The past two and a half decades have been good for big business. While the size of the private sector as a percentage of OECD economies has held relatively steady since the mid-1990s, the share of companies with more than $1bn in annual revenue has grown by 60 per cent since 1995. The big have got bigger, and the rich have got richer. But behind that headline trend, there is a great deal of geographic and socio-economic nuance, as a new McKinsey Global Institute white paper shows.
Researchers examined the economic contributions of both private and public companies in rich countries over the past 25 years. Reading the paper, I was struck by five key lessons for policymakers and corporate leaders which should inform the debate over the role of corporations in society.
First, the losses suffered by labour relative to capital are even more extreme than previously thought. While productivity gains since the mid-1990s amounted to 25 per cent in real terms, wages grew only 11 per cent. Meanwhile, capital income increased by two-thirds. If there is any doubt that the link between productivity and wages has broken down, this should put it to rest.
That strengthens the argument for a much broader sharing of capital wealth. Right now, the top 10 per cent of households in the US own 87 per cent of equities. “It’s crucial that we have more people participating in the capital income pathway,” says MGI director James Manyika, “because while labour income remains the most important for the majority of people, capital income is a bigger and bigger part of where value is going.”
Companies could offer equity ownership to more, or even all, employees. But the public sector could also tax corporate equity wealth, something proposed recently by the University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman. Or it could pay out a digital dividend to individuals that represents a share of the data wealth gathered by the largest, richest companies, notably the Big Tech platforms.
This points to another key lesson: the intangibles rule. Of all the ways in which companies can have an impact on the economy — from wages and the taxes that they pay, through the consumer surpluses they generate with cheaper prices, to negative externalities such as environmental spillovers — the one that has grown most sharply over the past 25 years is investment in intangible assets such as technology, software, patents and so on. This is up by 200 per cent. It makes companies more productive, but is also associated with jobless recoveries in the short to midterm — a significant political concern.
That brings me to lesson three, which is that different types of companies have very different impacts on households and economies. The MGI paper divides corporations into eight archetypes: discoverers (for example, biotech firms, which push…
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