Factoid: Creative Destruction in the Fortune 500

Mark Perry had a post on his Carpe Diem blog the other day in which he compared the Fortune 500 list from 1955 with the list from 2014. He notes that 88% of the companies that were on the list in 1955 are not on the list in 2014 (conversely, only 12% of the companies have remained on the list after 59 years).

He also links to a Forbes article by Steve Denning that makes the point that the life expectancy of firms on the Fortune 500 list has been declining over the years. In the early 20th century, a firm tended to stay on the list for up to 75 years, today they only stay on for 15 years. Denning includes the following graph from Richard Foster's work on creative destruction to illustrate the point:

The point here is that declining longevity at the top of the heap is a sign of dynamism in the economy. As Perry puts it:

That’s a lot of churning and creative destruction, and it’s probably safe to say that almost all of today’s Fortune 500 companies will be replaced by new companies in new industries over the next 59 years, and for that we should be thankful. The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy, and that dynamic turnover is speeding up in today’s hyper-competitive global economy.

Factoids: Matt Ridley's Reasons to be Cheerful

Economics is often referred to as the dismal science, supposed in reference to Malthus' predictions of cycles of famine and death, but a lot of economists are positively upbeat about the condition of humanity. Perhaps this is because, by most  objective measures, the material well being of people has been improving for the last few centuries.

Matt Ridley, the Rational Optimist, tends to specialize in pointing out the good news and he has a post on his blog covering the reasons to be cheerful even if there is plenty of bad news in the world this summer. The post has some interesting charts showing the declining price of light, increasing GDP, and declining deaths due to severe weather.

Mark Perry did a good job of grouping and highlighting Ridleys' points, so rather than do so myself, I will refer you to Perry's post for a more digestable version of Ridley's reasons for cheer.

The Threat of Foreign Fighters Returning Home

There is considerable outrage in the press over the photo of a young boy holding a severed head in Syria. Part of what is fueling the story is the reports that the boy is the son of an Australian Jihadist who traveled to Syria to join the fight. Thus, the story feeds into concerns about so-called "foreign fighters."

Beyond concerns for the children in the immediate case, there are concerns that foreign fighters will return home to plot terror attacks. Indeed, US Secretary of State Kerry, who is currently in Australia, called for talks on how to handle foreign fighters.

However, research by Thomas Hegghammer suggests that these concerns may be overblown. In a Monkey Cage post from September 2013, Hegghammer summarizes the results of a paper he published in the APSR, Hegghammer collected data on foreign fighters and he summarized his findings as follows:

My article tries to answer these questions by looking at where Western jihadists have chosen to fight over the years and why. I rely on open-source data, including a new dataset on jihadi plots in the West from 1990-2010 and data on foreign fighter flows. My five main findings are:

• Foreign fighting is by far the most common activity. Foreign fighters outnumber domestic attackers by at least 3 to 1 (over 900 vs. 300 individuals over 20 years).

• Western jihadists seem to prefer foreign fighting for normative reasons. They heed religious authorities who consider fighting in warzones more legitimate than killing civilians in Western cities.

• Most foreign fighters appear not to leave with the intention to train for a domestic operation.  However, a minority do acquire this motivation after their departure.

• Most foreign fighters never return for domestic plots. In my data, at most 1 in 9 foreign fighters came home to roost.

• Those foreign fighters who do return are significantly more effective operatives than non-veterans. They act as entrepreneurs and concoct plots that are twice as likely to kill.

Pape, Ruby and Bauer Criticize GTD Data on Suicide Terrorism

In a July 21 Monkey Cage post, Robert Pape, Kevin Ruby and Vincent Bauer criticize the Global Terrorism Database's (GTD) data that shows a recent increase in suicide terrorist attacks. As they see it:

The main trouble with the GTD is that its collection standards have changed several times, making it an inappropriate source for measuring trends. The GTD was initially funded by the DHS in 2006 and began by compiling data from three independent projects, each with its own collection methodology and standards for inclusion: one standard of collection from 1970 until 1998, another through 2008 and another through 2011. It was not until November 2011 that the GTD became responsible for collecting its own data, at which point it changed its methodology and standards. No surprise, the type and number of events in the data set changed every time the methodology changed.

The authors note that the Chicago Project on Security and Terrorism (CPOST), which has used a consistent methodology for tracking instances of suicide terrorism,  identified more instances in 2007 (the previous spike in event) than did the GTD and less in the recent couple of years (see graph here).

Russian Sanctions of Western Food and Possible Intervention in Ukraine

Note: I am traveling this week and only have time for a short note.

A few days ago I noted that Putin was softening his rhetoric on the heat from the west, but now he has imposed bans on the import of food from western nations and appears poised to militarily intervene in Eastern Ukraine. If you recall, the point I was trying to make about Putin was that he has the domestic political freedom to turn on a dime and this makes him a bit unpredictable.

Also, if Russia uses the pretext of a humanitarian intervention in the face of an increasingly deadly Ukrainian offensive against seperatists, this subterfuge will probably be enough to forestall any really threatening response from NATO. Though in the long run Putin may be digging a deeper hole for Russia, it's probably a safe bet that a limited use of force will produce little reaction. And, if something unforeseen happens to make that bet go bad, Putin has the flexibility to pull back. When it comes to making modest opportunistic moves, it's good to be a leader of a small coalition regime and miserable to be in the position of trying to predict exactly what one will do.

Then there are the sanctions on food. While banning western agricultural imports will impose costs on European and US farmers, the bigger impact is likely to be on Russian food prices and, thus, on Russian consumers. However, from Putin's point of view, any problems caused by price increases and shortages will be balanced by the opportunity to intervene in local markets and exert more control on revenue flows.  After all, you can't get extort much out of a market for plentiful and inexpensive goods.

Things change when you have higher prices and a shortage of supply. Increased government intervention in the market will not only be tolerated but demanded. Though Putin isn't particularly sensitive to public opinion, it is always easier to implement a popular policy than an unpopular one. The increased control over the market will make it easier to reward friends and punish enemies, and increased prices will make those rewards and punishments larger. This will in turn enhance Putin's chances of political survival despite the pain inflicted on Russian consumers.