Business in America: Too much of a good thing

From the Economist: Business in America: Too much of a good thing

We may like to think the US markets are a competitive jungle ("survival of the fittest" and all that), but that is not what has been happening in the past 30/40 years as mega-mergers have consolidated markets. Typically, nowadays, there are 2, 3, or four main marketeers who dominate the market and a handful of "also rans". One of the biggest-in-the-making is Amazon.

See here:

The lack of market competitiveness simply means that the consumers pay more because of the lack of real competition. Product niches are made to all "look alike" and their differentiation in the mind of the consumer has been drastically lessened. Price differentials are minimal thus underlining the contention that market-competition is practically non-existant.

Excerpted from the above linked Economist article:

Profits are an essential part of capitalism. They give investors a return, encourage innovation and signal where resources should be invested. Their accumulation allows investment in bold new ventures. Countries where profits are too low—Japan, for instance—can slip into morbid torpor. Firms that ignore profits, such as China’s state-run enterprises, lurch around like aimless zombies, as likely to destroy value as to create it.

Click to expand...

But high profits across a whole economy can be a sign of sickness. They can signal the existence of firms more adept at siphoning wealth off than creating it afresh, such as those that exploit monopolies. If companies capture more profits than they can spend, it can lead to a shortfall of demand. This has been a pressing problem in America. It is not that firms are under investing by historical standards. Relative to assets, sales and GDP, the level of investment is pretty normal. But domestic cash flows are so high that they still have pots of cash left over after investment: about $800 billion a year.

High profits can deepen inequality in various ways. The pool of income to be split among employees could be squeezed. Consumers might pay too much for goods. In a market the size of America’s prices should be lower than in other industrialised economies. By and large, they are not. Though American companies now make a fifth of their profits abroad, their naughty secret is that their return-on-equity is 40% higher at home.

Most explanations of America’s high profits draw on national-accounts data which show that the fall in the share of output going to workers over the past decade is equivalent to about 60% of the rise in domestic pre-tax profits. Scholars typically have three explanations for this: technology, which has allowed firms to replace workers with machines and software; globalisation, which has made it easier to shift production to lower cost countries; and a decline in trade-union membership.

None of these accounts, though, explain the most troubling aspect of America’s profit problem: its persistence. Business theory holds that firms can at best enjoy only temporary periods of “competitive advantage” during which they can rake in cash. After that new companies, inspired by these rich pickings, will pile in to compete away those fat margins, bringing prices down and increasing both employment and investment. It’s the mechanism behind Adam Smith’s invisible hand.

In America that hand seems oddly idle. An American firm that was very profitable in 2003 (one with post-tax returns on capital of 15-25%, excluding goodwill) had an 83% chance of still being very profitable in 2013; the same was true for firms with returns of over 25%, according to McKinsey, a consulting firm. In the previous decade the odds were about 50%. The obvious conclusion is that the American economy is too cosy for incumbents.

Click to expand...

Lafayette said:

We may like to think the US markets are a competitive jungle ("survival of the fittest" and all that), but that is not what has been happening in the past 30/40 years as mega-mergers have consolidated markets. Typically, nowadays, there are 2, 3, or four main marketeers who dominate the market and a handful of "also rans". One of the biggest-in-the-making is Amazon.

[The lack of market competitiveness simply means that the consumers pay more because of the lack of real competition. Product niches are made to all "look alike" and their differentiation in the mind of the consumer has been drastically lessened. Price differentials are minimal thus underlining the contention that market-competition is practically non-existant.

Click to expand...

The concern is greater than mere monopoly.

It reads like a science fiction story.

Mega-corporations with more wealth and power than nations, who can dictate policy in all sorts of areas that affects all of us.

Captain Adverse said:

...and the problem developing is like a science fiction story.

Mega-corporations with more wealth and power than nations, who can dictate policy that affects all of us.

Click to expand...

Yep, and they only need to influence the majority of 535 folks to keep it that way.

TRUE DEMOCRACY

Captain Adverse said:

Mega-corporations with more wealth and power than nations, who can dictate policy in all sorts of areas that affects all of us.

Click to expand...

No, I don't think they "dictate" policy, but they do "influence" it unfairly.

And this happens because America stoopidly allows BigBusiness-made riches to influence political outcomes by means of financing campaigns. (Which further means American voters can and are indeed manipulated by the BoobTube television..)

Which is only one of the reasons that the Economist gave the US a low ranking on its "Democracy Index".

See here: Economist "Democracy Index". Click on the US, and you will find a rating of 7.96 in ranking. Not bad, but is it good enough by today's standards?

Click on Sweden, or any of the Nordic countries, and you will find rates substantially higher. Try Canada and see.

I clicked on France, where I live, and found the rate only slightly different from the US. So, I suggest that for both France and the US, democracy is still "Work In Progress". (But the reasons differ greatly. In France, if you give a politician a megabuck and s/he employs it in a election, you both can go to jail. It is purely and simply against the law, the limit of a donation being not larger than around $5K per candidate.)

MY POINT?

And this last election demonstrates how wrong an election can become. In all developed countries on the global map above, the popular vote is sufficient to elect an Executive head-of-government. Except the US, because of an archaic mechanism (Electoral College) established at the birth of the country by forefathers who feared that because most "citizens" could neither read nor write they could therefore be manipulated.

So they created the "Electoral College". Since then, 6 presidents have been elected unfairly, unduly and therefore illegally (by international standards). Including Donald Dork.

That outcome is deplorable of a so-called democracy ...

PS: Less face the facts, shall we, that Canada is a far more "democratic" nation than ours is ...

