News from the End of Capitalism: Strong wage growth at the bottom, corporate concentration not a crisis | American Enterprise Institute


By James Pethokoukis

The argument that capitalism is nearing its terminal stage (“late-stage capitalism”) has a big problem. The data don’t support the notion of a top-heavy socio-economic system that now only works for a few.

An example: The Global Financial Crisis — a supposed “end of capitalism” milestone — may have been followed by a historically slow recovery, but it was also a historically lengthy one. As George Washington University economist Jay Shambaugh and AEI economist Michael Strain write in “The Recovery From The Great Recession: A Long, Evolving Expansion,” that span was “one of the better periods of real wage growth in many decades, with the bulk of that coming in the last years of the recovery. … In the last five years of the expansion, wage growth had picked up at the bottom of the income distribution, outpacing gains in the middle and at the top of the distribution.”

Via Twenty20

Another supposed bit of evidence of the lopsided nature of monopolistic modern capitalism is growing corporate concentration. It’s an idea that’s so supposedly obvious and self-evident — Big Tech! — that it’s reached the stage of “settled” economics. But maybe not. Check out these findings, via the Information and Technology Foundation, of Census Bureau economic data:

  • “Just 35 of 851 industries (4 percent) were highly concentrated, with the top-4 firms (the C4 concentration ratio) holding more than 80 percent of the market.”
  • “In 2017, 80 percent of U.S. business output was from industries with low levels of concentration, with that share increasing from 62 percent in 2002.”
  • “Fifty-five percent of industries increased concentration between 2002 and 2017; 45 percent decreased.”
  • “The average C4 ratio increased by just 1 percentage point between 2002 and 2017, from 34.3 percent to 35.3 percent, while the average C8 ratio increased even less, from 44.1 percent to 44.7 percent.”
  • “There was a slight negative correlation between the C4 level in 2002 and the percentage point change in C4 between 2002 and 2017.”
  • “Among the industries with increases in concentration, only one-third increased by greater than 10 percentage points.”
  • “Of the 20 industries showing the greatest increase in the C4 ratio from 2002 to 2017, only 30 percent had C4 ratios above 80 percent in 2017.”
  • “Of the 115 industries with a C4 ratio of 60 percent or more in 2002, the majority got less concentrated, with the average C4 declining 4 percentage points.”
  • “For every advanced technology industry with a C4 ratio over 80 percent, there were 10 with a C4 ratio below 50 percent.”
  • “Producer prices rose less from 2002 to 2017 in industries with higher levels of concentration than overall prices.”

Then there’s a new paper from Germán Gutiérrez and Thomas Philippon, both of NYU’s Stern School of Business. One of the key facts in “Some Facts about Dominant Firms” is this one: “The market share of dominant firms has not increased.” The study examines the largest and most valuable American and international companies. Here’s why the results may seem contrary to other studies showing a big increase in market share. From the paper:

A commonly used metric in the literature is consolidated sales over domestic GDP. This metric does not provide a reliable picture of the evolution of large firms when there is an upward trend in globalization combined with rapid growth in emerging markets. … If we consider the domestic sales of star firms, the shares are flat post 1990 and the peak is in fact in the late 1970s … In terms of domestic revenues, today’s stars are exactly the same as the stars of the past 40 years. To give a concrete example, consider AT&T and Apple. In 1987, AT&T’s sales were 1.05% of US GDP and almost entirely domestic. In 2017, Apple’s sales were 1.18% of US GDP but more than half were foreign sales. Apple’s domestic sales were 0.5% of US GDP.

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