miércoles, enero 02, 2019



The World in 2019

Why Xi Jinping is worried about 2019

Several important anniversaries loom. The Communist Party is nervous

THIRTY YEARS ago, as 1989 approached, political storm-clouds were gathering over China. Bitter divisions had emerged within the leadership over how far and how fast to pursue economic reform. Inspired by the Soviet Union’s liberalising leader, Mikhail Gorbachev, some people in China were daring to suggest that their own country should loosen up, too. The calendar for the coming year included big anniversaries of political events in China’s modern history. Many intellectuals were awaiting those dates with excitement, hoping the occasions would provide them with a pretext to air their grievances about the party’s record in power.

The run-up to 2019 is far less febrile. But once again, anniversaries loom. The Communist Party is nervous.

This may seem odd. Since 1989 China has grown enormously in wealth and influence. The party is firmly in charge. Yet the security forces will be on full alert. Censors will work round the clock to scrub any unapproved references to the anniversaries. That will not be easy: the list of anniversaries that fall in years ending with 9, and that have sensitive connotations for the party, has grown. At its top is the date of the bloody suppression of the pro-democracy protests in 1989 that were the culmination of that heady mood three decades ago.

As in 1989, it will not be easy for the censors to ensure political conformity. That is because some of the anniversaries are ones that the party itself likes to commemorate, so it cannot simply ban all mentions of them. Take May Fourth. That day in 2019 will mark 100 years since the student movement that led to the party’s founding in 1921—much, then, for the party to celebrate. But in 1989 the 70th anniversary of the May Fourth Movement was a huge inspiration to the protesters in Tiananmen Square. They described themselves, not the party, as the true inheritors of the patriotic and pro-reform spirit of the students in 1919. There is little sign of campus unrest today. But China’s leaders know that moods can be fickle. In 1988 Chinese dissidents lamented that students seemed more interested in playing mah-jong than in politics. How wrong they were.

The 70th anniversary on October 1st of the founding of the People’s Republic will be another occasion that the party and the public could interpret in different ways. Early in 1989 Fang Lizhi, a prominent Chinese dissident (who died in exile in 2012), wrote that the anniversaries that year on May 4th and October 1st would be “eloquent symbols of China’s hope and despair” that would show how the “naive sincerity” of Chinese people at the start of Communist rule in 1949 had been “betrayed”. Few Chinese would put it so starkly now. Many express pride in their country’s growing international clout. But in regions populated by ethnic minorities, October 1st will be less of an occasion for cheer.

Security will be intense across Tibet and Xinjiang to prevent those who chafe at Chinese rule from expressing their discontent. In March it will be 30 years since the imposition of martial law in the Tibetan capital, Lhasa, after riots triggered by the anniversary of the uprising in 1959 that prompted the Dalai Lama to flee to India. Expect the 60th anniversary in 2019 of the Tibetan leader’s exile to be tense.

Perennial paranoia

As usual, censors will erase almost any mention of the Tiananmen Square protests, the 30th anniversary of the crushing of which falls on June 4th. China’s leader, Xi Jinping, has shown no interest in reviving any memories of that regime-threatening episode. For all his swagger on the world stage, Mr Xi acts at home as if the party is still in danger. He has presided over a sweeping clampdown on civil society with the arrests of many lawyers, ngo workers and rights activists. “Colour revolutions” that have toppled other authoritarian regimes appear to haunt him. He has shown no inclination to ease the brutal campaign, launched in July 1999, to eradicate Falun Gong, a quasi-Buddhist sect that once had millions of followers. Attempts to mark this date by the faith’s diehard adherents in China (and supporters abroad) will add to Mr Xi’s anniversary woes.

Especially in a year so resounding with historical echoes, Mr Xi will do nothing in 2019 to relax his vice-like controls. Instead, as a trade war rages with America, he will redouble his efforts to prevent unrest at home. He well knows that dissidents in China have long used patriotism as a cloak for attacking the establishment, as protesters did in both 1919 and 1989. So the party will be on guard lest public anger with America turn against Mr Xi and the party itself.

Could China Turn Inward?

Notwithstanding the 90-day trade truce on which US President Donald Trump and Chinese President Xi Jinping recently agreed, tensions between the world's two largest economies remain high. But while both countries may be tempted to turn inward, there are five reasons why they would be wise not to.

