Too big for their boots? Are bigger companies slowing the economy.

[00:00:00] I hate to do this right now, but I'm gonna have to have a press call first thing and I really don't know what I'm gonna tell them Tell them, leave an exacerbated AIG The simultaneous payouts of CDOs and credit default swaps put catastrophic pressure back further

[00:00:16] the global pool of investment capital she has to do this in English Start with the homeowners. Okay. This is the debunking economics podcast with Steve Keen and Phil Dobbie Let's a clip from the 2011 movie called too big to fail all about the collapse of laymen brothers now

[00:00:37] None of us like to see banks fail particularly if the government then stops it by bailing them out But what about other companies like Apple and Microsoft and Nvidia?

[00:00:46] Can they be too big to fail and what we do about the smaller pool of companies claiming an ever-growing proportion of global GDP? They are probably unlikely to fail

[00:00:55] But would the world be a bit more balanced and innovative if they did that's this week on the debunking economics podcast me and Steve Keen welcome along So can companies get too big not necessarily from a monopolistic point of view, but obviously that's part of it

[00:01:16] But do they get so big that they distract investment from other companies or they distort competition? Or they become so big that she start to impact currency markets and other asset classes

[00:01:28] So Steve I mean we've heard the expression too big to fail that's been applied to banks because We know that if they do fail that they can have broader consequences on the economy. So governments tend to

[00:01:40] It's sort of bail them out if they feel like things are going wrong When we saw that in the global financial crisis, but that's not healthy. Is it so you know, maybe we should make sure

[00:01:51] Nothing ever gets too big to fail banks or otherwise we should just stop them getting too big Yeah, I mean, I've got a that's that standard neoclassical theory You know the perfect competition is good monopoly is bad

[00:02:04] Oligopoly is slightly less bad monopoly. Let's try to enforce small firms throughout the entire economy That's pretty much what the thinking that's drummed into mainstream economists in their first few years at university I've always been a bit cynical about that idea because

[00:02:22] To me when you look at the model of what they call perfect competition, which is the ideal that economists work from lots of small firms producing a homogenous product Where if they and they set price equal to marginal cost and if anybody prices above

[00:02:39] Though that point then they get zero sales if they price below that point they get infinite sales I thought hang on a second. I didn't notice anybody handing out joints at this lecture You know Here are these fantasies coming from

[00:02:52] Well, that's only with these a fancy that everyone was producing the exactly the same product That's a lot of yeah Differentiation and that's and that's the that's the starting point

[00:03:00] And when you he puts a set of goggles on your brain that mean that you already know what what are the things they put on horses To stop them being distracted, you know, if you've got a horse blinkers Yeah, yeah, but blinkers either side

[00:03:13] You can't see anything other than what you're being trained to understand and you therefore don't see the real world You see the road ahead of you. You don't see the trees either side And that to me is what happens out of this mindset because they

[00:03:25] Instantly start applying what is obviously a false framework to the entire economy and saying and part of that outcome And this is something that if you have to do a degree in economics to know

[00:03:37] This is the case they argue that a monopoly will reduce a smaller quantity at a higher price and Therefore that they say the the the model of competition replies exactly the same concept about rising marginal cost to

[00:03:51] Small firms as a dust to large firms. They apply the the same idea of a market demand curve to both They argue equilibrium price applies in In the only in the perfect competition case What do you get with the neoclassicals with the monopoly a price above that level?

