Low Interest Rates and Bank’s Profitability – Update May 2019

Low Interest Rates and Bank’s Profitability – Update May 2019

My last post on this important topic was in 2017.  Since then several new articles and research papers have been published. I have compiled them in this post.  Please see references.

In my posts I have shown how many trends in economics for the last thirty years can be explained by unintendend consequences of US Federal Researve monetary policy of lowering interest rates to boost economic growth.

  • Rise of Shadow Banking – MMMF
  • Rise of International capital flows in USA
  • Growth of Consumer credit – Credit Cards and Housing Loans
  • Decline in Net Interest Margins of the Banks
  • Risk taking by banks to maintain and increase their profits
  • Rise of Non interest income of Banks
  • Rise of Non core business of banks
  • Rise of Mergers/Acquisitions/Consolidation in Banking sector

Related to these are:

  • Business Investments by Production side of economy
  • Increase in Market concentration of Products
  • Increase in Mergers and Acquisitions/consolidation among Product market businesses
  • Decreasing monitory policy effectiveness
  • Wrong economic growth forecasts
  • Secular Stagnation Hypothesis
  • Rise of Outsourcing and global value chains
  • Free Trade agreements
  • Increase in Ineqality of wealth and Income
  • Increase in corporate profits and equities market
  • Increase in corporate savings
  • Increase in share buybacks, and dividends payouts



and this one,

Increasing Market Concentration in USA: Update April 2019

Key Sources of Research:

Monetary policy and bank profitability in a low interest rate environment


The “Reversal Interest Rate”: An Effective Lower Bound on Monetary Policy∗

Markus K. Brunnermeier and Yann Koby

This version: May 3, 2017



Interest Rate and Its Effect on Bank’s Profitability

Muhammad Faizan Malik1,2, Shehzad Khan1,2, Muhammad Ibrahim Khan1, Faisal Khan


Bank performance under negative interest rates



How low interest rates impact bank




Money and Banking


Monetary policy and bank equity values in a time of low interest rates

Miguel Ampudia, Skander Van den Heuvel




Bank Profitability and Financial Stability

Prepared by TengTeng Xu, Kun Hu, and Udaibir S. Das1


January 2019




Financial stability implications of a prolonged period of low interest rates

Report submitted by a Working Group established by the Committee on the Global Financial System

The Group was co-chaired by Ulrich Bindseil (European Central Bank) and Steven B Kamin (Board of Governors of the Federal Reserve System)

July 2018




Monetary policy and bank profitability in a low interest rate environment

Carlo Altavilla Miguel Boucinha José-Luis Peydró
Economic Policy, Volume 33, Issue 96, October 2018, Pages 531–586,
Published: 09 October 2018





Determinants of bank profitability in emerging markets

by E. Kohlscheen, A. Murcia and J. Contreras

Monetary and Economic Department

January 2018






The Risk-Taking Channel of Monetary Policy Transmission in the Euro Area


Matthias Neuenkirch, Matthias Nöckel









Óscar Arce, Miguel García-Posada, Sergio Mayordomo and Steven Ongena





Banks, Money and the Zero Lower Bound

Michael Kumhof

Xuan Wang





Banking in a Steady State of Low Growth and Interest Rates

by Qianying Chen, Mitsuru Katagiri, and Jay Surti






Changes in Monetary Policy and Banks’ Net Interest Margins: A Comparison across Four Tightening Episodes

Jared Berry, Felicia Ionescu, Robert Kurtzman, and Rebecca Zarutskie

Federal Reserve






Monetary Policy and Bank Profitability, 1870 – 2015

47 Pages Posted: 8 Feb 2019

Kaspar Zimmermann

University of Bonn

Date Written: January 25, 2019




The effect of falling interest rates and yield curve to banks’ interest margin and profitability: cross-country evidence from the EU banks in the aftermath of 2008 financial crisis

Giorgi Chagoshvili

MS Thesis







Bank Performance under Negative Interest Rates


by Jose A. Lopez, Andrew K. Rose, and Mark M. Spiegel



Determinants of bank’s interest margin in the aftermath of the crisis: the effect of interest rates and the yield curve slope

  • Paula Cruz-García
  • Juan Fernández de GuevaraEmail author
  • Joaquín Maudos






Key Determinants of Net Interest Margin of Banks in the EU and the US

MS Thesis

Charles University

Bc. Petr Hanzlík





HP’s Megatrends

HP’s Megatrends


Since 2018, HP has started publishing a report titled Megatrends.  In this report global macro changes are presented.

Macro Forces

  • Socio Economic
  • Demographic
  • Technological


There is so much change happening around us today. How we live, work and play in both developed and developing countries will look very different in the next ten to thirty years. Underlying this change are key trends, many having disruptive implications for people and businesses, including HP. It is vitally important that we do our best to discern what the future may look like, developing our own point-of-view on potential future states and their implications, in terms of threats and opportunities. Understanding Megatrends gives us the ability to frame and make more informed, strategic long-term decisions and avoid surprises we could have anticipated and even exploited.

Megatrends are those global socio-economic, demographic and technological forces that we think will have a sustained, transformative impact on the world in the years ahead. On businesses, societies, economies, cultures and our personal lives. Our objective with Megatrends is to directionally point to where the world is going, the potential future states that may result, and then to frame implications in terms of threats and opportunities for Customers and HP. We use Megatrends work to help inform our long-term strategic planning thinking and to support Customer and HP thought leadership and communications with employees, customers, partners and market influencers around technology Vision for the future.

We have identified four major Megatrends and a wide range of underlying sub-trends. We cover each Megatrend and an illustrative set of the sub-trends in this paper.

  • Rapid Urbanization
  • Changing Demographics
  • Hyper Globalization
  • Accelerated Innovation




Technological Changes

As we move farther into the 21st Century, we see new technologies converging that, together, will generate the same kind of growth. In the process, they will change how the entire world makes, sells and lives.

  • –  BioConvergence: The science of Biology in combination with compute is accelerating. Over the next two decades, the way we make things will change radically. We are seeing the radical acceleration of biology as AI changes how analysis is done and robotics/sensors increase the speed and precision of testing.
  • –  Beyond Human: New sensors and interfaces change the nature of human computer interaction. Over the next decade, the way we do work will be reinvented as computation integrates itself seamlessly into the biological processes of our bodies and cognitive processes of our minds. We are already starting to see the early glimmer of this in wearable sensors, in pace makers, and in voice assistants.
  • Frictionless Business: Technology is changing the size and speed at which transaction and coordination are possible in business processes and markets. In the next ten years, the way business is transacted and coordinated will likely change tremendously. Business processes are being reinvented by concurrent innovation in AI, IoT, Blockchain and applications that automate and create smart- streamlined activities managed by software instead of humans. Markets are also being reinvented when these technologies are used in a distributed (vs. centralized) fashion along with innovative business models.


This year’s report [what’s new]
The 2019 HP Megatrends Report explores global, regional and metro income trends, urbanization’s impact on these trends, the resulting rise of new metro-based economic powerhouses, and the role of automation and education in meeting labor market challenges driving changing demographics and growing economies. Additional research explores how increasing incomes are putting a strain on our energy resources and what role technologies such as 3D printing, Software 2.0 and Edge Computing could play in helping to drive to greater efficiencies benefiting customers, industries, and the planet.


Please see my related posts

Strategy | Strategic Management | Strategic Planning | Strategic Thinking


Key Sources of Research


Megatrends: Shaping the Future

Implications for people and businesses

June 2018







Shane Wall

HP CTO and Global Head of HP Labs

January 25, 2018





Megatrends 2019




LSE Event : Megatrends by Shane Wall

London School of Economics and Political Science



HP CTO Shane Wall interview — Megatrends, automating jobs, and fighting growing inequality

HP CTO Shane Wall interview — Megatrends, automating jobs, and fighting growing inequality

Strategy | Strategic Management | Strategic Planning | Strategic Thinking

Strategy | Strategic Management | Strategic Planning | Strategic Thinking




Key Terms and Concepts

  • Action Learning
  • Systems Thinking/Systems Dynamics – Jay Forrester
  • Organizational Learning – Peter Senge
  • Business Environment Scanning
  • Trends
  • Risks
  • Competitive Industry Analysis
  • Scenario Planning
  • Corporate Planning
  • Strategic Planning
  • Operations Research
  • Threats – Micheal Porter
  • Organizational Psychology and Culture – Ed Schein
  • Internal vs External
  • Resource based view of Strategy
  • Innovation Management
  • Balance Scorecards
  • Strategic Management
  • Sales and Operational Planning (S&OP)
  • Integrated Demand Supply Planning
  • Operational Effectiveness
  • Operational Excellence
  • Value Chain Analysis
  • SWOT analysis
  • Strategic Conversations
  • Business Policy
  • BCG Growth Share Matrix
  • GE/McKinsey  Matrix
  • Ansoff Matrix
  • ADL Matrix
  • Shell Directional Policy Matrix
  • Product Portfolio Planning Models
  • Corporate Planning Models
  • Porters Five Forces Analysis
  • McKinsey 7S
  • PIMS Analysis
  • PEST Analysis
  • Porters Four Corners Analysis
  • Business Process Reengineering


Key People

  • Henry Mintzberg
  • Russell Ackoff
  • Arnaldo Hax
  • Peter Drucker
  • Gary Hamel
  • Igor Ansoff
  • Kenneth Andrews
  • George Steiner
  • Alfred Chandler
  • C K Prahlad
  • Micheal Porter
  • David P Norton
  • Robert S Kaplan
  • Richard L Nolan
  • J Scott Armstrong
  • Peter Senge
  • Edgar Schein
  • Chris Argyris
  • Donald Schon
  • Bruce Henderson
  • John Sterman
  • John Morecraft
  • R G Dyson
  • Pankaj Ghemawat
  • Kenichi Ohmae
  • Pierre Wack
  • Peter Schwartz


From The History of Strategy and Its Future Prospects



Schools of Thoughts on Strategic Planning

  • Design
  • Planning
  • Positioning
  • Entrepreneurial
  • Cognitive school
  • Learning school
  • Political school
  • Cultural school and
  • Environmental school



Please see my related posts:

Art of Long View: Future, Uncertainty and Scenario Planning

Hierarchical Planning: Integration of Strategy, Planning, Scheduling, and Execution

Shell Oil’s Scenarios: Strategic Foresight and Scenario Planning for the Future

Water | Food | Energy | Nexus: Mega Trends and Scenarios for the Future

On Anticipation: Going Beyond Forecasts and Scenarios

Key Sources of Research


Russell Ackoff: A Concept of Corporate Planning




The Evolution of Business Strategy

By Rich Horwath






The Art of Planning











The Use of Corporate Planning Models: past, present and future









Concept of Corporate Strategy




How to improve strategic planning




Integrated business planning: Unlocking business value in uncertain times









Fred Nickols








Arnoldo C.:,Hax and Nicolas S. Majluft

January 1983
















World Bank Group





Strategic Management for Senior Leaders: A Handbook for Implementation



What Is Strategy?



