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The curse of middle-aged capitalism



By Robert J. Samuelson

Washington Post

A persisting puzzle about the U.S. economy is how it can seem both strong and weak. On the one hand, it remains a citadel of innovation, producing new companies like Uber. On the other, the economy is expanding at a snail’s pace of 2 percent annually since 2010. How could both be true? Why isn’t innovation translating into faster growth? The answer — or part of the answer — is that American businesses are running on two separate tracks. Call them the “youthful” and “middle-aged” tracks.

You can’t miss youthful capitalism. The Googles of the world dazzle with their rapid innovation. Their dynamism is reassuring. Meanwhile, many less visible but more numerous older firms are treading water. They’re struggling to generate higher revenues and profits from mature markets, while facing new competitive threats. It is arguably the firms running on the second track — middle-aged capitalism — that have dominated the economy since the Great Recession.

To be sure, America’s business aristocracy has shifted. In 1995, the largest five firms by market “capitalization” (the value of a company’s shares) were old-line businesses: Exxon, AT&T, Coca Cola, General Electric and Merck. By 2015, only Exxon (now Exxon Mobil) remained. The others were replaced by Apple, Google, Microsoft and Amazon. (Note: Jeff Bezos, Amazon’s CEO, owns The Washington Post.) Still, middle-aged capitalism has slowed the recovery.

Bolstering the case is a new study, published in the Journal of Economic Perspectives by Kathleen Kahle of the University of Arizona and Rene Stulz of Ohio State University. The scholars examined all U.S. public companies over a 40-year period, from 1975 to 2015, and found pervasive evidence of a two-tiered capitalism. Companies are sorting themselves into the strong and the weak.

(Recall: A public company has shares that are traded, typically on a stock…

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