Level Playing Field? How Big Company Dominance May Hinder Innovation

Xconomy Texas — 

The conventional wisdom about Silicon Valley is that it’s a playground for the underdogs, a fertile ground for young entrepreneurs building startups that are going to “change the world.”

Instead, the Bay Area—while, yes, still home to thirsty young entrepreneurs—is increasingly the stomping grounds of a few major tech companies that have come to dominate how we live, work, and play.

At least that’s the assertion of New York Times columnist Farhad Manjoo in an article Wednesday. His commentary caught my eye because of a recent conversation I had with Ross Baird, the author of “The Innovation Blind Spot,” who expressed similar thoughts.

Baird, who is also the co-founder of social impact venture firm Village Capital, was looking at the issue from the prism of how government policy can support the development of young, innovative companies, but the idea is the same: large companies dominating an economy can have an adverse effect on startups.

“For a very, very long time, the government’s definition of a free market was defined by the level of competition in the market, the number of entrepreneurs and businesses that are competing,” Baird told me in an interview. When big businesses tried to use size advantage to squeeze out the little guy, regulations were, at least eventually, put in place to protect a level playing field, he added.

That definition has changed in the last 30 years to instead emphasize price, which, by default, helps companies like Amazon, which can deliver products at lower costs than smaller companies with not as much reach. Overall, government regulators are considered to have been more friendly to big mergers in recent decades—to the point where even comedian John Oliver made corporate consolidation and the resulting stifling of small business a focus of his television show last month.

The big companies “become quasi-monopolies and destroy local newspapers or Mom-and-Pop stores,” Baird says. That’s also discouraging to new entrepreneurs wanting to hang out a shingle of their own, he adds.

And so, today, entrepreneurship is at a 30-year low, Baird writes in “Blind Spot,” citing data from the Economic Innovation Group. “Although a new business starts every two minutes, another firm closes every eighty seconds—the highest rate of firm death in the past 50 years,” he writes. “In 1980, nearly half of American firms … Next Page »

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