Jeongmin Seong , Jonathan Woetzel

xi jinping president of portugal

SHANGHAI – On the face of it, China and the United States both look as though they would be relatively insulated if trade tensions continue to escalate. China’s exports to the US account for only 4% of its GDP, and its imports from the US amount to just 1% of GDP. In the US, with its large, domestically driven economy, the equivalent figures are 1% and 3%. But putting aside these headline numbers, a retreat from globalization by the world’s two largest economies would nonetheless entail significant costs.

True, China has been rebalancing away from exports: domestic consumption contributed to more than 60% of its GDP growth in ten of the 15 quarters since 2015, and up to 80% in the first half of 2018. In many consumer categories, China is now the world’s largest market. In the first quarter of 2018, it overtook the US as the world’s top box office. And it also now accounts for 30% of global auto sales (and 43% of unit sales of electric vehicles) and 42% of global retail e-commerce transaction value.

Moreover, the McKinsey Global Institute finds that while the world’s exposure to China in terms of trade, technology, and capital increased from 2000 to 2017, China’s exposure to the world peaked in 2007, and has declined ever since. As recently as 2008, China’s net trade surplus accounted for 8% of its GDP; by 2017, it had fallen to 1.7%. That is less than either Germany or South Korea, where net exports generate 5-8% of GDP.

Following a sustained period in which China drove global growth, it seems as though its great “opening up” is losing momentum. After China joined the World Trade Organization in 2001, it cut tariffs by half, bringing them down to 8% as of 2008. Yet, by 2016, they had edged back up to 9.6% – a rate that is more than double the US and EU average. At the same time, China’s barriers to foreign capital inflows to services remain high. And the government appears to promote the growth of local companies, not least through its “Made in China 2025” plan, which sets guidelines for domestic companies in 11 of 23 high-priority subsectors.

Still, these trends do not necessarily mean that China is closing itself off from the world. In fact, there are five reasons why an increasingly autarchic China is unlikely. For starters, China remains dependent on foreign technology, with half of its technology imports coming from just three countries – the US (27%), Japan (17%), and Germany (11%) – between 2011 and 2016. More to the point, these numbers have barely budged over the past 20 years, despite China’s efforts to boost innovation at home.

Second, were China to close itself off, it would damage its neighbors’ economic prospects, thus destabilizing its own immediate region. For example, according to a recent OECD analysis, Malaysia, Singapore, and South Korea could lose 0.5-1.5% of GDP each as a result of reduced US-China trade. This, in turn, would set back China’s ambitions to be the region’s trade anchor.

Third, with a turn inward, China would start to miss out on investment and know-how from the multinationals currently operating in its economy. As of 2015, there were 481,000 foreign enterprises in China (more than twice as many as in 2000), employing around 14 million workers. About 40% of China’s exports are produced by foreign companies, or by foreign-domestic joint ventures. Moreover, foreign firms produce 87% of electronics in China, and 59% of machinery. Not by coincidence, those are the sectors most affected by the current trade dispute.

A survey conducted by the American Chamber of Commerce in China reinforces concerns about the impact of escalating trade tensions on foreign investment. Already, 31% of US firms say they may delay or cancel investment decisions, 18% may relocate some or all of their manufacturing outside China, and 3% may even exit the Chinese market altogether.

Fourth, a reduction in trade could sap the reform momentum China needs to iron out the many inefficiencies in its domestic economy. For example, China’s efforts to position its financial system to manage the risks associated with high debt levels will be sidelined if it is forced to provide more liquidity to the economy to make up for trade losses. Likewise, China’s inefficient state-owned enterprises – whose return on assets is only 30-50% that of private-sector companies – need to be overhauled as part of a broader agenda to boost productivity. But if the economy comes under pressure, those efforts, too, could be delayed for fear of undermining employment.

Finally, and more broadly, there is ample evidence showing that global interconnectedness is good for growth. MGI finds that global flows of goods, services, capital, people, and data over the past decade have boosted world GDP by around 10% above where it otherwise would have been.

A reversal of China’s great opening up would hurt not just China, but everyone – including the US. Losing access to Chinese markets, capital flows, exports, and talent would result in higher prices and slower growth, whereas the benefits of reduced levels of competition to US industries are less clear. Chinese imports have cut the price of US consumer goods by an estimated 27%.

And firms in the US would take a direct hit from higher tariffs in trade, given that 77% of China’s exports to the US are intermediary and capital goods used to produce finished products, according to the McKinsey Global Trade Database.

Turning inward may be tempting for China, but the economic costs of doing so would be significant. One hopes – perhaps against hope – that the 90-day truce on tariff increases lasts, so that an enduring trade agreement can be forged.

