TWENTY YEARS ago this week the share price of a startup run by an obsessive called Jeff Bezos had slumped by 71% over 12 months. Amazon’s near-death experience was part of the dotcom crash that exposed Silicon Valley’s hubris and, along with the $14bn fraud at Enron, shattered confidence in American business. China, meanwhile, was struggling to privatise its creaking state-owned firms, and there was little sign that it could create a culture of entrepreneurship. Instead the bright hope was in Europe, where a new single currency promised to catalyse a giant business-friendly integrated market.
Creative destruction often makes predictions look silly, but even by these standards the post-pandemic business world is dramatically different from what you might have expected two decades ago. Tech firms comprise a quarter of the global stockmarket and the geographic mix has become strikingly lopsided. America and, increasingly, China are ascendant, accounting for 76 of the world’s 100 most valuable firms. Europe’s tally has fallen from 41 in 2000 to 15 today.
This imbalance in large part reflects American and Chinese skill, and complacency in Europe and elsewhere. It raises two giant questions: why has it come about? And can it last?
In themselves, big companies are no better than small ones. Japan Inc’s status soared in the 1980s only to collapse. Big firms can be a sign of success but also of sloth. Saudi Aramco, the world’s second-most-valuable firm, is not so much a $2trn symbol of vigour as of a desert kingdom’s dangerous dependency on fossil fuels. Even so, the right sort of giant company is a sign of a healthy business ecology in which big, efficient firms are created and constantly swept away by competition. It is the secret to raising long-run living standards.
One way of capturing the dominance of America and China is to compare their share of world output with their share of business activity (defined as the average of their share of global stockmarket capitalisation, public-offering proceeds, venture-capital funding, “unicorns”—or larger private startups, and the world’s biggest 100 firms). By this yardstick America accounts for 24% of global GDP, but 48% of business activity. China accounts for 18% of GDP, and 20% of business. Other countries, with 77% of the world’s people, punch well below their weight.
Part of the explanation is Europe’s squandered opportunity. Political meddling and the debt crisis in 2010-12 have stalled the continent’s economic integration. Firms there largely failed to anticipate the shift towards the intangible economy. Europe has no startups to rival Amazon or Google. But other countries have struggled, too. A decade ago Brazil, Mexico and India were poised to create a large cohort of global firms. Few have emerged.
Instead, only America and China have been…
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