Productivity, profit and market power

It’s certainly true that accumulation of capital will take the form of increased concentration and centralisation of capital over time. Monopolistic tendencies are inherent, as Marx argued in Volume One of Capital 150 years ago. And Marx’s prediction of increased concentration and centralisation of capital as a long-term law of capitalist development finds further confirmation in a new study of US publicly quoted companies. Kathleen Kahle and Rene Stulz find that slightly more than 100 firms earned about half of the total profit made by US public firms in 1975. By 2015, just 30 did. Now the top 100 firms have 84% of all earnings of these companies, 78% of all cash reserves and 66% of all assets. The top 200 companies by earnings raked in more than all listed firms, combined! Indeed, the aggregate earnings of the 3,500 or so other listed companies is negative – so much for most US companies being awash with profits and cash.

Why is this happening? According to this study, it is the drive for new technology to lower costs, as Marx argued before. Research and development has become increasingly critical to competitiveness. The bigger and richer the market Goliaths get, the harder it is for the Davids of the US economy—and the need for R&D to compete. Companies drowning in cash can easily afford patents and the investments to develop those. Or, as seems to be happening, to buy the company with the patent.

Michael Roberts Blog

Going the rounds among mainstream economists in the US are new explanations for the slowdown in productivity growth and innovation especially since the beginning of the 21st century and also why labour’s share in national income has been in long-term decline since the early 1980s.

In a new paper,   The Rise of Market Power and the Macroeconomic Implications, Jan De Loecker and Jan Eeckhout (DE) argue that the markup of price over marginal cost charged by public US firms has been rising steadily since 1960, and in particular after 1980.  The paper suggests that that the decline of both the labor and capital shares, as well as the decline in low-skilled wages and other economic trends, have been aided by a significant increase in markups and market power – in other words the rise of monopoly capital in the form of ‘super-star’ companies like Apple, Amazon, Google etc

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