Robin Harding has a provocative piece arguing that Warren Buffett might not have caused the Great Stagnation himself; but “Buffett-ism” has a lot to answer for:
Mr Buffett is completely honest about his desire to reduce competition. He just calls it by a folksy name — “widening the moat”. “I don’t want a business that’s easy for competitors.
He tells Berkshire Hathaway managers to widen their moat every year. The Buffett definition of good management is therefore clear. If you have effective competitors, you are doing it wrong.
This is a big deal, because as Harding points out, a rash of new papers suggest that increased market power and—possibly by extension—reduced competition, are behind almost all the disturbing trends in the U.S. economy over the last 30 years. Most notably, in the slowdown in productivity growth and median wages.
Harding argues that Buffett’s aversion to competition contributes to this. Not only because Buffett himself chooses companies that have little competition and then drains the profit from them, but because when other managers copy his techniques, a sort of Buffett equilibrium can set in which no one invests or competes.
I don’t think this kind of outcome should be dismissed out of hand. It has a certain puckish plausibility to it. However, it doesn’t answer the central question of how one goes about building an effective moat in the first place. If it’s in developing a particular niche or brand that appeals to customers, then Buffett isn’t so much causing a Cowen-style Great Stagnation as he intuitively recognizes the Great Variation.
In particular, his restraint injunction to starve some those organizations of investment looks like an attempt to avoid confusing the ability to build a great brand with the ability to deploy capital. For example Elon Musk, whom Harding praises, clearly has a talent for deploying capital. Just listening to him talk about why a Hyperloop might be cost effective shows his keen sense for cutting down a project to its bare minimum.
Musk didn’t develop the idea of rockets, tube trains, or even electric cars. They’ve been around for generations. What Musk may have developed are ways to deploy these science fiction technologies on the cheap. That requires a very different skill set – one imagines – than creating a Berkshire Hathaway subsidiary or See’s Candies.