[00:04:08] So you get the conclusion locked in Economist minds that a monopoly if an industry has a monopoly rather than peddling competitive firms There'll be smaller output at a higher price now When you saying early on your deduction about Amazon there's no that says well

[00:04:23] Okay, Amazon is great because we're getting stuff cheaper than and quicker than we would going through You know shopping locally but on the downside Yeah, I mean we're paying more but we're also those companies in competition to them don't exist anymore

[00:04:37] We've got deserted high streets and that's a consequence of Amazon getting too big for its boots Yeah And those sorts of things are real world elements of what actually happens

[00:04:45] So you don't say that you're not going to get a case where a monopoly ends up producing a lower output at a higher price You're gonna get the opposite produce a higher output at a lower price

[00:04:55] But it will then change the diversity because again the theory ignores diversity of products So it doesn't think there's any any difference when a world where there are bookshops on high street Whether or not bookshops on high street

[00:05:07] But the quality of life on high street is dramatically altered by the fact you you can't wander into a bookshop and go for a browse Because it's all online and that you say the high street ends up having shutters rather than shops

[00:05:19] So but that element of reality is left out of the theory. So They cloud they would say when I'm a convention economist would say well That's precisely the argument that here's a company that's too big and it's its monopolistic behavior has

[00:05:34] Has removed the diversity within the economy and we would be better if they were smaller So more of these retailers could exist in competition with the intertall alternative argument is you can get books

[00:05:45] You could never get beforehand because of the sheer scale of their operations and and then this is You know that you might have enjoyed going to the local bookshop didn't have 5,000 books versus five million And and it would take almost as long to get delivery

[00:06:00] So there are there are elements about the the actual world of monopolies and not believe of large companies versus the Theoretical framework that people have and they the theory gets in the way

[00:06:11] So there are cases like I'm experiencing one right now, you know, I'm trying to market my gravel software through through patreon and And I was also checking about putting up lectures on on Twitter

[00:06:26] And I expected up to pay some money to Elon Musk for the privilege of putting up lectures on Twitter And then I found I had to pay 30% of the revenue to Apple

[00:06:36] What and that was actually because Apple have a monopoly distribution distribution of that of the applications that run on its iPhone If anybody access my software through an iPhone

[00:06:47] 30% of the revenue would have to go to Apple now that that is really a case of as we spoke with the honest for a Farmer sometime back in techno feudalism coming out of it the monopoly gets to be so dominant that they can impose a charge

[00:07:00] where they provide no service and And that is I mean pretty much classically how I describe what Apple's doing with anybody who makes a purchase through an iPhone

[00:07:09] From from from Twitter and Twitter. So you would have thought that would be that would be where antitrust legislation would be Yeah, absolutely get your teeth into that rather than saying we want to break Amazon or any other up into lots of small companies

[00:07:25] Because that's in some ways taking away the advantage you get You know from innovations like like the marketplace like Like Amazon out of the original iPhone, which was the first smartphone All these things are the innovation and diversity

[00:07:42] we get out of the competitive economy and and when you have a company which is successful at that and gets Big because it is successful than it's reducing costs and increasing volumes and also bringing about

[00:07:58] Diversity in the in the products we consume which is about that the major case You can make the capitalism over any other social system. Yeah, well, I guess it's where innovation comes from

[00:08:08] I think last week you said that innovation either comes from government or people with lots of money or companies with lots of money So, I mean if you were to split up Amazon, I mean, how would you do it? Would you say well, okay

[00:08:17] You're gonna have to be a multitude of different retailers or would you say well, okay? You can have retail but then you've got to sell off Amazon web services and you know and anything else that you develop

[00:08:27] And that would be bad too wouldn't it because obviously they are developing new stuff with the money I mean there are cash rich so they can afford to invest without going to to investors

[00:08:37] They can cross subsidize and they aren't doing so they you know, and they're building on top of what they've already got So you wouldn't want to break up to stop that happening

[00:08:47] And now the other the real thing is is not so much a breakup as is as funding alternative Possibilities because again, I've come them my own personal experience with Ravel right now in that that was we've built

[00:09:01] I would know money outside what my Russell and I put into developing and just take taken this time to get there But we'll have a we have an equally large budget for marketing of zero

[00:09:11] And the thing is what I would like to get is you know is finance to enable Marketing campaign of some some magnitude to be undertaken and how do I do that? Well, I approach a bank. Well a bank. Give me a loan You've got to be kidding

