There is more to a dynamic economy than antitrust policy

Lately, there have been more calls to break up big companies through antitrust policy. One argument is that these companies hold too much power, charging a toll to participate in the economy. Some experts argue that many of the persistent ills in the economy are linked to monopoly power. I wrote about some of these arguments here. Critics of these arguments say that big companies often are more efficient.

There is a lot of debate about these arguments, and quite a lot of disagreement, which I won't delve into here. Overall, I worry that policymakers may be too focused on antitrust policy at the expense of other policies that will support entrepreneurship and dynamic markets.

Ultimately, when large companies are no longer doing a good job, the formation of charismatic new companies is a very good way to displace them. AOL, Yahoo, and cab companies are less powerful now not because the government broke them up, but because they didn't innovate quickly enough, and other companies displaced them. Breaking up big companies doesn't do much good if there's no one out there who can offer something better.

Most would-be entrepreneurs would not tell you that Facebook, JPMorgan Chase, or the local big hospital system is holding them back. By the time you've gotten the attention of a big company, you've already done well. Many people who would like to start a company, or are trying to start one, are prohibited by entry barriers. They don't have the money to go without a job for a while, or they don't have access to capital, or they don't have a deep enough network to hire from and learn from, or they don't have the subject matter expertise or time to spend on R&D to develop a substantial improvement over the status quo.

Access to capital is a particularly important issue. Most Americans don't have a lot of savings; they also don't have enough collateral to take out a large business loan. Venture capital is mainly interested in funding companies with the potential to become massive, quickly. Most people are legally barred from investing in private companies because they don't meet the required income/wealth threshold. And raising money from public markets is expensive and comes with a lot of regulations, and your company needs to prove itself first before it has an IPO.

This is part of why there aren't more Elon Musks. Elon Musk already had made enough money from PayPal--over $100 million--to start Tesla and SpaceX, capital-intensive businesses that most people can't just start from a garage. It should be easier for more people with less than $100 million to build ambitious new companies.

No matter where you stand on antitrust policy, I think it is important to focus more on reducing barriers to entry to entrepreneurship. If more people could start businesses, that would unleash a more dynamic and innovative economy than we can imagine.