Talk to anyone in Silicon Valley these days, and it’s hard to go more than two minutes without hearing about ‘disruption.” Uber is disrupting the taxi business. Airbnb is disrupting the hotel business. Apple’s iTunes disrupted the music industry, but now risks being disrupted by Spotify. Listen long enough, and it’s hard not to conclude that existing companies, no matter how big and powerful, are all but doomed, marking time until their inevitable overthrow by hoodie-wearing innovators.

In fact, the opposite is true. By a wide range of measures, the advantages of incumbency in corporate America have never been greater. ‘The business sector of the United States,” economists Ian Hathaway and Robert Litan wrote in a recent Brookings Institution paper, ‘appears to be getting ‘old and fat.’”1

Hathaway and Litan say the trend is worrisome, and other economists who have studied the issue agree. Entrepreneurship is a critical source of jobs in the economy. Perhaps even more importantly, it is a major driver of productivity growth. New companies, after all, often arise from an idea about how to do something better, whether it’s making cars or brewing coffee. Many of those ideas fail to pan out, but the ones that work can […]