So, we’ve seen how big business has been concentrating its power. And, how our government, instead of regulating this behavior, works hard to hide their hands under their blessed assets.
Despite the fact that nowadays 10% of the businesses manage to accumulate 80% of the revenue in their field. That’s up from 75% in just ten years. That makes it clear that the 1% is not just an individual or personal problem- it’s pervasive throughout our society- the top 1% of all firms glommed 36% of the global profits. (2/3 of all pretax profits accrues to firms with more than $ 1 KKK in annual turnover These facts are from McKinsey’s 2018 report Superstars: The Dynamics of Firms, Sectors, and Cities Leading the Global Economy.)
And, here’s the real kicker. If we are dealing with public companies- the ones in which we, the public, own their stock- then those at the bottom end of the rung are destroying the value of their holdings. It turns out that the distribution of profits and income may actually be bimodal. Dr. Aswath Damodaran of NYU (Stern School of Business) analyzed more than 25000 large firms. Of these, about 8000 provided more than 5% return on invested capital, while 17000 lost 5% or more of their value based on invested capital.
It’s not going to get better. Our trend towards globalization is making these phenomena worse. The global superstars are not the ones that have a lot of employees. With fewer employees, their sales per employee or profit per employee are sky high. And, as they grow their market share, their competitors shrink in size- so the overall market situation spirals out of control. (Autor [MIT], Dorn [Zurich], Katz [Harvard], Patterson [MIT], and van Reenen [MIT], The Fall of the Labor Share and the Rise of Superstar Firms.)
It doesn’t hurt that superstars spend more on R&D and employ M&A (mergers and acquisitions- more agglomeration of power) to achieve their growth. Those in the lower performance decile that are more reliant on capital expenditures (meaning they are relying on physical capital, as opposed to ideas). And, the data demonstrate that the superstars are not disappearing- they are just getting bigger (those firms that disappear are those that were gobbled up by other superstars.)
The consequences of promoting monopoly and oligopoly.
A very sad state of affairs. Thanks for sharing your insight.
Yes, we need to goad government action!
I agree with you, that it’s probably not going to get better any time soon, which is unfortunate. I’m not sure what the solution would be, either.
Regulation of crony capitalism and oligopolies is the only answer, Jeanine.
I remember way back when we had so many local pharmacies, run by neighbors and friends. One by one, they were bought out by the larger companies. One of our friends hung on to his, which was his dream to own, for as long as he could but the big guns finally killed him.
Yes, that seems to be the way of the world nowadays, Martha!
“The superstars don’t have many employees.” Yes, income per employee is thus smaller. But, have these superstars found markets that continue to grow? Can you give me an example? Thanks for making me think!
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So, a lot of these superstars use contractors that they pay almost slave wages. Think of Apple and it’s minions working away in China. Think of Boeing that has tried to break its unions, moving production to South Carolina, where they pay THOSE staff members a small fraction of what the staff in Washington earn.
just checked the NYU Stern page as well;
this post brings more eye-openers on monopolies and oligopolies as you follow up some more from your previous ones.. 🙁
Yup. I try to lead you to interesting data that you can study on your own.
Thanks for the visit and comment, Vidya.