The troubling lives of superstar firms

Huge corporations appear to have unlimited wealth, fame and influence. Is it going to their heads?
In 2016, the five tech superstars – Google, Apple, Amazon, Facebook and Microsoft – had combined annual revenues of USD 559 billion and employed 660,500 people. Facebook has more users than all but two countries in the world have people. If Walmart was a country, it would be in the world’s top 10 in terms of income.
When companies have the same power and resources as governments, it’s not surprising they sometimes act like them.
The bigger and stronger a business is, the less it has to play by the rules and there is growing concern that superstar companies are becoming harder to regulate. They’re using their financial and commercial muscle to crush competition and undermine the time-honoured laws of the market economy.
Squeezing wages
Take wages for example. In some regions, superstar firms are taking control of the labour market – where a superstar is the only company recruiting labour in a particular region, it can use that market power to drive down wages. A study from the University of California estimates that a third of the growth in income inequality since 1980 is due to the difference in wages at the superstar companies compared to those working elsewhere.
This is having a significant effect. In advanced economies, the era of the Superstar Economy has seen a fall in the share of income that finds its way to the workforce. Not only have workers been falling behind, but there’s a growing gulf in the distribution of labour income – those at the top are pulling away from the rest. Executive pay is at record levels while workers’ wages stagnate. It seems the ‘winner takes all’ ethos of the Superstar Economy is applying to worker compensation too.
Undermines competition & distorts job markets
Big means powerful
In healthy market conditions, the normal competition between businesses results in low prices, high wages and high-quality goods and services. But when a company achieves too dominant a position in a market, it can afford to acquire or price out new competitors. Normal rules no longer apply and the superstar achieves unilateral control over prices, jobs and wages. And when governments and authorities start to ask questions, the superstar can use its financial and commercial clout through lobbying, political contributions and media pressure.
With power comes responsibility
Big isn’t bad. Companies reach superstar status because people like them. The iPhone in your pocket, the romcom you’re going to watch tonight on Netflix and the friend’s baby pics you’re about to see on Instagram make a positive contribution to life. Apple, Google, Facebook, Walmart and the rest have the resources to invest in the sort of research that makes life better; for example, it’s largely the superstar companies who are driving innovation in low-carbon vehicle technology.
What’s clear is that the Superstar Economy is not just an economic phenomenon but a social and political one too. The world’s biggest companies have the power to impact our lives far beyond the goods we buy or the services we consume.
For more insights on superstar firms and the implications for investors, visit Superstar Economy.
Disclosures
The above-mentioned securities are for illustrative purpose only, are not intended as solicitation of the purchase of such securities, and does not constitute any investment advice or recommendation.
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