Book Review: The Profit Paradox by Jan Eeckhout – IMF F&D
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Bibliographic details
- Authors: ROMAIN DUVAL
- Published: June 1, 2021
Overview
- Reviewer: ROMAIN DUVAL, assistant director, IMF Research Department.
- Publication: F&D Magazine, Market Juggernauts, June 2021.
- Work reviewed: The Profit Paradox: How Thriving Firms Threaten the Future of Work, Jan Eeckhout, Princeton University Press, Princeton, NJ, 2021, 336 pp., $27.95.
- Meta: Less than a minute(0 words) Read; Download PDF.
Central thesis
- New technologies retain potential to deliver large gains in living standards for all, but the rise of dominant firms is preventing those gains from being broadly shared.
- Dominant firms arise from the winner-takes-all nature of new technologies combined with weak pro-competition policies.
- Massive corporate profits and booming stock markets have not translated into benefits for workers — the “profit paradox.”
Mechanisms and linkages
- Market power concentrates gains with firms and top incomes while low- and medium-skilled-worker wages stagnate or fall, contributing to a decline in labor’s share of income.
- Dominant firms amplify broader social and policy problems, including:
- declining social and geographical mobility,
- rising mortality,
- climate change, via firms leveraging power to buy political inaction or promote harmful policies (example: opioids).
Empirical and narrative evidence
- The book mixes cutting-edge academic research, personal stories, and sectoral examples (beer, textiles, online advertising) to connect workers’ woes and market power.
- U.S.-focused examples prompt questions about international variation:
- Labor force participation has not fallen in Europe in recent decades.
- Increases in wage inequality and declines in labor income shares have been much more modest in Europe than in the United States.
- Europe stopped converging to US living standards four decades ago.
- These facts raise questions about whether differences stem from lesser embrace of new technologies, stronger antitrust enforcement, both, or other factors.
Open questions and limitations noted by the reviewer
- The book convincingly assigns some role to market power but leaves unresolved how large that role is.
- Alternative explanations remain: for example, the increasingly labor-saving nature of technological progress (work by Daron Acemoğlu and Pascual Restrepo) might have harmed workers even if market power had been contained.
- The reviewer asks: If technological change alone would have hurt workers, would addressing market power be sufficient to restore broadly shared prosperity?
Policy recommendations and proposals highlighted
- Strengthen antitrust enforcement.
- Rethink intellectual property rights.
- Specific proposals from the book include:
- Ex-post fines on mergers that fail to deliver promised benefits.
- “Inverse” data patents that grant collectors of data only temporary exclusivity.
- The reviewer frames Eeckhout’s advocacy as timely given ongoing reconsideration of antitrust frameworks on both sides of the Atlantic and concludes the rethink “must go big.”
IMF F&D book review by ROMAIN DUVAL (June 2021).
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