Why Is America Turning Against Big Business?

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1:53I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and this is Trumponomics, the podcast that looks at the economic world of Donald Trump. How he's shaking the global economy, what on earth is going to happen next? And this week, we're asking, why is big business quite so unpopular in Donald Trump's America? What does it tell us about not just the state of the nation, but potentially the long-term strength of the world's largest economy? Well, we've spoken a lot about AI on this show, and there has been some discussion here and elsewhere about, in November, us seeing potentially the first elections in the US that are substantially affected by voter views on AI.

2:36You probably heard already commencement speakers around the US have been getting booed on US campuses when they mention AI. And that's probably because young people in the audience are worried about their future jobs. But it's not just the tech, it's also the big businesses associated with AI that are increasingly making people angry. And we saw that last summer to an extraordinary degree when the United Healthcare chief executive was gunned down. And yet the assassin, amazingly was getting lionized and applauded online for what he'd done. I was looking at this, there was a Gallup poll around that time last summer, and only 15 % of Americans said they had a great deal or quite a lot of confidence in big business.

3:21That's way below the 70 % that you still hear saying they have confidence in small businesses. And that 15 % is the lowest level of confidence on record. It was 58 % only in 2012. So it's striking to see this kind of unpopularity for big business in a country that has historically prided itself on its pro-business outlook as the home of entrepreneurship. And it's always contrasted itself with that stereotype of Europe as a country that smothers its entrepreneurs with regulations and red tape. But can the US still claim to be the global capital of entrepreneurship in an environment where large parts of the economy are in the hands of a handful of megacorporations, profit margins we see rising close to record highs, if not above previous highs, and the competitive pressure in large chunks of the economy just doesn't seem to be what it used to be.

4:18While Bloomberg's global business columnist, Adrian Wildridge, does think the entrepreneurial spirit is not alive and well in the US, or at least large parts of it. And that is a problem, not just for social cohesion, but potentially the long-term success of the economy. Adrian is a former writer at The Economist, author of multiple books, including his latest excellent tome, Centrists of the World Unite, The Lost Genius of Liberalism. He also recently published an essay that caught my eye, entitled How America's Age of Entrepreneurs Went Awry. Adrian, thanks very much for joining us. Thank you for inviting me.

4:58We'll get into the how on this issue in a minute, but the fact that entrepreneurship in the US had somehow gone awry, what crystallised that for you? It crystallised in my mind because I was puzzling about exactly the same question that you were, which is why is business so unpopular? Why in the land of the entrepreneur, the land that worships business more than any other country in the world, why businessmen suddenly become demons? Why are so many people saying billionaires are a problem to be solved rather than something to be celebrated? Why, as you said, absolutely horrifically, did so many people on the internet celebrate the assassination of a poor businessman with a family walking through the streets of New York?

5:42I mean, it was an astonishing reaction. And I think the answer to the question of why business and businessmen are no longer as popular as they are is a very interesting and intriguing one. I guess one answer is just this is a very unequal economy and the amounts of wealth are so great that that's not very popular. Yeah, I mean, you could say that there's a massive degree of inequality. People have made a huge amount of money and other people are envious of them. But people have always done that in America. That's the nature of the American system. And when Bill Gates and Steve Jobs made their piles of money, there was a lot of celebration of that sort of thing.

6:17You could say that it's all a result of the financial crisis and people being very angry about the financial crisis. But that was a problem that reflected more upon Wall Street than Main Street. I think there is something much deeper going on. And I think that that is all to do with the entrepreneurial spirit. Americans like entrepreneurs. They like entrepreneurship. They like risk-taking. And what they're seeing at the heights of the corporate world is something different from entrepreneurs. We've had an anti-entrepreneurial revolution, as it were. And when you think of the sort of gallery of entrepreneurs, or certainly capitalists, that were sitting either beside or behind Donald Trump when he was inaugurated, many of those were from the tech world, had transformed their industries, whether it's Meta or Alphabet or any of these other companies.

7:04Why do we not think of them as entrepreneurs in the same way? Because they're rebranding themselves as something different from entrepreneurs and because they are quite often the inheritors of big companies rather than the creators of big companies. And even if they are the big creators of big companies, they're acting in a way that's rather different from the way that certainly Bill Gates acted in the 1980s. In the 1980s, you had two sort of entrepreneurial classes of people. You had people who created big businesses from nothing and people like that. And you had people who came into big, giant corporations and made them more entrepreneurial.

