The Great Reversal by Thomas Philippon

Last updated: Oct 2, 2023

Summary of The Great Reversal by Thomas Philippon

The Great Reversal by Thomas Philippon is a comprehensive analysis of the rise of market power and the decline of competition in the United States economy. Philippon, a professor of finance at New York University, presents a compelling argument that the US economy has undergone a significant transformation over the past few decades, resulting in a concentration of market power in the hands of a few dominant firms.

Philippon begins by examining the historical context of the US economy, highlighting the period from the 1930s to the 1980s as a time of increased competition and economic dynamism. During this period, antitrust regulations and pro-competition policies were implemented, leading to a flourishing of small and medium-sized businesses. However, Philippon argues that since the 1980s, there has been a reversal of this trend, with market power becoming increasingly concentrated in the hands of large corporations.

The author presents extensive empirical evidence to support his claims, drawing on data from various industries such as telecommunications, airlines, banking, and healthcare. He demonstrates that in each of these sectors, a small number of firms have come to dominate the market, leading to higher prices, reduced innovation, and decreased consumer welfare.

Philippon identifies several factors that have contributed to the rise of market power. One key factor is the decline in competition enforcement, with antitrust authorities becoming less active in challenging mergers and acquisitions. He also highlights the role of regulatory capture, where powerful firms exert influence over government policies to protect their own interests.

The author argues that the concentration of market power has had detrimental effects on the US economy. He shows that monopolistic firms are able to extract higher profits, leading to increased income inequality. Moreover, these firms have less incentive to invest in research and development, resulting in a slowdown in innovation and productivity growth.

Philippon concludes the book by offering policy recommendations to address the issue of market power. He suggests strengthening antitrust enforcement, particularly in the technology sector, where dominant firms such as Google and Facebook have amassed significant market power. He also calls for greater transparency in corporate governance and increased competition in the labor market.

In summary, The Great Reversal provides a comprehensive analysis of the rise of market power in the US economy. Philippon presents compelling evidence to support his argument and offers policy recommendations to address the negative consequences of this trend. The book serves as a wake-up call to policymakers and economists, urging them to take action to restore competition and promote a more inclusive and dynamic economy.

1. The rise of monopolies and its impact on the economy

In "The Great Reversal," Thomas Philippon explores the rise of monopolies and its impact on the economy. He argues that over the past few decades, industries in the United States have become increasingly concentrated, with a few dominant players controlling a significant share of the market. This concentration of power has led to reduced competition, higher prices for consumers, and lower wages for workers.

Philippon suggests that this rise in monopolies is due to a combination of factors, including lax antitrust enforcement, regulatory capture, and the increasing importance of intangible assets. He highlights the need for policymakers to address this issue and promote competition in order to ensure a more equitable and efficient economy.

2. The decline of competition and innovation

Another key takeaway from "The Great Reversal" is the decline of competition and its impact on innovation. Philippon argues that as industries become more concentrated, there is less incentive for firms to invest in research and development and innovate. This lack of competition stifles innovation and ultimately hampers economic growth.

Philippon suggests that policymakers should focus on promoting competition and creating a level playing field for all firms. This could involve stricter antitrust enforcement, reducing barriers to entry, and fostering a culture of entrepreneurship. By doing so, we can encourage innovation and ensure a more dynamic and prosperous economy.

3. The role of lobbying and regulatory capture

Philippon also delves into the role of lobbying and regulatory capture in "The Great Reversal." He argues that powerful firms often use their influence to shape regulations and policies in their favor, creating barriers to entry for potential competitors. This regulatory capture further exacerbates the concentration of power and reduces competition.

Philippon suggests that policymakers need to be aware of the influence of lobbying and take steps to limit its impact. This could involve implementing stricter rules on campaign finance, increasing transparency in lobbying activities, and strengthening regulatory agencies to ensure they are not captured by industry interests.

4. The impact of financialization on the economy

Philippon also explores the impact of financialization on the economy in "The Great Reversal." He argues that the financial sector has become increasingly dominant and has shifted its focus from supporting the real economy to generating profits through speculative activities.

This shift has led to a misallocation of resources, with more capital flowing into the financial sector instead of productive investments. Philippon suggests that policymakers should implement measures to rebalance the economy and reduce the influence of the financial sector. This could involve stricter regulation of financial institutions, promoting long-term investment over short-term speculation, and ensuring that the financial sector serves the needs of the real economy.

5. The impact of rising inequality

Philippon also highlights the impact of rising inequality on the economy in "The Great Reversal." He argues that as wealth becomes concentrated in the hands of a few, it leads to reduced consumer demand, lower social mobility, and increased political polarization.

Philippon suggests that policymakers should address inequality through measures such as progressive taxation, investing in education and skills training, and promoting inclusive economic policies. By reducing inequality, we can create a more stable and prosperous economy for all.

6. The importance of data and privacy

Philippon also emphasizes the importance of data and privacy in "The Great Reversal." He argues that the rise of digital platforms and the collection of vast amounts of data have created new challenges for competition and privacy.

Philippon suggests that policymakers should implement regulations to protect consumer privacy and ensure fair competition in the digital economy. This could involve strengthening data protection laws, promoting data portability and interoperability, and increasing transparency in data collection and usage.

7. The need for international cooperation

Philippon also highlights the need for international cooperation in "The Great Reversal." He argues that many of the challenges we face, such as the rise of monopolies and the impact of globalization, require global solutions.

Philippon suggests that policymakers should work together to address these challenges through international agreements and cooperation. This could involve harmonizing regulations, sharing best practices, and coordinating efforts to promote competition and innovation globally.

8. The role of education and skills training

Lastly, Philippon emphasizes the role of education and skills training in "The Great Reversal." He argues that in order to thrive in a rapidly changing economy, individuals need to have the necessary skills and knowledge.

Philippon suggests that policymakers should invest in education and skills training to ensure that everyone has access to quality education and the opportunity to develop the skills needed for the jobs of the future. This could involve increasing funding for education, promoting vocational training programs, and supporting lifelong learning initiatives.