Captain Adverse said:

The concern is greater than mere monopoly. It reads like a science fiction story. Mega-corporations with more wealth and power than nations, who can dictate policy in all sorts of areas that affects all of us.

Click to expand...

But "monopoly" is where the problem manifests itself most, because we, the sheeple, pay higher costs of living.

A current example from this week's Economist: A lack of competition explains the flaws in American aviation - excerpt:

American policymakers have presided over a wave of mergers in the past few years. The biggest four carriers in America between them now control 80% of the market, compared with just 48% a decade ago. Warren Buffett, a man who knows an oligopoly when he sees one, bought nearly $10bn-worth of airline stock in 2016. In Europe, where the top four carriers have around 45% of the market, policymakers have got three things right.

First, European regulators have tried harder to preserve competition between existing carriers. The EU has been willing to block mergers, such as a proposed tie-up between Ryanair and Aer Lingus, and to prevent airlines from building monopoly positions at airports. Not so in America: at 40 of its 100 biggest hubs, a single carrier now accounts for more than half of capacity. That pushes up prices. The merger of American and US Airways in 2013 increased American’s market share at Philadelphia’s airport to 77%. Fares rose from 4% below the national average in 2013 to 11% above after the merger.

Second, Europe has made it easier for foreigners to boost competition by entering new markets. There are no ownership limits at all between European countries; and the EU lets airlines with a non-EU owner that has a stake of up to 49% fly anywhere within the bloc. America caps foreign ownership at 25%.

Click to expand...

If a people want to pay higher prices in unfair markets that are controlled by oligopolies, then that's their business. If they want to "had" by a government unwilling to litigate fair competition amongst unfair market participants, then so be it.

(Seems kinda stoopid to any bonafide economist, but, what the hey ... !)

Captain Adverse said:

Mega-corporations with more wealth and power than nations, who can dictate policy in all sorts of areas that affects all of us.

Click to expand...

communist lie of course which is why you cant give us your best example of this!!

Lafayette said:

And this happens because America stoopidly allows BigBusiness-made riches to influence political outcomes by means of financing campaigns. (Which further means American voters can and are indeed manipulated by the BoobTube television..)

Click to expand...

So big business on TV made us vote for Obama and Trump? If they can influence us with TV why cant they influence us to buy their products with TV??

James972 said:

communist lie of course which is why you cant give us your best example of this!!

Click to expand...

Having a lot more private companies, vs very few huge ones...you believe that is communism? I think you're confused.

Mach said:

Having a lot more private companies, vs very few huge ones...you believe that is communism? I think you're confused.

Click to expand...

if I said that was communism I will pay you $10,000. Do you know what a strawman is??

James972 said:

if I said that was communism I will pay you $10,000. Do you know what a strawman is??

Click to expand...

By all means, tell me what you really meant!

captain adverse writes: Mega-corporations with more wealth and power than nations, who can dictate policy in all sorts of areas that affects all of us.
James972 writes: communist lie of course which is why you cant give us your best example of this!!

Did you mean Lafayette is a communist?
Or that to support the notion that few large corporations can dictate policy in all sorts of areas that affect us all, is communistic?

Because if you want to break up that power, you fracture the business, just as we did with the phone company, etc. More private companies rather than fewer large ones.

You believe that's communist to break the up? Please do explain it, I enjoy this topic and want to understand what you mean.

Oh Jeez. This discussion never ends. Like 'automation will leave everyone unemployed'. Or 'corporations dictate elections'.

Look up your hostory people. 100-150 years ago, there was a TON less competition in America. Even 50 years ago.

Look at GM? They dominated the U.S. car market up until the 1980's - sold more than half the cars bought in America. Then they went bankrupt 20 years later.

Walmart was king and now it is showing large cracks. Caterpillar was king...now they are treading water. Apple was untouchable...now they cannot do anything but re-badge old products (they no longer innovate).

America has NEVER been more competitive. So what if the big boys consolidate? As long as there are two or three of them in an area - no problem.

And the last election should seal the nonsense about corporations buying elections. The candidates with the deepest elections coffers ALL lost.
Sure, politicians can be bought. But a lot less so - with all the transparency we have - than just a generation ago.

Blaming all the world's problems on big, bad corporations/companies is as old as America. Boo hoo. At least corporations answer to the almighty buck. Politicians answer to no one but their corrupt and incompetent selves...or the staggeringly ignorant masses.
And one thing I am certain of...the average consumer is a hell of a lot more wise and less gullible than the average voter. 100% for certain.

Mach said:

Having a lot more private companies, vs very few huge ones...you believe that is communism? I think you're confused.

Click to expand...

2nd Request :communist lie of course which is why you cant give us your best example of mega corporations dictating policy!

James972 said:

2nd Request :communist lie of course which is why you cant give us your best example of mega corporations dictating policy!

Click to expand...

I can see that asking you to clarify is like asking the Trump white house to clarify. It just muddies the water even more. Carry on the crusade against communism and so forth!

Mach said:

I can see that asking you to clarify is like asking the Trump white house to clarify. It just muddies the water even more. Carry on the crusade against communism and so forth!

Click to expand...

3rd Request :communist lie of course which is why you cant give us your best example of "mega corporations dictating policy"!

DA60 said:

Blaming all the world's problems on big, bad corporations/companies is as old as America. Boo hoo. At least corporations answer to the almighty buck.

Click to expand...

Evil corporations is classic Marxism I'm sure. Liberals are Marxist tools without the IQ to know they are being used or to understand how capitalism works. They are perfect for the Marxist conspiracy theory.

Under capitalism corporations are slaves to customers whims right down to the tint of the packaging whimsical and fickle customers prefer!! If you doubt it get a job for a big corporation.