Jeongmin Seong is a senior fellow at the McKinsey Global Institute in Shanghai.

Jonathan Woetzel is a McKinsey senior partner, a director of the McKinsey Global Institute, and co-author of No Ordinary Disruption: The Four Global Forces Breaking All the Trends.

In China, Manufacturers Feel the Heat of the Trade War

By Phillip Orchard



The United States and China remain locked in a scrum over trade, present truce notwithstanding. Beijing is grappling for leverage while struggling to keep its own side intact. One of its greatest risks: Some of the biggest exporters in China could simply decide they want no part of this game, take their ball and go, if not home, to some other low-cost manufacturing hub.

According to a Peterson Institute for International Economics study, the first two rounds of U.S. tariffs disproportionately affected U.S. imports from China-based affiliates of multinational firms, rather than Chinese-owned firms. According to an October study conducted by the American Chamber of Commerce in South China – China’s most export-heavy region – around 85 percent of U.S. companies in the region said they were suffering from the new tariffs, compared to around 70 percent of their Chinese counterparts. In other words, the firms in China hurt most by the trade war are the ones most capable of leaving. More than 70 percent of U.S. firms with operations in China surveyed said they were mulling whether to delay or cancel new investments in China or considering leaving for greener, cheaper pastures altogether. (Just 1 percent of the firms said they were planning on moving operations back to the U.S.)

There have been growing hints that a nascent exodus is underway. Samsung, the world’s largest smartphone maker, which has been increasingly relying on factories in Vietnam and India, announced last week it would end production at its factory in Tianjin. On Dec. 5, Pegatron, a key supplier of components for Apple products, announced it’s moving some production to a new factory in Indonesia. Over the past year, Japan’s Panasonic, Suzuki and Nikon all announced closures in China in favor of Southeast Asian hotspots, including Thailand and Singapore, as well as Mexico. Even Foxconn – the paragon of efficient manufacturing at a staggering scale in China – is reportedly eyeing a move to Vietnam.

But there’s a big difference between “considering relocation” and packing up the moving vans, and that difference will define how bad things get for China. This Deep Dive examines China’s vulnerability as the trade war accelerates the rerouting of global supply chains. It looks at what advantages China’s neighbors can dangle in front of firms eager to avoid U.S. tariffs and rising labor and land costs in China, but also considers the reasons why many firms will opt to keep some of their operations in the Middle Kingdom.
Why Firms Are Souring on China
Multinational firms were eyeing the exits in China long before the election of U.S. President Donald Trump, who rode to office threatening a trade war with Beijing. This happens when a country starts to get rich. As China has become wealthier, the increase in living standards has pushed labor and land costs ever higher and driven political demand for costly environmental regulations. And so Chinese exports have become less competitive, giving foreign firms cause to look to more affordable alternatives. The challenge for China intensified as its neighbors in South and Southeast Asia, in particular, began investing heavily in manufacturing and export infrastructure (particularly since they put the regionwide Cold War chaos largely behind them). In northern Vietnam, for example, wages are little more than half those in the manufacturing heartland of southeastern China. As a result, foreign investment has surged in Vietnam, rising nearly 8.5 percent in the first half of 2018 over the same period in 2017 – itself a record year. Across Southeast Asia, net foreign direct investment inflows jumped 18 percent year on year during the first half of 2018 to $73 billion, according to United Nations figures.
This ordinarily wouldn’t be all bad news for a country like China. Rising wages generally lead to a more upwardly mobile and less restive populace, and greater consumer power makes a country less vulnerable to a sharp downturn in exports. But the trade war threatens to magnify at least three problems particular to China.

First, the Communist Party of China deeply fears social unrest and thus cannot tolerate the kind of spike in unemployment that would accompany short-term periods of economic disruption. More than 200 million Chinese people work in manufacturing. It’s bad for China if firms hit by tariffs have to start downsizing. It’s a whole lot worse if firms begin abandoning the country altogether and new foreign investment simply dries up.

Second, there are effectively two Chinas. Though the coasts have become wealthy and are scrambling up the manufacturing value chain, like Japan and South Korea did before them, vast swaths of the country – home to hundreds of millions of people – have been left behind, meaning low-skill, labor-intensive manufacturing sectors like apparel are necessary to meet China’s employment needs. (China accounted for just over 30 percent of global apparel exports last year, but this is down from 40 percent eight years ago.) Most of these industries have thus far been spared from U.S. tariffs, but if Trump ever follows through on his repeated threats to effectively tax all imports from China, such operations would be the easiest to move to countries like Bangladesh, Vietnam and Cambodia.

