u00a0annual growth of 4%\u00a0would be his goal; that\u2019s almost double the 2.2% U.S. growth rate\u00a0since June 2009.\u00a0Hillary Clinton\u00a0has called for … Continue reading ![\"startup-cartoon\"](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2015\/07\/startup-cartoon.jpg\")
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