No Growth, No Equality: America Vs Europe in an Intellectual Property Rights Economy

What explains rising economic inequality in the rich OECD countries? What is the connection between rising economic inequality and secular stagnation? Most analyses answer the first question by starting with an analysis of individual income inequality. Some then move on to answer the second question by noting that higher income individuals have a lower marginal propensity to consume. This lower propensity to consume plausibly reduces aggregate demand, slowing growth. These two answers are right but incomplete, and by virtue of being incomplete lead to inadequate policy responses. This paper argues that individual income inequality flows first from rising income (profits) and wealth (market capitalization) inequality among firms. Preliminary work shows that among the 2000 largest firms, globally, the gini index for profits is generally about 0.66 over the past decade, considerably higher than all rich OECD countries. Inequality among firms arises from the fact that profitability increasingly depends on legally constituted monopolies, specifically the patent and copyright system, and intangible assets and regulatory monopolies more generally. Inequality in firms’ revenue streams in turn generates individual and regional income inequalities. The paper compares the extent to which firms in the US and select European economies (Britain, Denmark, France, Germany, Italy, and Sweden) rely on intellectual property rights as a source of profit and as the basis for their market capitalization. Because rising inequality stems from legally constituted monopolies, it is a problem readily addressable through public policy.