Third, high-value exports like electronics, metals and auto parts – sectors critical to China’s efforts to escape the middle-income trap – are the main focus of the U.S. trade offensive. Exporters in China facing 10 percent tariffs have largely been able to weather the added costs due to a weaker yuan, tax and regulatory changes and the fact that U.S. consumers are absorbing some of the costs. But the tariffs will jump to 25 percent on March 2 if the two countries are, as we expect, unable to reach a comprehensive deal. A 25 percent tax can’t be shrugged off so easily.

These new costs aren’t the only factors making multinational firms uneasy. Businesses are worried about running afoul of forthcoming U.S. rules banning U.S. government agencies from purchasing any products made in factories containing communications or surveillance equipment produced by five Chinese tech giants – tech that’s hard to avoid inside China. There is widespread suspicion that doing business in China means handing over proprietary intellectual property and technology to local competitors. There’s also concern that China will retaliate against the U.S. tariffs by boosting informal barriers to trade. (More than half the firms polled in the October American Chamber of Commerce survey reported an increase in non-tariff barriers such as stricter regulatory scrutiny and slower customs clearance times.) And now, the U.S.-China trade war appears at risk of devolving to tactics like hostage-taking following the U.S.-requested arrest of the CFO of Chinese firm Huawei in Canada and China’s subsequent detainment of three Canadians.
In short, the trade war has created a confluence of pressures on exporters in China. And the siren song of nearby manufacturing hubs – on both ends of the manufacturing value chain – is sounding ever sweeter.
Reasons to Stay Put
Still, there are ample reasons for firms in China to stay put. Less than 19 percent of Chinese exports in 2017 went to the U.S., and other major consumer markets have yet to follow the U.S. lead in imposing tariffs on China. So many of the biggest manufacturers in the country – ones that serve consumer markets across the globe – will be reasonably well-equipped to absorb the tariff costs and keep at least some of their Asian and European Union-focused operations in place.

For firms dependent on the U.S. market, relocating is neither quick nor cheap. Relocation requires new facilities, new workforces to recruit and train, new regulations to navigate, new bribes to pay and new hiccups that can cause catastrophic disruptions. Deep-pocketed multinational firms may be able to swing this, but the small and medium-sized enterprises that China relies on most for employment operate on thinner margins and generally can’t afford missteps.

All told, relocation is generally a three- to five-year process, according to the Economist Intelligence Unit. U.S.-China trade tensions aren’t going anywhere, but that doesn’t mean the current U.S. tariffs will last forever. Companies will be loath to take on the costs of moving unless it becomes clear exactly how the trade war will shake out. Moreover, if the Trump administration is truly bent on restoring lost U.S. jobs and bringing the broader U.S. trade deficit down, it will need to apply tariffs to other low-cost manufacturers, too. We don’t think this will be the case outside of a few sectors; the broader geopolitical concerns that have bred support for the White House offensive against China do not apply to policies targeting U.S. friends and allies. But the risk of firms finding themselves in the same situation elsewhere is still high enough to give them ample reason to move slowly.

Indeed, even with U.S. tariffs, China is likely to remain competitive as a manufacturing hub. Rising labor and land costs in China are offset (to some degree) by the efficiency of locating operations there. China’s coastal export cities are well-oiled machines: Home to 13 of the world’s 50 largest ports, China’s superb infrastructure reduces time to market. And a massive, well-trained workforce – at more than 630 million strong, twice the size of all of the Association of Southeast Nations members combined – allows companies to scale up quickly and respond to rapid shifts in consumer demand. Perhaps most important, the dense clustering of industries in different parts of China allows for tightly integrated supply chains and the “just-in-time manufacturing” that companies have come to rely on to stay nimble, responsive to market changes and profitable.

Some of these advantages would inevitably be lost outside of China, even though South and Southeast Asia are dotted with advanced manufacturing hubs. Some, like Penang and Port Klang in Malaysia and Thailand’s eastern seaboard, have excellent infrastructure and deep experience in high-tech industries. Some, in countries like Bangladesh, Indonesia and India, have large, low-cost labor pools. Given its proximity to Guangdong, Vietnam offers firms the rare advantage of being able to maintain cross-border supply chains.

