Inequality Inc. Part 2 – A new era of monopoly power
How corporate concentration is fuelling inequality.
Last week we kicked off the Inequality Inc. series with an overview of how the 2020s are becoming a decade of division.
The combined value of the world’s five largest corporations is more than all the GDPs of Africa, Latin America and the Caribbean. Why does this matter? This week we explore how corporate concentration and the growth of global monopoly power is fuelling inequality.
Monopoly power in numbers
Big food, big pharma, big everything. Examples of market concentration are everywhere. Two companies control 40% of the global seed market —25 years ago, it was 10 companies. Three-quarters of global online advertising goes to Meta, Alphabet (Google) and Amazon. 60 pharmaceutical corporations merged into just 10 over 20 years.
The inequality effect. Monopolies redistribute income and wealth regressively economy-wide: from workers and consumers, who are overcharged and overburdened by higher profit margins, to executives and owners, who are more likely to be rich and own stock. IMF research found that the rise in monopoly power accounts for 76% of the decline in the labour income share in manufacturing in the US; without it, labour income share would have stayed constant in the 20th century.
Driving inflation. The last few years saw the energy, food and pharma sectors make significant price hikes, enabling corporations to increase profits at the fastest pace since 1955. The IMF and European Central Bank have highlighted how concentrated sectors were able to increase prices to drive up their margins —in turn driving inflation. New research by Groundwork Collaborative shows corporate profits driving more than half of inflation in the US.
Hiking prices: Giants at the top using their dominance is nothing new. Multinational corporations’ share in global profits quadrupled from 4% in 1975 to 18% in 2019. A new report by the Balanced Economy Project (well worth reading) shows that over a five-year period, the average markup —the ratio of price to costs— for the world's top 20 corporations is reported to be 50% compared to 25% (on average) for smaller firms.
Monopoly men. Monopolies and billionaires are two sides of the same coin. Billionaires are much more common in sectors with high levels of cronyism and monopoly power. Bernard Arnault’s company LVMH has been fined by France’s anti-trust body for anti-competitive practices. Aliko Dangote is Africa’s richest person and holds a ‘near-monopoly’ on cement in Nigeria and market power Africa-wide. Dangote is now expanding his empire into oil, raising concerns about a new private monopoly.
Monopoly money. Private equity has a long history of consolidating markets by ‘rolling-up’ small businesses into bigger ones. Beyond private equity, the ‘Big Three’ index fund managers —BlackRock, State Street and Vanguard— together manage some $20 trillion in assets. A Harvard Law School paper expressed concern that, in the future, roughly 12 individuals will have practical power over the majority of US public companies.
You can read about this more in chapter 2 of “Inequality Inc.”
Scope for hope
Interventions work. Efforts to break up monopolies work. Governments can learn from current anti-monopoly cases, such as those against Amazon and Google in the US and Europe, as well as anti-monopoly efforts to reform merger laws and boost worker power. Past breakups have led to explosions of innovation, and enforcement generally has been shown to reverse many of the harms of monopoly by raising wages, increasing employment and lowering prices.
Something to read and listen to
Read - “Taken, Not Earned” – a new report on global anti-monopoly by the Balanced Economy Project
Listen to - Another plug for last week’s Equals podcast. Find out how traffic lights, neoliberalism and the Catholic Church relate in the fight for a more equal world.
Read - Nobel Laureate Joseph Stiglitz on how “Antitrust Wins Help Us All”