7:43They made them act as if they were startups or at least companies that were running on the fumes of entrepreneurialism. So you had companies like GE splitting themselves up into smaller units and great managers such as Jack Welchers, who was perceived to be a great manager then, testing people according to their ability to run their parts of the company according to entrepreneurial principles. So you had the entrepreneurial spirit pervading big business and you had indeed people creating, as Bill Gates did, companies from absolutely nothing. Now you have something different. You have two things going on.

8:16I think one of those things is that you have the rise of a new class of oligarchs. Then they're rightly known not as entrepreneurs but as oligarchs. And secondly, you have old style managers who are running their companies much more in a way that's reminiscent of the 1970s than of the 1980s people like Jack Bralsh. And I guess it's that sort of oligarchic behaviour that seems to be extremely unpopular. You make the link between that and the sort of long-term health of the economy in your piece. Does it matter that these companies are extraordinarily successful? If you look at Elon Musk, if you look at Meta, any of these companies, does it matter that they're unpopular?

9:03We might worry about some of the political consequences, but is it going to affect their underlying economic health? Yeah, I'm not sure about that. I mean, the term oligarch came into language in our way of describing business in the 1990s from Russia. And it was about companies where people displayed their wealth in a very swanky sort of way. They put it all on display. And it was describing business people who cultivated very, very close relationships with government. They were partly business people running companies, and they're partly courtiers. And I think both of those two things have been translated into the tech industry.

9:43You have yesterday's entrepreneurs behaving in a very flashy, self-indulgent way, of which Jeff Bezos, I think, is the most conspicuous example. But you also have tech entrepreneurs making sure that they're very friendly, very connected with the president of the United States, and particularly with Donald Trump. But I think both of those things, swanky displays of wealth, closing down Venice for your wedding or sponsoring the fashion gala on the one hand, and appearing to be almost courtiers to Trump, both of those things are recipes for unpopularity. Now, does that undermine the success of your company?

10:20These are very, very good companies. I think the more you're entwined with exchanging favours with governments, I think in the long term that's very unstable. And the more you undermine the trust and the faith of the people in business, again, you are creating a sort of backlash. And you started off by talking about the backlash in tech, against tech, against AI. And I think this could be one of the most profound political forces of the coming era. And if you're whipping up that or encouraging that rather than trying to calm it down, then you're taking a great risk with the future of your business.

10:54And it's interesting. I mean, one of the things that you identify, you say, you know, we've seen this kind of rise of oligarchs. We've also seen more sort of managerialism, like these big companies are then becoming bureaucratic. And the kind of entrepreneurship that they began with is eroded by becoming more and more like the kind of old style conglomerates. They were supposed to be much better than. But those two things, you actually link to the rising, something I mentioned at the top, the sort of growing consolidation of capitalism, greater concentration in sectors. So do you think that is a sort of common cause?

11:28Yeah, if you look at established companies rather than companies that have been founded in the last 10 to 20 years, what you see is these companies behaving more like 1970s corporations. They're adding more and more layers. They're adding more and more functions. They're becoming box-ticking enterprises. is instead of having people like Jack Welch who tried to, you know, Neutron Jack blowing up functions, they're adding and accumulating more functions. So on the one hand, entrepreneurial companies becoming oligarchic companies or entrepreneurs becoming oligarchs running their companies in quite a willful way.

12:00On the other hand, big bureaucratic, highly managed companies, old line companies, and both of them are allowed to behave in this way and able to behave in this way because of an underlying concentration of the economy. You have an underlying concentration of the economy in the tech sector, some other sectors, but particularly the tech sector, which come from the fact that these companies are very good at what they're doing. You can't deny that they're well-managed companies, but a lot of other sectors in the United States, I think it's very hard to argue that the American airline companies are wonderfully managed, fantastically entrepreneurial, brilliant companies.

