Thursday, January 7, 2016

Defragmentation

Paul Graham - cofounder of Y Combinator among other things - recently penned an insightful essay on The Refragmentation looking at how a world of 'big is beautiful' corporations, media and even churches gave way (fragmented) to a dynamic new world of start ups and greater choice in most spheres of life. He observes:
In the early 20th century, big companies were synonymous with efficiency. In the late 20th century they were synonymous with inefficiency. 
Graham speculates about how this came about: technology is deemed to have played a key - if not the key - part. It's a compelling narrative (set out at 70 characters per line because he thinks this makes the text more legible, and he may be right), so do read it.  Graham does see a downside to the end of the behemoths that shaped much of America when he was growing up: income inequality and job insecurity, for example. So he's no Panglossian.

But I think he's wrong at a fundamental level. He also observes:
The companies in the S&P 500 in 1958 had been there an average of 61 years. By 2012 that number was 18 years.
Which sort of supports his point, but also contradicts it. The point is: there's still an S&P 500 - and then there's the rest. Last time I looked, Apple, Goldman Sachs, Google and Facebook were fairly large companies: on some measures more dominant in their respective markets than the likes of General Foods and General Motors were in Graham's youth.  They just don't (need to) employ as many people as the 'big businesses' of the past (thanks to technology and the global supply chain it enables) - but they're still 'big' on all the same measures of economic power, influence on government policy, and barriers to entry (albeit different ones) as before.

But that's not my main gripe with The Defragmentation hypothesis.  For all the undoubted breakdown of corporate, media and cultural behemoths in the last two decades of the 20th century, there's one that's gotten bigger and less fragmented, namely: Government.

Government's share of the economy has risen in just about every developed country since the middle of the 20th century, after a brief decline in some countries for a short time (including Ireland). If anything, the technologies that drove The Refragmentation may well enable further growth in Government's share of economic activity, and not just in the West.

China's total debt is now half the world's entire debt, adding 61% percentage points of debt to GDP in just the last five years.  A case of Defragmentation perhaps (until it all goes pear-shaped, of course). Technology has also enabled China to gamify social control (through schemes like Sesame Credit).

It seems even Americans are waking up to the Defragmentation of Government issue: Government has just been named as the top US problem in a Gallup poll for the second year in a row.

Nevertheless, here in Ireland the recovery might witness a declining role for Government in terms of both economic activity and its overall influence in citizen's lives. Breath in, hold... keep holding............


still holding?


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