Niranjan Rajadhyaksha discusses the potential impact of the latest measures by the US to maintian a competitive economy, for Mint.
"The debate on inequality can either be framed in terms of household incomes or factor incomes. The former dominated movements such as Occupy Wall Street. Biden seems to be giving a fresh lease of life to the latter. The share of labour income in gross domestic product (GDP) has been coming down in most advanced economies over the past three decades. The share of capital income has gone up in tandem. Economists have offered a rich menu of explanations for this—the decline in labour unions, the competition offered by China, rising capital intensity, the growth of superstar firms, and the falling relative price of investment goods. In its two recent statements of intent, the Biden administration seems to be looking at another explanation that can be traced back to the work of one of the most underrated macroeconomists of the mid-20th century, Michal Kalecki.
One of his many insights is that the way national income is distributed in an economy depends on the market power of large companies in that economy. In his 1954 classic, The Theory Of Economic Dynamics: An Essay On Cyclical And Long-Run Changes In The Capitalist Economy, Kalecki wrote: “(The) relative share of wages in the value added is determined by the degree of monopoly." He argued that the share of labour income in GDP will fall as firms gain market power. Firms with market power can charge higher prices, in effect shifting income from labour to capital."
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