Corporate balance sheets:
The divergence between the profitability of small/medium and large companies vs the global titans (companies that have reached aggregate revenues or profits! companies that in terms of revenues or profits are equivalent, or bigger in size, to a middle-high income small country, such as Hungary or Luxembourg ) is increasing in our view and the business environment pretty much everywhere is too skewed in favour of Titans.
A wide dispersion in the size of corporate balance sheets is a common feature of any economy. On the basis of Eurostat data, the average turnover of a small/micro-company employing under 10 workers was EUR230,000 a year in 2015 (the latest data available), while the average turnover for a company with over 250 workers was EUR167mn. SMEs in the aggregate contribute to 50% of total value added and as much of employment.
The small-micro companies, with less than 10 workers, on their own contribute 30% of value added and on average as much to employment. In the last ten-fifteen years, in our view three intertwined factors have contributed to the rise of titans: the advancement of AI-big data technology, low interest rates and globalisation. None of these factors will really U-turn any time soon in our view, which means titans are doomed to get bigger and more common.
In our view, the aggregate effect of these titans is beginning to have a material impact on economies, and the effect is in the aggregate negative as it depresses investment and thus in the long run it weakens the labour market for most. This problem is particularly cute at the moment in Europe and it is influencing elections results. Our latest research on this issue and suggestions for change.