The Oligarchy Economy: Concentrated Power, Income Inequality, and Slow Growth

Corporate concentration exacerbates income inequality

Share with your friends

More share buttons
Share on Pinterest

By Jordan Brennan

The emergence of economic inequality as a public policy issue grew out of the wreckage of the Great Recession. And while it was protest movements like Occupy Wall Street that brought visibility to America’s glaring income gap, academic economists have had a near monopoly on diagnosing why it is that inequality has worsened in the decades since 1980.

Monopolies rarely deliver outstanding service, and this is no exception. The economics profession is fond of believing that its theorizing is an impartial, value-neutral endeavor. In actuality, mainstream (‘neoclassical’) economics is loaded with suppositions that have as much to do with ideology as with science.

Take the distribution of income, which economists argue is (in the final analysis) a consequence of production. Whether one earns $10 per hour or $10 million per year, the presumption is that individuals receive as income that which they contribute to societal output (their ‘marginal product’). In this vision, the free market is not only the best way to efficiently divide the economic pie, it also ensures distributive justice.

Get Evonomics in your inbox

But what if income inequality is shaped, in part, by broad power institutions—oligopolistic corporations and labor unions being two examples—such that some are able to claim a greater share of national income, not through superior productivity, but through market power?

In a study recently published with the Levy Economics Institute, I explore the power underpinnings of American income inequality over the past century. The key finding: corporate concentration exacerbates income inequality, while trade union power alleviates it.

Mass prosperity—the fabled ‘middle class’—was largely built between the 1940s and the 1970s. When President Roosevelt created the New Deal in 1935 union density was just eight percent. Density soared to nearly 30 percent by the mid-1950s, and the period spanning the 1930s to the 1970s would bear witness two major strike waves.

The combined effect was a surge in the national wage bill. In 1935 the share of national income going to the bottom 99 percent of the workforce was 44 percent. In tandem with strong unions and intense strike activity, the wage bill rose to 54 percent by the 1970s. In the period after 1980, union density and work stoppages both plummeted, pulling the wage bill down with them. American unionization is now just 11 percent and the wage bill sits at 41 percent—a seven decade-low for both metrics.

The declining power of the labor movement has many causes, but a series of state policies in the early 1980s hastened the demise. President Regan’s penchant for union busting and the crippling effects of overly restrictive monetary policy (the infamous ‘Volcker shock’) broke the back or organized labor. As trade union power declined, a crucial mechanism for progressively redistributing income began to fade in significance.

The decline of trade unions did not lead to an economic golden age, as some would have hoped. In the decades after 1980, business investment trended downward, job creation slowed and GDP growth decelerated—a phenomenon often referred to as ‘secular stagnation’. Many economists have wondered why, given business-friendly policies in Washington, investment declined so precipitously after 1980.

My study reveals that America does not suffer from a shortage of investment in the general sense. The American corporate sector has been spending more money than ever, but instead of ploughing resources into job creation and fixed asset investment, historically unprecedented resources are flowing into mergers and acquisitions (M&A) and stock repurchase, the combined effect of which has been slower growth and rising inequality  (a finding which also applies to Canada—see here and here).

Unlike investment in fixed assets, which is linked with job creation, M&A merely redistributes corporate ownership claims between proprietors. The motivation for M&A is straightforward: large firms absorb the income stream of the firms they acquire while reducing competitive pressure, which increases their market power.

In the century spanning 1895 through 1990, for every dollar spent on fixed asset investment, American business spent an average of just 18 cents on M&A. In the period since 1990, for every dollar spent on fixed asset investment an average of 68 cents was spent on M&A—a four-fold increase.

The explosion of M&A since 1990 has led to the concentration of corporate assets (power, in other words). In 1990 the 100 largest American firms controlled 9 percent of total corporate assets. Asset concentration more than doubled over the next two decades, peaking at 21 percent. The creation of a concentrated market structure, which has gone largely unnoticed by the economics profession, is one reason inequality has worsened in recent decades.


