Posts Tagged ‘concentration’


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Special mention

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wage share

It’s obvious to anyone who looks at the numbers that the wage share of national income is historically low. And it’s been falling for decades now, since 1970.

Before that, during the short Golden Age of U.S. capitalism, the presumption was that the share of national income going to labor was and would remain relatively stable, hovering around 50 percent. But then it started to fall, and now (as of 2015) stands at 43 percent.

That’s a precipitous drop for a supposedly stable share of the total amount produced by workers, especially as productivity rose dramatically during that same period.

The question is, what has caused that decline in the labor share?

The latest story proffered by mainstream economists (such as David Autor and his coauthors) has to do with “superstar” firms:

From manufacturing to retailing, giant companies have managed to gobble up a larger and larger share of the market.

While such concentration has resulted in enormous profits for investors and owners of behemoths like Facebook, Google and Amazon, this type of “winner take most” competition may not be so good for workers as a whole. Over the last 30 years, their share of the total income kitty has been eroding. And the industries where concentration is the greatest is where labor’s share has dropped the most. . .

Think about the retail sector, where mom-and-pop stores once crowded the landscape. Now it is dominated by a handful of giants like Walmart, Target and Costco.

It is true, industry concentration has increased dramatically in recent decades (as I explain here). And the wage share has declined (as illustrated in the chart above).

Here’s the problem: exactly the opposite argument is the one that prevailed in the United States for the earlier period. Economists at the time argued that American workers earned a relatively high share of national income because they worked in concentrated industries, such as cars and steel. Thus, their collectively bargained wages included a portion of the “monopoly rents” captured by the firms within those industries.

Now that the wage share has clearly fallen, and shows no signs of returning to its previous levels, economists have changed their story. In their view, market concentration leads to a lower, not higher, wage share.

Why has there been such an about-face in economists’ story about the causes of the declining wage share?

What all the existing stories share is that they avoid identifying anything that has been done to workers as a class. Whether the story is about technological change, globalization, or now superstar firms, the idea is that there are larger forces that unwittingly have created winners and losers—and the losers, if they want, need to acquire the education and skills to join the winners. But don’t touch the basic elements of the economic system that has created such disparate and divergent outcomes.

As it turns out, the presumed rule of a stable wage share turns out to have been an illusion, an exceptional period of relatively short duration during which workers’ wages did in fact rise along with productivity. That wasn’t the case before, and it hasn’t been true since.

The actual rule, as it turns out, is that the wage share falls, as the rate of exploitation increases. That’s how capitalism works, at least much of the time—through periods of faster and slower technological change, higher or lower levels of globalization, more or less concentrated industries.

Sure, under a particular set of postwar conditions in the United States, for two and a half decades or so, the wage share remained relatively stable (and not without pitched battles between capital and labor, as Richard McIntyre and Michael Hillard have shown). But that ended decades ago, and since then workers have been forced to have the freedom to sell their ability to work under conditions that, even as productivity continued to grow, the wage share itself declined.

Mainstream economists have finally recognized the fact that workers’ share of national income has been failing. But they continue to formulate stories that deflect attention from the real problem, the relative immiseration of workers that has them falling further and further behind.


It comes as no surprise, at least to most of us, that corporations are getting larger and increasing their share in many different industries. We see it everyday—when we buy plane tickets or try to take out a loan or just make a purchase at a retail store.

We know it. And now, it seems, economists and the business press have finally taken notice.

According to recent research by Gustavo Grullon, Yelena Larkin, and Roni Michaely,

More than 75% of US industries have experienced an increase in concentration levels over the last two decades. Firms in industries with the largest increases in product market concentration have enjoyed higher profit margins, positive abnormal stock returns, and more profitable M&A deals, which suggests that market power is becoming an important source of value. In real terms, the average publicly-traded firm is three times larger today than it was twenty years ago.

That’s right. As Figures 1-A and 1-B above show, the level of concentration (measured by the Herfindahl-Hirschman Index) has been steadily increasing over the course of the past twenty years, together with a decrease in the number of public firms.