12:37They're concentrated for reasons other than corporate excellence. But you have this strange pattern as well happening within the old-fashioned corporate sectors. In the 1980s, the great fashion was companies should run themselves like entrepreneurial companies, and they should be risk-taking and all of those sorts of things, and CEOs should be paid accordingly. They should be paid like entrepreneurs, And that unleashed a huge increase in the average take-home pay of CEOs. Now you have very bureaucratic companies which are nevertheless rewarding their senior managers, particularly their CEOs, as if they're entrepreneurs.

13:16And again, I think that's a recipe for an enormous amount of popular political discontent. So overpaid, box-ticking managers on the one hand, and self-indulgent, wealth-displaying oligarchs on the other hand, both lack the popular appeal, legitimacy, and also the wealth-creating capacity of the entrepreneurs of the 1980s and 1990s. I think that's true. I think people know instinctively when the businessman who is getting this enormous, largely men, there's also a bunch of women, but when they're getting these enormous pay packets, I think most people sense when that is going to people who have not put their house on the line or, you know, worked out of initially taking a lot of risks to get that reward.

14:00You mentioned one of the things that enables both of those kinds of business to still thrive is this sort of decline in competition. I was quite struck. It's something we've talked about a little bit in the past. One of the things that people are concerned about in the US economy, that some of the economists on the US research side of Goldman Sachs had an interesting analysis of what was potentially explaining this It's actually quite a long-term trend of more and more concentration in U.S. economy, in different sectors, and profit margins just continuing to grow, which, of course, is another sign of lack of competition.

14:33Those profit margins, as we economists are supposed to, we like to think that they'll get bid away if they're too attractive, but that just hasn't happened in a lot of sectors. Now, they look – I'd be interested to know what you think about this because they look at various possible explanations. One of them is sort of globalization in trade, that larger firms have just captured a lot more from getting more access to foreign markets. But they're looking across the advanced economies. They don't find enormous amount of evidence for that. Another is just that there's weaker competition authorities, or in the US you would say antitrust enforcement, a bit more regulation of sectors.

15:07And that seems to be playing a small part, but they don't find that there's been a big shift just in the last few years. But the hypothesis that you could say is related a little bit to the previous two, but the hypothesis they find as the most compelling is just that new technologies have enabled a small number of firms, I'm quoting here, to leverage economies of scale and capture larger market shares. And so as we've seen technological change, we've also tended to see concentration going up. I thought that was pretty interesting, but I guess it also then raises questions for what happens now if we're going to have a whole other now round of technological innovation.

15:46One of the things that's happened is you've got the emergence of these super companies, field after field, which are characterized by an ability in particular to leverage not just economies of scale, but economies of knowledge, that they're incredibly good at taking advances in knowledge and instrumentalizing them. They're just very fast on their feet. They're on the frontier of knowledge, but they're on the frontier also of applying that knowledge, instrumentalizing that knowledge. And that gives them a way of being, you know, in a sustained way in advance of their competitors. So Schumpeter argued that companies that were at the forefront would always have that forefront advantage competed away because fast followers would do what they're doing.

16:32But these companies, this generation of companies seems to have found a way of not just producing new knowledge, but of disseminating it within the company faster than anybody else can. That's an extraordinary advantage. But I wouldn't just praise them. I'd say two other things. One is that some of this is driven just by political connection, by political clout, by political power. These companies are increasingly looking to the government for advantage. The government is its market, particularly in the tech sector. Many companies that manage to stay ahead, particularly in highly regulated industries like the aircraft industry, as I said, are not particularly good companies, but they have a good relationship with government regulators and therefore a stable market.

17:12The other thing which I'd add to the Goldman Sachs literature is the Goldman Sachs people point out quite rightly that this pattern of concentration, although it's intensified in recent years, is a long-term factor in American history. If you go back to the 1950s, you have the big three, et cetera, et cetera. Dominance has been quite a longstanding thing. But in those days, you had big, powerful trade unions. You had countervailing institutions. So somebody like J.K. Galbraith says, well, we have a concentrated economy, but that doesn't matter because Labour has a seat at the table. And what we have now is a concentrated economy without an enormous amount of power outside the public sector for trade unions.

17:56The economy remains concentrated in some ways, with the 1980s being a bit of an exception, but it's much less balanced because of the diminishing power of the private sector unions.