With more market power-generated income at their disposal, large firms have paid comparatively more to shareholders in the form of dividends (the enclosed figure contrasts the income share of the richest 1 percent of Americans with the dividend share of national income).

At the same time, the 100 largest firms have spent more repurchasing their own stock than they have on machinery and equipment. And because many executives have stock options in their contracts, the share price inflation associated with stock repurchase has led to soaring executive compensation.

It is in this manner that increasing corporate concentration has simultaneously slowed growth and exacerbated inequality. None of these developments are inevitable, but if we are to meaningfully confront the dual problem of secular stagnation and soaring inequality we must begin to understand the role that power plays in driving these trends.

2016 April 11

Donating = Changing Economics. And Changing the World.

Evonomics is free, it’s a labor of love, and it's an expense. We spend hundreds of hours and lots of dollars each month creating, curating, and promoting content that drives the next evolution of economics. If you're like us — if you think there’s a key leverage point here for making the world a better place — please consider donating. We’ll use your donation to deliver even more game-changing content, and to spread the word about that content to influential thinkers far and wide.

 $3 / month
 $7 / month
 $10 / month
 $25 / month

You can also become a one-time patron with a single donation in any amount.

If you liked this article, you'll also like these other Evonomics articles...


We welcome you to take part in the next evolution of economics. Sign up now to be kept in the loop!

  • This article claims that its conclusions are supported by the “key finding” of “a study recently published with the Levy Economics Institute”.

    There is a paper at the included link that calls itself a study, but it is manifestly unpersuasive for at least several reasons:

    — It reads like an undergradate essay in that it purports to identify correlations between factors by means of overlaid graphs.

    — Its evidence of causation consists on hypotheses about why these correlations might exist. To be sure these hypotheses relate to those that have been offered by other and thus contain citations.

    — Unlike normal academic studies there is no attempt at modesty concerning what has been “shown”. I was surprised by this until I saw for whom the author works.

    — There is evidence of regressions that have been done to determine if there are other more plausible factors that might explain the correlations observed.

    — Even assuming these were real correlations, there is no evidence (hypotheses don’t count as evidence) as to the direction that causation might run.

    — For every hypothesis offered in favor of the study’s (seemingly preordained) conclusion there are others equally plausible that go undiscussed– and that lead to diametrically opposite policy choices.

    Do the editors of this site really believe this piece is a all useful? What does it have to do with “evonomics”?

    • Swami

      Well said, DWA. There is a strong underlying political agenda embedded in the choice of articles published here. I originally assumed it would be a place to explore new improvements to economics thinking (and about one in four articles are of this type). Unfortunately about half the articles are the usual progressive mantra that economics doesn’t work and instead we should give control to the elites (such as this guy working for the union labor cartels), who will fix everything for us with no negative side effects.

      I am not sure if you rememeber, but among the first articles published, one was that neoliberals (modern lingo for people not impressed by progressive arguments) are infected with brain viruses. Another was about Hayek being a racist “monster”.

      I stick around for the occasional good article, and an occasional good discussion or to read excellent comments such as yours.

      • anotherneighborhoodactivist

        Brain viruses? Hayek a “monster”? Any chance you can identify the specific articles?

        • Swami

          Here they go.

          Not sure if the second was the same as the article which accused him of also being a racist, or if this was another “scholarly article.”

          • anotherneighborhoodactivist

            You exaggerate. The one does not say “neoliberals are infected with a brain virus” and the other does not say “Hayek is a monster”, racist or otherwise. The terms virus and monster are clearly used as metaphors for the memes that encompass neoliberalism (in the one case) and that grew as a simplified distortion of Hayek’s work (in the other).

            Furthermore, neither purports to be more than an opinion essay.

            If you find the opinions and writing here so offensive, why do you continue to visit (and comment)?

