By Rex Nutting, MarketWatch
MarketWatch photo illustration/Getty Images
Dominant U.S. companies have delivered amazing benefits to consumers and shareholders, but their success has also damaged our economy.
The problem with winner-take-all capitalism is that the winners take it all and leave a mess for the rest of us to deal with.
These companies have developed fantastic brands and wonderful products and services, but the downside to the proliferation of superstar companies is equally real: They are destroying local economies, driving down workers’ wages, shackling growth, depressing entrepreneurship and increasing the inequality that’s ripping our country apart.
And for all the talk about disruptive technologies, it’s getting worse.
Census Bureau statistics show that about three-fourths of U.S. business sectors have become more concentrated in the past 20 years, as indicated by an ever-growing market share for the top companies in hundreds of sectors, from dog food to health insurance.
About 10% of the economy is deemed to be highly concentrated, with almost all of the revenue in those niches going to just a few companies. Many industries are effectively controlled by fewer than 10 companies.
And it’s not obscure backwaters of the economy. These are goods and services we buy every day.
Think of big-box retailers, airlines, express-delivery companies, drug makers, car makers, insurers, banks, media companies, phone companies, software companies, electronics makers, aerospace firms, vast swathes of the internet and even slaughterhouses. Think of companies like Alphabet /zigman2/quotes/205453964/composite GOOG -1.65% , Apple /zigman2/quotes/202934861/composite AAPL -0.40% , Facebook , Microsoft /zigman2/quotes/207732364/composite MSFT -0.42% , General Motors /zigman2/quotes/205226835/composite GM -0.67% , AT&T /zigman2/quotes/203165245/composite T -0.79% , UPS /zigman2/quotes/201245396/composite UPS +0.22% , Altria /zigman2/quotes/208895754/composite MO +0.16% , Wal-Mart /zigman2/quotes/207374728/composite WMT -0.39% and American Express /zigman2/quotes/203805826/composite AXP -2.40% , and dozens more.
| The largest highly concentrated businesses | ||
| Segment | Market share of top four companies | Annual revenue in segment (2012) |
| Warehouse clubs & supercenters | 93.6% | $406 billion |
| Drug wholesalers | 72.1% | $319 billion |
| Auto & truck manufacturing | 68.6% | $231 billion |
| Drug stores | 69.5% | $230 billion |
| Mobile-phone service | 89.4% | $225 billion |
| Airlines | 65.3% | $157 billion |
| Administration of pension funds | 76.3% | $145 billion |
| Landline-phone service | 73.4% | $142 billion |
| Cable TV | 71.1% | $138 billion |
| Airplane manufacturing | 80.1% | $113 billion |
| As of the 2012 Economic Census | ||
The list includes almost all of the biggest companies in America. Almost all of the gains in the stock market come from these few corporations. And they earn almost all of the profits.
In many cases, the dominant companies have licenses, patents, copyrights or other intellectual property that lock out potential competitors. They have powerful brands that command a premium. They take advantage of network effects, which create natural monopolies. They lobby governments for subsidies or special regulatory favors. To snuff out competition, they acquire potential rivals or lock up supplies of essential inputs, including skilled labor. They control distribution channels.
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In some cases, those few companies act more like a cartel than they do competitors.
Their size gives them economies of scale that smaller rivals can’t match.
In other words, these companies are protected by high barriers to entry, what famed investor Warren Buffett calls a “moat.” A moat protects the company, keeping profits higher than they would be if it faced real, fair competition.
“So what’s the problem?” you may say. After all, these companies are winners, they’re giving the people what they want — stop punishing success.
For decades, economists, jurists and policy makers thought the same thing. As long as consumers weren’t harmed, they ignored the increasing concentration of American and global industries, figuring that there wasn’t much to worry about.
But lately, there’s been a lot more attention paid to the downside of the monopolization of America.
Here are the three biggest problems with our winner-take-all economy.
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