[00:09:24] You don't get loans from the banking sector Whereas that was the vision that banks do that was a major part of how shrimp had defended the

[00:09:33] Private banking system by saying that the role of banks is to provide money to entrepreneurs and be to find a people with a good idea But no money to produce or market it

[00:09:41] So what you have is that because that is actually a fallacy for banks don't provide money to entrepreneurs You know, you might get that in the in the in the small banking system of Germany

[00:09:53] Which Richard Verner, you know promotes all the time saying that because you have small banks small With small regional locations, they know the local people

[00:10:01] They know who's got good ideas who has you know potentially bad ones who's a good credit risk who's not they will provide to entrepreneurs Whereas with the huge and collaborated banks we have now now There's something I'd like to see broken down With those huge comrades

[00:10:16] They make all decisions in head office and all they use is a point scoring system And there's no way that somebody with an entrepreneurial idea will get enough points Because you've got you've got points by having real estate to mortgage. You don't get points by having good ideas

[00:10:31] Well, if the banks do it if the banks do it all, you know, yeah Yeah In fact, you know they just concentrating on real estate most of the money in certain parts of the world Most of the money that's being invested comes from

[00:10:42] From fund managers from pension funds and the like that are looking for you know outside equities going to Investing credit for companies that you know That might have a good idea, but they they'll be they're not going to be early stage development money that they're putting in there

[00:10:58] But let's let's let's look at let's look at equities just for a second We can come back talking about the competitive element What got me on to this is the Nvidia share price these days around 135 dollars a year ago

[00:11:10] It was less than 40 three or four years ago. It was $10. It's now got a market cap of 3.3 trillion So is that too big to fail because if they did fail if they went back to where they were four years ago

[00:11:25] 4.4 trillion would suddenly become about 300 million a lot of people would lose our money and you know And imagine there'd be economic consequences to all of that. So isn't it a concern? I don't know what you do about it, but isn't it a concern when companies

[00:11:39] With a very high price-to-earnings ratio has to be said Just keep on increasing at this alarming rate and what can you do about it? It doesn't maybe we just don't need to worry about it

[00:11:50] Maybe it's just a factor of the markets that shouldn't concern us. Well, I mean, this this is another element again This is how finance markets value You know financial non financial assets, which is what companies and houses are

[00:12:05] Their assets to their owners and not a liability of anybody you get this open open Ended valuation where this becomes a feedback process between high valuations Meaning expectations and more price rises meaning higher valuation still and you get an exponential share market takeoff

[00:12:22] My favorite that actually was way way back in the 2000s with Yahoo Which went from some trivial that I think was a bit at one stage your share was about a dollar It then hit $1,000 and then it finally fell back to about 50 cents

[00:12:36] So you get these exponential takeoffs and valuations as well Which are debt finance people are borrowing money through margin loans to go and buy additional shares And you get an elevator effect on prices and they then crash on the other side

[00:12:50] So it's it's one of many areas where where fads Become debt financed and become amplified and become self-sustaining until they crash it's It's you know, it's Capitalism has lots of Instabilities and we have a theory that tries to understand it by assuming there's no such thing as instability

[00:13:14] So should we though be saying well, okay people need to be protected for themselves So institutional investors are fine. I don't think institutional investors are the ones that pushing up

[00:13:22] In video and the like I think there's this big rise that we've seen since the pandemic in retail investors so the amount of Money traded in shares is increasing because the proportion held by institutional investors is falling but retail investors are

[00:13:37] Now about 25% of all all trading in the United States. It was in 2010. It was less than 10% now It's a quarter of all trading It's financial democracy apparently it's supposedly a good thing, but it seems to me

[00:13:52] It's an opportunity for a lot of people like we saw with shares in Robin Hood for example They read the thread on Reddit they invest they get their fingers burnt. It seems like a big problem feels like this is an area Which needs a great deal of regulation?

