As reported in The Wall Street Journal, recent research from the University of Chicago's Center for Research in Security Prices indicates that more than half of all publicly traded companies have disappeared in the last 20 years. In 1997 there were 7,355 exchange-listed firms; today there are less than 3,600. According to the report, most of the decline occurred from 2000 to 2012.
Is this the twilight of American capitalism? Or just evidence of a sleep-walking, regulation-entangled economy?
Let's dig a bit deeper. It's interesting that data from the Kauffman Foundation on new business starts offer a parallel picture of declining capitalism. In 2000, there were approximately 190 new starts per 100,000 population. By 2012, the count had fallen to 133, a 30 percent decline. Of course, the Great Recession effects are hidden in the data, so we must be careful in arriving at a capitalism conclusion.
But there are also estimates of the size of the U.S. underground economy to consider. These are sometimes based on the count of $100 bills per capita that circulate in the economy. That count has risen sharply since 2008. Going underground is surely a way to escape regulation as well as taxation. But has the regulatory burden risen significantly since 2000?
An examination of the annual count of major federal regulations sheds a bit of light on the matter. Federal regulatory agencies are required to give special attention to rules that impose costs on the economy of $100 million or more annually. More costly rules generally translate into less productivity or a bogging down of the economy. But they can also give advantages to existing larger firms that enjoy economies of scale in dealing with the government.
The accompanying chart, produced by the George Washington University's Regulatory Studies Center, shows the number of major rules published each presidential year from 1996 to 2015. Note how the pace has quickened since 2000. In 2008 alone, more than 100 major rules were placed on the books. That's 100 times at least $100 million in costs each year for as long as those rules are in effect.
There's yet one more piece of evidence to consider as we think about America's brand of disappearing capitalism. Data from the Small Business Administration reports the annual exit rate of firms from the economy from 1990 through 2011. After around 2000, the exit rate of firms with 500 or more employees plummeted. Somehow, life got better for them. Fewer exits also mean fewer new replacements, which may translate to a smaller number of exchange-listed firms.
But the exit pace for firms with 20 or fewer workers was pretty much constant. Why would things get better for large firms, but not for smaller ones? The implication is that larger firms were prospering relative to their smaller cousins — in the face of growing regulation, or perhaps because of it.
When examined together, these fragmented pieces of data support the notion that America's capitalism has indeed changed; it has become entangled with regulation. An entangled economy produces less stuff, moves slower, and rewards those who can make politics work for them. All the more reason to push for regulatory reform.