Survival of the Biggest

The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process… At the heart of capitalism is creative destruction.

…Situations emerge in the process of creative destruction in which many firms may have to perish that nevertheless would be able to live on vigorously and usefully if they could weather a particular storm.

—Joseph A. Schumpeter

The most important feature of an information economy, in which information is defined as surprise, is the overthrow, not the attainment, of equilibrium. The science that we have come to know as information theory establishes the supremacy of the entrepreneur because it appreciates the powerful connection between destruction and what Schumpeter described as «creative destruction,» between chaos and creativity.

—George Gilder

In its purest form, capitalism is an evolutionary process. Businesses that best adapt to changing conditions survive and grow. Typically, that means offering a product or service superior to current ones, or giving consumers more choices. Weaker or poorly managed businesses that don’t adapt to the new situation wither and eventually die. That’s not always pleasant but it’s how nature works. Joseph Schumpeter coined the term “creative destruction” to describe the process. It is not pleasant when you are on the destruction end, but the creative side can bring innumerable joys and sometimes even wealth.

The difference, however, is we don’t have capitalism in its purest form, or anywhere close. It has been tweaked, modified, corrupted and/or regulated into something else, the particulars of which vary. The common thread is that survival depends not only on impersonal nature, but on other non-random forces that can be manipulated. Governments can and often do create barriers to entry, protecting favored constituencies and groups from competition.

Now we are in an odd situation where something from nature is generating an unnaturally negative economic outcome. The virus—or specifically the political response to it—is causing a mass extinction event for small businesses in certain sectors. At the same time, some large businesses are reaping a bonanza of revenue from the same pandemic. This isn’t happening randomly, nor is talent (or lack thereof) determining who wins.

One of the main factors is something else: size. In the most-affected sectors, the largest players are winning and the smallest ones dying. Instead of survival of the fittest, we see survival of the biggest.

The problem: Biggest isn’t always best.

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Πηγή: mauldineconomics.com

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