Strategic Management for Competitive Advantage





From Competitive Advantage to Corporate Strategy





Blue Ocean Strategy



How Information Gives You Competitive Advantage





The Office of Strategy Management

Nolan and Kaplan




Getting Back to Strategy





The Core Competence of the Corporation





Strategic Management: The theory and practice of strategy in (business) organizations.

Jofre, Sergio





Creating the Office of Strategy Management

Robert S. Kaplan

David P. Norton



The Corporate Strategic Planning Process

The Origins and History of Management Consulting

The Origins and History of Management Consulting




Pioneers in Management Consulting

  • Edwin Booz
  • James O. McKinsey
  • Andrew Kearney
  • Arthur D Little
  • James Allen @Booz Allen
  • Marvin Bower @McKinsey
  • Bill Bain @Bain and Company
  • Bruce Henderson @Boston Consulting Group BCG


Global Strategy Consulting

  • McKinsey
  • Bain
  • Boston Consulting Group
  • GBN/Monitor/Deloitte
  • Strategy&/BoozAllenHamilton/PWC
  • Arthur D Little
  • Roland Berger
  • LEK
  • Oliver Wyman
  • Accenture
  • Ernest and Young
  • Deloitte
  • Nolan Norton Institute/KPMG
  • PwC
  • AT Kearney
  • Bearingpoint





A brief history of management consultancy

While commercial activity is as old as civilization itself, management consultancy is of more recent vintage. Business historians put the origins of consultancy in the mid-19th century when Samuel Price, Foster Higgins, James Sedgwick and others began operating “advisory practices” in England and the United States. Many historians also agree that Arthur Little was the founder of the first pure consultancy in the USA in the 1880s with a focus on technology and engineering economics. In the 1890s, George Touche and William Deloitte started accounting practices and by the first two decades of the 20thcentury they expanded into auditing and advising, focusing on large clients, offering assistance on financing , taxation, and corporate strategy. Just about all of the early accountancy firms or partnerships, with such hallowed names as Arthur Andersen, Arthur Young, Cooper Brothers, Ernst & Ernst, Peat Marwick, Touche Ross, have entered into the realm of “advice business”. Meanwhile, technology firms, and institutes, such as Stanford Research and Battelle Memorial, joined the fray, marketing themselves as technical-managerial counselors (Biswas and Twitchell, 2002; Gross and Poor, 2008). The appearance of “true” management consultants is traced to Edwin Booz in the 1910s and to James McKinsey, and Andrew Kearney in the 1920s in the USA (Kipping and Clark,2012). Their names survive to this day in partnerships or companies, but others have not fared as well. These pioneers also started with assistance on finances and taxes, but they soon got involved in long-term corporate strategy and short-term operations. In the 1930s, sensing opportunity in an era of depression, Marvin Bower took charge of McKinsey & Company.He hired graduates from top business schools, mostly from Harvard Business School, put them to work as analysts, then later as consultants, emphasizing repeatedly that “the firm”was to be the locus and focus of professionalism (Bower, 1998; Higdon, 1969; McKenna,2006; O’Mahoney, 2010). Even in these early years there was much debate about credentials, qualifications, and branding, followed by heated discussion about accountability, client cultivation, and “proper”competition. The Association of Consulting Management Firms (ACME) was formed in1929 to serve as both “spokesman and policeman”; its current name is the Association of Management Consulting Firms (AMCF). Since then several other associations arose in both USA and Europe. The driving forces behind the growth of management consultancy in the USA have been analyzed in two doctoral dissertations (David, 2001; McKenna, 2000). David identified four major forces that fueled the growth of consultancy during 1930-1960: the increasing number and complexity of companies; the spread of corporate ideology to non-corporate sectors;the organization for the World War II; and the growing impact of business education and the business press. McKenna, on the other hand, emphasized that entry and expansion of consultancies came from emulating the patterns set by three professions: accounting,engineering , and law. In contrast to both David and McKenna, several European authors (e.g. Kipping and Engwall, 2001) found that consultancies in that region owe much to the work of Taylor,Emerson, and the Gilbreths, that is the “scientific management” movement that had its start in the USA. They cite the examples of the firms of Morrini, Urwick Orr, and the REFA Institute from Italy, the UK, and Germany, respectively, to show that emphasis on efficiency,cost containment and strict work rules held sway in Europe during 1915–1965. While this signifies disagreement in regard to the forces that influence consultancies, the debate is about the impact of each specific factor. On a worldwide basis, it is estimated that revenues for management consultancies grew from about $1 billion in 1955 to over $150 billion by 2005 or at an annual rate –nearly11 percent- that is in excess of the growth rate of global trade, output, or investment. (Czer-niawska, 2006; FEACO, 2008; Kennedy Information, 2009). New firms were formed during this period, primarily in the USA, such as Bain & Company, Boston Consulting Group, and the Monitor Group. Older firms, such as McKinsey, Kearney, Booz Allen, AD Little and others also did well; McKinsey was especially successful invading the UK. Specialists did well too e.g. Hay, Hewitt, Mercer, and Watson Wyatt in human resources. The big accounting firms are still doing consultancy and high-tech firms such as IBM are now at the top of the list.Several books (and, of course, many articles) published in the past fifteen years analyzed the growth of consultancy in the second half of the 20thcentury. These volumes fall into three distinct categories: (1) “panorama” books that deal with major trends, corporate practices, cases, and profiles of key firms (Biswas and Twitchell, 2002; Curnow and Reuvid, 2001;Fombrum and Nevins, 2004); (2) “revelation” books that emphasize the politics of the sector and major missteps by consultants and/or their clients (Kiln, 2006; Micklethwait and Wooldridge, 1996; O’Shea and Madigan, 1997; Pinault, 2000); and, (3) “update” books thats how the state of the art and recent activities of companies, along with expansion of business in a given region (Armbruster, 2006; Ferguson, 2002; Kipping and Engwall, 2001;O’Mahoney, 2010; Poor and Gross, 2003; Thommen and Richter, 2004). In contrast, the doctoral theses written during this period emphasized the international expansion of consultancies (Backlund, 2004; McKaig-Berliner, 2001; Wood, 2001). Record-keeping firms also appeared in this era e.g. Kennedy Information (KI) and the Vault in the USA, Datamonitor and the Management Consulting Association (MCA) in the UK, and the European Federation of Management Consulting Associations (FEACO) in Belgium. These organizations make a valiant attempt to gather good data on firm revenues and related statistics; but problems arise in regard to terminology, classification, and data collection. Recently, these firms, much like the consultancies they survey, expanded the scope of the sector to include outsourcing ; it was simply added to the traditional four areas of strategy, operations, human resources, and information technology. We found some outright errors as well as lack of consistency and transparency in the published data. Finally,there is a tendency to exaggerate growth rates, “hot fields,” and opportunities in developing nations.

The current competitive landscape

As we noted, management consulting got its strongest impetus in the USA and the revenues from clients in this nation still account for about one half of the worldwide total. Com-petition now takes place globally among major firms. The leading organizations are information technology firms such as Accenture, CSC and IBM and firms with a strong accounting background, such as Deloitte, KPMG, and PWC have occupied the leading ranks. Global revenues and steady growth in sales, along with market share and contracts won, are objective measures of success on an annual basis. Yet longevity and recruiting are still of great importance and on these facets the old-line firm such as McKinsey, Boston Consulting Group(BCG), Bain, and Booz have done very well. They prospered by recruiting at top business schools, granting generous salaries and bonuses, stressing long-run strategy, and cultivating top management clientele (Datamonitor, 2008; Gross and Poor, 2008; O’Mahoney, 2010,Vault, 2008; etc.). Both the business and popular press in the USA espouse rankings such as “ten largest” or“twenty best,” so publishers started to evaluate not just cars and appliances, but institutions,such as colleges and hospitals. Reaction to such rankings is predictably in a dual mode;decrying them as simplistic or even misleading , while embracing them for promotional goals when one’s rank improved or is high. Kennedy Information, Vault and others now rank management consultants and report that McKinsey, BCG, Bain, and Booz are still at the top in terms of prestige, both in the USA and in Europe, but the information technology firms of Accenture, IBM, and others are making inroads in this largest sub-sector. Roland Berger of Germany was rated the top non-U.S. consultant. Observers argue that beyond financial indicators and subjective rankings lie “the true measure” of success for organizations— in building corporate culture, reputation, competence, and a solid base of loyal clients. The early pioneers of such thinking were James McKinsey and Marvin Bower, under whom McKinsey & Company became known as “The Firm.” They argued that status and success should be achieved by strong governance and reputation-building at the level of the firm. They also sought jurisdictional control, while opposing any outside regulation. Finally, they thought that emulation of accounting, engineering, law, and medicine would lead to professional recognition (McKenna, 2000; Bower, 1998). Others, including James Allen, chief executive of Booz Allen Hamilton in 1960, argued that consultancy did not possess admission and performance standards comparable to the older, established professions and that consultancy was a business. However, both sides were determined to chase out self-styled experts, aggressive salesmen, and especially charlatans.

