Title: Private Equity Firms and the Irrelevance of Traditional Monopoly
Abstract: Alfred Marshall wrote in the preface to his Principles of Economics, “economic conditions are constantly changing, and each generation looks at its own problems in its own way” (Marshall, 1946: v). Indeed every generation of scholars should ask new questions, look at problems from different perspectives and evaluate the efficacy of any theoretical framework. Unfortunately, neoclassical economics has hermetically sealed itself from honest self-evaluation; it remains “ahistorical, developing models that abstract business organizations, their debt dynamics and the state of the macroeconomy” (Rima, 2002: 409). Its core propositions are accepted as faith and cannot be challenged empirically. The model of perfect competition and monopoly, for example, which forms the core of the neoclassical theory of the firm remains beyond empirical challenge1 even though it is “a myth, only valid in the theoretical framework of static equilibrium theory and not in real life” (Ekeland, 2005:1). Unfortunately, fixation with mythical concepts has obfuscated understanding of the most important phenomena of our time – the growing financialization and centralization of capital. Nine of the largest twenty-five global corporations are financial institutions,2 collectively earning 12.7 trillion dollars in revenue in 2006 (Fortune, 2007). Capital exports are increasing more rapidly and are more significant than export of goods/services at 16 percent of world GDP in 2005. In the United States finance, insurance, real estate, rental and leasing comprises 21 percent of total GDP. (Howells and Barefoot, 2007: 19). As Grogan notes, “in today’s world, banks own insurance companies, pension funds and hedge funds. Insurance companies own banks. Brokerage houses own commerical banks and hedge funds — and so on and so forth” (2005: 15).
Publication Year: 2008
Publication Date: 2008-01-01
Language: en
Type: article
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Cited By Count: 1
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