Home / Opinion / Columns /  Does Biden's stance on monopolies hold good for India too?

US president Joe Biden earlier this month released an executive order on promoting competition in the US economy. Biden said in his order that “excessive market concentration threatens basic economic liberties, democratic accountability, and the welfare of workers, farmers, small businesses, startups, and consumers". He added that maintaining a competitive economy is an important part of his agenda.

The US president has taken aim at large firms with monopolistic control over parts of the American economy, especially the online giants. One strand in the presidential order is worth focusing on—how the growing concentration of economic power has made it more difficult for workers to bargain with employers for higher wages. A few weeks earlier, the Biden White House had said: “When it comes to the economy we’re building, rising wages aren’t a bug; they are a feature. We want to get something that economists call full employment. Instead of workers competing with each other for jobs that are scarce, we want employers to compete with each other to attract work."

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.

Inequality and monopoly are thus joined at the hip. It is not clear whether economists in the Biden administration are taking direct inspiration from Kalecki, but the parallels should not be ignored. In recent times, the spirit of Kalecki has made its presence felt in other places as well. At the 2018 edition of the annual central banking shindig at Jackson Hole, Wyoming, economists spoke on the very Kaleckian theme of whether market power of firms had led to the falling share of labour in national income. Alas, Kalecki was never mentioned by name in the entire conference.

Among the papers presented at the Jackson Hole conference in 2018 was one by Bank of England chief economist Andrew Haldane. He argued that the degree of market concentration is likely to affect both the shape of the Phillips Curve as well as estimates of the equilibrium interest rate, two important considerations for central banks with an inflation-targeting mandate. Haldane argued that much depends on whether firms with the ability to keep down labour costs use the benefits to offer consumers lower prices or choose higher profits. (For more, see

India’s economy is structurally different from America’s, and perhaps the Kaleckian link between market power and the share of wages in national income is less important here, but the trend of declining share of wages is the same. In a recent paper on the share of labour income in the Indian industrial sector, Arjun Jayadev and Amay Narayan showed that it has declined since 1983, which they find is due to several factors including higher capital intensity, productivity increases in larger firms, more informalization and higher privatization. Radhicka Kapoor has shown that the capital intensity of Indian firms has been increasing, and that skilled workers have done better than unskilled. There is complementarity as well: firms that are more capital intensive tend to use more skilled workers, while firms that are less so depend on unskilled workers. Most research has focused on the industrial sector rather than the entire economy. The classic empirical work on the share of factor incomes in Indian GDP is by S. Sivasubramonian, but his data series stops at the turn of the century, though it does show a sharp decline in the share of labour incomes from the late 1980s.

Income inequality in India is also about a failure to create conditions for job creation by productive firms. Too many Indians are trapped in informal firms that can only offer low wages. As Dani Rodrik and Stephanie Stantcheva rightly pointed out in this newspaper on Monday: “An increase in the supply of good, well-paying jobs for those at the bottom of the income distribution requires a commensurate increase in productivity. Good jobs and good firms go hand in hand."

Niranjan Rajadhyaksha is a member of the academic board of the Meghnad Desai Academy of Economics

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