Wealth and Secular Stagnation: The Role of Industrial Organization and Intellectual Property Rights

Abstract

Changes in firm strategy and structure partially explain the sources and consequences of rising wealth inequality in America. Combining use of state-created monopolies around intellectual property rights (IPRs) for profitability and firm-level strategies to transform their industrial organization by pushing physical capital and noncore labor outside the boundaries of the firm leads to rising levels of wealth and income inequality among firms as well as individuals. Income inequality among firms in turn reduces growth in productive investment and thus in aggregate demand. Slower growth reflexively deters firms from new investment, aggravating the shortfall in aggregate demand. Decreased protection for IPRs and increased protection for subcontracted workers would help increase aggregate demand and thus push growth back to its prior level, as well as reducing wealth and income inequality among individuals.

Keywords

• inequality
• industrial organization
• intellectual property
• profits