“In a System with Dominance, There is Built-In Resistance to Change”

ProMarket's Guy Rolnik interviews Bernie Yeung:

“In a System with Dominance, There is Built-In Resistance to Change”: ProMarket Interviews Bernie Yeung, Part 2: Last week, we published the first part of an extensive three-part interview with Bernard (Bernie) Yeung, Dean of National University of Singapore’s business school. This is the second part. The third and final part will be published next week. In the first part of our interview with Bernard Yeung, we talked about his seminal papers on power concentration, on which he collaborated mainly with Randall Morck. The discussion there focused on dominant players and their ability to shape their own markets, the capital market, and even the economy. In this installment, we talk about how free trade may have backfired, how wealth and power are connected, how big corporations can control and distort the market for ideas, and why governments may actually prefer markets that are controlled by dominant players rather than by many competitors. ...

... GR: Can you elaborate on what you call economic conditioning, mainly the part in which you say it may not be vicious?

BY: Let’s imagine I got rich and now own and control a bank. I’m saying to myself that I know what’s right and what’s wrong. I cannot allow new people to set up new banks and compete with me in an unruly manner. That will create chaos. They will cause people to lose their jobs. I help to set up barriers to entry in the financial sector. I myself lend money to my rich friends and they will create many jobs. I think I’m right—and I am righteous.

I overlook the positive effects that competition will generate for the economy. I overlook the contributions of new ideas and innovations which leads to strong future growth and good future jobs. I focus on my lending to the established, which preserves current jobs and creates interest earnings for me.  I am not [attuned] to the counterfactuals. I’m conditioned to believe that all I’ve done is good for my bank, for the financial sector, and for the country. That’s economic conditioning. I’m not being sinful. I’m not being vicious. I only see what’s good for me, and I believe that’s good for the whole society.

 GR: This was the case for the Robber Barons in the U.S. more then a century ago.

BY: Oh yes, and I believe it’s very much how Donald Trump is thinking.

GR: Do you think they genuinely believe that the country should be run by the incumbent oligarchs?

BY: If it ain’t broken don’t fix it, right? ‘Look at all the good things I have done. If I’m so rich and keep so many people employed, I cannot be so bad. I will never see people who cannot get into the market because of my behavior. I never see them. Indeed, I am always thinking that, in helping my established friends and using business judgment that brings me profits, I help society, create jobs and wealth, and my donations help society further. I see myself and my friends as pillars of our country.’ ...

... In a system with dominance, and I’ve already put that in paper, I think there is built-in resistance to change. Rich people don’t like change and competition. And they themselves don’t invest too much in innovations that displace their own business; that is, no creative self-destruction.

I believe that a vibrant and robust capital market that gives people with good ideas a chance is very important. The problem is failed capital markets, lack of transparency and alternatives and dominant players in control who don’t encourage entrepreneurship. ...

... GR: Is there empirical data that shows that, when we take out economic concentration, we get better growth, better distribution of income, and a better quality of life?

BY: Yes. Once, Randall, his student, and I looked at a current list of top firms, compared it to a similar list of 20 years earlier, and asked ourselves how many survived. We showed that high stability is correlated with lower growth, lower productivity, and poorer Gini. ...