Today’s exceedingly high corporate profit margins look unsustainable if capitalism is to retain credibility. Normally, outsized profits attract competition to benefit consumers.
In competitive markets, rising profitability for companies attracts new entrants. Increased competition then presses prices lower, raising standards of living.
This cycle of creative destruction keeps economies dynamic. Monopolies get disrupted; households gain affordably improving goods and services.
But current profit levels of around 15% suggest dysfunction. Firms are reaping massive earnings with scant competition emerging in response.
Without the normal forces of market competition kicking in, companies simply hoard windfalls. Workers see wages stagnate as prices rise. Inequality widens further.
For capitalism’s virtues to endure, its excesses must periodically get reined in. Today’s runaway profitability concentrated in a few corporate giants may risk that social contract.
If competitors fail to rise up and contest outsized earnings, trust in market merits will corrode. Politicians may turn instead to profit ceilings and price controls.
Realigning capitalism to more equitable norms requires giant firms to be meaningfully challenged again. Otherwise, the system’s perceived legitimacy will continue eroding.
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