Special Report on Companies: The dark arts

Highlights:

Superstar companies have learned to combine size with entrepreneurship and global reach with attention to local detail. For the tech superstars in particular, size pays. Thanks to network effects, established companies can use their vast stores of information to defend themselves against insurgents. In many respects these companies have been a force for good, but they are also enthusiastic users of the darker art of management. They keep huge amounts of money in tax havens around the world and employ armies of lobbyists to skew the political process in their favour. Big tech companies use their smart products to keep a constant watch on their customers so they can sell them more stuff. The combination of consolidation and tax avoidance has caused a storm of popular anger about big business, as demonstrated by the Brexit vote in Britain and the selection of Donald Trump as the Republican Party’s presidential candidate in America. The high-tech superstars are particularly vulnerable to criticism because they employ far fewer people than yesterday’s big companies. In 1990 the top three carmakers in Detroit—quintessential representatives of the old economy—between them had nominal revenues of $250 billion, a market capitalisation of $36 billion and 1.2m employees. In 2014 the top three companies in Silicon Valley had almost the same revenues ($247 billion), a market capitalisation of over $1 trillion but just 137,000 employees.

(London) -- The most striking business trend of our time is the entrenchment of a group of superstar companies at the heart of the global economy. Some of these have been going for many years but have reinvented themselves for a new age. Some are emerging-market champions that have seized the opportunities offered by globalisation. The elite of the elite are high-tech wizards that have learned how to conjure up corporate empires from ones and zeroes.

The rise of the superstars is going hand in hand with growing concentration. The share of nominal GDP generated by America’s 100 biggest companies rose from about 33% in 1994 to 46% in 2013. The tech industry is ruled by a handful of global giants. Meanwhile entrepreneurship is in decline. In America the number of startups is lower than at any time since the 1970s.

Link to report: http://www.economist.com/news/special-report/21707055-superstar-companies-are-good-everything-including-pushing-boundaries-dark-arts

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