Mordecai Kurz, how to limit the market power of technology

Whether chemical, textile, energy or IT, all industries are dominated by one or a few companies that decide the fate of the market. Making them successful are technological innovations by virtue of which, in addition to making monopoly profits, they are able to set prices, influence production and even suppress potential competitors. It is the “market power of technology,” a “permanent feature of laissez-faire capitalism” that has marked all phases of American industrialization since 1870. A process that, while it brings advantages and benefits, also generates economic disparities in income distribution and monopoly positions that eat into shares of labour and capital to the point of undermining democracy itself.

The implications that such a mechanism, which is by no means balanced, has on the entire economic system are the subject of the analyses gathered by the U.S. economist Mordecai Kurz in his latest book “The Market Power of Technology: Understanding the Second Gilded Age” (Columbia University Press). A guest of Università Cattolica del Sacro Cuore, Professor Emeritus of Economics at Stanford University expounded his theses during the ninth annual lecture from the Complexity Lab in Economics (CLE) titled “Technology-Based Market Power”, promoted in collaboration with the Department of Economics and Finance of the University. “Professor Kurz’s studies, conducted in various fields of economics with particular originality in raising relevant questions, fully reflect the research spirit of our Centre, which is dedicated to investigating applications of complexity science to economic models,” explained Domenico Delli Gatti, CLE Director. The speaker was presented by Maurizio Motolese, Professor of Economic Policy and a student of the American scholar, reminding Professor Kurz’s strong ties with Milan and in particular with Università Cattolica, where over the years he has held several meetings and seminars.

But why is there this close correlation between technological change and economic inequality? For Kurz, it is not a matter of questioning technology, which is necessary because it “increases productivity, determines the growth of a country’s economy, achieves scale productions, lowers marginal costs, gains market reputation, wins new consumers.” At the same time, however, it also introduces a “knowledge monopoly,” which is protected by law as technological innovation creates a private good (i.e., a patent) in the market, and is considered “legal” when innovating companies make cooperative agreements to achieve market power and set prices.

Thus Kurz showed the figures indicating how these monopolistic practices have been a constant in the economic process since the first major technological innovations appeared. A mechanism that has evolved over time, consolidating to the present day and the huge monopoly profits made by Big Tech: Microsoft, Google, Meta, Amazon. The best example of this monopoly based on technological innovation, according to Kurz, is Apple’s smartphone-related revenue: in 2021, the computer giant’s worldwide cell phone sales rate was 16 percent; its reported revenue was 44 percent. This behavior is also found in younger innovative firms that aim exclusively to be monopolists. In other words, technological change once introduced restarts the whole process.

How, then, to get out of this vicious cycle of “techno-winner-takes-it-all capitalism”? According to the Stanford professor, the only tool that can break down monopoly profits is economic policy. In fact, he noted, “when there is no appropriate policy the free market wins and corporate profits rise to 24 percent; conversely, if appropriate economic policy decisions are taken, they fall to 6 percent.” In essence, innovations should be promoted but, at the same time, actions are needed to contain their effects, which, if left unchecked, can jeopardize democracy. Among the things to be done suggested by Kurz are, for example, “preventing empire-building technology acquisitions, reforming anti-trust, changing labour laws, promoting unionization, and improving the balance of power in the market.” This can prevent the highest cost of innovation from being paid by workers. This is a key point for Kurz, who attributes the success of Trumpism precisely to the discontent of the millions of Americans who have lost their jobs due to technological changes. That is why it is necessary to “restore an egalitarian distribution of income to limit market power.” Otherwise, democracy is under threat. A theme that Kurz explores in a new book, which is due to be released next year in American bookstores.