          • Swami

            I explained why in my initial comment. I encourage everyone to read the pieces and the comments and judge for themselves.

          • anotherneighborhoodactivist

            Yes you did, and I apologize for overlooking it before hitting “post.”

    • Tim Mountford

      The velocity of cash in the economy has been stifled by the over accumulation of this cash by the production side of the economy, i.e. business. The rich make (and keep) more than they use and currently are holding a large amount of the working capital . Add to this business mergers and hence the inequity AND more importantly a shortage of cash to keep the economy running at a productive pace. This shortage of cash in the middle class (inequity) has stifled the economy. Business is not going to hire people until there is a demand for their product or services. Sooo, what do you say about letting Bernie Sanders make a few adjustments to pump some working capital (cash) into the middle class so they can spend it? What a novel idea. Single payer will put trillions of cash back into the economy over the next ten years. Having corporations pay up on their taxes will put more trillions into our infrastructure and create jobs. Opening up education to all possible talent will increase technology and our position in the world market. The middle class spends 100%+ of what they earn. Now you have a demand and reason for business to produce and hire employees. Basically, corporations do not create jobs no matter how much you cut their taxes. The middle class creates jobs. I love this Bernie slogan “Dear Establishment, we are coming to take back our country” .

  • Barry Epstein

    It will only stop when we, the turnips, have been completely drained of blood, unless we stop them first.

  • Al Tedesco

    might have been more credible if the author didn’t work for a large labor union…

    • Janus Daniels

      ad hominem Al 🙁

  • Kevin O’Leary

    A single percentage axis (ie. Pulling apart the lines) on the graph would not have weakened your argument. Read your Tufte.

  • carmiturchick

    No one likes to talk about the role of the Supreme Court in causing this wave of mergers and acquisitions by replacing the texts of our anti-trust laws with language from a Forbes editorial in 1975.

    Yes, monopolies are bad. Concentrations of power are bad. Dictatorships and absolute monarchies and one party or one and a half party systems are bad. The nation suffers, GDP growth is slower, rights and incomes and health and education all suffer.

    Why so? What is the governing principle and process? Read my paper and find out.

  • Duncan Cairncross

    Excellent article – society probably does need a level of inequality to make it work effectively but all of the measures show that we are far far away from any “optimum level” of inequality

  • Janus Daniels

    Good thoughts, but the article itself seems marred by a strawman argument; I’ve read no current economists, nor anyone but Republicans, claiming “… that individuals receive as income that which they contribute to societal output.”

    • Jan Karlstrøm
    • bellecon

      Yes a standard assumption in all the models. Wages = marginal product of labor……You know if you looked at the assumptions behind all the models…….all the necessary conditions, you would realize what a bunch of hooey much of neoclassical economics is…..There is no perfect competition in any economy any longer (if all the assumptions of that model must hold) and anything else is a market failure which requires intervention…..

  • The present economy will continue to be recessed as long as consumerism remains in decline. Just last year I saw my income fall to an all-time low because, instead of spending, the consumers chose to save their money. Why? Because they don’t want to be caught in another recession like 2008. It does not take an economist to figure out that all parts of the economic engine need to be in sync, and it does not mean that the rich are to blame. Quite the opposite, because the rich spend their money wisely, too.

    It means that a consumer driven economy is sputtering and threatening to shut down. There are simply not enough customers to meet the supply of goods, and the corporations are only now beginning to realize that. Long term contracts entered into between the companies and their executives are now irrelevent. I think it is time for them to renegotiate instead of honoring agreements which now don’t make sense.

    I have read of a growing trend toward a reverse approach to a consumer driven economy. If you don’t need it, don’t buy it. That is what is happening to those who engage in selling “luxury” goods like books, jewelry, and home decor, as people wanting to save money choose to do it all themselves. This has led to a ripple effect, as stores, wholesalers, and factors feel the effects of their restraint.