The debate continues on where consulting really belongs and has not been settled. Hall-marks of a profession are formal education, full-time occupation, a vast body of specialized and published knowledge, and a code of conduct. In addition, regulatory bodies and associations or special groups emerge that strive to restrict entry and establish some monopoly rights. There are complex issues that have been debated at much length (Blair and Rubin,1980; Shimberg et al., 1972). Various degrees of occupational regulation exist, e.g. licensure, certification, and registration for doctors, accountants, and engineers, respectively (Hollings and Pike-Nase, 1997). But so far, states and nations have not enacted legislation for consultancies, in part due to practitioners opposing such moves and in part –as many case studies indicate- because the old-line firms contend that they are the locus of professionalism and that they would enforce rules of conduct and high standards (McKenna, 2000, Rasiel, 1999;O’Mahoney, 2010)

The Origins of Modern Management Consulting

Christopher D. McKenna

In 1993, AT&T spent more on management consulting services than on corporate research and development, and AT&T is not alone [8, p. 60]. Wall Street analysts expect billings for consulting services to advance at twice the rate of corporate revenues over the next decade. Yet, despite the size, growth, and influence of consulting firms, business historians have remained uncharacteristically silent about the origins, development, and impact of management consulting, or “management engineering” as it was known before the Second World War. 2 In this paper, I will describe the professional origins of management consulting firms at the turn of the century and discuss why, after slow, gradual growth through the 1920s, these firms took off during the 1930s. I argue (1) that historians have wrongly assumed that management consulting arose directly out of Taylorism, (2) that engineers, accountants, and lawyers, often supervised by merchant bankers, provided counsel that later became the primary repertoire of management consultants, and (3) that the legal separation of investment and commercial banking in 1933 drove the rapid professionalization and growth of management consulting during the Great Depression.

Recent historians of scientific management, including Daniel Nelson, Stephen Waring, and Judith Merkle, have traced the impact of Taylorism on contemporary institutions as diverse as business education, public administration, and British industry long after the Progressive-era craze for “efficiency” ended [29, 36, 26]. The proponents of scientific management, Frederick Taylor, Henry Gantt, Morris Cooke, Frank and Lillian Gilbreth, and Harrington Emerson, consulted with nearly 200 businesses on ways to systematize the activities of their workers through the application of wage incentives, time-motion studies, and industrial psychology [29, p. 11]. Naturally then, historians of Taylorism have assumed that they could describe contemporary practitioners of “industrial engineering,” “production engineering,” “consulting engineering,” and “efficiency engineering,” as early management consultants. Similarly, management consultants, like Thomas Cody, trying to trace the history of management consulting have assumed that:

undoubtedly the most influential factor in the growth of modern management consulting was the development of the concept of ‘scientific management’ by Frederick Taylor …. The concept combined the practice of engineering with the principles of economics, and it was out of this coupling that today’s profession was born [11, p. 24].

But Taylorists and management consultants actually had very different professional and ideological origins.

As Hugh Aitken pointed out in Scientific Management in Action, those executives and their advisors in large scale business who were “concerned with problems of formal organization and control at the administrative level,” came out of a different intellectual tradition than the shop management movement from which Taylor made his reputation [1, pp. 17-18]. Taylorists were largely concerned with industrial relations while early management consultants focused on problems of bureaucratic organization. While Harrington Emerson’s firm of “efficiency engineers” did survive as a very small consulting firm through the 1980s, and the British “management consultancies” founded in the 1930s were undoubtedly Taylorist, none of the large modern American management consulting firms have Taylorist origins [31, 35]. Rather, professionally-trained accountants and engineers, often with backgrounds in law or banking, founded the early “management engineering” firms to offer advice to executives on the organization of their boardrooms, not on the efficiency of their shop floors.

The growth and complexity of the largest industrial organizations in the United States created a market at the turn-of-the-century for the professional firms of engineers, accountants, and lawyers which offered independent corporate counsel [9, pp. 464-468]. By the 1890s, executives of large manufacturing companies who needed engineering advice, but did not want a full-time engineer on staff, could turn to consulting chemical engineers like Arthur D. Little or electrical engineering firms like Stone & Webster for technical knowledge [20; 19, pp. 386-391]. Similarly, in the 1890s, corporate managers employed American subsidiaries of the British accounting firms, like Price Waterhouse, to provide external audits and financial controls for their growing companies [ 9, p. 464]. By the 1900s, American-based accounting firms like Arthur Anderson, Haskins & Sells, Ernst & Ernst, and Seidman & Seidman were expanding throughout the country [23, pp. 1-3]. In law, large New York corporate law firms like Cravath Swaine, Davis Polk, and Sullivan & Cromwell provided legal advice to businesses headquartered in New York. At the same time growing regional firms like Jones Day in Cleveland and Baker and Botts in Houston served local divisions of national companies [24, p. 22]. The three professions, engineering, accounting, and law, all enjoyed strong growth in firm numbers and size from the 1890s onward because of the specialized skills that larger partnerships could offer their expanding corporate clients.

This expanding corporate clientele enabled younger partners to build practices of “management engineering” within older, larger firms or to found new specialty firms. These younger professionals intentionally borrowed skills and credentials from fields outside their professional training as they struggled to attract clients. For example, the electrical engineering consulting firm of Stone & Webster worked for J.P. Morgan & Co. after the 1893 recession, appraising the value of electrical utility companies owned by General Electric [21, pp. 21-24]. Their appraisals combined engineering expertise and accounting skills as they traded on their Wall Street contacts? While engineers were performing accounting, accountants marketed themselves as engineers. In 1927, James McKinsey, an accountant and lawyer from Chicago, put “accountants and engineers” on his letterhead, as did Miller, Franklin, Basset & Company, an accounting firm based in New York [28]. This blurring of professional boundaries was sometimes just a response to demand but frequently it was the result of training in more than one profession. James McKinsey was not alone in combining legal training with management consulting; his former boss, George Frazer, and his protege, Marvin Bower, were both trained as lawyers [17, p. 7; 6, p. 1]. Management engineers, like others struggling for professional status, used multiple professional credentials to support their claims to specialized knowledge and professional approval in their efforts to market a new and poorly understood service [7].

These engineers, accountants, and lawyers often worked for merchant bankers who, in turn, coordinated a wide array of services which were, at the turn of the century, the closest functional equivalent in the American setting to management consulting. 4 Since merchant bankers provided both commercial and investment banking services, bankers acted both as internal advisors to help their client companies and as external regulators to safeguard investors’ interests. For example, bankers hired countless engineers, accountants, and lawyers to assist them in reorganizing the thirteen large railroads which failed between 1893 and 1898 [14, p. 5]. Bankers frequently needed to evaluate the worth, organization, and prospects of companies for projects as diverse as the valuation of an initial public offering, the reorganization of a bankrupt company, or the administrative integration of two merging corporations. During the 1920s, National City Bank (now Citibank) performed management engineering studies to evaluate the initial financing of United Aircraft, troubled loans at Anaconda Copper, and the merger of six separate business machine companies to form Remington Rand. [2]. To gain a thorough understanding of increasingly complex corporations, bankers called upon and coordinated the work of both internal and external professionals. Investment houses employed engineers for valuations and organizational surveys, accountants for audits and the installation of financial cost controls, and lawyers to serve on reorganization and bond-holder committees. In the 1920s, Arthur Andersen & Company became nationally known for its investigations of “plants, products, markets, organization, and future prospects” of companies that investment banks in New York and Chicago were underwriting [ 3, p. 13-14]. By drawing on a range of professional services as they advised corporate management on planning, organization, and executive control, bankers provided a range of organizational advice, backed by a blue-blooded reputation, which only management consultants would later equal.

While management consulting services were available from the turn of the century onward, the rapid growth, both in numbers and in size, of independent management consulting firms did not begin until the Great Depression. It wasn’t until the 1930s that management consulting firms grew beyond a few founding partners and established branches in new cities. In 1926, after twelve years in business, Edwin Booz employed only one other management engineer; by 1936, Booz -Allen & Hamilton had eleven consultants on staff [5, pp. 7, vi]. Similarly, James O. McKinsey and Company, which McKinsey founded in Chicago in 1926, had, by 1936, expanded to more than 25 employees and had a second office in New York [30, p. 11 ]. The growth in the number of firms mirrored the expansion of the firms themselves. Between 1930 and 1940, the number of management consulting firms grew, on average, 15% a year from an estimated 100 firms in 1930 to 400 firms by 1940 [4, Table 2]. It was no coincidence that the economist Joel Dean wrote in 1938 that “unheralded, almost unnoticed, professional management counsel has become an important institution in our business world” [15, p. 451 ]. During the 1930s the services that management consulting firms provided began to increase in importance. In the 1920s, acquaintances in local companies hired management engineers to analyze limited, technical problems. But, by the 1930s, hundreds of large corporations including Armour, Union Carbide, Kroger, Carrier, Sunbeam, U.P.S., Borden, Upjohn, Johnson Wax, and Sears routinely hired management engineers to improve their organization’s overall strategy, structure, and financial performance. Consultants later assumed that this growth during the depression was a counter cyclical reaction as troubled firms used management engineers to cut costs and improve operational efficiency. Yet, management consultants suffered badly during the 1920-21 recession and, fifty years later, following the 1973 oil embargo – in both cases, clients simply put off expensive studies as their plants sat idle [27, 13]. The growth of management consulting in the 1930s was not simply a “natural” market response to the economic downturn. It was, instead, an institutional response to new government regulation.

New Deal banking and securities regulation propelled the growth of management consulting in the mid-1930s. Firms of management consultants prospered as companies turned from bankers to management engineers for organizational advice. In this last section of the paper, I will illustrate this process of institutionalization by describing (1) the reorganization of U.S. Steel by Ford, Bacon & Davis between 1935 and 1938, (2) the career of management engineer George Armstrong, and (3) the development of the “general survey outline” at James O. McKinsey and Company in the 1930s.

Congress passed the Glass-Steagall Banking Act of 1933 to correct the apparent structural problems and industry mistakes that contemporaries believed led to the stock market crash in October 1929 and the bank failures of the early 1930s. Glass-Steagall divided the investment and deposit-taking functions within banks like J.P. Morgan and National City Bank into two separate industries: commercial banking and investment banking. J.P. Morgan & Company, for example, chose to remain a commercial bank, but several partners left to form the investment banking firm of Morgan, Stanley & Company. Simultaneously, Congress created the Securities and Exchange Commission to regulate financial markets and enforce a more open system of corporate disclosure [25, pp. 169-171]. These legislative changes which reconfigured banking and promoted the rapid growth of independent accounting audits also shaped the institutionalization of management consulting. Since Glass-Steagall prohibited commercial banks from engaging in “non-banking activities,” like management engineering, commercial banks could no longer act as management consultants [32, p. 23]. Federal regulators forced commercial banks to cease their non-banking activities like insurance, real estate development, or management consulting. And, while Glass-Steagall did not restrict investment banks from acting as management consultants, S.E.C. regulations required that underwriters perform external due diligence on securities issues and corporate reorganizations so investment banks could not use their internal management engineers to certify new issues. Federal regulation forced investment and commercial banks from 1934 onward to hire outside consultants to render opinions on the organization of a bankrupt company or the prospects of a newly-formed public company. Commercial bankers simultaneously encouraged business executives to hire management consultants since officers inside the banks could no longer coordinate internal organizational studies of their clients. The new institutional arrangements in banking opened up a vacuum into which firms of management consultants rushed.

