In its newly released signature report, the Denny Center for Democratic Capitalism at Georgetown Law finds that while the market economy continues to generate growing total wealth, produce new innovations, and provide jobs, the economic system also faces significant headwinds including slowing overall GDP growth, decreasing labor share of overall output, larger income gaps (real and perceived), falling trust in institutions, and increasing industry concentration threatening the essential ingredient of market competition. In the last year, public concern over the state of democratic capitalism has only increased. At the same time, the Congressional Budget Office predicted that key measures monitoring the health of the market economy will face significant pressure over the next 30 years, including GDP and U.S. national debt.

Within this context, the Denny Center’s 2023 Report on the Health of Democratic Capitalism revisits key datasets from its 2022 Inaugural Report and, in addition, takes a closer look at the quality of market competition: “Competition is an essential ingredient of the market economy, and the quality of competition is a key indicator of the health of a market economy. For consumers, competition among firms promotes innovation, supports a larger variety of products and services, and keeps prices in check. For workers, competition supports higher wages, improved productivity, and better working conditions. For society more broadly, healthy competition instills a sense of equal opportunity and an optimism about future standards of living.”

The 2023 Report & Looking Back on the Inaugural Report

In the 2023 Report, we have grouped the datasets into two sections: (1) revisiting key datasets from our inaugural report one year later, and (2) taking a deep dive into the quality of market competition with the addition of new datasets as applicable. This year’s report also includes responsive essays from economists Betsey Stevenson (University of Michigan) and Michael Strain (American Enterprise Institute), as well as an addendum on industrial policy and related cautions.

The Inaugural Report evaluated how well the benefits of free market capitalism are balanced with the needs and expectations of a democratic society. While free market capitalism is highly efficient at generating wealth, reconciling the benefits of capitalism with broader societal needs and aspirations is a perennial tug of war. The Denny Center was founded on the belief that maintaining balance between the two is critical to the future of both capitalism and a flourishing democratic society.

The Inaugural Report organized its analysis around five core questions:

  1. Efficacy & vitality: Does our economic system generate growing total wealth?
  2. Fairness & social mobility: Does the system address the well-being of all members of society, or does it favor distinct groups?
  3. Social well-being & stability: How does the system strengthen (or weaken) society more broadly?
  4. Business environment: What is the current status and nature of free market competition, and how well is the business community positioned to address current pressures on the system?
  5. International comparisons: How does the U.S. compare to other democratic economies, and what can we learn from the differences?

By studying objective data and following a clinical approach, we identified a number of areas for further research with almost two-thirds of the topics relating to the business environment, i.e. the nature of free market competition and the readiness of business to address critical system pressures. Based on the identified areas for further research, the 2023 Report centers around how the quality of market competition is impacting the health of democratic capitalism, as well as the rise of crony capitalism, increasing government regulatory budgets and lobbying spending, and the lack of value-creating rationales and tangible actions for corporate boards and management teams that integrate stakeholders’ needs into long-term business strategies.

Key Findings

Overall, the datasets we studied point to increasing headwinds that threaten the quality of market competition. In addition, the consequences that result from a lower quality of market competition decrease society’s confidence in the market economy. Our initial findings from the deep dive on the quality of market competition include:

  • Overall industry concentration has increased over historical norms, and in most of the industry sectors we studied, overall profits are up, and the market share of the largest competitors has grown.
  • Lower GDP growth continues and could be driven in part by the consequences of less robust market competition including lower investment, less innovation, and the reduced variety of consumer choices in certain sectors.
  • Though government antitrust actions fluctuate with political administrations, there appears to be a downward longer-term trend in antitrust enforcement.
  • Net investment has stayed constant or declined, as companies continue to pay out more in dividends and share repurchases.
  • Government regulation, as measured by pages in the federal register, continues to rise and lobbying spending shows no signs of slowing down.
  • Labor impacts include stagnant wages, and lower productivity may indicate a lack of worker motivation and confidence in their employers.
  • The public’s views related to capitalism and the market economy are growing more negative—and are likely contributing to the declining trust in institutions overall and to a growing pessimism about the United States’ standing in the world.
  • Government agency accountability and performance are also in question, leaving citizens with little hope for innovative responses to constructively address shortcomings of the market economy.

Questions for Paths Forward

This year’s report raises important new questions including:

  • How can we monitor the quality of market competition on an ongoing basis, and what criteria should we use to decide when actions (private and/or public) are needed?
  • Because market concentration can be profitable for owners and investors over the long-term, what can be done outside of government regulation to motivate businesses to address the negative impacts on other stakeholders?
  • Should corporate boards and management teams factor the health of the broader market economy into their long-term strategies? And if yes, how?
  • What level of government intervention is appropriate to support healthy market competition without overreaching—and potentially stifling business investment, risk taking, and innovation?
  • How much of a role does less robust market competition play in lower GDP growth vis-à-vis other forces including fertility rates and worker productivity?
  • Is it possible to give citizens more agency in addressing the health of the market economy? What role(s) might cultural institutions reclaim to help in this regard?

Read the full report here.