[00:14:06] But it's not happening hence, you know Nvidia shares rising so much and on a small pool of companies Taking up a biggest proportion of the entire share market the global share market It's a me is one area definitely regulation

[00:14:21] Would improve the system and the regulation I put four days ago the under of Jubilee shares Because people think when they're buying shares and I found this with my own my own family They're buying shares in a particular company that can be helping our company nonsense

[00:14:36] They're buying second hand shares all they're doing is changing the valuation So my family buying into cochlear because they really like what cochlear did and not a dollar of the shares

[00:14:45] They bought winter cochlear and so I propose the under of Jubilee shares where when you bought shares from the company that Issued them the initial public offering then those shares lasted forever But as soon as you sold them they became Jubilee shares which would expire after 25 years

[00:15:03] You get dividends for 20 maybe it's maybe 50 years But what do you have is a is it is a definite end to the expected dividend That's the same as a company that's the same as a company issuing bonds though

[00:15:16] It's not issuing corporate similar similar to a bond to be sweet switch from from being shares to being Dividend earning bonds and the idea being that people with the reason you get ridiculous valuations like you get what? What is the price to winnings ratio on Nvidia right now?

[00:15:33] Okay, well the historic average shares is 15. Okay, so it's five or six times the scale of the average and So Microsoft's 40 alphabets 29. Yeah, yeah 79 unsustainable because that that ended up saying well

[00:15:46] You'd be better off putting your money into a bank account because in terms of the dividend return That's the dividend you're going to get is you know one or two percent or less You might even get that out of you know

[00:15:57] You buy government bonds you'll do better than at the moment they're getting that sort of rate of return So you're not buying it for the rate of return You're buying it for the expected capital appreciation and that only exists because you have an open-ended

[00:16:09] Object which allegedly could last forever and give you an infinite amount of money Now if you say that that you as soon as you if you invest in a company and it generates that sorts of returns Then you do get those and they can compound

[00:16:21] But as soon as you sell the share It's it's got 25 or 50 years to go and your horizon cuts off and you cannot get those crazy Valuations anymore so you'd have a more sensible pricing being put on the shares Yeah, they won't have no course

[00:16:37] Well and with retail investors being what they are of course, they just pile on to Where the trend is don't they they follow the herd? I mean, you know, they should they should be Warren Buffett

[00:16:47] Of course, you know his school of investing is don't follow the head except Then everyone wants to be contrarian. This is the problem isn't it easy it is all heard like so They get a whole load of heard people for saying well not following the head

[00:17:01] So the head then moves in a different direction as heads do don't they you know, they they move all over the place It's increasingly a volatile situation. So there's there's no way around that except People who are retail investors I'm not speaking in favor of institutional investors here

[00:17:18] But at least they do spend a bit of time thinking about where they're putting their money retail investors and they just read a Article and away they go. How do you change that mentality? Does your approach change the

[00:17:29] The mentality of people do it it's forced to change it it forced to change in the mentality because You'd make the focus upon what what the share market is supposed to which is to be a place to raise capital

[00:17:40] now if you said the only way you can get a Huge return over time is to provide initial public funds to a new enterprise Then I think there'd be much more attention on the initial public offering market

[00:17:54] You know new share new companies being issued and creating new shares and selling those shares to the public and giving the revenue from those Shares share sales that would be a much more

[00:18:05] Useful way for the stock market to be focused and gambling over which company think is going to go to infinity tomorrow and Unfortunately, it's the infinity tomorrow Perspective that's that sets the valuation on stock markets

[00:18:17] And that's what leads to the level of margin debt people have when we're in into the to buy these shares in the first instance Leave her up the amount of money they've got so it becomes Insane after a while and you know in in that sense evaluations

[00:18:30] If we were getting if we're getting price to earnings ratios four and five times the long-term average Then you're sitting yourself up for a bust So I think you might have the already answered the question

[00:18:41] I'm gonna ask when we come back after the break because I want to look at if you've got companies that are cash-rich because they're growing so much What hope is there for other companies that are gonna gotta raise money to try and compete?

