Corporate power intensifies inequality
Andrew Leigh, a member of the Australian parliament, has a side
gig. He just happens to be a working economist.
Other lawmakers may spend their spare hours making cold calls for campaign cash. Leigh spends his doing research — on why our modern economies are leaving their populations ever more unequal.
Other lawmakers may spend their spare hours making cold calls for campaign cash. Leigh spends his doing research — on why our modern economies are leaving their populations ever more unequal.
Leigh’s latest research is making some global waves.
Working with a team of Australian, Canadian, and American analysts, he’s been
studying how much the prices corporate monopolies charge impact inequality.
The conventional wisdom has a simple answer: not much. Yes, the
reasoning goes, prices do go up when a few large corporations start to dominate
an economic sector. But those same higher prices translate into higher returns
for corporate shareholders.
Thanks to 401(k)s and the like, the argument continues, the
ranks of these corporate shareholders include millions of average families. So
we end up with a wash. As consumers, families pay more in prices. As
shareholders, they pocket higher dividends.
But this nonchalance about the impact of monopolies, Andrew
Leigh and his colleagues counter, obscures “the relative distribution of
consumption and corporate equity ownership.” Average families do hold some
shares of stock, but not many. In the United States, for instance, the most
affluent 20 percent of households own 13 times more stock than the bottom 60
percent.
These bottom 60 percent households, as a result, get precious little return from the few shares of stock they do hold, not nearly enough to offset the higher prices they pay on corporate monopoly products.
“On net, that means it’s nearly impossible for the typical U.S.
family to make up for higher prices via the performance of their stock
portfolio,” notes a Washington Post analysis of
the Leigh team research. “When prices rise, low- and middle-class families pay.
Wealthy families profit.”
By how much do these affluents profit? Leigh and his colleagues
have done the math. The higher prices — and profits — that corporate
concentration has generated have shifted 3 percent of national income out of the
pockets of poor and middle-class families into the wallets of the affluent.
The larger our corporations become, in other words, the more
unequal our societies become.
Now corporations don’t grow larger in the same way as people
grow larger. Corporations have no adolescent growth spurts. They don’t mature.
They have no real personhood. Corporations only become larger when the
executives who run them make them larger, most typically by wheeling and
dealing their way through ever grander mergers and acquisitions.
This wheeling and dealing takes up a huge chunk of modern
corporate executive time and energy. Why do execs devote so much of their time
and energy to getting bigger? Getting bigger pays — for execs.
Indeed, firm size determines how much executives make more than
any other factor, as research has shown repeatedly over the years.
Executives don’t have to “perform” —
make their enterprises more efficient and effective — to make bigger bucks.
They just to need to make their enterprises bigger.
Executives, in short, have a powerful incentive to grow their
companies, and that powerful incentive, as the latest research from Andrew
Leigh and his colleagues shows, isn’t just making these executives richer. It’s
leaving our societies much more unequal.
So what can we do to ease the damage? Tougher antitrust
enforcement could certainly slow our rates of corporate concentration. But the
legislative activities of Andrew Leigh in Australia suggest another promising
approach as well.
Leigh serves as a “shadow” minister for the Australian
parliament’s Labor Party opposition. This past fall, he announced that his
party, if elected to power, will require all major corporations to publicly
disclose the ratio between their CEO and worker pay.
A similar disclosure mandate went into effect in the United
States last year. As of January 1, 2019, the UK now has a pay-ratio disclosure
mandate in effect as well.
Forcing Australian corporations to reveal their CEO-worker pay
ratios, Leigh notes, would
encourage these corporations “to think about how they are serving all
their workers, and society as a whole.”
But a growing number of progressives in the United States and the U.K. believe that pay ratios can do more than just “encourage” corporations to better serve their societies.
But a growing number of progressives in the United States and the U.K. believe that pay ratios can do more than just “encourage” corporations to better serve their societies.
These progressives are pushing for consequences on CEO-pay
ratios, proposing legislationthat
would deny government contracts and subsidies to corporations with wide gaps
between their CEO and worker pay. They’re also calling for higher tax rates on
companies with wider CEO-worker pay ratios, and one American city, Oregon’s
Portland, already has such an “inequality tax”
in effect.
More moves in this direction could significantly reduce the incentive for the executive wheeling and dealing that’s concentrating corporate power in fewer and fewer corporate hands. That wheeling and dealing — in nations with consequences on pay ratios in effect — would no longer guarantee grand windfalls to our corporate executive class.
Less wheeling and dealing, in turn, would mean less corporate
concentration — and a weaker corporate capacity to raise prices. And that would
mean, as the new Leigh gang’s research so clearly shows, less inequality.
Sam Pizzigati co-edits Inequality.org. His latest book, The Case for a
Maximum Wage, has just been published. Among his other books on
maldistributed income and wealth: The Rich Don’t
Always Win: The Forgotten Triumph over Plutocracy that Created the American
Middle Class, 1900-1970. Follow him at @Too_Much_Online.