Good Morning from New Economy Brief
From Hayek to Marx, economic thinkers from across the political spectrum have long criticised the power of monopolies. But despite this consensus, are we at risk of sleep-walking into a new age of monopoly capitalism?
This week’s Digest looks at the evidence about market concentration, its impacts, the emerging literature about the interaction between monopolies and inflation, and possible policy options to counter these effects.
Monopoly money. “We’re now 40 years into the experiment of letting giant corporations accumulate more and more power...I believe that experiment failed.” These were the words of President Biden in 2021 announcing a new executive order on anti-trust (competition policy). It isn’t hard to see why he felt the need to sound the alarm. Researchers in the US have found that the top 0.1% of companies in America are responsible for a staggering 88% of corporate assets and 66% of sales. Campaigners Global Justice Now (GJN) argue in a new paper that this is part of a wider trend, where giant corporations have “captured the economy” through a series of mergers and acquisitions and are now exerting their power to warp global markets.
Competition and inflation. That’s a pretty long charge-sheet against monopolies, but of particular interest in the current economic climate in the interaction between monopoly capitalism and inflation. A common argument in the ‘wage-price spiral’ debate is that this bout of global inflation is unlike previous price surges because the power of organised labour has been much diminished since the 1970s, meaning that collective bargaining is unlikely to drive inflation in the same way. Another aspect that has changed in recent decades is the concentration of various vital global markets, which has consolidated price-setting power into the hands of a small number of mega-corporations. Shouldn’t we also expect this to have some interaction with inflation?
What can we do about it? As the old joke goes, I wouldn’t start from here. Unwinding market concentration is significantly more difficult than preventing it from emerging in the first place through effective competition policy (anti-trust for American readers). As previewed in the opening to this newsletter, the Biden administration has toughened its stance towards the enforcement of anti-trust laws, appointing serious regulators and signalling a change of approach from recent decades. But effective enforcement of existing laws is unlikely to make a dent in the current situation. GJN highlight a suite of bolder policy options, such as the enforced break-up of monopolistic companies, and constraining the role of the financial giants and investment funds which lie behind so much of this concentration.
Banking crisis. The latest banking “chaos” is evidence of the need both for a public banking system and to treat money as a public good, argues Positive Money’s Simon Youel. A public banking system would require two complementary parts, argues Youel: “First, a genuine public banking option that allows people to store money and make payments without being exposed to the risk taking of profit-maximising private banks. Secondly, regulation of banks that better reflects the fact they are utility companies for which the provision of key public goods are franchised out to by the state.”
A ‘new deal’ for business. Despite underlying strengths, the UK economy faces stagnant, unequal and unsustainable economic growth, according to research by George Dibb and Harry Quilter-Pinner of the Institute for Public Policy Research (IPPR) think tank. To address these challenges, they argue, government must create a ‘new deal’ for business in which government and business can work together towards “faster, fairer and greener growth”.
Corporate governance. “Weak participation rights and a shareholder-focused model of corporate governance are associated with poor economic performance” in the UK, according to new analysis by Common Wealth. The think tank has found that the UK is an “outlier” in corporate governance and “is more unequal, has weaker productivity growth, and invests less in research and development than stakeholder-oriented economies”.
Rishi Sunak’s tax rate. Last week, the Prime Minister revealed how much tax he pays. Quick analysis from Tax Justice UK found that the multi-millionaire pays the same effective rate of tax as the average nurse (around 22%). Tax Justice UK argues that this “shows precisely what’s wrong with our tax system: the super rich take most of their income from wealth, not work. And taxes on income from wealth are much lower than taxes on work”.
The ‘sanctions surge’. A briefing paper by the IPPR explains how the rate of universal credit claimants experiencing sanctions has risen rapidly since the start of the Covid-19 pandemic. The research finds that young men are sanctioned at the highest rate and that the largest rise in sanction rates has been among the over 60s.
Child poverty. 4.2 million children and young people are growing up in poverty in the UK, a rise of 300,000 children in the space of one year, according to new government data analysed by Magic Breakfast. The data also shows that 1.7 million children and young people in the UK live in food insecure households, the same figure as before the pandemic.