15 September 2009

Competition and the American Culture

Competition has remained a defining characteristic of the U.S. economy

This article is excerpted from the book Outline of the U.S. Economy, published by the Bureau of International Information Programs. View the entire book (PDF, 3.26 MB).

“Americans … are also hustlers in the positive sense: builders, doers, go-getters, dreamers, hard workers, inventors, organizers, engineers, and a people supremely generous.”

Walter McDougall

2004

Joseph Schumpeter, an Austrian-born economist, coined the term “creative destruction” in 1942 to describe the turbulent forces of innovation and competition in Western economies. He called it the “essential fact about capitalism.” The “incessant gales” of markets cull out failing or underperforming companies, clearing the way for new companies, new products, and new processes, as he put it.

Creative destruction was a philosophy that appealed to critics of the New Deal social and economic intervention that took hold during the Great Depression, and it maintains an influential following today. “I read Schumpeter in my twenties and always thought he was right,” said former Federal Reserve Chairman Alan Greenspan, “and I’ve watched the process at work through my entire career.” Today “destructive technology” is the label for change-forcing innovation and technology.

The juxtaposition of creation and destruction captures the ever-present tension between gains and losses in the American market economy. The process has never been without critics and political opponents. But because the winners have substantially outnumbered the losers, the churn of competition remains a defining characteristic of the U.S. economy.

Outsiders often equate the U.S. economy with its largest corporations and what they make and do. They may be surprised, then, by the vital part that small businesses play. Napoleon is said to have dismissed England as “a nation of shopkeepers.” The phrase could also be applied in considerable degree to the United States, whose shop owners and other small businesses account for over half of the private-sector U.S. workforce and economic output, excluding farming. (“Small” businesses, according to an official definition, have fewer than 500 employees.)

A typical American town or suburb of more than 10,000 people is populated with individual business owners and small firms—car dealers; accountants and lawyers; physicians and therapists; shoe repairers and cleaning establishments; flower and hardware stores; plumbers, painters, and electricians; clothing boutiques; computer repair shops; and restaurants of a half-dozen ethnic flavors. Many of the small retailers compete with national chains boasting billions of dollars in revenue and thousands of employees.

Despite the odds against them, small businesses account for a vast majority of job growth, particularly as major manufacturing companies trim employment in the face of stiff global competition. In 2004, for example, the number of jobs in small businesses grew by 1.9 million overall from the year before. Larger companies with 500 employees or more lost 181,000 net jobs. (Economists point out that many small businesses provide goods and services to large companies and thus are tied to their fortunes.)