    So income inequality is not what needs to be addressed. It’s what all parties will do to keep the USA humming along. Bickering about who owns what and how much is not going to solve the problem.

    • anotherneighborhoodactivist

      the rich spend their money wisely, too lol!

      But seriously, yes, the consumer driven economy is sputtering. I agree with ecological economists who argue this is so because we are reaching the limits of the ability of the biophysical environment to support continued consumption at current levels. And that’s not even considering the apparent need for a debt-based capitalist economy to keep growing.

  • I think the real problem we face is looking to far into the past for rhyme or reason. Information signals are moving far to fast combined with legal agreement systems inability to keep up with the signals…. The global economy’s ruminations of the past is holding back the equalities of everything. Until we get to the vital now of understanding inequalities will maintain a foot hold on our realities. Union, Big Business, Big anything is crumbling under the weight of Speed and volume of information signals. Time to stop pretending the past anything will do much more than be the past and create futures by design.

  • Brian Gladish

    “Monopolies rarely deliver outstanding service, and this is no exception.” However, the one good monopoly appears to be the monopoly on violence–the government that must back union power in order to make it effective.

  • planckbrandt

    Labor unions are not the only concept to look at here. Today, people are looking at the basics of how debt is created out of nothing by owners of banking licenses and then charge life times of compound interest from working people. This is a constant transfer of real life-time earnings of the many to the dividends of the few. Other people are looking at the private ownership of natural resources and land as a major source of upward redistribution. Meanwhile, in other companies like Norway or even one of our own states like Alaska, natural resources belong to the nation and the people first. This is the privatization of the commons. Profits from them pay for public services and social security, reducing the need to tax. There are other factors to look at here. Trade unions are not the only way to re-balance this power imbalance. That is old school thinking. New school thinking looks at the nature of the money system itself, and enclosures of the commons which privatize common wealth for private gain.

  • Blair Fix

    This article, and the Levy Institute study on which it is based, contains a plagiarised figure. The relation between corporate dividends and the income share of the top 1% was first documented here:

    Brennan reproduces this finding without citation.

    • Jordan Brennan

      This allegation is unfounded. From the Oxford Dictionary of English Etymology, “plagiarism” is “wrongful appropriation and publication as one’s own.” Derived from the Latin plagiārius, to plagiarize is to be a “literary thief.” Blair: you did not alert me to the relationship between the dividend share of national income and the top income share. Nor did you inform me of its analytical significance—my empirical research did that—or how to graphically present it. I stole nothing from you.

  • GaryReber

    Author Jordan Brennan, a labor economist for Canada’s largest private sector labor union, while not clear in his terminology, basically presents the case that the cause of economic inequality is concentrated capital asset ownership (though he tends to represent this as “market power”).

    The problem with conventional-thinking economist, Brennan included, is they do not distinguish between the human factor and the non-human factor of production, thus couch income disparities in narrow labor productivity measures. But those measure are wrong if they were to view economic value created through human and non-human contributions. Of course, the non-human contributions have to do with the ownership rights to property.

    On the other hand, binary economics recognizes that there are two independent factors of production: humans (labor workers who contribute manual, intellectual, creative and entrepreneurial work) and non-human capital (productive land; structures; infrastructure; tools; machines; robotics; computer processing; certain intangibles that have the characteristics of property, such as patents and trade or firm names; and the like which are owned by people individually or in association with others).

    The reason the wealthy are more wealthy than ever is because they have increasingly accumulated more ownership of wealth-creating, income-producing capital assets, whether through direct investment or the acquisition of companies to form a market power (monopoly). Both are the result of using retained earnings and debt financing, neither of which create any new owners, but enrich the same wealthy ownership class.

    The role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who own productive capital assets. Full employment is not an objective of businesses nor is conducting business statically in terms of geographical location. Companies strive to achieve cost efficiencies to maximize profits for the owners, thus keeping labor input and other costs at a minimum.