But few neighboring manufacturing hubs offer all the advantages China does, and those that do are quickly getting crowded, pushing up labor and land prices and eroding their cost advantage. In Vietnam, for example, land costs in key industrial zones near major deep-water ports have reportedly increased more than 25 percent over the past year alone. As a whole, ASEAN has the world’s third-largest labor force at more than 350 million workers. The bloc is trying to ease the movement of capital and goods and harmonize regulations among its member states through the establishment of the ASEAN Economic Community. But implementation has been very slow, and the group remains rife with both formal and informal trade barriers. ASEAN integration is further hindered by extraordinary geographic fragmentation in Southeast Asia, which is not only home to sprawling archipelagos and unforgiving tropical terrain, but also highly vulnerable to natural disasters. According to the Asian Development Bank, ASEAN states together will need to invest more than $60 billion annually in infrastructure, particularly in energy and transport, over the next 12 years to sustain the bloc’s economic growth. The more a firm’s supply chain is dispersed in multiple countries and the more it has to rely on clogged ports or an untrained labor force, the more likely there are to be delays, hidden costs and so forth.

India perhaps comes closest to matching China’s competitive advantages. Last year, India’s labor force clocked in at a hefty 520 million people, and because of extreme class disparities, it can meet the labor cost needs of firms up and down the value chain. It’s particularly competitive in the garment industry, thanks in part to robust local cotton production. But in 2017, India accounted for 1.7 percent of global merchandise exports compared to China’s 12.8 percent – in part because India’s strengths are mainly in services and low-end manufacturing as it still lacks the infrastructure needed for high-end manufacturing. Due to factors like the convoluted regulatory environment, in 2017, India ranked just 77th on the World Bank’s ease of doing business index (a jump of 23 spots over 2016), compared to 46th for China, 27th for Thailand and 15th for Malaysia. So, despite India’s draws, only 6.5 percent of U.S. firms in China surveyed in a September report by the American Chamber of Commerce said they were considering relocating to India, compared to 18.5 percent for Southeast Asia.

There’s another huge (and growing) incentive to stay in China: It is now home to the second-largest consumer market in the world. According to Bain, if current trends hold, household consumption in China is expected to grow around 5-6 percent annually over the next decade, as some 180 million more people move into the middle class. General Motors sold more than 4 million cars in China in 2017 – over 1 million more than it sold in the U.S.

Even as Chinese economic growth slows – and even if things get really rough for China in the coming years – there are massive consumption gains still to be made as rapid urbanization and technological proliferation boost living standards. Rising competition from Chinese firms to meet this demand is already putting multinational companies at a disadvantage. Many cannot afford the loss of tariff-free access – and, potentially, the political favor often necessary to avoid unexpected hiccups in China – that would come with abandoning the country altogether. ASEAN alternatives, though growing in their own right (the bloc is expected to have the world’s fourth-largest consumer market by 2050), just don’t have the same allure. That’s especially true since the U.S. withdrawal from the Trans-Pacific Partnership. Signatories like Malaysia and Vietnam won’t be able to dangle tariff-free access to the U.S. market unless the United States re-embraces global trade. We expect this to happen eventually, but it could take decades.
The Bottom Line
Nonetheless, firms are increasingly routing their supply chains around China, and the trade war will inevitably accelerate this shift. Well-resourced multinational firms are already well-practiced in building out sprawling global supply chains and have no loyalty to China. They rely too heavily on seizing even minor cost and efficiency advantages, and are too concerned about the political and investment climate in China and enduring tension with the U.S., to stand pat. Infrastructure buildups in low-cost manufacturers in Southeast Asia and Latin America, along with the proliferation of bilateral and multilateral free trade agreements promising preferential trade access to major consumer markets like the EU and Japan, will further narrow China’s long-held advantages. (Ironically, China’s Belt and Road Initiative may work against Chinese interests as its projects help improve rival manufacturers’ competitiveness.)

Even Chinese firms have been increasingly keen to get in on the action, opening large manufacturing operations staffed by local labor in countries like Vietnam, Malaysia and Ethiopia. (Since 2000, in fact, Chinese firms have spent more than $9 billion on 869 greenfield investments in the U.S. alone, according to the Rhodium Group.) After all, Japan sidestepped the middle-income trap by evolving from export powerhouse to investment powerhouse over the past two decades, in large part by becoming one of the first advanced economies to move much of its manufacturing abroad. Chinese firms seeking to dodge tariffs will naturally want to follow suit. The question is whether the employment-obsessed CPC, which would rather see its firms move to lower-cost regions in inland China, will let them.

