PolyMic talked about the consolidation in the American economy. It turned out that almost everything we buy - from groceries to clothing, cosmetics and dog food - is controlled by 10 huge corporations. T&P asked for a comment from economist and professor at the Higher School of Economics Aleksey Belyanin.
As illustrated in the Illusion of Choice diagram that has been widely circulated on Reddit, 10 powerful corporations make almost everything we buy - apart from cars and electrical appliances. At the same time, the parent company can own, own shares or is in partnership with controlled companies.
Procter & Gamble, a $ 84 billion corporation, is the largest advertiser in America and is associated with many different brands that make everything from medicines and toothpaste to fashion clothes. The corporation's products are bought by 4.8 billion people around the world. The $ 200 billion Nestlé company, currently the largest food company in the world, controls 8,000 different brands, including Kiehls cosmetics and Giorgio Armani perfumes.
Consolidation is taking place not only in consumer goods but also in other areas. In 1983, 90% of American media were owned by 50 different companies. Now the same 90% is controlled by only five giants. The 10 largest financial institutions manage 54% of all American financial assets, and only 4 of 37 banks remain: JPMorgan Chase, Bank of America, Wells Fargo and CitiGroup.
Alexey Belyanin - PhD in Economics, Associate Professor at the International Institute of Economics and Finance at the Higher School of Economics, Head of the Laboratory of Experimental and Behavioral Economics at the Higher School of Economics, Senior Research Fellow at the Institute of World Economy and International Relations of the Russian Academy of Sciences.
Judging by the history of the development of markets since the second half of the 20th century, the consolidation of firms is to some extent a natural process. In some industries, there is a transition from mass production - stamping of identical parts - to the production of high quality products, under which both the technical complexity of its manufacture and the quality from the point of view of the consumer, the perception of which depends largely on the advertising efforts of firms, can be taken. Big corporations with big brands are known to everyone: people think that Coca-Cola simply cannot make a low-quality product.
This leads to the fact that in the market for such goods, where it is required to invest a lot in development and advertising, companies have to bear not only production costs, but also the costs of maintaining quality - "running at full speed in order to stay in place", as spoke the Black Queen in Alice Through the Looking Glass. In economic theory, such costs are called endogenous, and their presence leads to the fact that the growth of market size does not lead to increased competition. On the contrary, in such industries as the production of pharmaceuticals, automobiles (there are many brands, while their owners are about ten), in the aerospace industry, in telecommunications, there is a certain lower limit of concentration, i.e. the number of firms that can simultaneously operate in the market does not exceed a certain maximum, however large the markets may be.
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The same is true for consumer goods: people prefer to buy only the most famous, “reliable” brands, and their production requires large investments not only in production, but also in advertising, which only giants can afford. Against the backdrop of global companies such as Coca-Cola, Unilever or Nestle, most manufacturers are simply not competitive as independent companies. In order not to disappear at all against their background, small ones are sold to large ones, and it turns out that assets are collected in the hands of a few companies.
Until now, this has been an understandable, historical process. In a world where the processes of globalization have become all-embracing, what is happening is what the classics once predicted, when the theories of imperialism as the last stage of capitalism were being built - only in a different context. There is a concentration of market power in a few hands. This process could hardly have been expected 50 years ago, but it is going on, and in the era of the global Internet, dependence on the network, it only intensifies. Techno giants with tremendous influence emerge - Apple, Facebook, Google, in Russia - Vkontakte, Yandex. The development of cloud services is actually also from this series - these are very expensive services that only certain companies can provide. There is not only a globalization of production, but also a globalization of information, social processes, and so on - up to private life, which ceases to be private,but it becomes an integral part and property of the global society.
Where does this all lead to? In the worst case, everything can end up with Big Brother, Orwell, Huxley in the person of private companies (however, appointed by government agencies, since they license the whole business). In another scenario, another round of disintegration will take place, there will be a tendency towards isolation, the refusal of the most "demanding" citizens from standard products and an increase in the consumption of specific, unique products - these can be both hand-made cookies or bread, and software from independent manufacturers. Then local markets with local monopolies of these producers will arise, that is, a qualitatively new configuration of the economy and social structure.
In traditional economics, market structures created by an invisible hand are considered efficient by definition. However, in the new economy, markets themselves are no longer such an unconditional good if they lead to an excessive concentration of power. Then it turns out that restrictions on competition that do not allow one, the strongest player to swallow all the others, will be more desirable for society than a situation where competition is unrestricted.
Alexey Pavperov