[00:18:51] So we'll look at that when we come back. It's the debunking economics podcast me and Steve back in a moment This is the debunking economics podcast with Steve Keen and Phil Dobby

[00:19:06] So this week we are looking at whether companies are getting too big are they getting too big for their boots What are they doing to the economy as well by growing to these enormous sizes? I want to look at that a little bit in just a moment

[00:19:18] But first of all Steve just as I mentioned before the break you've gone companies like Nvidia or a lot of tech companies these days who you know They're out goings perhaps on as much as manufacturing companies. So they are able to make quite big profits

[00:19:31] They've got a lot of cash on hand. They don't need it. They don't care about Interest rates, they don't care about the cost of money how much it costs to borrow because they've got the cash

[00:19:41] They can just spend the cash that they've they've got that creates a real problem Doesn't it that other companies that want to compete with them don't have that advantage? They're starting out. They've got a borrow you got a time like now when the cost of money is high

[00:19:55] Then they're not gonna get a leg in there's no way that they can effectively compete against it So that would be a another reason for saying well, okay, that is a bit monopolistic They may not be yet. They may not be behaving in a monopolistic manner

[00:20:08] But it amounts to the same thing there that they're there and no one can get into the market Yeah I mean that's and that's the issue when you have small firms that are doing innovation trying to break into a market dominated by large firms

[00:20:18] And that's that's been the pattern of capitalism for its history And this is one thing which I want to point out here that the conventional economic theory of monopoly versus oligopoly versus Perfect competition. There's no such thing. No industry anywhere if it's any of those categories

[00:20:35] It's an empty taxonomy as a Bevelan used to say What you have instead is what's called a power or distribution? You have a few firms which are very large which dominate a market and lots of small firms down below it

[00:20:48] And when you when you plot the logger the number of firms against the log of the size you get a straight line That's what's called a power law relationship. So I mean look at the for example in

[00:20:59] Number number of firms in America that have a million employees or more is less than is it is about One and one and a million million firms. It's quite quite tiny 10 to the minus 11 firms have that size, you know look over firms have one employee

[00:21:17] It's 10 to the one minus one which is 10 percent of firms. So you have lots and lots of small firms Okay, but the frequency being in a one-in-10 firms will have only one employee You get out to 10 to the minus 10 employer firms have

[00:21:33] Have a hundred thousand employees or more you get a straight line plot when you look at the two now that that is That is the natural outcome of an evolutionary system again when you take a look at a whole range of factors

[00:21:45] The size of earthquakes which is an evolutionary factor of this movement of tectonic plates on the surface of the molten ball We call earth all these sorts of things of Species sizes is that trickster. We find this a common rule for an evolutionary systems

[00:22:00] So it's not a bad thing that it happens in capitalism what you're saying is capitalism is an evolutionary system And that's a decent and interesting fact and what do you want to do is make sure that evolution?

[00:22:12] When you're looking simply in terms of what capitalism offers which is the diversity of products being produced and High levels of investment than previous social systems Then that's that's inverted commas a good thing again living aside the ecological which I've got to keep on doing these days

[00:22:29] So you that evolutionary thing is a good thing The problem is when you can then get so big that you have predatory behavior towards the small ones and That that case of you know Apple being able to charge 30% of the revenue for sales on Twitter through Apple phones

[00:22:44] That is a case where you're screwing You know That is a classic as Viana said a feudal behavior in a capitalist system And so you would say well, that's no different

[00:22:56] That's actually no different from the retail environment the bricks and mortar retail environment if you a retailer will take 30% That's yeah, I'm sure that's that's that's what you know Where their number comes from from the from the conventional world and they've stuck with it 30% Yeah

