Many US Industries Need More Consolidation, Not Less, New Report Finds

WASHINGTON-Contrary to conventional wisdom, many U.S. industries would benefit from greater consolidation and economies of scale, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.

ITIF examined 12 industries in five sectors-banking, construction, farming, physician's offices, and telecommunications-and found that firms with 500 or more employees are more productive than firms with less than 500 employees, as evidenced by their revenue per worker. Yet, the vast majority of firms in all five sectors are small firms, highlighting the opportunity for more consolidation to achieve greater economies of scale.

"The prevailing view among pundits and policymakers in Washington is that the U.S. economy is too concentrated, so we need aggressive antitrust enforcement to break up large firms. But the data suggests it's really the other way around: Many U.S. industries would benefit from more consolidation, not less," said ITIF President Robert D. Atkinson. "With greater scale, firms become more productive. That's critical because boosting productivity is the only way to raise wages, spur innovation, and grow the economy."

Among the new report's key findings:

• Large commercial banks are 2.6 percent more productive than the banking sector's average, while small banks are 10.6 less productive than average-and more than 95 percent of commercial banks are small.
• Similarly, thanks to their use of emerging technology, large doctor's offices are 4.6 percent more productive than their sector's average, while small doctor's offices are 3 percent less productive than average. More than 99 percent of doctor's offices are small.
• Large construction firms are as much as 148 percent more productive than the construction sector's average, while small firms are as much as 25 percent less productive than average. The vast majority of construction firms are small (including 100 percent of residential remodelers).
• Large telecom carriers are as much as 46 percent more productive than their sector's average, while small carriers are as much as 61 percent less productive. More than 97 percent of carriers are small.

Using the North American Industry Classification System (NAICS), ITIF found evidence of a similar pattern across the U.S. economy: Large firms generate higher receipts per worker than average in 710 out of 938 six-digit industries (75 percent), suggesting that further consolidation in many industries could improve economic efficiency and productivity.

"The data illustrates how scale begets productivity," said ITIF Analyst Trelysa Long, who authored the report. "This analysis focuses on just 12 industries in 5 sectors, and it shows very clearly that large firms are more productive, yet also far outnumbered by small firms. So, there is a huge opportunity to boost productivity through consolidation in those industries. The same thing is likely true in many other industries across the economy."

Read the full report.

Contact: Austin Slater, [email protected]

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The Information Technology and Innovation Foundation (ITIF) is an independent 501(c)(3) nonprofit, nonpartisan research and educational institute that has been recognized repeatedly as the world's leading think tank for science and technology policy. ITIF's mission is to formulate and promote policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress.

Learn more at itif.org.

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