A trawl through 30 years of data traces the evolution of superstar firms, a difficult-to-tame species
Bloomberg Businessweek|May 24, 2021
The world’s biggest businesses were doing fine until Covid-19 arrived. Now they’re doing even better.
Cristina Lindblad

The top 50 companies by value-added $4.5 trillion of stock market capitalization in 2020, taking their combined worth to about 28% of global gross domestic product. Three decades ago the equivalent figure was less than 5%.

That’s just one measure of how superstar firms have come to dominate the world economy, according to a new study by Bloomberg Economics that maps out their changing role. The findings provide ammunition for policymakers bent on reining in the giants—including a U.S. government that’s seeking to rally global support for higher levies on corporate profits.

The biggest companies generally post fatter margins and pay less in taxes than they did in decades past, the Bloomberg Economics study shows. Their median effective tax rate of 35% in 1990 had dwindled to only 17% last year—while profit margins headed in the opposite direction, soaring from 7% to 18% over the same period. They also devote a smaller portion of their earnings to job-creating investments: In 1990, IBM— at the time the world’s biggest publicly listed company—devoted 9% of its revenue to capital expenditures. Fast-forward to 2020, when Apple— its replacement in the top spot—spent just 3%.

The advantages superstar firms enjoy became all the more glaring during the pandemic, which is one reason why the issue of how to tame them has vaulted up the political agenda in so many countries. Tech giants such as Amazon.com Inc. have business models that are tailor-made for a year of social distancing, unlike Main Street competitors dependent on foot traffic. And government rescues worked best for the biggest com panies, which benefited from central bank backstops that kept borrowing costs low and stock prices high. In contrast, patchwork relief efforts for small businesses left many struggling to pay their bills.

In the U.S., President Joe Biden’s administration is seeking to raise corporate taxes as part of a wider effort to halt the long drift to inequality. He wants to reverse at least some of the cuts implemented by his direct predecessor, Donald Trump. He’s also pushing for a global tax deal that would make it harder for the biggest companies to lower their bills by shifting profits to low-tax jurisdictions.

That practice spread as corporations grew bigger. A 2019 study by the International Monetary Fund found that as much as 40% of what on paper looks like foreign direct investment is “phantom investment into corporate shells with no substance and no real links to the local economy.”

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