[00:23:15] This is the thing this is a virtual you know, I mean yes, okay There's cost you've got to use energy for virtual systems and so on but 30% I'm sorry guys That's rich and we gotta pay staff you gotta pay dids display space. You gotta pay real estate

[00:23:28] There's all sorts of costs in the retail world that don't exist if Apple store absolutely But they can do that because they can because they're because of predatory behavior

[00:23:37] But even if these companies were you know relatively benevolent and you know, they said yeah three percent seems like a fair amount They're still huge. They've still got lots of cash. There's still no way anyone with a bright idea can compete against them and

[00:23:53] Okay might be part of the cycle of capitalism, but what's happening in that cycle is big. It's getting bigger. Isn't it? So these companies are huge compared to you know previous large companies and that just seems to be the trend

[00:24:06] So and that's my question isn't that a worry and is there? because it distorts The markets it pulls in more money it it stops other people competing and Yeah, you do get this techno feudalism that we that we talked about a month or two back and

[00:24:26] The trend is continuing. So and these companies probably are too big to fail Because they've got so they have diversified so far now and they're smart people obviously running them

[00:24:37] They're just gonna keep on getting bigger and what do we do about it because we're not doing anything about it at the moment Yeah, I mean There are some you don't want to do things about it and destroy the evolutionary features of capitalism

[00:24:49] This is one reason why I'm no great fan of price commissions and and Antitrust and so on because they're good, but we could end up with three companies running the world

[00:25:02] Don the way we're going you know what he got techno feudalism as the honest was saying and that's all for a couple of months ago But you do want to have the evolutionary dynamic of capitalism at the same time

[00:25:12] So a large part of a way to address it I would actually go at the other end I'd say how can we find ways of providing venture capital to new startups and that's one reason I'm a great fan overall of crowdfunding It's it's a way that

[00:25:29] The wisdom of crowds can be used to harness money for new ventures That mean that but it mean that people You wouldn't otherwise get funding for a new idea can get it So things like Kickstarter, which I use from for minceki way way back in 2012 or 13 I think

[00:25:47] Without that crowdfunding minceki would never have got to the stage that it is now ravel would never have been possible either Because we've brought ravel ravel on top of minceki So all these sorts of things are ways of trying to get extra revenue there

[00:26:00] And what we're addressing really is the fainted failure of the financial system Because again to go back to shrimpators defense of private banking He saw private banking as way of giving funds to entrepreneurs and he defined entrepreneurs as people with good ideas

[00:26:14] But no money. Well, yes, we need a system like that. We don't have one So I would rather see something like a People complained about the government making bad decisions. How can the government know what to do in a market system? Yeah, fair enough Okay

[00:26:28] Well, it's then said rather than the government deciding where the money goes the government gives people X amount of dollars per year Let's say it's one or two percent of GDP and say you've got to spend this money investing in new ventures

[00:26:39] And if you pick up one that's going to win Well, you gain out of that you pick on that fails You lose money you didn't put it in the first place on a great loss to you

[00:26:46] but we now provide a financial system that enables new ideas to be financed and tried out and In that we give you the best combination of public money creation and the private sector deciding where the money goes

[00:26:59] Something of that nature to get away from the lock-in that we have at the moment Where as you say when you got a huge company they can stifle in devotion rather than enabling it. Yeah, and You know the larger these companies

[00:27:12] Become obviously they reap the reward in corporate profits bigger corporate profits Less money is going to the workers and that's that's the number of the issue Is now that's where you can look at Amazon there and say well, okay

[00:27:24] They're not paying their warehouse workers very well for example They're not paying their delivery workers very well And they can get away with that because there's only one Amazon and that's a lot of where they huge

[00:27:35] Inequality and income has come from and this is we maybe we had an interesting talk on on the Steve Keenan friends channel with Can't think of a first name right now, but her and not not not no relation to John hern

