THERE is a growing suspicion among Britons that capitalism is not working as it should. And who can blame them? Average real wages are still lower than they were before the financial crisis of 2007-08. Business investment is measly, productivity growth poor. Jeremy Corbyn, the leader of the Labour Party, says that capitalism is “rigged”, a word also used by Michael Gove, a prominent Conservative cabinet minister. They have a point. The biggest firms across a range of industries in Britain have more market power than they used to. That clout may allow them to charge higher prices for poor service, and pay lower wages.

The debate on market power is hottest in America. An analysis in The Economist in 2016 showed that two-thirds of American industries became more concentrated in the 2000s. Big firms are taking up a larger share of their industry’s total revenue. As American firms have acquired more market power, corporate profits have jumped.

Now we have found evidence that the British case has similarities with the American one. Dividing the British economy into 250-odd sub-industries, from management consultancy to private security, we calculate that over the past decade 55% of these sectors have become more concentrated, with the four biggest firms accounting for a larger share of revenue than before. Break down the economy into over 600 micro-industries—from “activities of real-estate investment trusts” to the “raising of camels and camelids”—and the results are much the same: 58% of these sub-sectors have become more dominated by their biggest firms (camel-rearing has become more concentrated than banking).

A report published on July 26th by the Resolution Foundation, a think-tank, uses a different approach, but it also finds that the economy has become more concentrated since the early 2000s (see chart 1).

Why? One reason, as Jonathan Haskel and Stian Westlake argue in their book, “Capitalism without Capital”, is that investment in intangible capital—things like software and management practices—has become a vital part of the modern economy. It is particularly important in Britain, which is dominated by services. Intangible assets allow firms to grow rapidly. A firm writing computer code can export it all over the world at the touch of a button. Less productive outfits struggle to copy such innovations, consigning them to staying small or not entering a market at all. Mergers may have reinforced the trend towards concentration. In the past 20 years Britain has seen about $5trn-worth of mergers and acquisitions of domestic firms. Adjusting for the size of its economy, that is nearly 50% more than in America (though Britain sees relatively more foreign mergers, which do not increase concentration). Companies may have had an easier time of late. Our analysis suggests that the number of merger inquiries by the competition authorities has fallen. Concentration is not always bad. Britain’s supermarket industry has few big firms, but consumers enjoy low prices, in part because the giants have large economies of scale. Still, the historical evidence is not encouraging. In a paper in 2012 Nicholas Crafts of Warwick University argued that the high concentration seen in Britain from the 1930s to the 1970s partly explained low productivity growth during the period. (Joining the European Economic Community in 1973 helped by injecting foreign competition.) And, on balance, consumers today appear to be losing out. A paper by Jan De Loecker of the University of Leuven and Jan Eeckhout of University College London looks at the pricing power of a sample of British firms. The researchers examine mark-ups (ie, selling prices divided by production costs). Since the 1980s the average mark-up in Britain has risen by more than in Europe or North America. More firms are charging big mark-ups and fewer merely breaking even (see chart 2). Consumers, in other words, are paying more than they should be. Andrew Tyrie, the new head of the competition regulator, worries about companies in certain sectors “ripping people off and exploiting the vulnerable.”

Unlike in America, British firms’ greater pricing power is not clearly visible in national-accounts data. The ratio of overall corporate profits to GDP is well above its long-run historical average, but there has not been the large, recent rise in corporate profitability seen across the pond. The British story is subtler. The distribution of those profits seems to have become more skewed, with successful firms enjoying bigger profits and the rest seeing relative decline. It also seems increasingly tough to break into markets and compete away the high profits enjoyed by an incumbent. In 70% of industries, the rate of entry of new businesses fell in 2007-14. Firms that do not fear competition may not offer the best service or lowest prices.

Ten years from now we’ll still be on top

It is less clear how concentration affects workers. Evidence from America suggests that as firms become more powerful they can get away with offering lower wages, since workers have fewer alternative employers. The Resolution Foundation paper suggests that, across Britain as a whole, the biggest firms actually employ a lower share of employees than in the early 2000s. In parts of the country, however, workers do appear to have fewer options than before. Whatever the explanation, wages as a share of GDP have fallen during the same period.

British capitalism could become still more concentrated. Leaving the EU’s single market and customs union would reduce trade, easing competitive pressure from abroad. To attract investment the government might look more favourably on proposed mergers—and loosening regulations would be easier outside the EU’s competition regime. Britain’s concentrated economy is likely to become even less competitive before it becomes more so.