Are we living in a new Gilded Age?
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What the research tells us about the impact of inequality on society
Elizabeth Warren is calling to break up the large tech companies because she argues that we are living in another Gilded Age, the period of the late 19th Century that was characterized by big monopolies, high income inequality, and political polarization. Some research I have been doing has revealed not only that Warren is right to raise this issue, but that the political power of big, consolidated industries is even more of a problem than most of us are aware.
In a Medium post last Friday, Warren pointed out that the tech giants Amazon, Facebook and Google have become so powerful that they are able to stifle potential competition. Indeed, the problem of industry consolidation is not limited to the tech industry.
Ever since 1979, when the U.S. Supreme Court decided the case Broadcast Music v. CBS, 441 U.S. 1 (1979), it has become harder for the federal government to stop mergers that would result in non-competitive industry consolidation. This higher standard was most recently evidenced in the federal court ruling that will allow the merger of AT&T with Time Warner. Clearly, this merger will result in a dramatic reduction of competition in the cable industry, for example.
Consider the following data I calculated as part of my research. The most widely-used measure of industry concentration is the Herfindahl Index. I calculated that index for all 408 industries in the United States with publicly-traded companies. This data, then, represents the bulk of the U.S. economy. My findings were striking.
Without getting into the details of how to calculate the index, suffice it to say that the Department of Justice considers an industry with a Herfindahl index of more than 2500 to be uncompetitive. Of the 408 industries, 264 of them have a Herfindahl index of 2500 or more. That represents 65% of the American economy. In fact, only 98 industries have less than 2000 for their index, representing less than a quarter of our economy.
As Warren points out correctly, the result has been declining entrepreneurship, and not just in the tech sector. This should be a grave concern to all Americans since in the past, the major source of…