And the average size of firms, as shown in Figure 1-C, has also been growing.

The business press may have changed the language—they like to refer to such corporations as “superstar firms”—but the problem remains the same: corporations are growing larger, both absolutely and relative to the industries in which they operate.

What mainstream economists and the business press won’t acknowledge is those tendencies have existed since capitalism began. The neoclassical fantasy of perfect competition was only ever that, a fantasy.

Certainly one mid-nineteenth-century critic of both mainstream economic theory and capitalism understood that:

Every individual capital is a larger or smaller concentration of means of production, with a corresponding command over a larger or smaller labour-army. Every accumulation becomes the means of new accumulation. With the increasing mass of wealth which functions as capital, accumulation increases the concentration of that wealth in the hands of individual capitalists, and thereby widens the basis of production on a large scale and of the specific methods of capitalist production. The growth of social capital is effected by the growth of many individual capitals. All other circumstances remaining the same, individual capitals, and with them the concentration of the means of production, increase in such proportion as they form aliquot parts of the total social capital. At the same time portions of the original capitals disengage themselves and function as new independent capitals. Besides other causes, the division of property, within capitalist families, plays a great part in this. With the accumulation of capital, therefore, the number of capitalists grows to a greater or less extent. Two points characterise this kind of concentration which grows directly out of, or rather is identical with, accumulation. First: The increasing concentration of the social means of production in the hands of individual capitalists is, other things remaining equal, limited by the degree of increase of social wealth. Second: The part of social capital domiciled in each particular sphere of production is divided among many capitalists who face one another as independent commodity-producers competing with each other. Accumulation and the concentration accompanying it are, therefore, not only scattered over many points, but the increase of each functioning capital is thwarted by the formation of new and the sub-division of old capitals. Accumulation, therefore, presents itself on the one hand as increasing concentration of the means of production, and of the command over labour; on the other, as repulsion of many individual capitals one from another.

This splitting-up of the total social capital into many individual capitals or the repulsion of its fractions one from another, is counteracted by their attraction. This last does not mean that simple concentration of the means of production and of the command over labour, which is identical with accumulation. It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. This process differs from the former in this, that it only presupposes a change in the distribution of capital already to hand, and functioning; its field of action is therefore not limited by the absolute growth of social wealth, by the absolute limits of accumulation. Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many. This is centralisation proper, as distinct from accumulation and concentration.

Those of us who have actually read that text are not at all surprised by the contemporary reemergence of the concentration and centralization of capital. We have long understood that the forces of competition within capitalism create both the incentive and the means for individual firms to grow in size and to drive out other firms, thus leading to the concentration of capital. The availability of large amounts of credit and finance only makes those tendencies stronger.

And the limit?

In a given society the limit would be reached only when the entire social capital was united in the hands of either a single capitalist or a single capitalist company.


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hospital mergers


Much of the debate about the U.S. healthcare system is focused on the role of public financing (in terms of subsidies and, for some, the possibility of a public option or even a single-payer program). But no one seems to want to look at the other key part, the actual delivery of healthcare to American workers and others. And that, regardless of the system of financing, remains mostly in profit-oriented private hands (which, as I argued earlier this year, undermines patient-centered healthcare).

There are a few exceptions, such as the Veterans Health Administration and Indian Health Service, whereby the government directly employs nurses, physicians, and others to provide health services to targeted populations. But the rest of healthcare is provided by private  (profit and nominally nonprofit) individuals, groups, and corporations.

As I discussed on Friday, a significant sector of private healthcare is the increasingly concentrated and enormously profitable pharmaceutical industry. Hospitals (which I’ve commented on many times over the years) are, of course, another key sector (at close to $1 trillion in 2014). That’s where Americans receive most of their in-patient care, critical care (including many without health insurance in emergency rooms), and an increasing number of out-patient treatments. And while hospitals appear to be independent from and non-overlapping with physicians (whose services accounted for roughly $600 billion in 2014), that’s an optical illusion. Not only do they compete with one another (in surgery, imaging, and other ambulatory services), each is forced to work closely with the other: hospitals rely on physicians to admit patients to their facilities, refer to their specialists, and to use their lucrative diagnostic services (with, as it turns out, illegal kickbacks), while physicians tend to their own patients within hospitals and are contracted for “in-house” supervision. And, increasingly, hospitals are directly employing physicians (and other healthcare workers) as salaried and piece-rate workers.


