Excerpts From: “The Stock Market is Shrinking. That’s a Problem for Everyone”, NY Times
The American stock market has been shrinking. The market is half the size of its mid-1990s peak.
In the mid-1990s, there were more than 8,000 publicly traded companies on exchanges in the United States. By 2016, there were only 3,627.
Because the population of the United States has grown nearly 50 percent since 1976, the drop is even starker on a per-capita basis.
Profits in the overall market are now divided among fewer winners. And as capital-intensive companies have been supplanted by those whose value is largely found in their intellectual property, the marketplace is less transparent — with troubling consequences.
Consider these big shifts:
■ The companies on the market today are, on average, much larger than the public corporations of decades ago. Fast-rising upstarts are harder to find.
■ Profits are increasingly concentrated in the cluster of giants — with Apple at the forefront — that dominate the market. In 2015 the top 200 companies by earnings accounted for all of the profits in the stock market.
A quirk of accounting is at the root of some of the profit deficit. Increasingly, value resides in intellectual property — “intangibles” like software and data and biological design. But under generally accepted accounting principles, or GAAP, which American companies must follow, research and development must be deducted from corporate income — and those charges can reduce or eliminate profits. Without deep knowledge of a company’s critical research it’s difficult for outsiders to evaluate a start-up’s worth. That makes it harder to obtain funding, and why smaller companies are being swallowed by the giants.
There’s a broader problem. Our visibility into the inner workings of public companies isn’t great, but we know far more about them than we do private companies, which aren’t required to disclose nearly as much information. And these changing dynamics mean we know far less about many of the creators of American profits and jobs than would otherwise be the case.
In a democracy in which corporations already have enormous clout, that is worth worrying about.
In earlier postings we have talked about big corporations and the political power they have and utilize to their individual benefit because of their huge financial resources. This distorts and weakens our democracy “of, by and for the people”. Big corporations influence votes; they literally buy votes with their spending on political ads that are spun to promote their selfish interests. This trend toward larger and fewer corporations is ominous. Concentrated wealth, both individual and corporate, has far too much influence over our democracy. As we have talked in the past our laws need to protect our democracy from outsized influence of ever more concentrated wealth.