The contrast between the old and new institutional order was evident in Ford, Bacon & Davis’ reorganization of U.S. Steel between 1935 and 1938. In 1901, J. Pierpont Morgan had personally supervised the initial organization of U.S. Steel, but in 1935, U.S. Steel’s Chairman, Myron Taylor, asked his college friend, George Bacon, to oversee the reorganization of the largest industrial firm in the country [22]. As Taylor reported to the stockholders of U.S. Steel in 1938,

In 1935 we retained the firm of Messrs. Ford, Bacon & Davis to go through all of our properties, methods, personnel and markets and, in collaboration with our engineers and executives to formulate definite recommendations [cited in 18, p. 619].

Ford, Bacon & Davis’ study took three years, cost 3.2 million dollars, and eventually included 203 separate reports produced in collaboration with five different sub-contracting consulting firms, including McKinsey, Wellington & Co [16]. It was the largest study ever done by management engineers, and the recommendations which Ford, Bacon, & Davis made on the organization, strategy, and operations of U.S. Steel influenced the company’s investment, labor, and administrative policies through the 1950s. In labor relations, for instance, the 1937 accord reached with workers overturned a long-standing antagonistic relationship endorsed by the Morgan Bank which would have immobilized U.S. Steel in the tight labor markets of the Second World War [34, pp. 15-17].

George Armstrong, a Vice-President in charge of industrial investigations at National City Bank between 1921 and 1932, personified the changes caused by the Glass-Steagall Act. During the 1920s, National City Bank had Armstrong conduct studies of their troubled loans to the Saco-Lowell Shops, of the proposed merger of Palmolive, Kraft, and Hersey, and (at J. C. Penney’s personal request) a comparative study of the Penney chain stores and their relative expense ratios [2]•

In 1932, however, with inside assurances from his uncle that Franklin D. Roosevelt intended to break apart commercial and investment banking, Armstrong resigned from National City Bank to found his own consulting firm. His timing was shrewd since lawyers who examined the new statues agreed, in Armstrong’s words,

that any financing be preceded by the exercise of due diligence. This was interpreted to mean the investigation of the subject by a firm of competent engineering consultants and the review of the Registration Statement by such consultants [2, p. 69].

Armstrong’s new firm, George S. Armstrong & Company was successful from its founding in 1933. The firm worked for a succession of investment banking firms during the 1930s investigating such corporate giants as Jones & Laughlin, Seagrams, Birdseye Frozen Foods, and Philip Morris. George Armstrong profited from the transition from banker supervision of management engineering studies to the institutionalization of management consulting even though the types of studies that Armstrong performed did not change. George S. Armstrong & Co. grew rapidly not because it offered a new form of organizational advice but because Armstrong had founded an independent firm.

The history of James O. McKinsey & Company illustrates the institutionalization of management consulting after the Glass-Steagall Act. During the 1930s, James McKinsey worked to systematize the complicated process of soliciting new clients and conducting a management engineering survey. In order to secure new clients, McKinsey methodically cultivated contacts throughout the financial community. He claimed to have taken every important banker in Chicago or New York to lunch and, in return, “‘nearly every one at one time or another has given me some work….'” [37, p. 42]. Perhaps James McKinsey’s greatest contribution to the institutionalization of his firm was the “general survey outline,” which he drafted in December 1931, to give young, inexperienced consultants a model to follow when, as McKinsey specified, they were asked to prepare a complete study of a company that was in financial difficulties [30, p. 11]. Marvin Bower, who joined the firm in 1933, has written that the general survey resembled the corporate reorganizations for bondholders’ committees which Bower had previously overseen as a young lawyer at Jones, Day [6, p. 17]. Indeed, because consultants frequently prepared these general surveys for investment firms during the 1930s, the partners at James O. McKinsey and Company came to refer to them as “banker’s surveys.” The general survey outline survived in modified form in McKinsey and Company’s training manual until 1962 [30, p. 12]. As early as the 1930s, James O. McKinsey and Company was profiting from the external imposition of banking and finance regulation, a transition it was well equipped to exploit. The firm also profited from its internal systematization of client contact and report writing. These internal arrangements allowed McKinsey and Company to overcome the limitations of novice consultants and variable economic conditions as the firm’s organization grew beyond its founder and expanded throughout the world.

The origins of modern management consulting are in the 1930s. Contrary to popular assumptions, Taylorism was not the predominant influence on the development of consulting firms. Rather, management engineers drew on the practices of accountants, engineers, and lawyers to offer CEO-level studies of organization, strategy, and operations. The major change in this emerging quasi- profession took place in the 1930s and was primarily a product of political developments. Before the 1930s, merchant bankers coordinated these studies. But, the Glass-Steagall Act and S.E.C. disclosure regulations forced commercial and investment bankers to abandon internal management consulting activities even as regulators mandated that they commission outside studies. These required studies, combined with the increasing acceptance of management engineers by corporate executives, propelled the rapid growth of consulting firms from the 1930s onward. New Deal legislation and firm-level systemization catalyzed the development of this particularly American form of professionalized corporate counsel.

Since the 1930s, management consultants have reorganized the largest and most important organizations in the world. During the Second World War, the Federal Government hired large numbers of consultants to streamline civilian production, reorganize the military, and oversee the rapid expansion of the Federal Administration. By 1949, Cresap. McCormick & Paget was working for the Hoover Commission restructuring the Executive Branch [12]. As consultants worked for the government, they carried ideas between the public and private bureaucracies, accelerating the process of organizational innovation and dissemination. Since other countries did not legislate the separation of commercial and investment banking, the institutionalization of management consulting never happened outside of the United States. When American management consultants expanded into Europe in the early 1960s, they sold American management “know- how” to European managers eager to employ the organizational structures that J. J. Servan-Schreiber labeled “The American Challenge. “• By the 1970s, McKinsey and Company had decentralized one-quarter of the hundred largest companies in Great Britain [10, p. 239]. Whether reorganizing the Bank of England, Royal Dutch Shell, the Government of Tanzania, or even the World Bank, management consultants disseminated American management techniques throughout the world. But, it was the institutional and professional growth of consultants during the 1930s that was the necessary precursor to the predominance of American management consultants throughout the world and, through them, the ascendancy of American models of corporate organization after the Second World War.


1. Hugh G. J. Aitken, Scientific Management in Action: Tayh•rism at Watertown Arsenal, ] 908-1915 (Princeton, 1960).

2. George S. Armstrong, An Engineer in Wall Street (New York, 1962).

3. Arthur Andersen & Co., The First Sixty Years, 1913 – 1973 (Chicago, 1974). -• Indeed, Servan-Schreiber, in his bestseller from 1968, noted that hand in hand with the growth of American industrial subsidiaries in Europe, “the three American consultant firms with European branches (Booz-Allen, and Hamilton, Arthur D. Little, Inc., and McKinsey and Co.) have doubled their staffs every year for the past five years” [33, p. 8, emphasis in original].

4. Association of Consulting Management Engineers, Inc. (ACME), Numerical Data an the Present Dimensions, Growth, and other Trends in Management Consuhing in the United States (New York, 1964).

5. Jim Bowman, Booz -Allen & Hamilton.. Seventy Years q[‘ Client Service, 1914-1984 (Chicago, 1984).

6. Marvin A. Bower, Perspective on McKinsey (New York, 1979).

7. JoAnne Brown, The Definition of a Pri•bssion: The Authority q[‘ Metaphor in the History Intelligence Testing, 1890-1930 (Princeton, 1992).

8. John A. Byrne, “The Craze for Consultants,” Business Week, (July 25, 1994), 60-66.

9. Alfred D. Chandler, Jr., The Visible Hand (Cambridge, 1977).

I 0. Derek F. Channon, The Strategy and Structure q[‘British Enterprise (Boston, 1973).

I I. Thomas G. Cody, Management Consulting: A Game without Chips (Fitzwilliam, NH, 1986)

12. Cresap, McCormick & Paget, A Summary q[‘the Hoover Report (New York, 1950).

13. “The Consultants Face a Competition Crisis,” Business Week, (Nov. 17, 1973), 72.

14. Stuart Daggett, Railroad Reorganization (Cambridge, 1908).

15. Joel Dean, “The Place of Management Counsel in Business,” The Harvard Business Review, 16 ( 1938), 451-465.

16. Ford, Bacon & Davis, United States Steel Company: Final Study Summarizing the Survey (New York, 1938).

17. Frazer, George E., First Forty Years (Chicago, 1957).

18. N.S.B. Gras, and H. M. Larson, Casebook in American Business History (New York, 1939).

19. Thomas P. Hughes, Networks q[‘Power: Electrification in Western Society, 1880-1930 (Baltimore, 1983).

20. E.J. Kahn, Jr., The Problem Solvers.’ A History of Arthur D. Little, Inc. (Boston, 1986).

21. David Neal Keller, Stone & Webster, 1889-1989 (New York, 1989).

22. Thomas W. Lamont Papers, Box 133, File 6, Historical Collections, Baker Library, Harvard Business School.

23. Miles Lasser, 75 Years •’ Total Involvement: A History (•[‘Seidman and Seidman (New York, 1985).

24. Kenneth J. Lipart(to, and Joseph A. Pratt, Baker & Botts in the Development of Modern Houston (Austin, 1991).

25. Thomas K. McCraw, Prophets of Regulation (Cambridge, 1984).

26. Judith A. Merkle, Management and Ideology: The Legacy of the International Scienti/ic Management Movement (Berkeley, 1980).

