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1 big thing: Behemoths and the market plunge

Illustration: Sarah Grillo/Axios

Amid the worst stock market plunge since the financial crash, stark new questions are arising about the concentration of global profit and wealth in a few "superstar" firms, and the economic power that they wield.

One of the concerns about Google, Facebook, Amazon, Apple and others is the historic scale of wealth at the apex of some industries, alongside decades-long wage stagnation for the middle and lower classes.

  • Such companies seem to be insulated from competition, when economic theory says rivals should arise in a more even fight over the wealth, according to reporting by Kaveh Waddell, Erica Pandey and me.

Driving the news: In a new report, McKinsey Global Institute points out that so-called "superstar companies," the 10% most valuable firms across industries around the world, are not only extraordinarily profitable, but are profitable compared with prior superstars.

  • They produce 1.6 times as much "economic profit" as superstar companies did 20 years ago (profit adjusted to correct for a company's size).

In short, today's big companies are dominating the economy to a degree not seen since the Gilded Age in the late 19th century, says Tim Wu, a law professor at Columbia University.

The big picture: Economists have increasingly linked market concentration with nagging economic problems, such as the stubbornness of relatively flat U.S. wages despite 3.7% unemployment, the lowest in almost a half century.

  • "Something is funny with the economy" when companies are earning the scale of profits of the most prominent U.S. tech companies, says Wu, author of the forthcoming "The Curse of Bigness."
  • "In a state of competition, you expect the profits to be competed away," he tells Axios. "If you have five companies selling widgets, they should keep lowering their price until it's close to cost."

Many economists link the superstar companies to stark inequality in the economy. Companies are so big that they can suppress wages, especially in more rural areas with relatively few places to work.

  • "Those companies create enormous profits, plus increase inequality in terms of exec pay — largely paid in stocks — to median worker pay," says Clair Brown, economics professor at UC Berkeley.

McKinsey also thinks something fishy is going on economically — but in the bottom tier of global companies, not necessarily the top, according to Sree Ramaswamy, co-author of the report.

  • The bottom 10% of firms generated 1.5 times the economic loss as such companies did 20 years ago, McKinsey says.
  • A fifth of such companies cannot pay the interest on their debt.
  • But rather than sell, declare bankruptcy or otherwise release their assets to the market, such companies are being kept afloat by investors or other lenders, Ramaswamy tells Axios.
  • "What is happening in the economy to allow this to go on?" he says. "They continue to grow larger even as they are destroying value."
2. The decline of Black Friday

Once-enormous Black Friday lines are shrinking. Photo: Hector Mata/AFP/Getty

Americans are spendings less and less money in brick-and-mortar stores during the run-up to the holidays, shunning the crazy lines they once formed outside big-box stores on Black Friday.

Erica writes: Shoppers plan to spend 57% of their budgets online but just 36% in physical stores, per a new Deloitte survey. Just 44% of shoppers say they will shop on Black Friday as much as in past holiday seasons, while 53% say they will buy on Cyber Monday, three days later.

The big picture: For many Americans, the idea of one big shopping spree coinciding with a work holiday is fading, yet at the same time they have higher holiday budgets.

  • The average shopper plans to spend $525 on gifts — 20% more than the average $430 in 2017.

The steady decline of Black Friday is a victim of online shopping for gifts, says Rod Sides, the head of retail at Deloitte.

  • E-commerce is saving customers several trips to the mall, allowing them to shop 24/7 — and from anywhere. "Five years ago, mobile commerce was in the teens," Sides says. This year, Deloitte found that 67% of online shoppers will make purchases on their phones.
  • Brick-and-mortar stores also are realizing they can earn more money by extending Black Friday deals for a week or longer, Sides adds.

But e-commerce giants are not the only ones profiting from this sea change. Traditional retailers — especially clothes shops — are still making a killing before Christmas, but the bulk of their sales are moving to the web, according to Deloitte.

The bottom line: One reason e-commerce thrives during the holidays is that gift shopping is often easier online, according to Sides. "If I'm buying for folks in my extended family, I don't know what size they wear anyway. So I might as well buy online and take my best guess."

3. What you may have missed

Photo: Hank Walker/LIFE/Getty

You barely read any news this week? Catch up on this week's top stories at Future:

  1. Chances of a U.S.-China war: History says the two nations are war-bound
  2. Saudi Arabia's vulnerable crown prince: Could MBS fall?
  3. Jobs of the future index: How will we be employed?
  4. Relax about automation ... or maybe not: The debate over jobs
  5. China's robot uprising: The race for technological dominance
4. Worthy of your time

Illustration: Sarah Grillo/Axios

An AI cold war that could doom us all (Nicholas Thompson, Ian Bremmer — Wired)

The outrage over insulin profiteering (Bob Herman — Axios)

The anarchy that came (Robert Kaplan — National Interest) (h/t Ed Luce)

The trust crisis in business may be receding (Claire Zillman — Fortune)

A quiet detente between China and Japan (Jonathan Pollack — Brookings)

Microsoft will work with U.S. military on AI (Ina Fried — Axios)

5. 1 awful thing: The world’s creepiest robot

Photo: Hiroshi Ishiguro/Osaka University/ATR

On the Tinder for robots, you don’t swipe left or right — you instead rate them on likability, appearance and overall desirability. Too many bad "appearance" ratings, and a bot lands in a modern hall of shame: the World’s Creepiest Robots.

Kaveh writes: Today’s most useful robots are giant arms that assemble cars and smartphones in enormous factories. But in the near future, robot builders want to make social bots that elicit empathy from people.

But first, they have to figure out how to make ones that aren’t totally horrifying.

Telenoid, a milky-white, nearly featureless robot that appears ready to feast on human souls, enjoys the top spot on the Creepiest Robots list.

  • According to the robot’s website, its "minimalistic" design is intended to appear "both male and female" and "both old and young."
  • It can mimic a faraway person’s facial expressions as they speak — acting as "a mobile phone shaped like an alien," according to IEEE, the organization behind the bot catalog.
  • The nightmarish bot is expected to sell for $8,000.

All five creepiest robots have human-like faces, but dead eyes and weird dull skin that shove them deep into the "uncanny valley," a term used to describe the dreadful quality of robots that try to emulate human features but fall short.

"Creepiest" is just one way of sorting IEEE’s catalog of nearly 200 robots. Choose to sort by "Top Rated" and you’ll see a very different set of machines. Tellingly, none are humanoid: The top two are animal-like bots, and nearly all the rest in the top ten bear no resemblance to living things.

Go deeper: Rate some bots!