Over the years since the financial crisis, economic power and wealth has become ever more concentrated in fewer hands. This is something leaders have acknowledged, and policymakers have tried to do something about. And yet, despite brave talk of breaking up mega-giant companies, anti-trust efforts have been anemic, as most recently demonstrated by the failure to stop Microsoft from swallowing game maker Activision.
The future looked a little brighter in the immediate aftermath of the pandemic. There were signs of a grassroots resurgence, with a strong uptick in new business formations in the United States. But since then, as interest rates have risen and regulatory pressures have increased. there has been a slackening off of new firms. Outside of high-growth areas like artificial intelligence, where most small companies are usually allied with the mega-giants, bigger is better in today's economy.
Consolidation has been especially dramatic in the financial sector. Since the 2008 financial crisis the power of the largest investment banks has greatly expanded and they now account for almost half of the sector. The rapid concentration of US banking assets accelerated with the collapse of several regional banks and could be further accelerated by bad commercial loans. The steady loss of smaller banks — their numbers down by half over the past twenty years — removes the predominant source of credit for smaller businesses. Between 1983 and 2018, the number of banks fell from 11,000 to barely 4,000. By itself JP Morgan accounts for 13 percent of the nation’s deposits and over 20 percent of all credit cards. Profits for these large financial instutions have soared amidst a stagnant economy due to rising intersst rates.
Tech, once the bright hope for a new, innovative grassroots economy has followed suit with five or six major companies dominating the space. In fields such as social media, search, online retail, cell and computer operating systems, there is no serious challenger in sight. Stock market values are increasingly dominated by a handful of players, with large tech firms increasing their share of S&P companies from 14 percent in 2001 to almost 30 percent two decades later. Microsoft and Apple now account for over 13 per cent of the entire stock market. The current AI driven stock market bubble is accelerating this pattern. Apple, now with an unprecedented $3 trillion and its seven closest tech rivals have expanded their US technology-stock dominance. The eight most heavily valued tech companies in the US — Alphabet, Amazon, Apple, Meta, Microsoft, Netflix, Tesla and Nvidia — have risen in the past year from 22 percent to 30 percent of the S&P 500’s market capitalization.
This same pattern of concentration can be seen in industries ranging from food to media. Meanwhile small businesses, accounting for half of all US private sector employment are being pummeled by rising interest rates while tech startups outside of artificial intelligence have fizzled miserably. Today in the US, nearly two in five small businesses cannot pay their rent and many are cutting back hiring plans even as big chains, like McDonald’s and Starbucks, enjoy rising sales. Small business optimism in the US is at its lowest point in ten years.
America has always been a bright spot of entrepreneurship. Today, though, it looks to be developing an economy more reminiscent of the corporatism of pre-World War Two Japanese zaibatsu or German cartels. A recent study in the Review of Finance notes that three-quarters of American industry have become more concentrated since the 1970s. A tenth of the US economy is made up of industries where four firms dominate more than two-thirds of the market, with finance and information technology now among the most concentrated.
The consequences of this consolidation are political as well as economic. The new corporate state dominates politics and culture through a stifling government-sanctioned orthodoxy. This is reflected in the ESG movement which, dominated by the largest investment banks, helps keep the allocation of capital in step with the “party line” on everything from the environment to gender and race-related issues — even if doing so harms investors and customers. The agenda may be ambitiously “progressive” as opposed to megalomaniac nationalism, but, to extend the 1930s analogy, Mussolini and co would recognize the virtue of harmonizing the state and corporate interests. Sometimes, as in the case of Bud Lite and Target, this progressive hive mind can misfire. But even these missteps reveal the insulation of the corporate elite and their separation from the values of many, if not most, Americans.
In many ways, the today’s compelling script is not that of fascist Italy — hardly a sterling success — but the “China model.” In both the West and the Middle Kingdom, as Rana Foroohar pointed out in the Financial Times recently, we see the melding of corporate and government interests. Political leaders may rail about the Chinese “threat,” but the financial and corporate hegemons are happy to enhance the autocratic state’s industrial and financial power to boost their profits. Greens back such things as the forced march to electric vehicles that exacerbate our dependence on Beijing.
Today’s corporate world echoes its counterpart in China’s one-party state. Once politically divided, most big corporate money will likely back Joe Biden’s efforts to expand the regulatory state while queuing up to back his re-election bid. Large companies, as opposed to smaller rivals, can afford the legions of paper-pushers needed to accommodate regulatory edicts, the political power to rebuff unwanted regulation and purchase the public relations muscle to position themselves in a favorable light.
As in China, and fascist Italy, American corporations seem increasingly eager to follow the party line. They have signed on to policies like “net zero” and even “de-growth,” which are likely to expand poverty around the world and immiserate much of the West’s remaining middle and working class. In California costly energy policies supported by the new corporatists have hit poorer households hardest and devastated blue-collar industries.
The cost to the hoi polloi is not something many in the corporate elite pause to think about as they cheer the “energy transition”, which US Treasury Secretary Janet Yellen recently called “the greatest economic opportunity of our time.” As analyst Robert Bryce points out, moguls like Jamie Dimon see riches galore and are pushing Washington to prevent troublesome locals from blocking new solar and wind plants. Elon Musk may be, with some justification, a hero to the right as well as the dwindling ranks of traditional liberals, but much of his wealth derives largely by harvesting government subsidies while growing increasingly dependent on China — much appreciated in Beijing — for components and customers.
