by David S. Waddell
In 1995, the top 100 publicly traded US companies generated 53 percent of all public company income. Twenty years later, the top 100 generated 84 percent of all public company income. For direction on what has led to this inflating concentration, look no further than roster rotation among the top 10. In 1995, the 10 largest US companies, worth a combined $813 billion, were GE, AT&T, Exxon, Coke, Merck, Shell, Philip Morris, Procter & Gamble, J&J, and Microsoft. Microsoft made the list for the first time that year, vaunting a technology name into a “blue chip” leadership class long dominated by oil, consumer goods, and manufacturing names. Today, technology companies dominate the top 10 list with Apple, Google, Microsoft, Amazon, Facebook, well ahead of J&J, Exxon, Berkshire, JP Morgan, and GE. These technology behemoths themselves combine for a market value of $3 trillion, $1 trillion more than the bottom five.
Unregulated economies develop natural monopolies. In 1900, Standard Oil (now Exxon) controlled 90 percent of the US oil market, making John D. Rockefeller the richest American who ever lived. A few years later, the newly formed US Steel controlled 70 percent of the nation’s steel production, lifting Andrew Carnegie’s net worth to over $310 billion. Unsurprisingly, Americans tired of these “robber barons,” resulting in major anti-trust legislation being passed and Presidents Roosevelt and Taft suing 120 US companies. Today, 1,160 federal employees work for the Federal Trade Commission, safeguarding market competition.
Initially, many celebrated the technology revolution as a counter-culture democratizer that challenged legacy providers and paved the way for more enlightened wealth creators. Perhaps in the initial stages of natural monopolies (AT&T for example) marketplace reorganization attracts “new order” fans. Nonetheless, as time passes, new bosses tend to resemble old bosses. In 1995, only 1 percent of the world’s population was online. Today, that number approaches 50 percent. Never in the history of the world has a distribution platform created such ubiquitous customer access at such negligible cost. The potential and results are mind-boggling. Today, Google controls 88 percent of global search, Facebook controls 77 percent of social media, and Amazon controls nearly half of the online retail market. In fact, Google and Facebook together generate more ad revenue than every newspaper, magazine and TV station worldwide combined.
While the market power of these players cannot be disputed, their value to society draws contentious debate. On the one hand, they resemble the bully monopolies of the past, controlling marketplaces and purchasing political favor. On the other hand, they have acquired their powers through cutting prices, not raising them, bestowing massive economic gains upon consumers. Unfortunately, consumer benefits and worker benefits diverge as digitally enhanced companies require fewer workers. This has led to more economic value being shifted to “owners” and away from “laborers,” exacerbating wealth disparity. Lastly, natural monopolies on their own are not a bad thing (do we really need hundreds of internet search engines?) but they often become platforms for bad behavior. The EU recently fined Google $2.7 billion for prioritizing their own proprietary properties in search results.
Over the last 20 years, global internet adoption has created the largest and most addressable marketplace in human history. On the World Wide Web, scale begets scale, creating borderless monopolies lacking borderless regulators. While the benefits of their ascension can be catalogued — better consumer pricing, shareholder value creation, cluster innovation — the costs are attracting attention as well: outsized political influence, anti-competitive practices, wage compression, labor displacement, etc. How history will judge these digital giants, and whether a new global anti-trust regulator will appear in response, remains to be seen, but as these E-conomic titans continue to grow, the scrutiny will grow as well.
Sources: Jonathan Taplin, Kathleen Kahle, Rene Stulz, Standard and Poors
David S. Waddell is CEO of Waddell and Associates. He has appeared in The Wall Street Journal, Forbes, Business Week, and other local, national, and global resources. Visit waddellandassociates.com for more.
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