The rise of the superstar company

It seems inevitable that Oprah Winfrey, America's empathiser-in-chief, would emerge as the Democratic dream of a candidate to beat Mr Donald Trump in 2020. As an African-American woman, she speaks to any number of interest groups and political issues around identity, from #MeToo to Black Lives Matter.

But as the most popular all-round female media star in the United States over the past several decades, with a television, movie and magazine empire, she also talks to the middle. Oprah is, like Mr Trump, a global brand, which is telling. We are living in a superstar economy in which the top individuals, companies and even geographic regions command hugely disproportionate power, wealth and attention.

Since the late 1990s, we've seen the rise of the superstar company. According to the McKinsey Global Institute, three industries - tech, finance as well as healthcare and pharma - have seen their share of profits nearly triple since then, to about 45 per cent of all corporate profits in the US (the concentration in these industries is also increasing, albeit to a lesser extent in other rich countries).

Yet increasingly in the US, this isn't reflected just in the intellectual property-rich sectors, but throughout the entire economy.

As a recent Brookings Institution paper explained, over the past two decades, more than 75 per cent of US industries have seen an increase in concentration of both wealth and influence. If you compare the numbers with the post-World War II period, when US growth was strongest, the contrast is striking. In 1954, the top 60 firms accounted for less than 20 per cent of US GDP. Today, the top 20 companies make up more than 20 per cent.

Why is this happening? One reason, of course, is global competition, which has put more pressure on US businesses and pushed firms away from the more equitable post-war pie-sharing between workers, corporations and local communities.

Another is the shift in anti-trust law. It's no accident that the changes to monopoly regulation advocated by federal judge Robert Bork spread in the 1980s when foreign competition was rising. The Bork ethos, which held that as long as consumer prices were declining, there was no competition problem, has prevented the authorities from checking corporate concentration as much as they did both during the Gilded Era of the late 19th century and just after World War II.

Yet the largest and most powerful industries today don't function like industries of the past. Their products are often cheap or free, so consumer prices should not be the measure of competition.

Oprah Winfrey during the 75th Golden Globe Awards on Jan 7. Her speech sparked calls for her to run for president in 2020.
Oprah Winfrey during the 75th Golden Globe Awards on Jan 7. Her speech sparked calls for her to run for president in 2020. PHOTO: AGENCE FRANCE-PRESSE

Since the late 1990s, we've seen the rise of the superstar company. According to the McKinsey Global Institute, three industries - tech, finance as well as healthcare and pharma - have seen their share of profits nearly triple since then... Yet increasingly in the US, this isn't reflected just in the intellectual property-rich sectors, but throughout the entire economy.

Network effects allow the players that can grab the most market share quickly to dominate entire industries seemingly overnight (Amazon, for example, took 44 per cent of e-commerce sales in the US in 2017).

Their huge cash hoards allow them to snap up potential competitors. Monsanto, the US agrochemical company, purchased more than 30 companies over the past decade; business software maker Oracle snapped up over 80; and Google more than 120.

Nearly every other industry - from food and beverage, to banking, to packaged goods, to media - is merging in response, to gain the heft they need to have a chance of success against the largest tech players. It seems quite clear that the well-reported decline in start-ups and entrepreneurial zeal in the US has much to do with the concentration of power among a handful of rapacious players.

Around superstar companies, there are clusters of superstar investors and workers. Note, in particular, the rise of "pass-through" corporations, which were given even more special tax preference under the Trump tax plan.

Pass-through corporations are businesses that are taxed at the individual owner's personal tax rate. They make up 50 per cent of total US corporate income (twice the share than in 1980) and mostly represent people working in those intellectual property-rich areas such as tech, law and finance. They also represent about 40 per cent of the rise in income inequality recorded by academics such as Thomas Piketty.

It's no surprise that these clusters of economic power have led to the concentration of geographic power. A 2016 report by the Economic Innovation Group revealed that 75 of America's 3,000-plus counties make up 50 per cent of all new job growth.

It's a trend that snowballs, as the most talented millennials are attracted to a handful of cities, driving up property prices and making it tougher for anyone who isn't part of the superstar club to get a leg up on the socio-economic food chain.

That's why, as much as I love Oprah and the emotional contrast she presents to our current President, I'm not so sure I'd want her in the White House. Democrats spend a lot of time worrying about concentrations of power in race and gender. But at the risk of sounding like a Marxist, the real action is in class.

I'd love to see the next president be someone who cares deeply about understanding and deconstructing the superstar economy, which is suffocating a more shared and sustainable economic recovery.

I'm just not convinced a media billionaire is the person to do it.

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A version of this article appeared in the print edition of The Straits Times on January 20, 2018, with the headline 'The rise of the superstar company'. Print Edition | Subscribe