This week the IMF and the World Bank held their annual conference in Washington. The concerns for global growth that were expressed at the Conference echoed through the canyons of Wall Street leading to one of the most volatile weeks in recent stock market history. Former Obama economic advisor Larry Summers gave a speech that expressed much of the concern.
At a conference on Thursday, Lawrence H. Summers, the former United States Treasury secretary who now teaches at Harvard, highlighted this concern. “The defining challenge of our time, economically, is secular stagnation,” he said. “It is the risk of inadequate growth, leading to inadequate potential, leading to inadequate growth.”
I have been arguing for the past year that the source of this stagnation is lack of investment. A new breed of ultra efficient corporation is holding record amounts of cash on their balance sheet while having record low amounts of debt.
Why do Google or Apple have more than $100 billion in cash on their balance sheets? Because they operate in a framework of Monopoly (Google in search) or Duopoly (Apple and Google in mobile operating systems) capitalism that does not conform to the classic notions of market functionality.
John Bellamy Foster and Fred Magdoff, in their book The Great Financial Crisis, describe the work of the economists Paul Baran and Paul Sweezy on monopoly capitalism like this.
The problem, as they explained it, was that the enormous productivity of the monopoly-capitalist economy, coupled with oligopolist pricing, generated a huge and growing surplus, which went beyond the capacity of the economy to absorb it through the normal channels of consumption and investment.
My sense is that we are going to see more of these so called “Natural Monopolies”, where the network effect tends to create a winner take all outcome. Google in Search, Amazon in E Commerce for Books, Facebook in Social Networks and potentially Comcast in Broadband service, all seem to have a kind of insurmountable scale advantage against late entrants. Libertarians like Peter Thiel love both the monopoly profits and the absence of anti-trust regulation. But I think it is fairly naive to assume that new competitors are going to spring up and so we may have to re-envision a kind of anti-trust regulatory policy to ensure that these new monopolies don’t abuse their position.
On Tuesday October 14 at 5 PM PDT, I’m going to be guest hosting Ian Master’s Background Briefing radio show on Public Radio. I’m going to interview three brilliant experts who have wrestled with these issues. Attorney Bob Kohn has written about Amazon’s recent battle with book publisher’s, MIT’s Ethan Zuckerman is thinking about Google and the world of advertising on line and John Bergmayer of Public Knowledge has led the fight against Comcast.
It should be interesting.