In an interview with The Economist, co-author of The Captured Economy Brink Lindsey makes the case that our captured economy is in need of greater competition.
A wealth of studies looking at the micro level assess what happens when firms are subjected to some sort of unexpected shock—say, the removal of trade barriers, leading to higher import competition. Those enterprises that suffer the shock also see higher productivity growth. The evidence is really overwhelming that having the wolf at your door, looking at the gallows, all of that concentrates the mind wonderfully.
Larger-scale studies, meanwhile, find negative effects when product markets are tightly regulated. These negative effects include lower productivity growth and GDP growth. One thing to point out is that these losses seem especially large in poorer countries. Allowing firms in poor countries to freely adopt the technologies and labour practices of richer countries can lead to really rapid economic growth. The downsides of overbearing regulation are smaller in rich countries, but still significant.
Thanks to capture by special interests in larger, more concentrated, firms, we have entered a “new normal” caused in part by the political influence of such institutions. One manifestation of this increased concentration is the growth in patenting and the resultant growth in the difficulty of innovation.
[O]ver the past 30-40 years, there has been a big rise in patent protection. Today the balance is out of whack. The Patent and Trademark Office grants about five times as many patents as it did in the 1980s. Standards for patentability have declined. And patents have expanded in scope, to include things like software and business methods. For instance, Amazon’s 1-Click button was patented. So what we have seen is a dramatic expansion in the number of monopolies that have been created…
[T]his way of doing things pushes firms towards being really big, and makes it harder for new ones to enter the market. Big firms sign non-aggression pacts in which they license their patents to each other. And smaller firms do not have the in-house expertise to deal with patent trolls and the like.
In innovative fields most affected by intellectual property, like technology and engineering, competition is a sword of Damocles ready to drop on established firms that fail to keep up with the competition. When established firms are able to shut the door behind their products with intellectual property and create a legal minefield for potential challengers to navigate, this sword and the benefits of competition both become dulled to the detriment of growth and innovation.
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