Universal Ownership

Abstract

Market concentration and weak competition do not just lead to lower efficiency, but also result in corporate profits flowing primarily to wealthy households that own a disproportionate share of public corporations. We demonstrate that this is a growing distributional problem not only due to familiar reasons in the literature, most notably shifts in market power, but also due to changes to the socio-economic makeup of ownership. Over the past twenty years, households in the bottom 90 percent of wealth have seen their share of stock ownership decline by half. That is, the ownership of corporations has become increasingly concentrated among the wealthy at a time when corporations are arguably extracting ever more surplus from consumers and workers.

This Essay seeks to situate the distribution of ownership at the center of policies to address the impact of declining competition. The gist of our proposal is that policies to reverse existing trends by broadening the ownership of public corporations to middle and low-income households may help mitigate the harmful consequences of market power. The general objective of such policies would be to bring the distribution of ownership closer towards universal ownership of corporations by the public.

Universal ownership is desirable for two main reasons. First, the simplest effect of universal ownership would be to enable a broader array of stakeholders to benefit from the excess profits earned by firms in concentrated markets. Second, we demonstrate theoretically that if corporate stakeholders, particularly consumers and workers, own shares in public corporations, managers may offer more competitive prices and wages, to the extent that managers internalize the interests of their owners. Accordingly, policies to promote universal ownership of corporations can potentially achieve the same welfare goals that were long confined to other policy areas.

A major advantage of universal ownership is that it does not seek to challenge the existing corporate governance paradigm, which focuses on enhancing accountability of managers to owners. Rather it reinforces it by changing the ownership makeup of corporations. While there are practical challenges with implementing universal ownership, given the imperfections of standard policy responses to declining competition--such as stronger antitrust enforcement or regulation--our proposal could serve as a complimentary policy tool to existing approaches, and offers potentially consequential advantages.