    No where does Brennan, as well as other economists, provide a solution that would ensure that future viable investments in the formation of new capital assets are financed using mechanisms that provide interest-free capital credit to EVERY child, woman, and man for the exclusive purpose of acquiring future capital assets on the basis that the investments will generate their own income stream and pay for themselves and once paid for will go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development. Such financial mechanism would use commercial capital credit and reinsurances (ala the Federal Housing Administration concept) as the substitute for the present requirement of “past savings” (accumulated capital wealth) to protect the credit issuers from the risk of failure to return the expected yield from which to repay the loan.

    Unfortunately, as a labor economist for a labor union, Brennon appears not to be an advocate for transforming the labor movement to a producers’ ownership union movement and embrace and fight for this workers owning stakes in the corporations that employee them. Instead, he laments the decline of the labor unions, and blames such on rising economic inequality.

    Unfortunately, at the present time the movement is built on one-factor economics — the labor worker. The insufficiency of labor worker earnings to purchase increasingly capital-produced products and services gave rise to labor laws and labor unions designed to coerce higher and higher prices for the same or reduced labor input. With government assistance, unions have gradually converted productive enterprises in the private and public sectors into welfare institutions. Binary economist Louis Kelso stated: “The myth of the ‘rising productivity’ of labor is used to conceal the increasing productiveness of capital and the decreasing productiveness of labor, and to disguise income redistribution by making it seem morally acceptable.”

    Kelso argued that unions “must adopt a sound strategy that conforms to the economic facts of life. If under free-market conditions, 90 percent of the goods and services are produced by capital input, then 90 percent of the earnings of working people must flow to them as wages of their capital and the remainder as wages of their labor work… If there are in reality two ways for people to participate in production and earn income, then tomorrow’s producers’ union must take cognizance of both… The question is only whether the labor union will help lead this movement or, refusing to learn, to change, and to innovate, become irrelevant.”

    The unions should reassess their role of bargaining for more and more income for the same work or less and less work, and embrace a cooperative approach to survival, whereby they redefine “more” income for their workers in terms of the combined wages of labor and capital on the part of the workforce. They should continue to represent the workers as labor workers in all the aspects that are represented today — wages, hours, and working conditions — and, in addition, represent workers as full voting stockowners as capital ownership is built into the workforce. What is needed is leadership to define “more” as two ways to earn income.

    If we continue with the past’s unworkable trickle-down economic policies, governments will have to continue to use the coercive power of taxation to redistribute income that is made by people who earn it and give it to those who need it. This results in ever deepening massive debt on local, state, and national government levels, which leads to the citizenry becoming parasites instead of enabling people to become productive in the way that products and services are actually produced.

    When labor unions transform to producers’ ownership unions, opportunity will be created for the unions to reach out to all shareholders (stock owners) who are not adequately represented on corporate boards, and eventually all labor workers will want to join an ownership union in order to be effectively represented as an aspiring capital owner. The overall strategy should assure that the labor compensation of the union’s members does not exceed the labor costs of the employer’s competitors, and that capital earnings of its members are built up to a level that optimizes their combined labor-capital worker earnings. A producers’ ownership union would work collaboratively with management to secure financing of advanced technologies and other new capital investments and broaden ownership. This will enable American companies to become more cost-competitive in global markets and to reduce the outsourcing of jobs to workers willing or forced to take lower wages.

    Bottom line: we need to focus on CAPITAL OWNERSHIP CREATION as the solution to economic inequality. Every government policy must be structure to optimally promote creating new capital owners simultaneously with the growth of the economy, without resorting to redistribution of wealth and income.

    The end result would be that citizens would become empowered as owners to meet their own consumption needs and government would become more dependent on economically independent citizens, thus reversing current global trends where all citizens will eventually become dependent for their economic well-being on the State and whatever elite controls the coercive powers of government.

    Support Monetary Justice at

    Support the Capital Homestead Act (aka Economic Democracy Act) at,, and