01-13-2026
“I used to play soccer,” says Mara Faccio, Tom and Patty Hefner Chair in Finance at the Daniels School. “When I was 20, I thought I was a fantastic player, but today I would not be able to do particularly well unless playing against only people my age.” Then she smiles and adds, “This is what maintaining a sustainable competitive edge looks like.”
Faccio points out this is why managers of declining companies might look into ways of getting protections.
Faccio studies the impact of political connections on market competition, which Daniels Insights has explored. In her recent research paper, “Impediments to the Schumpeterian Process in the Replacement of Large Firms,” with co-author Distinguished Professor Emeritus of Management John J. McConnell, Faccio delivers a nuanced look at why, in many countries, large, established firms so often defy Joseph Schumpeter’s classic vision of creative destruction. Drawing on over a century’s worth of evidence across dozens of countries and building on recent and historical examples, the authors explore what truly stands in the way of the constant renewal of the corporate hierarchy — and what that means for businesses, policymakers and society.
A central theme of the paper is the powerful role of political engagement by large firms. While successful firms may not often need the buffer of political clout, Faccio explains that as firms begin to lose their innovative edge, they increasingly look to policy intervention and government relationships to protect their status. These protections frequently come in the form of regulations and barriers that limit competition — think entry restrictions, trade barriers or constraints on capital flows. Executives of declining giants often resort to these political strategies as a sustainable means of retaining market dominance, even long after their ability to out-innovate younger rivals has faded.
Schumpeter imagined a world where established companies were periodically swept aside by newer, more dynamic rivals, ensuring that markets remained innovative and efficient. To test this, the authors compiled long-span datasets: One sample included the 20 biggest firms in 60 countries around 1910, covering 100 years, while another more recent sample spans 20 years from 2000 onward. The results are telling: In some countries, turnover among the top firms is rare, and many century-old giants persist at the apex far longer than Schumpeter would have expected.
The authors provide compelling evidence that political connections only become truly decisive for big firms when barriers to both trade and capital flows are present. Absent these government-imposed restraints, even politically connected firms are eventually displaced by more innovative competitors. But when governments block trade and restrict access to flows of capital, well-connected incumbents are able to linger as dominant players for decades, sometimes centuries.
This is particularly poignant when contrasting the United States — historically open to trade and capital, and long known for frequent “replacement” of its largest firms — with countries that closed their economies or built extensive regulatory walls. After the Great Depression, for instance, some nations stopped trade flows entirely and saw entrenched firms survive thanks to those closures, even as the U.S. continued to cycle through market leaders.
In recent decades, the U.S. has moved from being a world leader in the turnover of its largest firms to more of a middle-of-the-pack performer. Yet, as Faccio notes, overt forms of political connections studied in other countries — like government officials serving on the boards of big companies — are more regulated and rarer in the U.S. The American model leans instead on lobbying and campaign contributions, mechanisms still capable of shaping the competitive landscape.
The research underscores two critical takeaways:
Faccio and McConnell urge both business leaders and policymakers to recognize the dangers of government overreach. Sustained market leadership should be earned through innovation, not political privilege. In a healthy economy, capital flows toward productive uses, and when companies falter, the market — not the state — should decide their fate. After all, business is not a mere soccer match.
