The Corporate Period in the Arts, part 6

Unavoidable Conglomeration

Books from major publishers have suffered stagnation and decline since the 1990s, but contrary to popular belief, this is not because schools are failing to teach kids to read. The hegemonic nature of the corporate system has a specific weakness that is also its strength, which is the concentrated power of management. Since trends are subject to the whims of a small number of people, all one needs to do to shift trends and culture is capture the management positions of the corporation, and that’s what happened in the literary world. It actually began decades before 1997, when various science fiction magazines were captured and had their focus redirected by “fans” who wanted trends to follow a particular stylistic (atheistic, really) line. Eventually, this killed the magazines, but they did successfully change genre tropes. You can find out more about this in J.D. Cowan’s The Last Fanatics.

What emerged in the final decades of the 20th century was the capture of the book industry by feminists and other ideological brow-beaters (the industry has always been dominated by women, but not necessarily by political zealots) who emphasized their personal desires over the market-focused business that had built the corporate model in the pulp era. There isn’t as strong a feedback loop in book publishing as in music; publishing things people don’t want to read will cause them to read something else (like all of the books of human history) or simply stop reading entirely. The anti-market status of the industry became more apparent after the rise of Amazon, when total book sales exploded, especially in genres the mainstream industry had refused to publish prior to the internet (more on that later).

But how was this allowed to happen? How did the system go from giving in spades what the common man wanted in entertainment to giving him limited choices of things he didn’t really want?

To understand some of the changes that occurred within the corporate period, we have to understand some higher-order effects of the corporate system, specifically how various tax and economic incentives change how corporations operate over time.

In a free market containing many different market segments with differing wants, many companies emerge to fulfill those desires as long as they can be fulfilled profitably. In the arts, this takes the form of many publishing houses or production firms creating genre art. One publisher specializes in mysteries, another in science fiction. Similar specialties exist with game publishers and film studios. The advantage is that all the specialized knowledge required to run the firm is spread efficiently over the market. The editors who know mysteries best are at a publisher that publishes mysteries.

This is usually described as the “Nash” strategy—many diverse wants, many agents moving to fulfill those wants—versus a “winner take all” approach where all firms compete to gain hegemony over the entire market. One thing you will notice with successful firms is that over time they move from the Nash model to a dominance model. A specialist firm, when it gains enough resources, purchases other companies that serve different market segments, thus increasing a single player’s total market share. Since the market is competitive by nature, that means that virtually all firms are moving to dominance and, ultimately, if they can manage it, a monopoly. Success begets size, which begets more success. Those who don’t grow end up absorbed or merged with others who are growing.

There are assumptions about how this arises or how it may be prevented. One is that it is an inevitability of the capitalist system—a feature, not a bug. The other is that it is the natural function of competition—the winner buys the resources of the loser. Both are false. In truth, it is a result (at least in the United States) of the tax code, not the free market itself. Dividends are taxed as income; profits from the sale of equities (stocks) are taxed as capital gains, which is a lower rate. Thus stock owners generally prefer for a company to increase the value of their stock rather than pay out profits as dividends since they will net more money by holding the stock and selling it at a later date. The company meets this desire by reinvesting the profits back into the company—using them to expand.

This difference in tax rates has wide-ranging effects on the economy, which I don’t have time to go into in this essay, but it affects everything from retirement to housing. In this case, its main relevance is to explain the phenomenon of corporate conglomeration, that is, companies merging with and buying each other to grow. One of the easiest ways to grow a company is to buy another company. Whether this is done through some combination of cash (previous profits), debt, or external investment doesn’t matter as much as the effect, which is to increase the value of the company’s stock.

Dividends, we have to understand, replicate a traditional small business, just extended into a multi-owner corporate configuration. A small business owner generates profit in order to produce income for himself; if he has a partner, he shares part of that profit with him, and so a dividend is classified as income. This is, by the way, how profits are divided with artists in the corporate system. The firm sells the art and pays the artist royalties, his share of the profits from the product. It should work the same way in a traded company, but the tax situation changes all the incentives. Economist Milton Friedman suggested that one way to stop the increasing size of corporations was to force them to pay out a portion of their profits as dividends, thus weakening the incentive, rather than relying on government anti-trust measures to intervene when companies are already overgrown.

With conglomeration, there is also the obvious incentive for market control. The more you control of the market, the less competition you have, and the more you can charge for the same product. The more diverse your products, the less vulnerable you are to changing conditions in any one area of commerce.

So, inevitably, what happens in a Nash system is that the most successful player (usually the one whose market segment is the largest and most profitable) begins buying out the other players until only a few (or one) remain because that produces the best economic outcome for the company owners. Even the “losers” in this scenario come out ahead during the sale or merger because of things like premium on stock.

Next time we’ll take a look at how this conglomeration allows companies to work against the consumer and also to work beyond the profit motive and work like small states affecting culture. In the meantime, check out some of my most popular books:

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