U.S. hospitals are, as it turns out, remarkably profitable. And, according to a recent analysis by Ge Bai and Gerard F. Anderson (unfortunately gated), 7 of the 10 of the most profitable hospitals (each exceeding more than $163 million in total profits from patient care services) are officially non-profit institutions.

According to Anderson,

The system is broken when nonprofit hospitals are raking in such high profits. The most profitable hospitals should either lower their prices or put those profits into other services within the community. We need to develop incentives that allow all hospitals to make a fair profit while at the same time keeping prices reasonable.

It’s true, many other hospitals (56 percent in their sample of acute-care facilities) are not profitable strictly in terms of patient services (the median hospital lost $82 per adjusted patient discharge). However, as the authors explain,

the median overall net income from all activities per adjusted discharge was a profit of $353, because many hospitals earned substantial profits from nonoperating activities—primarily from investments, charitable contributions (in the case of nonprofit hospitals), tuition (in the case of teaching hospitals), parking fees, and space rental. It appears that nonoperating activities allowed many hospitals that were unprofitable on the basis of operating activities to become profitable overall.

The most important factors boosting hospital profitability were markups (especially for uninsured and out-of-network patients and casualty and workers’ compensation insurers who often pay the hospital’s full charge) and the combination of system affiliation and regional power.

In fact, 50 hospitals in the United States are charging uninsured consumers more than 10 times the actual cost of patient care. All but one of the facilities are owned by for-profit entities. Topping the list is North Okaloosa Medical Center, a 110-bed facility in the Florida Panhandle about an hour outside of Pensacola, where uninsured patients are charged 12.6 times the actual cost of patient care. Community Health Systems operates 25 of the hospitals on the list. Hospital Corporation of America operates 14 others.

Again according to Anderson:

They are price-gouging because they can. They are marking up the prices because no one is telling them they can’t. These are the hospitals that have the highest markup of all 5,000 hospitals in the United States. This means when it costs the hospital $100, they are going to charge you, on average, $1,000.




It should come as no surprise, then, that, while the total number of hospitals has remained relatively constant over time, the number of those hospitals in health systems has continued to increase, thereby increasing regional power, markups, and profitability.

In another recent study, by Richard M. Scheffler et al., the authors found that the hospital markets in two states (California and New York) “were moderately to highly concentrated,” with mean Herfindahl-Hirschman indices of 2,259 and 3,708, respectively.* They also found that more concentrated hospital markets were associated with higher premium growth.

As expected, then, there is a continuing strong movement of hospital mergers and acquisitions—with at least 100 deals covering 178 hospitals, involving the takeover of profit and especially non-profit organizations, in 2014—leading to increased concentration in the hospital sector of the U.S. healthcare industry.

As Martin Gaynor explains,

There has been so much consolidation that most urban areas in the US are now dominated by one to three large hospital systems — examples include Boston (Partners), the Bay Area (Sutter), Pittsburgh (UPMC), and Cleveland (Cleveland Clinic, University Hospital). It is also now more likely that further consolidation will combine close competitors, given how many mergers have already occurred.

Clearly, the provision of healthcare through U.S. hospitals—both profit and, at least officially, non-profit—is generating enormous profits for their owners and top executives. But it’s Americans workers, who are both hospital employees and consumers of hospital services, who are paying the price.


*To remind readers, the Herfindahl-Hirschman Index is often used to evaluate the potential antitrust implications of acquisitions and mergers across many industries, including health care. It is calculated by summing the squares of the market shares of individual firms. Markets are then classified in one of three categories: (1) nonconcentrated, with an index below 1,500; (2) moderately concentrated, with an index between 1,500 and 2,500; and (3) highly concentrated, with an index above 2,500.