Corporate profits increasingly reflect economic rents

The Claim

An increasing share of corporate profit in the United States (and, more weakly, other developed economies) is economic rent — returns above what is needed to compensate capital and effort in a competitive market — rather than the ordinary reward for investment. This matters for the Georgist framework because it extends the classical rent analysis from land to other non-reproducible positions: market power, network position, regulatory protection, and control of scarce intangibles.

The Evidence

Several independent methodologies converge on the same direction:

• Markups. De Loecker, Eeckhout & Unger (2020) estimate average US markups rose from about 21% above marginal cost in 1980 to about 61% by 2016, concentrated in the upper tail of firms.
• The pure-profit share. Barkai (2020) finds that both the labor share and the required-return capital share fell over 1984–2014, while the residual profit share rose sharply — a decomposition that isolates returns above the competitive cost of capital.
• Firm-level return dispersion. Furman & Orszag (2015) document that returns on invested capital at the 90th-percentile US firm grew to more than five times the median, with the winners persistent over time — a pattern they read as rents accruing to specific firms rather than rising returns to capital generally.
• Competition and policy. Philippon (2019) argues US markets became measurably less competitive than European ones due to concentration, lobbying, and regulatory barriers — locating the source of the rents in political economy rather than technology alone.
• The synthesis. Eeckhout (2021) draws the markup evidence into a general account of market power raising profits while suppressing wages.

The Counter-Case

The main rival reading is that measured profits reward genuine efficiency and investment rather than rent:

• Crouzet & Eberly (2019) show that concentration and high measured profits partly reflect intangible capital (software, brands, organizational know-how) that standard accounts undercount — in some sectors the "profit" is a return on real, if hard-to-measure, investment. Their sector-level decomposition finds productivity-driven concentration in consumer sectors, markup-driven concentration in healthcare, and both in high-tech.
• The superstar-firms literature (Autor et al. 2020) similarly attributes rising concentration in part to winner-take-most competition among unusually productive firms — a mechanism in which high profits and consumer benefit can coexist.

These are not fully exculpatory: rents on intangibles and network positions are still returns to scarcity and position rather than to marginal production, which is why parts of this literature (e.g., Mazzucato, Ryan-Collins & Gouzoulis 2023) treat them as the modern frontier of rent analysis. But they mean the size of the pure-rent component is genuinely contested.

The Evidence in Detail

Three further sources round out the firm-rents record. Akcigit & Ates (2021) unify ten stylized facts of declining US business dynamism — rising concentration, markups, and profits alongside falling labor share — in an endogenous-growth model where slowing knowledge diffusion from frontier to laggard firms drives the trends. Zingales (2017) supplies the political-economy mechanism: a "Medici vicious circle" in which market power buys political power that entrenches market power. The 2016 Council of Economic Advisers brief is the official-institution corroboration: rising concentration, widening returns dispersion, and falling dynamism documented by the US government itself.

Strength of Evidence

Moderate–strong that the profit rise is real and abnormal — the markup, pure-profit, and dispersion methodologies are independent and agree on direction. Contested on interpretation: how much is extraction (market power, regulatory capture, network monopoly) versus mismeasured returns to intangible investment remains an active dispute, and the honest reading is "a substantial but not precisely known share is rent."

Relation to the Georgist Case

Henry George's analysis located unearned income in land; the modern rent literature finds structurally similar unearned income in corporate position. The policy translation is the same in spirit — tax the rent, not the production — though instruments differ (competition policy, spectrum/resource auctions, platform regulation, and rent-focused taxation rather than a land value tax). See economic rent, rent-seeking, and the narrative The Rentier Economy.

See Also

• Superstar Firms · Economic Rent · Rent-Seeking · The Rentier Economy · Most of the modern rise in the capital share is land, not capital

Sources

1. Jan De Loecker, Jan Eeckhout & Gabriel Unger (2020), "The Rise of Market Power and the Macroeconomic Implications," Quarterly Journal of Economics 135(2). DOI — used for the markup rise (≈21%→61%, 1980–2016) and its concentration in the upper tail.
2. Simcha Barkai (2020), "Declining Labor and Capital Shares," Journal of Finance 75(5). DOI — used for the falling labor and required-return capital shares and the rising pure-profit share, 1984–2014.
3. Jason Furman & Peter Orszag (2015), "A Firm-Level Perspective on the Role of Rents in the Rise in Inequality," Columbia University "A Just Society" conference. PDF — used for the ROIC-dispersion evidence and the rents interpretation.
4. Thomas Philippon (2019), The Great Reversal: How America Gave Up on Free Markets, Harvard University Press. Publisher — used for the US–Europe competition divergence and the lobbying/regulatory-barrier mechanism.
5. Jan Eeckhout (2021), The Profit Paradox, Princeton University Press. Publisher — used for the synthesis of market-power evidence and its wage implications.
6. Nicolas Crouzet & Janice Eberly (2019), "Understanding Weak Capital Investment: the Role of Market Concentration and Intangibles," NBER WP 25869 / Jackson Hole symposium. NBER — used for the intangibles counter-interpretation and the sector decomposition.
7. David Autor, David Dorn, Lawrence Katz, Christina Patterson & John Van Reenen (2020), "The Fall of the Labor Share and the Rise of Superstar Firms," QJE 135(2). NBER — used for the winner-take-most efficiency counter-reading.
8. Mariana Mazzucato, Josh Ryan-Collins & Giorgos Gouzoulis (2023), "Mapping Modern Economic Rents," Journal of Economic Surveys. UCL — used for treating intangible/platform returns as the modern frontier of rent analysis.