27. Miller, Franklin, Basset & Company, The Industrial and Production Engineering Service q/’Miller, Franklin, Basset & Company (New York, 1920).

28. Miller, Franklin, Ba•set & Company, The First Quarter Century (New York, 1927).

29. Daniel Nelson, ed., A Mental Revolution.’ Scientific Management since Taylor (Columbus, 1992).

30. John G. Neukom, McKinsey Memoirs: A Personal Perspective (New York, 1975).

31. James P. Quigel, Jr., The Business *•[‘Selling Efficiency: Harrington Emerson and the Emerson EJJ•ciency Engineers, 1900-1930 (Ph.D. Dissertation, Pennsylvania State University, 1992).

32. Peter S. Rose, The Changing Structure q/’American Banking (New York, 1987).

33. J.J. Servan-Schreiber, The American Challenge (New York, 1968).

34. Paul A. Tiffany, The Decline q/’American Steel (New York, 1988).

35. Patricia Tisdall, Agents of Change: The Development and Practice •’Management Consultancy (London, 1982).

36. Stephen P. Wari ng, Taylorism Tran•s/brmed (Chapel Hill, 1991).

37. William B. Wolf, Management and Consulting: An Introduction to James O. McKinsey (Ithaca, 1978).

Key sources of Research:

The Origins of Modern Management Consulting

Christopher D. McKenna

• The Johns Hopkins University




A brief history of strategy consulting




The Firm: The Story of McKinsey and Its Secret Influence on American Business

The Making of McKinsey: A Brief History of Management Consulting in America




AD Little, Inc





Boston Consulting Group




McKinsey and Company, Inc.




Booz Allen








Roland Berger




Bain and Company














Top 10 consulting firms in the world





Researching Management Consulting: An Introduction to the Handbook  

Matthias Kipping and Timothy Clark





View at Medium.com



McKinsey & Company, Inc. History





Top Consulting Firms



An Introduction of Management Consulting




The history of management and technology consultancy BearingPoint




Big 3 consulting firms: McKinsey, BCG and Bain (MBB)



The Creative Consulting Company

Robert S. Kaplan Richard Nolan David P. Norton






Consulting on the Cusp of Disruption










Competition, Concentration, and Anti-Trust Laws in the USA

Competition, Concentration, and Anti-Trust Laws in the USA


Currently the US FTC has been having hearings on concentration, competition, and anti-trust laws in the USA.  Several conferences are organized starting with September 2018.  I present links to hearings details and videos of the sessions.  As of now, two hearings have already taken place.  I have given the links to the third hearing below.  Economists Joe Stiglitz and Jason Furman have given speeches and presentations during first and second hearings.

Key Sources of Research:

Hearings on Competition and Consumer Protection in the 21st Century

Hearings on Competition and Consumer Protection in the 21st Century

The Federal Trade Commission will hold a series of public hearings during the fall and winter 2018 examining whether broad-based changes in the economy, evolving business practices, new technologies, or international developments might require adjustments to competition and consumer protection law, enforcement priorities, and policy. The PDF version of this content includes footnotes and sources. All the hearings will be webcast live.






Hearings on Competition and Consumer Protection in the 21st Century: Opening Session

September 14, 2018






FTC Hearing #1: Competition and Consumer Protection in the 21st Century

Hearing #1 On Competition and Consumer Protection in the 21st Century, September 13-14, 2018











FTC Hearing #2: Competition and Consumer Protection in the 21st Century

FTC Hearing #2: Competition and Consumer Protection in the 21st Century








FTC Hearing #3: Competition and Consumer Protection in the 21st Century

FTC Hearing #3: Competition and Consumer Protection in the 21st Century - George Mason University












Nobel Prize-winning economist Joseph Stiglitz says the US has a major monopoly problem




Competition Conference 2018

What’s the Evidence for Strengthening Competition Policy?

Boston University




Slower Productivity and Higher Inequality: Are They Related?

Jason Furman and Peter Orszag

June 2018






Market Power and Monetary Policy

Speech given by

Andrew G Haldane Chief Economist Bank of England

Co-authors: Tommaso Aquilante, Shiv Chowla, Nikola Dacic, Riccardo Masolo, Patrick Schneider, Martin Seneca and Srdan Tatomir.

Federal Reserve Bank of Kansas City Economic Policy Symposium Jackson Hole, Wyoming

24 August 2018



Shareholder Capitalism: Rising Market Concentration, Slower Productivity Growth, Rising Inequality, Rising Profits, and Rising Equities Markets

Shareholder Capitalism: Rising Market Concentration, Slower Productivity Growth, Rising Inequality, Rising Profits, and Rising Equities Markets


Public traded companies are always under pressure to show earnings growth and sales revenue growth to enhance shareholder value.


How do they do it when markets have matured and economy has slowed?

  • Lower Costs
  • Increase Market Share


How do then companies lower their costs?

  • Vertical Mergers and Acquisitions
  • Outsourcing (Sourcing parts and components / Intermediate Goods / Inputs from cross border)
  • Offshoring (Shifting Production cross border)
  • Vertical Integration


How do then companies increase their market share?

  • Horizontal Mergers and Acquisitions
  • Cross Border Markets Share (Sales in other countries)


In the last thirty years, this is exactly what has happened in US economy.

Macro Trends of increase in Outsourcing/Offshoring, Increase in Market Concentration, Increase in Inequality, Increase in Corporate Profits, Rising Equity Prices, Slower Productivity Growth, Lower Interest Rates, Low Labor Share, and Capital Share.

Please see my other posts expanding on these issues.

Please note that these forces are continuing and trends will remain on current trajectory.


Key Terms:

  • Stakeholder vs Shareholder Capitalism
  • Short Termism
  • Slow Productivity Growth
  • Rising Market Concentration
  • Rising Profits
  • Rising Equities Market
  • Rising Inequality
  • Dupont Ratio Analysis
  • Financial Planning (Micro – Firm Level)
  • Economic Planning (Macro- Aggregate Level)
  • Quarterly Capitalism



Our current, highly financialised, form of shareholder capitalism is not just failing to provide new capital for investment, it is actively undermining the ability of listed companies to reinvest their own profits. The stock market has become a vehicle for extracting value from companies, not for injecting it.

No wonder that Andy Haldane, Chief Economist of the Bank of England, recently suggested that shareholder capitalism is ‘eating itself.’1 Corporate governance has become dominated by the need to maximise short-term shareholder returns. At the same time, financial markets have grown more complex, highly intermediated, and similarly shorttermist, with shares increasingly seen as paper assets to be traded rather than long term investments in sound businesses.

This kind of trading is a zero-sum game with no new wealth, let alone social value, created. For one person to win, another must lose – and increasingly, the only real winners appear to be the army of financial intermediaries who control and perpetuate the merry-goround. There is nothing natural or inevitable about the shareholder-owned corporation as it currently exists. Like all economic institutions, it is a product of political and economic choices which can and should be remade if they no longer serve our economy, society, or environment.

Here’s the impact this shareholder model is currently having:
• Economy: Shareholder capitalism is holding back productive investment. Even the Chief Executive of BlackRock, the world’s largest asset manager, has admitted that pressure to keep the share price high means corporate leaders are ‘underinvesting in innovation, skilled workforces or essential capital expenditures.’ 2
• Society: Shareholder capitalism is driving inequality. There is growing evidence that attempts to align executive pay with shareholder value are largely responsible for the ballooning of salaries at the top. The prioritisation of shareholder interests has also contributed to a dramatic decline in UK wages relative to profits, helping to explain the failure of ordinary people’s living standards to rise in line with economic growth.
• Environment: Shareholder capitalism helps to drive environmental destruction. It does this by driving risky shortterm behaviour, such as fossil fuel extraction, which ignores long-term environmental risks.

The idea that shareholder capitalism is the most efficient way to mobilise large amounts of capital is no longer tenable.

We need both to create new models of companies, and implement new ways of organising investment that are fit for building an inclusive, equal, and sustainable economy.

Companies should be explicitly accountable to a mission and a set of interests beyond shareholder returns. Equally, investment must provide long-term capital for socially and environmentally useful projects, and damaging forms of speculation must be restricted.

For most people, our economy simply is not working, and the damaging aspects of shareholder capitalism are at least in part responsible. Reforming shareholder capitalism must not be dismissed as too difficult – the crisis is too urgent for that. We can take the first steps towards a better economic model right now. It’s time to act.



A Crash Course in Dupont Financial Ratio Analysis


  • What happens when economic growth slows ?
  • What happens when profit margins decline ?
  • What happens when Sales growth is limited ?
  • What does lead to Mergers and Acquisitions ?
  • What is the impact of Cost of Capital ?
  • What is EVA (Economic Value Added) ?
  • What is impact of Outsourcing/Offshoring on Financial Ratios ?
  • What is impact of Mergers and Acquisitions on Financial Ratios ?
  • What is impact of Stock Buy Backs on Financial Ratios ?
  • What is impact of Dividends on Financial Ratios ?
  • ROS (Return on Sales)
  • ROE (Return on Equities)
  • ROA (Return on Assets)
  • ROIC (Return on Invested Capital)
  • EVA (Economic Value Added)
  • MVA (Market Value Added)

From The DuPont Equation, ROE, ROA, and Growth

The DuPont Equation

The DuPont equation is an expression which breaks return on equity down into three parts: profit margin, asset turnover, and leverage.

Learning Objectives

Explain why splitting the return on equity calculation into its component parts may be helpful to an analyst

Key Takeaways

Key Points

  • By splitting ROE into three parts, companies can more easily understand changes in their returns on equity over time.
  • As profit margin increases, every sale will bring more money to a company’s bottom line, resulting in a higher overall return on equity.
  • As asset turnover increases, a company will generate more sales per asset owned, resulting in a higher overall return on equity.
  • Increased financial leverage will also lead to an increase in return on equity, since using more debt financing brings on higher interest payments, which are tax deductible.

Key Terms

  • competitive advantage: something that places a company or a person above the competition

The DuPont Equation


DuPont Model: A flow chart representation of the DuPont Model.

The DuPont equation is an expression which breaks return on equity down into three parts. The name comes from the DuPont Corporation, which created and implemented this formula into their business operations in the 1920s. This formula is known by many other names, including DuPont analysis, DuPont identity, the DuPont model, the DuPont method, or the strategic profit model.

