Global secular stagnation and the rise of intellectual property monopoly

Abstract

Explanations for slow global growth (secular stagnation) correctly focus on income inequality and wage formation but are incomplete. They ignore the source of wages and fail to ask why a rising profit share has not produced more investment. Older but essential insights on stagnation from Keynes, Schumpeter and Veblen complement orthodox and post-Keynesian analyses to generate a more robust explanation based on the distributional conflict over profit among firms. These thinkers highlight the importance of corporate profit strategy and organizational structure for investment behavior. A politically mediated process of strategic interaction has transformed the old Fordist dual industrial structure into a tripartite structure composed of high profit volume firms with monopolies based on intellectual property rights (IPRs), physical capital-intensive firms protected by an investment barrier to entry, and low profit volume labor-intensive firms. Profit data from Compustat and Orbis show that IPR-based firms have a lower marginal propensity to invest. Other firms with smaller profit volumes forego investment from fear of creating excess capacity in a slow growth environment. High profit firms also tend to pay higher wages, creating income inequality. Changes in antitrust, employment and intellectual property law can remedy this situation.