Fri. Apr 19th, 2019

The IMF warns against the growing power of megacorporations

El FMI advierte contra el creciente poder de las megacorporaciones

Who is not perplexed by the power of megacorporations
business? There are those who complain about being prisoners of Microsoft or Google. Others scratch their heads when they rent a car from Budget to later realize that it is the same company that Avis. Others remember that wages were better when monopolies of services like telephony, transport, Energy or Water they were public instead of private.

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The International Monetary Fund is also aware that "the debate about (...) the boom of giant corporations", Which coincides with" a series of disturbing trends in advanced economies, "according to an analysis presented days before its spring assembly. These trends include the stagnation of investment; a distribution of income that is increasingly favorable to capital versus labor; the abysmal gap between productive and financial wealth, and a stunted productivity growth that slows wages. "The increase in corporate power can contribute to all these disturbing trends simultaneously, "says the IMF .

Google has 91% of searches and Amazon concentrates 49% of everything sold on the internet

To measure the concentration of the market power of companies, the IMF uses the margin (mark-up) between the sale price and the marginal costs. This margin has risen 8% since 2000 in advanced economies, according to the study that analyzed one million companies, mainly European and North American. The average mark-up has risen 43% since the eighties.

This increase in market power is concentrated in a group of more productive and innovative companies, according to the IMF. The so-called superstars, from Apple to Amazon, register very high mark-ups. Banks have doubled their mark-ups in areas such as consumer finance. Utilities - private utility companies, formerly state monopolies - have seen a dramatic increase in their market power. In contrast, the mark-ups of industrial companies have not risen since the eighties.

The IMF study begins to explain a mystery. Why do high profits, triggered stock quotes and low interest rates coincide with a stagnation of investment? The answer: Monopolistic companies do not have to invest. "As the market power of a company rises, it can increase its profits through price increases and a reduction in production," said Gian Maria Milesi Ferretti, the IMF's deputy research director in an interview.

Instead of investing, large companies in the US they repurchased shares for more than a trillion dollars in 2018. According to Milesi Ferretti, the increase in market power of companies explains to a large extent the stratospheric benefits of recent years, as well as the fall of 2% per year since 1980 of wages in relation to the benefits in the distribution of GDP.

The IMF would not allow such strong words but, for the independent economist and Nobel laureate Joseph Stiglitz, whose work cites the IMF report, all this is the symptom of a decadent capitalism. "A handful of companies already control 75% to 90% of the market sector after sector, from cat food to telecommunications," says Stiglitz. "The law must act," says the Nobel. But, he adds, "as the market power of corporate mastodons rises, so does the ability to influence a political system where money is sent."

At the beginning of the 20th century, US President Theodor Roosevelt decided to dismantle the monopoly of Standard Oil and stand up to other cartels. It remains to be seen if Donald Trump would do the same a century later. It is a key issue for the states because, according to Milesi Ferretti, "large companies with market power have more geographical scope to reduce the tax burden on their profits".

Another study by the Open Markets Institute illustrates the extent to which oligopolies dominate the US economy. The four main companies in the airline sector - Delta, American Airlines, United and Southwest - have 76% of domestic flights compared to 38% in 2005. The four largest meat companies - the Brazilian JBS, Tyson, Cargill and Smithfield (owner of Campofrío) - control 53% of the business compared to 21% in 2002. The four main telephone companies have 98% of the market and only two companies -Verizon and AT & T- have 69%. Three car rental companies control 50% of the market. Three companies have 75% of the beer market. Three companies control 67% of pharmacies in the US, compared to 37% in 2002. In the digital sector, Google has 91% of the internet search market, Facebook has 70% of the social media market , and Amazon controls 49% of everything sold on the internet.

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