[00:27:50] But a woman economist we had on who looked at the level of markups that firms charge over time and you see the markups have risen I don't like the analysis behind it to some extent, but it's reasonable

[00:28:05] review playing the same analysis through time so the changes these through time is Can be taken seriously and this is a set of studies saying that markups used to be 15% and now they're 60 and

[00:28:18] This is this really shows the power of corporations to set prices and the inability of workers to resist it because we don't have trade unions anymore So you get this huge inequality coming out of it

[00:28:29] And that isn't another reason why we have such a stagnant social system these days that workers can barely survive Capitalists are raking it in that is not a system for a sustainable system And you're easily fixed. I mean if you okay that the reason why

[00:28:43] Governments don't push up minimum wage is because they've been sold on this argument that if you do that That'll take away more jobs because companies will say well We can't afford to employ people if we have to pay those wages But the reality is Amazon can afford

[00:28:57] And so if it's these big companies, so maybe you say you have a different minimum wage for small businesses and larger businesses And you also have people in me give money to poor people they spend it even the rich people They hoard it or speculate on it

[00:29:10] So you get a you actually we've actually seen a long-term trend of Decline in the velocity of circulation of money and a huge part of that is because there's more money in the hands The wealthy who spend they're much more money

[00:29:21] They spend much more money, but they spend it very slowly Whereas the the poor into the spectrum workers and middle-class people spend a small amount of money very rapidly So what do you get out of that concentration of wealth is actually a diminution in economic activity?

[00:29:35] So if you talk to a management expert There's an oxymoron The they'll say, you know if a company gets too big it starts to lose its efficiency So 10 small companies will be more productive than one company 10 times the size

[00:29:54] So the economy they would say would be more efficient. This gets back to our original discussion doesn't know if you have Not very big companies, but you have a lot of smaller companies because they are operating more effectively So in other words there are

[00:30:08] Diminishing returns they'd say in the productivity of companies the bigger they get But you look at Amazon that's clearly not the case now it's It's a half-ass way of thinking about it because what you what do you do on this?

[00:30:24] This is the evolutionary pressure that gives us a parallel distribution overall You do want smaller companies looking at bigger ones and thinking I want to take your place and therefore

[00:30:33] Like me a mile down case with a ravel on my target is is Tableau. I want to say okay I reckon we can outdo Tableau in market share and if I hadn't had that vision I wouldn't necessarily have come up with ravel in the first place

[00:30:45] So that the existence of large firms and small firms in the same industry is partly when innovation comes from the small Firms, but the reason it's failing is not because of the You know that 10 smaller ones to be better than one big one

[00:30:59] It's that it's that you don't have to finance to enable those You know good ideas for the small firms to become actual practical products So then when you get a disruption it tends to be a global one the whole segment of the

[00:31:17] Economy disappears and that's what we've seen with electric vehicles versus internal combustion engines There was never any way that that the big companies were going to innovate on Electric systems because they had so much invested in internal combustion engines so much technology so much knowledge

[00:31:36] But you therefore you needed a small company to come in from the side and say we're gonna go 100% electric now Since that's happened you're likely to see the big companies the the fords the general motors

[00:31:48] Etc etc crashing because they simply can't they can't make that transition from internal combustion engine to To electric so we'll see a wholesale slaughter of the the petrol engine Industry and a growth of the electric these sorts of things

[00:32:04] You have you have destructive cascades rather than a slow bubble of innovation Right, but it is innovation isn't this driving it and it and it you know and it's obviously a good thing So money for it again. This is gonna be anything

[00:32:19] Well, yes, it gets gets sent to it doesn't it so then so then so are we then saying that well Okay, let big companies be big because we because we benefit from from the efficiencies Let people be a bit stupid by retail investors piling in and

[00:32:33] Elevating the asset price because it really doesn't affect the company in any way all it does is impact Those people have invested their money they get their fingers burnt But maybe they shouldn't play with the big boys if they don't know what they're doing would be one argument

