Important Not to Confuse Monopoly and Wealth Inequality

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David Leonhardt has a piece at the NYT about some interesting IBISWorld data that was beautifully compiled by the Open Markets Institute. The data show that product market concentration has increased over the last 15 years in dozens of product categories. This is meant to be illustrative of a broader trend in corporate concentration over the same period.

Leonhardt’s piece is fine as far as things go, but ends with a misleading flourish that tweaks me personally. The flourish is:

“We may have democracy, or we may have wealth concentrated in the hands of a few,” Louis Brandeis, the Supreme Court justice and anti-monopoly crusader, said a century ago, “but we can’t have both.”

The suggestion here is that monopoly is synonymous with wealth being concentrated in the hands of a few and conversely that anti-monopoly is synonymous with spreading the wealth around. But in reality the distribution of wealth, at least as we typically measure and understand it, is a separate thing from how concentrated product markets are.

To see what I mean, consider two extreme scenarios.

In the first scenario, you have a single company that produces everything, but the shares of that company are owned equally by everyone in society. That economy would be completely monopolized but would also have a completely equal distribution of wealth.

In the second scenario, you have hundreds of genuinely competitive companies operating in every product market and labor market, but the shares of those companies are all owned by a single person. This economy would have no monopolies or corporate concentration but would also have an extremely unequal distribution of wealth.

Corporate concentration and the structure of the corporate sector more generally are important policy questions, but they should not be conflated with wealth inequality. The US is currently home to 3,806 publicly-traded companies valued at around $29.5 trillion. If you trimmed down the size of companies to create a world where there are three times as many firms that are each one-third as large as their predecessors, then you would wind up with 11,418 companies that are still nonetheless valued at $29.5 trillion. And crucially, the distribution of that $29.5 trillion of asset value among investors would be unchanged.

Put simply: the same affluent people who own the equity and debt of the big companies will also end up owning the equity and debt of the smaller companies. That does not mean there is no value in bringing firm sizes down. But the value has to do with increasing innovation, real investment, and possibly labor’s share of income, not with increasing wealth equality per se.

If you want to increase wealth equality, then you have to redistribute the ownership of the national wealth, not just reconfigure it into smaller units. One way to do that is through the creation of a social wealth fund that every American owns an equal share of, as proposed by yours truly in a recent 3P paper, which you can read here.