The DuPont Equation: In the DuPont equation, ROE is equal to profit margin multiplied by asset turnover multiplied by financial leverage.

Under DuPont analysis, return on equity is equal to the profit margin multiplied by asset turnover multiplied by financial leverage. By splitting ROE (return on equity) into three parts, companies can more easily understand changes in their ROE over time.

Components of the DuPont Equation: Profit Margin

Profit margin is a measure of profitability. It is an indicator of a company’s pricing strategies and how well the company controls costs. Profit margin is calculated by finding the net profit as a percentage of the total revenue. As one feature of the DuPont equation, if the profit margin of a company increases, every sale will bring more money to a company’s bottom line, resulting in a higher overall return on equity.

Components of the DuPont Equation: Asset Turnover

Asset turnover is a financial ratio that measures how efficiently a company uses its assets to generate sales revenue or sales income for the company. Companies with low profit margins tend to have high asset turnover, while those with high profit margins tend to have low asset turnover. Similar to profit margin, if asset turnover increases, a company will generate more sales per asset owned, once again resulting in a higher overall return on equity.

Components of the DuPont Equation: Financial Leverage

Financial leverage refers to the amount of debt that a company utilizes to finance its operations, as compared with the amount of equity that the company utilizes. As was the case with asset turnover and profit margin, Increased financial leverage will also lead to an increase in return on equity. This is because the increased use of debt as financing will cause a company to have higher interest payments, which are tax deductible. Because dividend payments are not tax deductible, maintaining a high proportion of debt in a company’s capital structure leads to a higher return on equity.

The DuPont Equation in Relation to Industries

The DuPont equation is less useful for some industries, that do not use certain concepts or for which the concepts are less meaningful. On the other hand, some industries may rely on a single factor of the DuPont equation more than others. Thus, the equation allows analysts to determine which of the factors is dominant in relation to a company’s return on equity. For example, certain types of high turnover industries, such as retail stores, may have very low profit margins on sales and relatively low financial leverage. In industries such as these, the measure of asset turnover is much more important.

High margin industries, on the other hand, such as fashion, may derive a substantial portion of their competitive advantage from selling at a higher margin. For high end fashion and other luxury brands, increasing sales without sacrificing margin may be critical. Finally, some industries, such as those in the financial sector, chiefly rely on high leverage to generate an acceptable return on equity. While a high level of leverage could be seen as too risky from some perspectives, DuPont analysis enables third parties to compare that leverage with other financial elements that can determine a company’s return on equity.

ROE and Potential Limitations

Return on equity measures the rate of return on the ownership interest of a business and is irrelevant if earnings are not reinvested or distributed.

Learning Objectives

Calculate a company’s return on equity

Key Takeaways

Key Points

  • Return on equity is an indication of how well a company uses investment funds to generate earnings growth.
  • Returns on equity between 15% and 20% are generally considered to be acceptable.
  • Return on equity is equal to net income (after preferred stock dividends but before common stock dividends) divided by total shareholder equity (excluding preferred shares ).
  • Stock prices are most strongly determined by earnings per share (EPS) as opposed to return on equity.

Key Terms

  • fundamental analysis: An analysis of a business with the goal of financial projections in terms of income statement, financial statements and health, management and competitive advantages, and competitors and markets.

Return On Equity

Return on equity (ROE) measures the rate of return on the ownership interest or shareholders’ equity of the common stock owners. It is a measure of a company’s efficiency at generating profits using the shareholders’ stake of equity in the business. In other words, return on equity is an indication of how well a company uses investment funds to generate earnings growth. It is also commonly used as a target for executive compensation, since ratios such as ROE tend to give management an incentive to perform better. Returns on equity between 15% and 20% are generally considered to be acceptable.

The Formula

Return on equity is equal to net income, after preferred stock dividends but before common stock dividends, divided by total shareholder equity and excluding preferred shares.

Return On Equity: ROE is equal to after-tax net income divided by total shareholder equity.

Expressed as a percentage, return on equity is best used to compare companies in the same industry. The decomposition of return on equity into its various factors presents various ratios useful to companies in fundamental analysis.

ROE Broken Down: This is an expression of return on equity decomposed into its various factors.

The practice of decomposing return on equity is sometimes referred to as the “DuPont System. ”

Potential Limitations of ROE

Just because a high return on equity is calculated does not mean that a company will see immediate benefits. Stock prices are most strongly determined by earnings per share (EPS) as opposed to return on equity. Earnings per share is the amount of earnings per each outstanding share of a company’s stock. EPS is equal to profit divided by the weighted average of common shares.

Earnings Per Share: EPS is equal to profit divided by the weighted average of common shares.

The true benefit of a high return on equity comes from a company’s earnings being reinvested into the business or distributed as a dividend. In fact, return on equity is presumably irrelevant if earnings are not reinvested or distributed.

Assessing Internal Growth and Sustainability

Sustainable– as opposed to internal– growth gives a company a better idea of its growth rate while keeping in line with financial policy.

Learning Objectives

Calculate a company’s internal growth and sustainability ratios

Key Takeaways

Key Points

  • The internal growth rate is a formula for calculating the maximum growth rate a firm can achieve without resorting to external financing.
  • Sustainable growth is defined as the annual percentage of increase in sales that is consistent with a defined financial policy.
  • Another measure of growth, the optimal growth rate, assesses sustainable growth from a total shareholder return creation and profitability perspective, independent of a given financial strategy.

Key Terms

  • retention: The act of retaining; something retained
  • retention ratio: retained earnings divided by net income
  • sustainable growth rate: the optimal growth from a financial perspective assuming a given strategy with clear defined financial frame conditions/ limitations

Internal Growth and Sustainability

The true benefit of a high return on equity arises when retained earnings are reinvested into the company’s operations. Such reinvestment should, in turn, lead to a high rate of growth for the company. The internal growth rate is a formula for calculating maximum growth rate that a firm can achieve without resorting to external financing. It’s essentially the growth that a firm can supply by reinvesting its earnings. This can be described as (retained earnings)/(total assets ), or conceptually as the total amount of internal capital available compared to the current size of the organization.

We find the internal growth rate by dividing net income by the amount of total assets (or finding return on assets ) and subtracting the rate of earnings retention. However, growth is not necessarily favorable. Expansion may strain managers’ capacity to monitor and handle the company’s operations. Therefore, a more commonly used measure is the sustainable growth rate.

Sustainable growth is defined as the annual percentage of increase in sales that is consistent with a defined financial policy, such as target debt to equity ratio, target dividend payout ratio, target profit margin, or target ratio of total assets to net sales.

We find the sustainable growth rate by dividing net income by shareholder equity (or finding return on equity) and subtracting the rate of earnings retention. While the internal growth rate assumes no financing, the sustainable growth rate assumes you will make some use of outside financing that will be consistent with whatever financial policy being followed. In fact, in order to achieve a higher growth rate, the company would have to invest more equity capital, increase its financial leverage, or increase the target profit margin.

Optimal Growth Rate

Another measure of growth, the optimal growth rate, assesses sustainable growth from a total shareholder return creation and profitability perspective, independent of a given financial strategy. The concept of optimal growth rate was originally studied by Martin Handschuh, Hannes Lösch, and Björn Heyden. Their study was based on assessments on the performance of more than 3,500 stock-listed companies with an initial revenue of greater than 250 million Euro globally, across industries, over a period of 12 years from 1997 to 2009.


Revenue Growth and Profitability: ROA, ROS and ROE tend to rise with revenue growth to a certain extent.

Due to the span of time included in the study, the authors considered their findings to be, for the most part, independent of specific economic cycles. The study found that return on assets, return on sales and return on equity do in fact rise with increasing revenue growth of between 10% to 25%, and then fall with further increasing revenue growth rates. Furthermore, the authors attributed this profitability increase to the following facts:

  1. Companies with substantial profitability have the opportunity to invest more in additional growth, and
  2. Substantial growth may be a driver for additional profitability, whether by attracting high performing young professionals, providing motivation for current employees, attracting better business partners, or simply leading to more self-confidence.

However, according to the study, growth rates beyond the “profitability maximum” rate could bring about circumstances that reduce overall profitability because of the efforts necessary to handle additional growth (i.e., integrating new staff, controlling quality, etc).

Dividend Payments and Earnings Retention

The dividend payout and retention ratios offer insight into how much of a firm’s profit is distributed to shareholders versus retained.

Learning Objectives

Calculate a company’s dividend payout and retention ratios

Key Takeaways

Key Points

  • Many corporations retain a portion of their earnings and pay the remainder as a dividend.
  • Dividends are usually paid in the form of cash, store credits, or shares in the company.
  • Cash dividends are a form of investment income and are usually taxable to the recipient in the year that they are paid.
  • Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends.
  • Retained earnings can be expressed in the retention ratio.

Key Terms

  • stock split: To issue a higher number of new shares to replace old shares. This effectively increases the number of shares outstanding without changing the market capitalization of the company.

Dividend Payments and Earnings Retention

Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. On the other hand, retained earnings refers to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Similarly, if the corporation takes a loss, then that loss is retained and called variously retained losses, accumulated losses or accumulated deficit. Retained earnings and losses are cumulative from year to year with losses offsetting earnings. Many corporations retain a portion of their earnings and pay the remainder as a dividend.

A dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. Retained earnings are shown in the shareholder equity section in the company’s balance sheet –the same as its issued share capital.

Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a “special dividend” to distinguish it from the fixed schedule dividends. Dividends are usually paid in the form of cash, store credits (common among retail consumers’ cooperatives), or shares in the company (either newly created shares or existing shares bought in the market). Further, many public companies offer dividend reinvestment plans, which automatically use the cash dividend to purchase additional shares for the shareholder.

Cash dividends (most common) are those paid out in currency, usually via electronic funds transfer or a printed paper check. Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid. This is the most common method of sharing corporate profits with the shareholders of the company. For each share owned, a declared amount of money is distributed. Thus, if a person owns 100 shares and the cash dividend is $0.50 per share, the holder of the stock will be paid $50. Dividends paid are not classified as an expense but rather a deduction of retained earnings. Dividends paid do not show up on an income statement but do appear on the balance sheet.


Example Balance Sheet: Retained earnings can be found on the balance sheet, under the owners’ (or shareholders’) equity section.

