In his book The Market Power of Technology (2023. Columbia University Press), Stanford University emeritus professor of economics Mordecai Kurz has some unkind words to say about General Electric, and some unconventional things to say about monopoly. The latter include what monopoly is, how to measure it, what concerns it raises, and what should be done about it. All this makes Kurz's views important for assessing Giant Corporations in general and GE in particular — however unqualified the author of this history of GE is to grapple with Kurz's sophisticated mathematical economic models, or even to read a balance sheet.
Like most modern anti-monopolists Kurz does not restrict himself to the narrow definition of monopoly as a single seller serving an entire market. Nor does he identify monopoly with a particular and excessive level of the ratio of company sales to the total market, such as 70%. He does not however, use those rejections to proclaim "I can't define monopoly, but I know it when I see it".
Instead, Kunz sees monopoly not as a binary yes or no but as a measurable matter of degree. He measures a quantity called Monopoly Wealth using information that companies make public in their annual reports or through the press. He then dons his green eyeshade and dives into a venerable accounting document, the balance sheet.
The balance sheet depicts the company in two columns, assets and liabilites. Assets are things that could be turned into cash. These range from real estate, buildings and machinery to inventories, to company holdings of stocks, bonds, and holdings of cash itself. Liabilities are basically what the company owes to others. Subtracting liabilities from assets gives a dollar figure called "Net Worth". (Don't be confused by the fact that on actual balance sheets the accountant then inserts on the liabilities side an item that is called something like "invested capital." It is essentially equal to the net worth. Its purpose is to make the assets and liabilities columns come out equal).
Kurz then computes for the company a number called "Market Value." It is simply the price of one share of a company's stock multiplied by the total number of shares outstanding. He now has all the numbers he needs to define Monopoly Wealth:
Monopoly Wealth = (Market Value - Net Worth) / Market Value
Note that, expressed in %, this number can be above 100%, and also can be negative. A negative Monopoly Wealth means, roughly speaking, that the stock market has found the company to be worth more dead than alive. Far from being rare, Kurz asserts that in the twentieth century many U.S. companies had negative Monopoly Wealth.
Why is this number an appropriate measure of Monopoly Wealth? Monopoly Wealth so measured is a Wall Street estimate of the value of company characteristics that, though they do not show up on the balance sheet, enable a company to earn far greater profits than it could earn under perfect competition. Those characteristics include creative people, mastery of new technologies, patents, unique procedures, trade secrets, the prestige of the company's logo, and the aggressiveness of the company's business practices. Most of this value does not show up on the balance sheet.
Kurz does not view Monopoly Wealth as typically a violation of the antitrust laws. Indeed he deliberately ignores blatant law violations that increase Market Wealth, such as price fixing. With those, he says, the current antitrust system is capable of dealing. He instead asserts that excessive Monopoly Wealth, even if legally acquired, is harmful to the public. So the possessors of that Monopoly Wealth, even if law abiding, should be targets for government action. All this raises two questions. At what level does Monopoly Wealth become excessive? What are the harms of even legally acquired Monopoly Wealth?
As for the danger level of Monopoly Wealth, Kurz initially looks at 21st century Giant Corporations such as Apple, Alphabet (Google), Meta (Facebook) and Microsoft. Their Monopoly Wealth ranges from 66% to 90%. Kurz views these as clearly dangerous levels. He contrasts them to the mean Monopoly Wealth of all the 21st century U.S. companies that he studied, which is 50%.
The Monopoly Wealth of the Old GE over most of its history is shown in the table below. (Kurz does not present these numbers in his book, despite the fact that he goes on to make GE the bad example of Monopoly Wealth in the 20th century. The numbers were computed by the author of this book, using Kurz's method.)
| GE Monopoly Wealth, 1900-1990 | |||||
|---|---|---|---|---|---|
| Year | Number of shares of GE stock, millions | Typical share price for indicated year, $ | GE Market Value, $-million | GE Net Worth, $-million | GE Monopoly Wealth by Kurz measure, % |
| 1900 | 0.25 | 125 | 31 | 18 | 42 |
| 1910 | 0.65 | 160 | 104 | 46 | 55 |
| 1920 | 2 | 140 | 280 | 224 | 20 |
| 1930 | 29 | 75 | 2,175 | 403 | 81 |
| 1940 | 30 | 20 | 600 | 368 | 38 |
| 1950 | 30 | 41 | 1,230 | 702 | 42 |
| 1960 | 90 | 85 | 7,650 | 1,513 | 80 |
| 1970 | 90 | 77 | 6,930 | 2,706 | 60 |
| 1980 | 300 | 58 | 17,400 | 8,200 | 52 |
| 1990 | 900 | 60 | 54,000 | 21,680 | 59 |
Why does Kurz view GE's level of Monopoly Wealth, as dangerous? The two eras he studied, he asserts, had different characteristics. In the first few decades of the 21st century, when U.S. corporations have a mean Monopoly Wealth of 50-60%, a level of 70-90% is dangerous. In the first few decades of the 20th century, when U.S. corporations had a mean Monopoly Wealth of near or even below zero, that GE level of 50% was dangerous.
What, in either the 20th or 21st century, was the harm to the public of excessive Monopoly Wealth? Kurz highlights several harms, including the following. Companies with excessive Monopoly Wealth, even if acquired by good means, such as innovation, often preserve that Monopoly Wealth by bad means, such as buying up potential competitors. Companies with excessive Monopoly Wealth protect that Wealth by barricading it behind slews of questionably valid patents and other dubiously legal barriers to entry. Companies with excessive Monopoly Wealth slow national economic growth. Companies with excessive Monopoly Wealth make society more unequal. And finally, the harm Kurz illustrates with GE: companies with excessive Monopoly Wealth slow the public adoption of new technologies.
Here the main point is that by joining with its junior partner Westinghouse in the years 1896-1930 to dominate the electrical manufacturing industry, GE imposed excessively high equipment prices on electric utility companies. Those high equipment prices led to higher than necessary prices for electric power charged by those utilities to the public. This slowed the annual increase in the number of people who could afford to electrify their homes. This slowing meant that the electrification of 75% of US urban or rural non-farm homes took the 30 years (from 1899-1929), instead of the 15 years it would have taken in a more competitive economy. Farm electrification was even slower, requiring Federal government help and two more decades to reach that 75% level.
Kurz's justification of these claims is one of the more difficult parts of the book for the general reader to follow. The things that such a reader might expect him to do he does not do. For example he does not apply his earlier definition of Monopoly Wealth to GE, and then relate the resulting figure to too-high electricity prices. Instead he derives a differently defined Monopoly Wealth. Then he inserts GE's so defined Monopoly Wealth into a mathematical model of technology diffusion. The model produces a diffusion constant corresponding to that estimate of a nearly two times too long electricity diffusion.
That procedure must be evaluated by experts who understand Kurz's mathematical models. Even one lacking this expertise can however, raise questions. For example, are there examples of countries achieving that much faster diffusion, or is it an ideal never actually achieved in practice? Did the price of equipment (which was decreasing, not increasing on a per kilowatt basis) so fully dominate electricity prices, compared to other utility costs such as the purchase of land, the construction of stations and substations, the installation of transmission and distribution lines, and the cost of fuel and labor, that GE and Westinghouse deserve all the blame for the slow diffusion?
So, to conclude, Kurz's approach to Monopoly Wealth is original and convincing. His view that GE possessed the substantial Monopoly Wealth that his definition identified seems valid. His further conclusion that GE substantially retarded U.S. adoption of electricity is, however, more controversial. It remains for other experts to determine if the models he used to address this issue explicate or obfuscate.