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20:19As someone who thinks about how policy could respond to these issues, if we think it's a serious problem that businesses are sort of inspiring this kind of sentiment, we should say hatred in many cases, if we think that's kind of poses a long term issue. And we also would say that the underlying growth you might get from some of these companies is not going to be as high as it would be in a more competitive world. If you magicked away the Trump administration, which doesn't seem very minded to do anything along these lines, doesn't seem very keen on increasing competition in these sectors. What are the kind of steps you could take?

20:55Or what are the things that you could encourage that might try and offset this? Well, we obviously we had Lena Kahn in the Biden era that was going to be very aggressive on antitrust. But she was not very popular. No, she's not very popular. But I do personally think that we need a revival of antitrust policy and that the Brandeisian sort of tradition needs to be revived, partly for reasons of economic efficiency, that I don't think the only thing that matters is the short-term issues of the price of consumers, which is the sort of thing that Robert Bork was preoccupied by, that you can have a market that looks stable, looks as though it's delivering benefits to consumers, but is not as innovative as it would have been had you had more competition.

21:36And you are seeing these big tech companies consistently buying up potential disruptors, potential competitors, and folding them in to the sort of offerings that they make. And I think that that reduces the overall level of innovation in the economy. That's a speculation. I mean, I can't prove it, but my inclination is to think that it's doing that. But I also have another bigger worry about this. The great liberal axiom that power corrupts and absolute power corrupts absolutely, I think is as true of the private sector as of the public sector. I think if you have a world in which a very small number of super companies dominate the economy in the absence of powerful countervailing institutions, such as trade unions, then the government has to step in, both to be a countervailing institution and potentially to break up concentrations of power.

22:24Because if you don't have that, I think, as well as creating long-term economic drag, you are creating huge worry in the minds of the public about the nature and future of democracy. And that's particularly true when you have industries which are information technology industries, which are in control of information. So I think I would really watch out for the growing backlash against AI, against tech, against these tech barons, both in America and right across the world, because I think it could be something that's transformative force in politics and something which could actually have big resonance on the right just as much as on the left.

23:03So Trump has leaned quite heavily towards the tech people, but there are quite a number of people in his coalition who are not at all happy about the direction of modern American capitalism. Is it too late to offset their strength? I mean, you may get a situation, as you just described, ironically, the places where these big IT companies or tech companies are less powerful and where their benefits have been less integrated into the economy, they may be able to be, there'll be bureaucratic institutions that rise up against them, governments that rise up against them. But in the home of these big companies, one of the things that people don't like about them And they sense they've almost become too big to be offset by any one government.

23:46Well, I think the European Union can certainly act as a counterbalance and has the regulatory powers to do that. I think in the United States, it's not too late, but it will require some sort of big political eruptions or earthquakes to do so. Certainly, these are powerful organisations. And certainly, there are network effects that reinforce what they do. And certainly they have got this ability not only to produce frontier innovation, but also to spread that throughout their companies very, very quickly. They're very quick at what they do. But I do think that a sort of technological advance that both concentrates wealth in a very small group of people, also power in a very small group of people at a time when those people are very willing to sort of, you know, act as cocks of the walk, display their wealth in a public way, creates a sort of social instability, which really worries me a lot.

24:43I guess just to finish this off, because some will be listening to this and remembering what I said at the beginning. I mean, what about AI? I mean, surely, isn't this what AI is supposed to be doing? When we read, you know, the various sort of, whether it's the Citrini report or other things, which you may have problems with on other levels. But, you know, one of the central claims of people who think that AI is going to transform our economies and our business landscape is that it's going to disrupt companies, disrupt business models. And you would think these big companies, especially if they've got a bit bureaucratic, it would disrupt at least some of this and increase competition in at least some of these sectors.

25:20I was struck because the Goldman Sachs have sort of, as they point out, they've got two-sided implications from their findings because they would say, you know, on the one hand that the industries most exposed to AI are the ones that do look quite concentrated and do seem to have quite high profit margins. and you could see AI produce greater competition in some of them. But given this historical lesson that technology tends to help companies get bigger and more dominant with all those kind of scale effects and network effects that you've mentioned, you know, which do you think it's should we not hold out hope that AI is going to blow up these companies that Donald Trump isn't willing to challenge?