Stock dividends are those paid out in the form of additional stock shares of the issuing corporation or another corporation (such as its subsidiary corporation). They are usually issued in proportion to shares owned (for example, for every 100 shares of stock owned, a 5% stock dividend will yield five extra shares). If the payment involves the issue of new shares, it is similar to a stock split in that it increases the total number of shares while lowering the price of each share without changing the market capitalization, or total value, of the shares held.

Dividend Payout and Retention Ratios

Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends:

The part of the earnings not paid to investors is left for investment to provide for future earnings growth. These retained earnings can be expressed in the retention ratio. Retention ratio can be found by subtracting the dividend payout ratio from one, or by dividing retained earnings by net income.

Dividend Payout Ratio: The dividend payout ratio is equal to dividend payments divided by net income for the same period.

Relationships between ROA, ROE, and Growth

Return on assets is a component of return on equity, both of which can be used to calculate a company’s rate of growth.

Learning Objectives

Discuss the different uses of the Return on Assets and Return on Assets ratios

Key Takeaways

Key Points

  • Return on equity measures the rate of return on the shareholders ‘ equity of common stockholders.
  • Return on assets shows how profitable a company’s assets are in generating revenue.
  • In other words, return on assets makes up two-thirds of the DuPont equation measuring return on equity.
  • Capital intensity is the term for the amount of fixed or real capital present in relation to other factors of production. Rising capital intensity pushes up the productivity of labor.

Key Terms

  • return on common stockholders’ equity: a fiscal year’s net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage
  • quantitatively: With respect to quantity rather than quality.

Return On Assets Versus Return On Equity

In review, return on equity measures the rate of return on the ownership interest (shareholders’ equity) of common stockholders. Therefore, it shows how well a company uses investment funds to generate earnings growth. Return on assets shows how profitable a company’s assets are in generating revenue. Return on assets is equal to net income divided by total assets.

Return On Assets: Return on assets is equal to net income divided by total assets.

This percentage shows what the company can do with what it has (i.e., how many dollars of earnings they derive from each dollar of assets they control). This is in contrast to return on equity, which measures a firm’s efficiency at generating profits from every unit of shareholders’ equity. Return on assets is, however, a vital component of return on equity, being an indicator of how profitable a company is before leverage is considered. In other words, return on assets makes up two-thirds of the DuPont equation measuring return on equity.

ROA, ROE, and Growth

In terms of growth rates, we use the value known as return on assets to determine a company’s internal growth rate. This is the maximum growth rate a firm can achieve without resorting to external financing. We use the value for return on equity, however, in determining a company’s sustainable growth rate, which is the maximum growth rate a firm can achieve without issuing new equity or changing its debt-to-equity ratio.

Capital Intensity and Growth

Return on assets gives us an indication of the capital intensity of the company. “Capital intensity” is the term for the amount of fixed or real capital present in relation to other factors of production, especially labor. The underlying concept here is how much output can be procured from a given input (assets!). The formula for capital intensity is below:

Capital Intensity=Total AssetsSales

The use of tools and machinery makes labor more effective, so rising capital intensity pushes up the productivity of labor. While companies that require large initial investments will generally have lower return on assets, it is possible that increased productivity will provide a higher growth rate for the company. Capital intensity can be stated quantitatively as the ratio of the total money value of capital equipment to the total potential output. However, when we adjust capital intensity for real market situations, such as the discounting of future cash flows, we find that it is not independent of the distribution of income. In other words, changes in the retention or dividend payout ratios can lead to changes in measured capital intensity.




Please see my related posts:

Rising Market Concentration and Declining Business Investments in the USA – Update June 2018

Why do Firms buyback their Shares? Causes and Consequences.

FDI vs Outsourcing: Extending Boundaries or Extending Network Chains of Firms

Trading Down: NAFTA, TPP, TATIP and Economic Globalization

On Inequality of Wealth and Income – Causes and Consequences

Rising Profits, Rising Inequality, and Rising Industry Concentration in the USA

Low Interest Rates and Business Investments : Update August 2017

Low Interest Rates and Monetary Policy Effectiveness

Low Interest Rates and Banks’ Profitability : Update July 2017

Short term Thinking in Investment Decisions of Businesses and Financial Markets

Mergers and Acquisitions – Long Term Trends and Waves

Business Investments and Low Interest Rates

The Decline in Long Term Real Interest Rates

Low Interest Rates and Banks Profitability: Update – December 2016


 Key Sources of Research:




The DuPont Equation, ROE, ROA, and Growth




Short-Termism in business: causes, mechanisms and consequences

EY Poland Report





Shareholders vs Stakeholders Capitalism

Fabian Brandt

Goethe University

Konstantinos Georgiou

University of Pennsylvania





Hedrick Smith Speaks to the Community about Who Stole the American Dream.





Let’s Talk About “Maximizing Shareholder Value”






New Economics Foundation








Mark S. Mizruchi and Howard Kirneldorf





Shareholder capitalism on trial


By Robert J. Samuelson






The real business of business







Managers and Market Capitalism


Rebecca Henderson Karthik Ramanna






The Embedded Firm: Corporate Governance, Labor, and Finance Capitalism

Peer Zumbansen

Cynthia A. Williams







Andrew G Haldane: Who owns a company?

Speech by Mr Andrew G Haldane,

Executive Director and Chief Economist of the Bank of England,

at the University of Edinburgh Corporate Finance Conference, Edinburgh,

22 May 2015.







Capitalism for the Long Term

MARCH 2011

The Short Long


Speech by
Andrew G Haldane, Executive Director, Financial Stability, and Richard Davies

29th Societé Universitaire Europeene de Recherches Financieres Colloquium: New Paradigms in Money and Finance?


May 2011







Is short-termism wrecking the economy?

Redefining capitalism

By Eric Beinhocker and Nick Hanauer

Fast finance and slow growth


Andy Haldane



Beyond Shareholder Value

The reasons and choices for corporate governance reform





It’s time to build a human economy that benefits everyone, not just the privileged few







By Douglas K. Chia






The Future of Finance







Is Short-Term Behavior Jeopardizing the Future Prosperity of Business?







How Effective Capital Regulation can Help Reduce the Too‐Big‐To‐Fail Problem

Anat Admati

Stanford University






Business School’s Worst Idea: Why the “Maximize Shareholder Value” Theory Is Bogus

Yves Smith





When Shareholder Capitalism Came to Town

The American Prospect





Competition Conference 2018

What’s the Evidence for Strengthening Competition Policy?

Boston University

July 2018





Market Concentration

Issues paper by the Secretariat
6-8 June 2018

This document was prepared by the OECD Secretariat to serve as an issues paper for the hearing on market concentration taking place at the 129th meeting of the OECD Competition Committee on 6-8 June 2018






Monopoly’s New Era

In today’s economy, many industries can’t be analyzed through the lens of competition.

Chazen Global Insights
May 13, 2016






Market power in the U.S. economy today

Washington Center for Equitable Growth





Don’t Panic: A Guide to Claims of Increasing Concentration

Gregory J. Werden

Luke Froeb


Date Written: April 5, 2018





Market concentration







A Firm-Level Perspective on the Role of Rents in the Rise in Inequality

Jason Furman Peter Orszag1

October 16, 2015





Do the Productivity Slowdown and the Inequality Increase Have a Common Cause?

Jason Furman (joint work with Peter Orszag)

Peterson Institute for International Economics
Washington, DC
November 9, 2017





Is There a Connection Between Market Concentration and the Rise in Inequality?





Concentrating on the Fall of the Labor Share

David; Dorn, David; Katz, Lawrence F; Patterson, Christina; Reenen, John Van






Business Investment Spending Slowdown

April 9, 2018

FAS Congressional Research Services

Marc Labonte






Market Power and Inequality: The Antitrust Counterrevolution and Its Discontents

Lina Khan and Sandeep Vaheesan





Five Myths about Economic Inequality in America

By Michael D. Tanner
September 7, 2016


Cato Institiute






Is the US Public Corporation in Trouble?

Kathleen M. Kahle and René M. Stulz





Declining Labor and Capital Shares

Simcha Barkai





Growing Productivity without Growing Wages: The Micro-Level Anatomy of the Aggregate Labor Share Decline

Kehrig, Matthias; Vincent, Nicolas







Declining Competition and Investment in the U.S.

Germán Gutiérrez† and Thomas Philippon‡

March 2017






James Bessen

Boston University School of Law

November 9, 2016






Kaldor and Piketty’s facts: The rise of monopoly power in the United States

Gauti Eggertsson
Jacob A. Robbins
Ella Getz Wold

Feb 2018






Is There an Investment Gap in Advanced Economies? If So, Why?

Robin Döttling

German Gutierrez Gallardo

Thomas Philippon


Date Written: July 2017






Antitrust in a Time of Populism

Professor Carl Shapiro

CRESSE 2017 Heraklion – Crete, Greece

2 July 2017




The Incredible Shrinking Universe of Stocks

The Causes and Consequences of Fewer U.S. Equities

Credit Suisse

March 2917





Declining Competition and Investment in the U.S

German Gutierrez Gallardo

Thomas Philippon


Date Written: December 2017






The Fall and Rise of Market Power in Europe

John P. Weche and Achim Wambach







On the Formation of Capital and Wealth: IT, Monopoly Power and Rising Inequality

Mordecai Kurz,

Stanford University







Appendix for \Investment-less Growth: An Empirical Investigation”


German Gutierrez and Thomas Philippony

March 2018






WP 18-4 Slower Productivity and Higher Inequality: Are They Related?

