Would better antitrust rein in the 1%?

The American economy has grown more concentrated in recent years — in most industries, the top few firms account for more revenue than they did 10 or 15 years ago. This phenomenon appears linked to the decline in the share of national income going to labor, as opposed to capital.

Would better antitrust help reverse that trend, resulting in higher wages and less inequality? That seems plausible, and my inclination is toward stronger antitrust. But the answer may depend on the sort of inequality we’re talking about.

It’s helpful, I think, to consider two types of inequality: the gap between the 1% and the rest, and the gap between educated professionals/the top 20% and the rest. Both gaps have grown, albeit for different reasons. The terrific rise of the 1% is largely an American phenomenon, whereas the other is more global.

Generally speaking, the international nature of the latter inequality has led economists to look beyond policy for explanations, to things like technology or globalization. The localized nature of the 1% inequality has led to an emphasis on U.S. policy decisions.

But the theme of a small number of top firms pulling away from the rest in terms of productivity and wages — not exactly the same as industry concentration necessarily, but related — appears to be international.

That suggests to me that the sort of inequality that would be addressed by tackling industry concentration is the widespread gap between educated professionals and the average worker, not the gap between the 1% and the rest.

This is all speculative, of course. It could be that concentration is a necessary but not a sufficient condition for the rise of the 1%, such that we don’t observe the same inequality around the world but that antitrust would address it. But it’s worth remembering what Alvaredo, Atkinson, Piketty and Saez concluded in their paper on the 1%:

The most obvious policy difference—between countries and over time—regards taxation.

That’s not the only cause they highlight. But the spectacular rise of the 1% is a mostly American phenomenon and so likely the result of something specifically American. The rise of incredibly powerful, productive superstar firms doesn’t fit the bill.