On the whole, the shift away from China will happen more gradually and haltingly than the headlines may suggest – absent a catastrophic deterioration in China’s domestic political situation or escalation in tensions with the U.S. Given the costs of moving and risks of leaving, perhaps the biggest shift will be that new investments increasingly go elsewhere. And among foreign firms that are motivated by U.S. tariffs to leave, the relocation will generally be partial, confined to operations (like final assembly) that minimize supply chain disruption while satisfying U.S. rules of origin requirements. In other words, they’ll be looking to manufacture just enough of a product elsewhere to stamp it with: “Made anywhere but China.”

Big Buyers Beware the New Trustbusters

Growing industry concentration and better data have been fueling concerns about companies’ ‘monopsony’ power over labor and suppliers

By Paul J. DaviesBig Buyers Beware the New TrustbustersBig Buyers Beware the New Trustbusters/ Photo: Peter Oumanski 

When Apple AAPL +0.53%▲ cut production for its current lineup of iPhones in November, the share prices of its huge network of suppliers tanked. Around the same time, Amazon was making a decision on where to put its secondary headquarters, ending a feverish effort by U.S. cities to win the retailer’s favor.

The power of large companies has never been more apparent. It isn’t just technology: The market share of the biggest companies in many industries has risen dramatically over recent decades. Top companies are much more profitable than others, and some think they are harming competition.

Regulators are increasingly focusing on the power that these companies have over their workers and suppliers, and companies appear to be aware of the risk. This helps explain big wage increases this year by Walmart WMT +1.49%▲ and Amazon, which boosted its minimum hourly rate to $15, following criticism that the retail giants use their scale to give staff a raw deal.

Both the Justice Department and the Federal Trade Commission are now looking more at labor issues in merger cases, according to David Wales, antitrust partner at Skadden, Arps, Slate, Meagher & Flom in Washington, D.C. “It has come up in a couple of pending investigations where the staff has asked the parties to answer questions about the impact of the merger on labor,” Mr. Wales said, adding this is the first time he’s seen this happen.

So far, no antitrust case has been brought on behalf of labor, and very few challenges have been made in modern times on the broader grounds of a company’s buyer power over labor, goods or services. But this appears to be changing. The Justice Department’s case against the merger of health insurers Anthem and Cigna last year included its first-ever citation of their increased buyer power over doctors and hospitals as a stand-alone argument. That deal was ultimately blocked on traditional concerns about customers, however.

In the U.K., where supermarkets have attracted much political criticism for their treatment of suppliers, competition authorities are examining supplier effects as part of their review of Walmart’s deal to sell its British unit, Asda, to a top-three rival.

For decades, the main yardstick in antitrust cases has been consumer welfare, which often boils down to prices. If merging companies can show evidence that prices won’t rise, regulators assume an industry remains efficient and competitive.

But while low prices can be achieved through efficiency and scale, they can also come from weakening suppliers. Some companies have even cited a greater ability to squeeze suppliers in antitrust defenses, according to Scott Hemphill, a law professor at New York University.

Concern about dominant buyers or so-called monopsonies—as opposed to dominant sellers or monopolies—has bubbled up from the academic world to become a leading theme of the Federal Trade Commission’s current hearings on whether antitrust practice is working. Such hearings are rare: The last set was in the mid-1990s.

Suppliers’ reliance on large individual customers has grown in several industries. Since 1978, listed U.S. companies have had to disclose whether any customer accounts for more than 10% of revenue and, if so, how much. A recent study of this data by Nathan Wilmers of MIT Sloan School of Management found that for manufacturers, wholesalers and shipping companies, these dominant buyers have grown to represent 20% to 25% of sales, from less than 10% in the early 1980s. He also links the rising share of purchases made by big retailers, such as Walmart, with falling wages at suppliers.

Long-stagnant wages have focused academic attention on monopsony power. In the U.S., better data from government sources and online job sites in just the past few years have allowed labor economists to show that competition among employers is far weaker than was long assumed.

The argument even reached central bankers and economists at the Federal Reserve’s annual retreat in Jackson Hole, Wyo., this summer. Some in attendance, such as economist John Van Reenen of MIT Sloan, argued rising industrial concentration is due to “superstar” firms beating out lesser rivals and that it is too soon to worry about their ability to abuse market power. Others, like economist Alan Krueger of Princeton University, were more concerned that concentration is a problem.

It matters whether a dominant, highly profitable company is very efficient or simply exploiting a powerful position—whether it is a superstar or just supersized—because pressure for more intervention is building. Companies can help their case by paying staff better. But investors need to wake up to the risks.