Friday, September 14th, 2018 Goliath's Advantage: Why Big Firms are Getting Bigger and What that Means For Wages, Productivity, and Inequality

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Throughout the global economy, big companies are getting bigger. They’re more productive, more profitable, and they pay better. The people lucky enough to work at these companies are doing relatively well. Those who work for the competition aren’t. Policymakers have taken notice. Competition policy is seeing renewed interest and “monopoly” is suddenly on the tip of every columnist’s tongue. However, new research shows that big firms have gotten bigger not so much because of permissive antitrust enforcement, but because these firms have developed highly effective proprietary digital technologies. Indeed, firms–predominately large firms–are investing nearly as much in proprietary software as they invest in new physical capital. This trend has let large firms increasingly dominate their industries, slowed productivity growth, and contributed to unequal and stagnant wages.

James Bessen, an economist, serves as Executive Director of the Technology & Policy Research Initiative at Boston University School of Law. Mr. Bessen has done research on whether patents promote innovation, why innovators share new knowledge, and how technology affects jobs, skills, and wages. With Michael J. Meurer, Bessen wrote Patent Failure (Princeton University Press, 2008), highlighting the problems caused by poorly defined property rights. His research first documented the large economic damage caused by patent trolls and showed the link between information technology and job growth. His latest book, Learning by Doing: The Real Connection Between Innovation, Wages, and Wealth (Yale University Press, 2015), looks at history to understand how new technologies affect wages and skills today. Bessen’s work has been widely cited in the press as well as by the White House, the U.S. Supreme Court, judges at the Court of Appeals for the Federal Circuit, and the Federal Trade Commission. In 1983, Bessen developed the first commercially successful “what-you-see-is-what- you-get” PC publishing program, founding a company that delivered PC-based publishing systems to high-end commercial publishers.

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