[00:32:46] But what we do want to do is if that's all allowed to carry on unfettered We need to provide a way to make sure that that is hindered in the future by Competition and we've got to help develop that competition

[00:33:01] So we've got to find the finance to enable people to develop those ideas Which are gonna surpass what those big companies miss because they become Unwieldy and they're not in it as innovative You may have the cash to be innovative, but they're not as innovative

[00:33:15] And so they yeah, so let's let's allow those new companies in and knock them down to size eventually Is that the sort of that like the the workable model you'd like to see? So that's more that's what I'd like to see

[00:33:26] But of course what we're seeing in a real world rather than your fantasy to me getting my economic ideas to be tried Is that this is happening in China? Yeah China is much more effective of providing finance to entrepreneurs than America is which is a classic

[00:33:41] Overthrow of the idea that Chinese are communist Americans are capitalists China's have been doing capitalism more effectively than America is doing it So suddenly you have companies was called BVD and the company you bought your you bought a Volvo didn't really

[00:33:53] I bought a Volvo which is made in China Fantastic car by the way, I'm so I'm still loving driving it and it is it's you know It's it's very innovative feels like a you know a step change

[00:34:02] Yeah, well that that that sort of stuff is going to come out of and hold the different social system Coming forward and enabling the innovation to occur So we're going to see like I've got me think I'm looking forward not looking for them expecting

[00:34:16] Bowing to fail and will now have a Chinese company becoming the main rival rival to airbus for example in Because China is finally making passenger jets And now there were down side better and be focused on the engineering the way that buying completely dropped the ball over to

[00:34:30] Focus on spreadsheets instead So we're going to see innovative change Yeah, although it's slowly slowed down right and do we write down in China? I mean a new one loans away down and You know so there's not money being lent to

[00:34:43] Innovative startups it seems but I mean that'll that'll come back But anyway, that's the model we want we just need to try and produce the same thing in the West Don't we they're making making money available

[00:34:54] And understand that capitalism is an evolutionary system and you're trying to promote evolutionary change That's the the real thing you need to get through the heads of people who currently believe it's all about monopoly versus perfect competition

[00:35:05] No, but how do you so how do you encourage their investment then very quickly? What do we what's the one thing that we could we could do that? That's why I think the idea of You know, we know the government creates money. This is the nonsense of

[00:35:17] Fighting modern monetary theories fighting against the government creates money So the government has a role then in providing credit they they have but I think the way to I think the I'd combine government money creation with crowdfunding Right

[00:35:29] Yeah, you get a you get a certain not a large amount of money in terms of the overall economy A couple of one or two percent of GDP people get and the and the money has to be used in crowdfunding

[00:35:39] Like a government run a government run investment bank with a sort of crowdfunding platform on top every We did with the investments not being done by investors three people You distribute the money like a bit of a jewellery style of it because

[00:35:52] Everybody gets their amount of money in an account they can only use just for investing in entrepreneurial ideas and we see what happens. Yeah Kickstart kickstart open to abuse of course Everyone I've got this marvelous idea. I'm going to take the money myself

[00:36:08] Well, that's I mean we get that anyway Then that's that's the wolf of wall street and that's happening through the stock market And probably worse on the stock market because you see this potential for an infinite returns

[00:36:17] Again, I want to get away from that case where shares last forever once you've sold them on the secondary market if they only lasted for you know 25 or 50 years then the financing would go towards new ventures rather than

[00:36:30] Gambling on the price of existing shares in second hand the second hand trade market Which is what we call this which is what the stock market is right now Right. So meanwhile the way we are tackling this problem is we are saying well these companies are too big

[00:36:41] Let's let's use antitrust law to knock them down to size Which is the wrong approach from what you're saying. We've got to let them provide the benefits they're providing now Interesting stuff steve as always and we'll catch you again soon. I don't know. Bye the debunking economics podcast

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