Massive concentrations of power, diminished aspirations for the masses and a diminished standard of living are not likely to promote support for capitalism. No wonder a majority of people in twenty-eight countries around the world believe capitalism does more harm than good, according to a recent Edelman survey. Trust in institutions, such as in US and UK, are at historic lows. It’s hardly fair to chastise our offspring for being discouraged.
Immiseration and enormous concentrations of wealth today, as in the Middle Ages, requires gaining mindshare among the mases. No wonder the same Wall Street investors, tech oligarchs and inheritors who fund climate activism and increasingly control the major media, now seem remarkably supportive of censorship — for all the right reasons of course.
In places like China such manipulation from above is second nature. But increasingly we see less severe versions of the same thing in the United States, the United Kingdom, Australia and Canada. In all these countries the government, particularly through the pandemic, gained unprecedented power, with Constitutional concerns often placed aside. In this effort they also colluded with the major tech platforms, not only on the pandemic but on a range of other issues too. This pattern was evident in the Twitter Files as well as former Army Intelligence officer Jake Siegel’s revelations of ties between tech companies, the CIA, the FBI and the Military.
One might hope that, with the pandemic largely over, this drive for enforcement of orthodoxy would be abandoned. Indeed, if Meta’s Threads emerges as a dominant platform, it will be in the hands of people with a long record of censorship and collaboration with the federal apparat. Indeed, with the sometime exception of Twitter, whose liberality has made it a special target of progressives, the big media platforms, as well as their entertainment spin-offs, seem to favor a censorship regime built around basic progressive ideology on gender issues, the environment and race. Dissenting views are now targeted by a powerful quasi-government agencies as potential “misinformation.”
Artificial intelligence, the crack cocaine of the digital age, threatens to super-charge the economics drivers of the new corporatism, particularly in the absence of any independent regulation. Although there is considerable start-up activity in the field, the dominant players — Musk, Apple, Meta, Google and Microsoft — seem poised to dominate the field.
The tech firms, and their associated political and media allies, will no doubt fight against any intrusion into their new dominion. Many thoughtful pioneers in the field, included such godfathers as Geoffrey Hinton warn about the potential for abuse. Some of those hazards are already coming to light, including attempts to regulate thought on issues such as climate change policy.
Given past experience, AI is more likely destined to further enhance expanded surveillance and the digital promotion of orthodox ideas. In China, tech firms such as Facebook and Google already partner with the Chinese Communist Party whose priority is to track down and punish dissenters. AI could mean something similar in the West. The new technology provides well-packaged answers to complex questions, relieving people of the bother of conflicting counter-narratives or going to dig for sources or access raw data.
These newly constructed answers will likely follow a generally progressive, establishment ideology. The desire to shape or control thought by the tech giants is already established. Staffers at Google, Facebook and, in the past, Twitter “curate” the content on their sites. This has often meant eliminating or placing warnings on conservative views, according to former employees; companies increasingly use algorithms intended to screen out “hate groups.” But as reporting has shown, those in charge of this process have trouble distinguishing between genuine hate and those who might simply express dissenting if legitimate supported views.
The consolidated economy emerging is not likely to be either especially egalitarian or liberal. A growing percentage of new jobs are lower wage. Today nearly half of all American workers receive low wages; almost two-thirds of all new jobs in recent months were in low paying service industries. Consumer debt, particularly in the United States, stands at record levels and is particularly marked among millennials, who tend not to own assets, like houses, that previous generations enjoyed. Meanwhile inflation has dropped the income levels not only in the US but across the West.
Even the tech sector, seen as a hopeful generator of new jobs, increasingly flourishes with ever fewer people particularly as AI devastates parts of the professional class by shifting more to algorithms than engineers. IBM, for example, has stopped new hires while it assesses who can be replaced by AI.
And what of the rest of us? Some AI evangelists like Sam Altman see a future where masses subsist on an expanding menu of subsidies and a basic income. Already, roughly half of all Americans support the idea of a guaranteed basic income of about $2,000 a month if robots put them out of work. This approach enjoys even stronger support in most European countries, where government employment has been the one big growth industry.
Society faces a choice. We could follow the Roman model where slavery, rather than robots, replaced the economy of plebian citizens, turning them into servile consumers of “bread and circuses.” Or we can seek ways to honor work and focus on basic skills, as opposed to often meaningless academic credentials; to lower taxes on those with modest incomes; and most critically, to nurture the grassroots economy.
Lenin, noted the historian Fernand Braudel, believed “capitalism begins in the village marketplace.” Capitalism is fundamentally about aspiration and opportunity. Take away these things and people will rightfully envision a future where tech and Wall Street wealth is confiscated to fund “fully automated luxury communism” – a leisure society paid for by Apple and its counterparts. Consolidation may seem to work for today’s ruling oligarchy. But it is setting the scene for a bitter class war in the years ahead.
This piece first appeared at The Spectator.
Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.
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