Major crises and downturns often produce shakeouts that redefine industry structures. However, these crises do not fundamentally change an underlying structural trend: the increasing inequality in the size and performance of large companies. Indeed, a financial crisis—for example, the one that erupted in 2008—is likely to accelerate this intriguing long-term tendency.
The past decade has seen the rise of many “mega-institutions”—companies of unprecedented scale and scope—that have steadily pulled away from their smaller competitors.1 What has received less attention is the striking degree of inequality in the size and performance of even the mega-institutions themselves. Plotting the distribution of net income among the global top 150 corporations in 2005, for example, doesn’t yield a common bell curve, which would imply a relatively even spread of values around a mean. The result instead is a “power curve,” which, unlike normal distributions, implies that most companies are below average.
Such a curve is characterized by a short “head,” comprising a small set of companies with extremely large incomes, and drops off quickly to a long “tail” of companies with a significantly smaller incomes. This pattern, similar to those illustrating the distribution of wealth among ultrarich individuals, is described by a mathematical...