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Restoring Competition in the Digital Economy

The digital economy is carving out new divides between capital and labor, by creating “winner-takes-most” outcomes in which one firm, or a small number of firms, can capture a very large market share. To address this problem, the G20 should consider creating a World Competition Network.

MUNICH – The digital economy is carving out new divides between capital and labor, by allowing one firm, or a small number of firms, to capture an increasingly large market share. With “superstar” companies operating globally, and dominating markets in multiple countries simultaneously, market concentration throughout the Group of 20 developed and major emerging economies has increased considerably in just the past 15 years.

To address this phenomenon, the G20 should create a World Competition Network to restore competition and address income inequality between capital and labor. As a larger share of total income shifts to capital across many G20 countries, the World Competition Network would seek to reverse the decline in labor’s share of GDP.

During the period after World War II, 70% of national GDP went to labor income, and the remaining 30% to capital income. John Maynard Keynes described the stability of the labor share as something of a “miracle.” But the rule has since broken down. Between the mid-1980’s and today, labor’s share of world GDP declined to 58%, while capital’s share rose to 42%.

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