America Has a Monopoly Problem—and It’s Huge | The Nation

Source: America Has a Monopoly Problem—and It’s Huge | The Nation, by Joseph E. Stiglitz

The Nobel Prize winner argues that an economy dominated by large corporations has failed the many and enriched the few.

This increase in market power helps explain simultaneously the slowdown in productivity growth, the sluggishness of the economy, and the growth of inequality—in short, the poor performance of the American economy in so many dimensions.

We should be concerned about this agglomeration of market power not just because of its economic consequences, but also because of its political consequences. An increase in economic inequality leads to an increase in political inequality, which can and has been used to create rules of the game that perpetuate economic inequality.

For a third of a century, the American economy has failed to enhance the well-being of a majority of its citizens. … There is no simple answer to problems as deep, longstanding, and pervasive as those I have discussed here. … What is required is a panoply of reforms—rewriting the rules of the American economy to make it more competitive and dynamic, fairer and more equal. … Much is at stake—not just the efficiency of our market economy, but the very nature of our democratic society.

Firms like Microsoft led in the innovation in creating new barriers to entry. How could one compete with a browser provided at a zero price? New forms of predation were created, and pre-emptive mergers—buying cheap potential competitors before they could be a competitive threat and before an acquisition would receive antitrust scrutiny—became the norm. Even after Microsoft’s anti-competitive practices were barred, their legacy of market concentration continued.

We now face an increased problem of monopsony power, the ability of firms to use their market power over those from whom they buy goods and services, and in particular, over workers.

Globalization was supposed to lead to a more competitive market place, but instead, it has provided space for the growth of global behemoths, who use their market power to extract rents from both sides of the market place, from small producers and consumers. Their competitive advantage is not based just on their greater efficiency; rather, it rests partly on their ability to exploit this market power and partly on their ability to use globalization to evade and avoid taxes.

Mordecai Kurz of Stanford University has recently shown that almost 80 percent of the equity value of publicly listed firms is attributable to rents, representing almost a quarter of total value added, with much of this concentrated in the IT sector. All of this is a marked change from 30 years ago.

The adverse consequences of the resulting inequality are obvious. But there are numerous indirect consequences, which result in a more poorly performing economy. First, this wealth originating from the capitalization of rents, what I shall call rent-wealth, crowds out capital formation. The weak capital formation of recent years is part and parcel of the growth of rents and rent-wealth—leading to economic stagnation. Secondly, with monopolies, the marginal return to investment is lower than the average return—they know that their prices may decline if they produce more—explaining the anomalous result of huge corporate profits but low corporate investment rates, even as the cost of capital has plummeted. Third, the distortions in the allocation of resources associated with market power lead to a less efficient economy. Fourth, in particular, market power has been used to stifle innovation—just the opposite of the claim of the Chicago School. There is evidence of a decline in the pace of creation of new innovative firms, and especially of new firms headed by young entrepreneurs. Fifthly, the ability of these new behemoths to avoid taxation means that the public is being deprived of essential revenues to invest in infrastructure, people, and technology—contributing again to our economy’s stagnation and distorting our economy by giving these firms an unfair competitive advantage. Sixthly, with money moving from the bottom of the pyramid to the top, which spends a smaller share of income, aggregate demand is weakened, unless offset by other macro-policies. In the decade since the beginning of the Great Recession, fiscal policy has been restrained and, given those constraints, monetary policy has been unable to fill the breach.


More: Untamed: How to Check Corporate, Financial, and Monopoly Power – Roosevelt Institute, by Nell Abernathy, Mike Konczal, Kathryn Milani (2016/06/06)