Adam Smith and the crony capitalist conspiracy

The concentration of market power in the hands of a few big companies worried Adam Smith. It should worry us too, says Merryn Somerset Webb. But it is fixable.


Google had 120 lobby meetings with EU officials between 2014 and 2016

Former Greek finance minister Yanis Varoufakis and Jeremy Corbyn had a public conversation this week at the Edinburgh Book Festival. Varoufakis was good engaging enough to deserve his growing reputation as the thinking capitalist's favourite socialist. He is clearly rather a fan of Adam Smith.

An audience who had read either of Smith's blockbusters, The Theory of Moral Sentiments (published in 1759) or The Wealth of Nations (1776), would have caught several references. But the most obvious similarities came in Varoufakis's irritation with the rise of corporate power, oligopoly and monopoly something Smith was constantly concerned about.

One of Smith's best known quotes is on this very matter: "People of the same trade seldom meet together, even for merriment and diversion," he wrote, "but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." The fewer players in an industry, the more powerful those players are and the more they hang around together, the easier it is for the "conspiracy" to kick off and for the ordinary person to be disadvantaged.

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Big companies are getting more powerful

The evidence rested on tracking average mark-ups on goods and services provided by listed companies in 74 countries (this is the extent to which a company can bump up its prices relative to its costs, and is an obvious and simple measure of its power in the market).

The results, says the IMF, show a few worrying things. First, that mark-ups in advanced economies have significantly increased since the 1980s (by 43% on average); that this trend has accelerated in the past ten years; and that the increase is mostly driven by the "superstar" companies in each sector.

This matters partly because overly concentrated market power is connected with falling investment and innovation, and partly because it is possible that market concentration is one of the things holding down wages in the West. The IMF says that "the labour share of income declines in industries where market power rises".

However, it mostly matters because it appears to represent an obvious failure of capitalism. In a perfect environment with no barriers to entry in the form of regulation, access to capital and industry associations superstar companies would not be around for long: many start-ups would compete their advantage away, wealth would again be spread about a bit and that would be that.

This is not happening perhaps because of regulation or the endless and expensive lobbying habits of big business. According to, Google, for example, had 120 lobby meetings with a commissioner, cabinet member or director-general of the EU between 2014 and 2016. The networking effect of new technology plays its part.

In the US, the rate of new company formation is well below where it was before the financial crisis. At the same time, the big are getting bigger. The result is a depressing perception that capitalism is doing exactly what Karl Marx said it would: it is pushing wealth towards the few, something that is surely one of the main drivers of the sentiment shift towards socialism in the UK and in the US. Polls show that about half of US millennials think they would prefer to live in a socialist society than a capitalist one.

Politicians are waking up to the threat

Smith would not have wanted corporate merriment tackled in any way not consistent with "liberty or justice". But given that most people at the moment whether they identify as capitalist or socialist appear to agree that they are anti-oligopoly and pro a fair share for labour, it must be time to reimagine industrial policy. The aim should be not to "pick winners" but to root out the wrong kind of winner.

There may be no particular need to worry about dominant technology companies in the immediate future, for example, given that, data concerns and tax arguments aside, their products do great things for consumers. But a dedicated "crony capitalism" tsar might find that there is an argument for legislation to break up accounting firms by banning them from doing both audit and corporate finance work and perhaps one for limiting corporate lobbying.

Either way, the fact that both the friends and the foes of capitalism are looking at the same entirely solvable problems is surely progress.

This article was first published in the Financial Times.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.