TDR-Greed is not good: corporate rent-seeking and restrictive business practices in winner-takes-most world

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TDR-Greed is not good: corporate rent-seeking and restrictive business practices in winner-takes-most world

Geneva, Switzerland, 14 September 2017

​A new UNCTAD report shows that hyperglobalization has fuelled a significant rise in restrictive business practices, and that the rents such practices generate have led to rising inequality in a winner-takes-most world.

"To stop this cycle from spiralling out of control, public authorities, at national and international levels, must reclaim knowledge and competition as public goods," said UNCTAD Secretary-General Mukhisa Kituyi, launching the Trade and Development Report 2017: Beyond Austerity – Towards a Global New Deal.

Profiting from power, without prosperity

The report finds that on the back of sustained increases in their market and lobbying powers, large corporations are boosting profits by rigging the rules of the game. The crisis in 2008 exposed these practices in financial markets, and the abuse of tax havens by the wealthiest one per cent is common knowledge. However, such practices have also extended to non-financial sectors.

“Market power and concentration has also increased steeply in terms of revenues, physical assets and other assets such as intellectual property rights," said Mr. Kituyi.

Through an analysis of data on non-financial companies in 56 developed and developing countries, the report shows that winners are taking the most. Between 1995 and 2015, surplus profits grew from 4 to 23 per cent of total profits for all firms and from 19 to 40 per cent for the top 100 firms (figure).
In 1995, the market capitalization of the top 100 firms was worth 31 times that of the bottom 2,000 firms; 20 years later it had risen to 7,000 times the worth.

UNCTAD notes that big firms from emerging markets have begun to enter the global stage, due largely to booming domestic markets. Yet firms from developed countries still dominate, particularly in high-profit sectors such as pharmaceuticals, media and information and communications technology, and they still account for most of the transfer of profits across borders.

Yet while these firms have amassed an ever greater control of markets, their employment share has not risen proportionately. Based on one measure, the market concentration of the top 100 firms rose fourfold in market capitalization, but less than twofold in employment.

"We are now facing a world of profits without prosperity, where asymmetric market power is a strong contributory factor to rising income inequality," said Mr. Kituyi.

Hyperglobalization breeding new forms of protectionism

According to the UNCTAD report, natural monopolies arising from technological breakthroughs are only a small part of the story. Large firms owe their expanding empires as much to technological prowess as to ineffective antitrust legislation, excessive intellectual property protection and aggressive merger and acquisition strategies.

Based on data for United States of America affiliates in Brazil, China and India, the report shows that in three high-technology sectors (information and communications technology, chemicals and pharmaceuticals), increasing patent protection is associated with growing profitability for the affiliates but not for locally headquartered companies, which are increasingly left behind.

Tax avoidance, fire sales of public assets, public subsidies to large corporations and share buy-backs have provided new rent-seeking opportunities and boosted chief executive officer compensation. According to the UNCTAD report, the vicious cycle of market power begetting lobbying power has meant that the economic underworld of corporate rent-seeking is becoming legitimate, systematically contributing to rising income inequalities and power imbalances in the global economy.

Share of surplus profits in total profits, 1995–2015
PR17029_fig 1_TDR_hyperglobalization_en.jpg

Source: UNCTAD secretariat calculations, based on data from Thomson Reuters worldscope database.