John Kay’s column today prompted this line of thought:
Here’s a theory that in my view merits consideration. Although I am sure that it is far from 100% correct and may be as little as 10% correct, I believe that it has as much truth as the view that large corporations are competitive firms in competitive markets.
The rise of stock markets and the ability to finance huge firms that deliberately exploit the benefits of size to undermine competition destroyed the relationship between a free market and a competitive market. Thus, the presumption should be that industries with publicly listed companies are oligopolies and profits earned by these companies should be viewed with suspicion as they are likely to be rent-seeking profits.
When publicly listed companies are viewed as rent-seeking entities rather than competitive firms in a competitive market, there is a clear role for government in protecting smaller unlisted firms from predatory behavior. Since it is far too difficult for government to determine what market based prices would be in a environment where publicly listed companies are predominant, remedies for their existence should be at the macro level: (i) high taxes on publicly listed companies whose profitability is significantly higher than the average in competitive markets (i.e. where non-publicly listed companies predominate) and (ii) high taxes on wages paid to employees of publicly listed companies (that for example are more than double the wages of employees with comparable years of education outside the publicly listed sector) to prevent employees from extracting the rent-seekers surplus. In addition, all publicly listed companies should be prohibited from spending any money on lobbying, campaign contributions or providing freebies for politicians.
Any other policy can be viewed as a government subsidy to rent-seeking behavior.