Jason Furman and Peter Orszag

June 2018
















OECD Study on the Future of Productivity








A productivity perspective on the future of growth

By James Manyika, Jaana Remes, and Jonathan Woetzel






The future of productivity in manufacturing

Anne Green, Terence Hogarth, Erika Kispeter, David Owen

Peter Glover

February 2016







August 2016

Zia Qureshi
at the Brookings Institution




The Slowdown in Productivity Growth: A View from International Trade

Development Issues No. 11


April 2017






Five Puzzles in the Behavior of Productivity, Investment, and Innovation

Robert J. Gordon


August 2004







Paul Schreyer

OECD Statistics Directorate
2016 World KLEMS Conference
Madrid, May 23-24 2016






Chiara Criscuolo
Directorate for Science, Technology and Innovation OECD

Understanding the Great recession: from micro to macro
Bank of England
London | 24 September 2015







Industry 4.0

The future of Productivity and Growth in Manufacturing Industries







The waning of productivity growth

Raymond Van der Putten




The Impact of Robots on Productivity, Employment and Jobs

A positioning paper by the International Federation of Robotics

April 2017






The fall in productivity growth: causes and implications

Speech given by Silvana Tenreyro, External MPC Member, Bank of England

Peston Lecture Theatre, Queen Mary University of London

15 January 2018





Artificial Intelligence, Automation, and the Economy

Science and Technology Council

Executive Office of the President

December 2016






Long-term growth and productivity projections in advanced countries

Gilbert Cette, Rémy Lecat & Carole Ly-Marin

Working Paper #617

December 2016

Bank of France






William D. Nordhaus

September 2015





Challenges for the Future of Chinese Economic Growth

Jane Haltmaier

Federal Reseve Bank USA






Innovation, research and the UK’s productivity crisis.

Richard Jones

SPERI Paper No. 28





Think Like an Enterprise: Why Nations Need Comprehensive Productivity Strategies


MAY 2016





Solving the productivity puzzle

By Jaana Remes, James Manyika, Jacques Bughin, Jonathan Woetzel, Jan Mischke, and Mekala Krishnan


Feb 2018





Solving the productivity puzzle: the role of demand and the promise of digitization


McKinsey Global Institute

May 2018




Worried about Concentration? Then Worry about Rent-Seeking

By Brink Lindsey and Steven Teles
This article appeared on ProMarket on April 18, 2017.






Online platforms, distortion of markets, social impacts and freedom of expression

Oxford Centre for Competition law and policy

22 May 2017

Tim Cowen.





What’s Behind the Increase in Inequality?

By Eileen Appelbaum*

September 2017






American Antitrust Institute

September 28, 2016





AI and the Economy

Jason Furman
Harvard Kennedy School
Cambridge, MA

Robert Seamans
NYU Stern School of Business
New York, NY

29 May 2018





The United States and Europe: Short-Run Divergence and Long-Run Challenges

Jason Furman
Chairman, Council of Economic Advisers

Remarks at Bruegel
Brussels, Belgium
May 11, 2016






Business Investment Spending Slowdown

April 9, 2018

Marc Labonte

CRS Insights







Together With
of the

Feb 2016




Keynote Remarks of Commissioner Terrell McSweeny

Washington Center for Equitable Growth

Making Antitrust Work for the 21st Century

Washington, DC

October 6, 2016



Wal-Mart: A Progressive Success Story

Jason Furman

November 28, 2005




“America Without Entrepreneurs: The Consequences of Dwindling Startup Activity”

Testimony before
The Committee on Small Business and Entrepreneurship
United States Senate
June 29, 2016

John W. Lettieri
& Senior Director for Policy and Strategy
Economic Innovation Group






A reading list on market power, superstar firms, and inequality








Productivity Growth in the Advanced Economies:The Past, the Present, and Lessons for the Futures

Jason Furman

Chairman, Council of Economic Advisers

July 2015







Forms and sources of inequality in the United States

Jason Furman

17 March 2016








Business Investment in the United States: Facts, Explanations, Puzzles, and Policies

Jason Furman
Chairman, Council of Economic Advisers
Progressive Policy Ins9tute

September 30, 2015






Can Tax Reform Get Us to 3 Percent Growth?

Jason Furman
Harvard Kennedy School & Peterson Institute for International Economics

New York, NY
November 3, 2017






Structural Challenges and Opportunities in the U.S. Economy

Jason Furman
Chairman, Council of Economic Advisers

London School of Economics
November 5, 2014




Is This Time Different? The Opportunities and Challenges of Artificial Intelligence

Jason Furman
Chairman, Council of Economic Advisers

Remarks at AI Now: The Social and Economic Implications of Artificial Intelligence Technologies in the Near Term
New York University
New York, NY

July 7, 2016






Rebalancing the U.S. Economy

Jason Furman






Should Policymakers Care Whether Inequality Is Helpful or Harmful For Growth?

Jason Furman

Harvard Kennedy School & Peterson Institute for International Economics
Rethinking Macroeconomic Conference, October 11-12 2017

Preliminary Draft: October 5, 2017







A Political Economy of Oligarchy: Winner-take-all ideology, superstar norms, and the rise of the 1%

Yochai Benkler

September, 2017






Can Trump Overcome Secular Stagnation?
Part One: The Demand Side *

James K. Galbraith






The macroeconomic effects of the 2017 tax reform

Robert J. Barro, Harvard University
Jason Furman, Harvard University

March 2018







McKinsey Global Institute

January 2017







APRIL 2018





Inclusive Growth

For once, some good news

by jason furman






The Outlook for the U.S. Economy and the Policies of the New President

Jason Furman
Senior Fellow, PIIE
Peterson Institute for International Economics |

SNS/SHOF Finance Panel


June 12, 2017






The Role of Economists in Economic Policymaking

Jason Furman
Senior Fellow, Peterson Institute for International Economics

Arnold C. Harberger Distinguished Lecture on Economic Development
UCLA Burkle Center for International Relations
Los Angeles, CA

April 27, 2017






Market Concentration – Note by the United States

Hearing on Market Concentration
7 June 2018








The fringe economic theory that might get traction in the 2016 campaign









Rising Market Concentration and Declining Business Investments in the USA – Update June 2018

Rising Market Concentration and Declining Business Investments in the USA – Update June 2018


Since my last posts in August/September 2017 on the subject of

  • Market Concentration
  • Inequality
  • Market Power
  • Reduced Competition
  • Reduced Dynamism
  • Rising Profits
  • Declining Business Investments

several new studies have been published.  In addition, several important hearings and conferences have been organized by OECD, Brookings Institution, Boston University School of Law. Please see my list of references for details of each one of them.

This topic now is getting good attention in media also.

The Peterson Institute for International Economics (PIIE) held a major research conference on the “Policy Implications of Sustained Low Productivity Growth” on November 9, 2017. Jeromin Zettelmeyer, PIIE, moderates panel 4, “Wages and Inequality.” Presenters include Jason Furman, Harvard University and PIIE, and Lawrence H. Summers, Harvard University.  I have given the link to Video of the session 4 in the references.

OECD on June 7-8, 2018 held hearings on Market Concentration at Paris, France.  Several presentations were given by experts in the field.  I have given link to the conference webpage in the references.

The Hamilton Project/Brookings Institution had a Conference on June 13, 2018 in Washington DC on the subject of Market Concentration.  Please see the link to the conference video and papers in the references below.



From The State of Competition and Dynamism:
Facts about Concentration, Start-Ups, and Related Policies


From The State of Competition and Dynamism:
Facts about Concentration, Start-Ups, and Related Policies



Please see my related posts:

Rising Profits, Rising Inequality, and Rising Industry Concentration in the USA

Low Interest Rates and Business Investments : Update August 2017

Increasing Returns, Path Dependence, Circular and Cumulative Causation in Economics

Increasing Returns and Path Dependence in Economics

Business Investments and Low Interest Rates

Mergers and Acquisitions – Long Term Trends and Waves


Key Sources of Research:

Building a More Dynamic and Competitive Economy

Hamilton Project


June 13, 2018


Video of the Opening Remarks and Fireside Chat – Robert Rubin, Jason Furman, Steve Case

The State of Competition and Dynamism:
Facts about Concentration, Start-Ups, and Related Policies


Jay Shambaugh, Ryan Nunn, Audrey Breitwieser, and Patrick Liu

Brookings/Hamilton Project

June 2018






Market Concentration

OECD Hearing on Market Concentration

June 7-8, 2018





Market Concentration Issues paper by the Secretariat

6-8 June 2018








Presented by the Business at OECD (BIAC) Competition Committee to the OECD Competition Committee

Market Concentration

June 7, 2018








Chapter VI


Trade and Development Report 2017






The fall and rise of market power in Europe∗

John P. Wechea,b & Achim Wambacha






A policy at peace with itself: Antitrust remedies for our concentrated, uncompetitive economy

William A. Galston and Clara Hendrickson







The Rise of Market Power and the Macroeconomic Implications

Jan De Loecker, Jan Eeckhout

Issued in August 2017






This chart highlights the rise of corporate giants







Market power in the U.S. economy today






Is Lack of Competition Strangling the U.S. Economy?

David Wessel





Competition Conference 2018

What’s the Evidence for Strengthening Competition Policy?

Boston University

July 2018





Declining Competition and Investment in the U.S.

Germán Gutiérrez† and Thomas Philippon‡

November 2017




Should We Really Care About Inequality?






Beyond Antitrust: The Role of Competition Policy in Promoting Inclusive Growth

Jason Furman

Chairman, Council of Economic Advisers

Searle Center Conference on Antitrust Economics and Competition Policy Chicago, IL

September 16, 2016





POWERLESS: How Lax Antitrust and Concentrated Market Power
Rig the Economy Against American Workers, Consumers, and Communities

Roosvelt Institute





Is Government the Problem or the Solution to U.S. Labor Market Challenges?

Jason Furman







With Competition in Tatters, the Rip of Inequality widens













Concentration not competition: the state of UK consumer markets









May 2018






America’s Superstar Companies Are a Drag on Growth

Lack of competition lets them gouge consumers, underpay workers and invest too little.






Big Companies Are Getting a Chokehold on the Economy

Even Goldman Sachs is worried that they’re stifling competition, holding down wages and weighing on growth.





Monopolies May Be Worse for Workers Than for Consumers

There isn’t much evidence that they raise prices, but they do seem to hold down wages.







José Azar
Ioana Marinescu Marshall I. Steinbaum

2017 December







More and more companies have monopoly power over workers’ wages. That’s killing the economy.

The trend can explain slow growth, “missing” workers, and stagnant salaries.




Antitrust Remedies for Labor Market Power

Suresh Naidu

Eric A. Posner

E. Glen Weyl


Date Written: February 23, 2018




Policy Implications of Sustained Low Productivity Growth – Panel 4

Jason Furman / Larry Summers

Peterson Institute for International Economics

November 2017


Presentation by jason Furman


Paper by Jason Furman – published June 2018


Panel 4 Video: