In this blog post, I had highlighted a forthcoming IMF working paper on global market power and its macroeconomic implications. That paper was flagged in a IMF blog post on the rise of the corporate giants. At the end of the blog post, there was a link to an enticing panel discussion at the IMF-World Bank Spring Meetings of April 2018. The title of the session was ‘Digitalisation and the new gilded age’. I was pleasantly surprised that IMF had arranged a panel discussion on a hot and crucial topic for our times.
This was the blurb for the session:
Are technological advances leading to greater market concentration in firms such as Google and Facebook and, in turn, creating what could be described as a New Gilded Age? [Link]
The blurb names two companies. Try catching their names in the panel discussion. I listened to the panel discussion which lasted a little over 70 minutes. To say that I was ‘underwhelmed’ would be an understatement.
More than that, I am trying to wrap my head around what the panel moderator was trying to achieve. The moderator was none other than Christine Lagarde, the President of the IMF!
The session was neither about technology and its enabling role (or not) in market concentration nor was it about market concentration in the technology sector itself and how both of them or either of them were leading to the new gilded age or not.
I still do not know what the session was about. There were a couple of leading questions to the panelist from IBM as to how good a work they were doing in Kenya enabling credit for small borrowers through Big Data and how ‘Watson’, their super-intelligent computer was helping with oncological treatment in India.
The moderator wanted all the panelists to answer the following question:
What one change would make the world competitive, equitable, inclusive and innovative?
The question pops up at 1h 05m 10s. Here is the video link.
Listen to the answers and decide whether you wish to laugh or cry, be angry, be worried or simply throw up your hands.
When I mentioned this to a friend, he said that this was not a surprise and that there was a deliberate ‘conpsiracy of silence’ in liberal establishments on the key questions, challenges of the day and their perpetrators.
In February, there was this wonderful long-form essay in ‘The New York Times’ magazine titled, ‘The case against google’. That could well have been the specific case -study discussion for this topic.
There was a simple and well-written blog post at the Bank of France website in February on whether monopolies were a danger to the United States. That could have been discussed. Of course, that blog post does not mention technology as a factor in creating monopolies or market concentration but the panelists could have been asked to challenge it or defend it.
Somewhat more provocatively but importantly, the @facebookbreakup movement could have been discussed. The movement took out a full-page advt. in MIT student paper’s commencement edition with quotes from former Facebook employees – some of the founding ones. The quotes are worth reading.
Importantly and interestingly, the blog post cites Luigi Zingales to make the point that even if large firms with their rising monopoly power are not cutting back on investment spending, it is important to understand that these investments are about:
… investment can be misused to create barriers to entry, by using these resources to finance lobbying for example. The fact that the most profitable firms invest relatively little may corroborate this theory. Buying emerging startups to reduce competition is another example of the misuse of productive investment to maintain monopoly rents. [Link]
There are two brief but very useful blog posts in aei.org. They provide references that are staple for discussion for this session. The blog posts are here and here.
For those interested in digging deeper, two OECD papers mentioned in these posts are available here and here.
Also mentioned in these posts is a paper written by Nicolas Bloom paper for HBR titled, ‘Corporations in the age of inequality’. I just saw his policy prescriptions in the end. Have not read the paper in full. He advocates use of tax policy to support those left behind:
Boost low incomes through tax policy. Governments should also consider measures that put more money into people’s pockets, such as negative income taxes — meaning that citizens earning below a certain threshold receive money directly from the government. For example, the U.S. should consider expanding the Earned Income Tax Credit, which is basically a negative income tax with a work requirement. Rather than constrain companies with more onerous rules around compensation, negative income taxes supplement the incomes for workers whose skills are in less demand while allowing economies to organize efficiently. [Link]
How will governments put more money into people’s pockets unless it takes money out of some people’s pockets?
Anyway, this blog post was supposed to be about the breathtaking obfuscation and dissembling that went on, in the name of discussing the new gilded age. Given that this is what liberal establishments and elites in poweful positions in such establishments do, we should not be surprised at all that populism is on the rise and that populists are popular and winning.
The important realisation for us, the ‘hoi polloi’ is that there is not much point in all of these discussions. They exist to keep up appearances. Power resides and rests with money. Those who have it want to have more and do not wish to part with it. They do so only reluctantly and only if there are no other options to avoid doing so. Democracy is a figleaf that pretends to give equal power to the ‘Have Nots’ as ‘Haves’. But, funding of candidates and political parties is in the hands of the money-ed. So, just a wee bit changes at the margin.
Those who are endowed start with an advantage and engage in expanding that advantage. They create systems that enable them to do so and hinder them only minimally, if at all.
The rest of us believe that we are working to make the world better. If we wake up from our denial, we will also wake up to realise that there is not much meaning left in our pursuits. Slumber is better.