America’s role as the world’s economic superpower was established in the period between 1870 and the start of the first world war. The country boomed, immigrants arrived in their millions and the rich coined it in. Even now the names are familiar: John D Rockefeller; Andrew Carnegie; the Vanderbilt family. They called it the Gilded Age.



Never before had America’s superrich had it so good and, until recently, it was assumed they would never have it so good again. Yet the 2017 billionaires report compiled by the Swiss bank UBS and the consultancy firm PwC finds that the clock would have to be turned back to 1905 – when the Russians were having a trial run for their revolution and Queen Victoria had been dead only four years – to find a time when wealth was so concentrated.

A separate study by the Institute for Policy Studies in Washington produced similar findings. Bill Gates, who founded Microsoft, Jeff Bezos, the man behind Amazon, and the investor Warren Buffet own as much wealth between them as the poorer half of the American population – 160 million people, it found. The trio are the Carnegie, Rockefeller and Vanderbilt of the modern age.

This is not simply a US phenomenon. China looks very much like the US of the late 19th century, with fast growth, rising real incomes for industrial workers and the rise of a new cadre of superrich people.

Josef Stadler, the author of the UBS/PwC report, said: “We are now two years into the peak of the second Gilded Age,” and he added that the 1,542 dollar billionaires around the world were concerned about how concentrated wealth has become. But not, it seems, concerned enough to do anything about it. The rich show real tenacity when it comes to holding on to their wealth and the system that generates it. The United Nations Conference on Trade and Development (UNCTAD) describes it as rentier capitalism, whereby the stifling of competition allows excess profits to be made.

Under a properly functioning free-market economy this is not supposed to happen. The economist Joseph Schumpeter said it was acceptable for an entrepreneur, say Gates or Bezos, to make excess profits temporarily if they had come up with a genuinely new product. But these rents would not last for long because rivals would quickly enter the market, bringing an end to the monopoly as there were no intellectual property rights (IPRs) to defend them. They were the reward for thinking ahead of the curve.



There are cases where the use of IPRs can be justified. Patents are widely used by the pharmaceutical industry to prevent cheaper alternatives. The justification is that the development of new drugs is hugely expensive and that without the chance to make excess profits there would be no incentive to come up with life-saving products.

The UNCTAD report, though, says that market-leading companies are abusing IPRs to ensure that they can see off potential rivals.



“Large firms use patent protection to raise barriers to entry in an industry and bolster their own market power. Thus, superstar firms benefitting from erecting initial technological barriers to entry can use this advantage to further expand their market power in other ways, for example through pricing strategies that make new entrants nonviable,” it said.

The upshot is a drift towards oligopoly – in which the market is dominated by a small number of firms – and in some cases monopoly. Rentier capitalism is rife on Wall Street, but it is not just the financial services sector that is affected.



As the UNCTAD report notes, in almost half of all US industries in 2012 the four largest companies accounted for at least 25% of all industry revenue. In 14% of all industries, the four largest firms captured over 50% of all revenues.

What’s more, the sectors in which there was the biggest increase in market concentration showed the biggest increases in profits. These were not the result of firms making themselves more efficient; instead, they exploited market power to keep prices higher than they otherwise would have been.



UNCTAD’s point is that fast-rising market power and concentration is explained by the reversal of measures such as anti-trust laws, financial regulations and fiscal policies that were designed to deliver full employment and to strengthen labour’s bargaining hand.

“Once institutional countervailing powers – such as those of nation states, civil society and labour organisations – have been weakened, corporate rentierism has flourished. More generally, this raises the possibility of a ‘Medici vicious circle’, where money is used to get political power and political power is used to make money.”

If revulsion at the concentration of wealth and the exploitation of market power becomes strong enough there is nothing to stop governments smashing monopolies and raising taxes. This, after all, is what happened last time, with the first Gilded Age followed in the US by two waves of reforms, the pre-first world war Progressive era and during the New Deal of the 1930s. In his book Capital in the 21st Century, Thomas Piketty notes that in the early 20th century, the US led the way on tackling wealth disparities, proving intellectually more prepared than other advanced countries to accept a steeply progressive income tax. In an article for American Prospect, Paul Starr notes that limiting the power of concentrated wealth in the US is a cause with deep roots.



That explains why anti-trust laws were used to break up Rockefeller’s Standard Oil in 1911, and why the 16th amendment to the constitution brought in a federal income tax in 1913.

The US political backlash, in both the Progressive era and the 1930s, went right to the top. Teddy Roosevelt was in the White House when the anti-trust suit which ultimately resulted in the dissolution of Standard Oil was launched; Woodrow Wilson vehemently denounced corporate lobbying and Franklin Roosevelt made clear what he thought of Wall Street when he said in his 1936 re-election campaign that government by organised money was as dangerous as government by organised mob. To rapturous applause, FDR went on to say that big money was “unanimous in its hatred for me, and I welcome that hatred”.

Like FDR, Donald Trump has appealed to those in America who think the system is rigged against them. Unlike FDR, he has so far shown not the slightest inclination to do anything to make the system less rigged. To do that, Trump would have to make the tax system more progressive, reduce the power of corporate lobbying, resist pressure for stronger intellectual property rights and stop the wealthy from salting their money away in tax havens. None of this is on his agenda, which explains why America is a country where competition is thwarted, excess profits are rife and the tech entrepreneurs of Silicon Valley are the new robber barons.

• This article was amended on 15 November 2017. An earlier version said that “Teddy Roosevelt was in the White House when Standard Oil was broken up”. Roosevelt was president when the anti-trust suit was launched in 1909 but had left office by the time the Supreme Court ordered the dissolution in 1911.

