Jan Eeckhout: “Democracy is a ticking time bomb unless inequality decreases”

in his book Profit Paradox (Boga, 2022) Eeckhout shows how the success of large corporations translates not into improved wages for workers, but into greater inequality. tech giants Silicon valley -with Google, manzana, Aim, Amazon And Microsoft is leading the way, and its monopolistic practices demonstrate this threat to society like no other industry.

The value of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla currently represents 29% of the total of the S&P 500, the stock market index that brings together the largest US companies. Are we facing an unprecedented concentration of power?

Yes, and it’s quite worrying. In addition to these data, these seven companies alone support most of the growth in the US stock market.

In his book, he underlines that super-successful companies are not because they strengthen the economy, but because they have no competition.

Technology companies contribute to the growth of the economy, but they operate as monopolies, which is why their market values ​​are so high. It is true that they have improved our lives to a degree unimaginable 20 years ago, but they also use their power to restrict competitors’ market access. This leaves us subject to higher prices than in a competitive market and limits innovation from small engine companies. When I talk about the profit paradox I mean that these companies are good and bad for the market.

Large companies innovate, but they do so to maintain their dominant positions. They are not interested in big changes. It’s incredible what they’ve achieved, but that doesn’t mean they have the right to disrupt the functioning of the market. It’s not clear whether regulation is working, and the real uncertainty comes from the amount of money these companies are willing to spend to maintain control.

The EU supported the pioneering Digital Markets Act to avoid monopolistic practices in the technology industry. How do you value it?

The digital market is a natural monopoly, just like the energy market. However, since the product is not homogeneous, its regulation is more complicated. Google is not the same as Apple. The European law is very ambitious and we will see changes such as being able to send WhatsApp messages on Telegram from March. As users, we don’t see the cost we’ve paid for this not happening so far, but it does have an impact on the ecosystem. The user also doesn’t see aviation or medicine being regulated, but it benefits them. The fact that you can call from one Movistar mobile phone to another from Vodafone means there is competition.

What consequences does this concentration of power have on the labor market?

There are many issues that affect us that we don’t think come from the monopoly position of technology companies, but from large companies in other sectors, such as Inditex. On the one hand, the stagnation in wages felt by everyone on the street. But there are also other situations where small business owners suffer a lot because they don’t have opportunities to grow. It’s impossible to compete with someone like Amazon, who beats them using SME data. Monopolies create economic inequality, which is a breeding ground for polarization. There are literally people who earn less than their grandparents. This adds to people’s discomfort. Democracy works better when inequality is less. Otherwise it’s a ticking time bomb.

What does artificial intelligence have in store for the workplace?

From the 1980s to 2020, the wage gap between those with a college education and those without did not increase much. It’s getting a little tight now, and maybe that’s because of AI. But inequality is increasing, and I believe AI will further increase the distance between workers.

Countries talk a lot about encouraging ‘start-ups’, but what’s the point if they have to compete in a giant-controlled market with no real opportunity to thrive?

There’s no point in investing so much money into something that won’t work beforehand. This problem occurs everywhere. Even in California, the birthplace of startups, the number of such companies is declining. Promoting start-ups requires a competition policy that streamlines workflow and reduces the gap between productivity and wages. Competition policy can solve many social problems such as inequality. Lack of competition is a global problem, and the policies we have are all more local. We cannot change the world through European regulation, and it could actually hurt us in America and Asia.

In his book, he assures that redistribution will only occur with greater competition and globalization. But the free market harmed national workers by encouraging large companies to shift their production to countries where wages were lower.

I believe that globalization and displacement are phenomena that we can no longer stop. However, we also need to control this through global competition policy.

How can the formula of ‘more globalization’ be a realistic solution when the USA, the champion of the free market, is trying to stop China’s economic rise by adopting protectionist policies in technological matters?

I think this is the solution because we have seen how the protectionist policies of the USA lead to more production at home but also increase the cost of products and it is the consumer who pays. It may also be possible that European competition policies will harm the single market. The US is skeptical of this EU law, but if the experiment goes well, it will be more convincing for them to follow suit. The ‘telcos’ also did not want competition laws but they ended up having a positive impact on the consumer.