• Max Woski

The Decline of Competition and Growth of Corporatism

Entrepreneurship - the sole engine of growth and the central hub of a free economy – must be nurtured and allowed to thrive if our economy is to come out of the pandemic with any real organic growth and allowed to recover from the continued ills of government stimulus which have prolonged and avoided the inevitable movement of labor due to changing demands post-pandemic.

It is likely that the current economic climate is also discouraging business entry and expansion, much of which is because of lockdowns and various government schemes such as furlough. However, the severe dangers of furlough have yet to be realized, and we potentially have a situation where many are “artificially” employed or have heightened expectations, which is a serious concern given the current rate of inflation. [1]

What is more concerning, however, is the fact that competition within industry and services has been following a decline seen since the 20th century. We are now seeing the concentration of our industries and services in the hands of large corporations rather than in many different hands. Competition, whereby many small or medium-sized businesses are fighting against each other for consumers, is essential for a healthy economy containing increasing productivity and growth.

This trend has unfortunately been brewing for some time. Small businesses have been gradually disappearing from Britain since the mid-20th century, with 76,000 fewer companies employing 200 people or less in 1963 than there had been in 1935, and their combined share of manufacturing output was a mere 16 per cent.[2] According to data from the FSB, there were 5.5 million small businesses at the start of 2021. Compared with the previous year, the private sector business population decreased by 6.5% (-389,600 businesses).

Although the vast majority of businesses in the UK employ fewer than 10 people, these businesses only account for 21% of employment and 14% of turnover. However, there are 8,000 large businesses (businesses with more than 250 employees) which are only 0.1% of businesses but 39% of employment and 14% of turnover. [3]

Some of the main community-orientated impacts of small businesses are our high streets, areas where small businesses will inevitably be found. It is only natural for thriving communities to contain thriving small businesses, full of local people who have specific knowledge of their locality and also support from the community. Importantly, small businesses allow people to have a stake in their community and ultimately in society, which is essential in lower-income communities where disillusionment is increasing.

Greater dynamism – the extent to which businesses displace one another – is associated with more competitive markets. Churn among the very top firms in each sector fell throughout the financial crisis and remains significantly below where it was in 1998, suggesting that large incumbents have an increasingly stable position. This brings us to the worst form of capitalism, where free enterprise is not stimulated or allowed to flourish, and society doesn’t reap the benefits of competition. Instead, we’re left with a stale system that hinders both innovation and productivity growth. The UK’s level of productivity has been lower than other advanced economies since the 1960s [4] and establishing the well-founded principles of free-market capitalism is essential if we are to reverse this worrying trend.

Government intervention is also not helping small businesses. Sole traders, who account for 59% of the UK business population have been disproportionately impacted by covid restrictions, with 58% either not trading or trading less than pre-Covid. What’s more, nearly 1 in 4 sole traders will take zero days off this year.[5] 81% of small businesses said they haven’t had enough support from the government, with 41% saying they didn’t feel supported at all. [6]

To conclude, we now have a system of corporatism and declining competition. As the Social Market Foundation report, Concentration not Competition, states “Worryingly, the research shows that many consumer markets are not even close to being competitive, falling far short of the “free market” ideal. All too often, consumers face concentration, not competition. This is leading to higher prices, poorer customer service, and restricted choice, to the detriment of UK households.” The solution to these problems is clear, governments must step out of the market and deregulate the complex, bureaucratic framework of legislation that hampers small businesses and the sole trader. Freer markets are the answer.

[1] The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 5.5% in the 12 months to February 2022, up from 4.9% in the 12 months to January. Source: ONS

[2] Hannah, Leslie, The Rise Of The Corporate Economy, London, 1976

[3] House of Commons Library, Business Statistics, December 2021

[4] CMA, The State of UK Competition, November 2020. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/939636/State_of_Competition_Report_Nov_2020_Final.pdf

[5] “Nearly 6 in 10 sole traders trading less- or not at all-as restrictions ease”, iwoca, September 2021

[6] The impact of Covid-19 on UK small business, Simply Business, June 2021