This week, on the same day Bernie Sanders, a self-professed socialist, came within a hair's breadth of winning the crucial Democrat caucus in Iowa, Goldman Sachs - the world's most profitable and controversial investment bank - released a report questioning the efficacy of the system that has made it so powerful and wealthy.Amazingly, much of the report from this almost caricature of a financial powerhouse, famously described by Rolling Stone magazine as a "vampire squid wrapped around the face of humanity relentlessly jamming its blood funnel into anything that smells like money", reads as though it could have been written by one of the Sanders campaign advisers.It describes large companies consolidating their power through mergers and acquisitions, not passing on reductions in input costs to consumers and constantly chipping away at employee numbers and costs.All of which has helped companies to protect or enhance their profit margins since the 2008 crash despite sluggish consumer demand.Yet it screams of a distortion of economic forces.The rather shattering verdict of the report, "Can global profitability remain high?', is that if companies sustain their current high margins over the next few years then "there are broader questions to be asked about the efficacy of capitalism".As economist Iraj Abedian, CEO of Pan-African Investment & Research, remarked, Goldman Sachs' verdict is not new at all. What is new is that now even the high priests of capitalism feel obliged to express it.Unlike Sanders, the authors of the Goldman Sachs report are not about to start campaigning for dramatic changes to the economic model that has dominated the world for the past 300 years and, it has to be said, led to substantial improvements in living standards for most.No, Goldman Sachs is not looking for an overhaul of the system. It seems merely unsettled by the idea that profit margins will not revert to historical trends and will continue to grow despite lacklustre demand.To Goldman Sachs this suggests that there are flaws in the capitalist system and it might not be allocating scarce resources efficiently, which complicates the equity investment decisions made by the bank.By contrast, Sanders is concerned that capitalism's inefficiency leads to a suboptimal allocation of resources and creates costs that are disproportionately carried by lower-income groups and exacerbate levels of inequality.Unmentioned in the Goldman Sachs report is the increased use of share buybacks to artificially boost earnings per share figures and share prices. This was dealt with by Larry Fink, CEO of Blackrock - the world's largest investor with $4.6-trillion (R73-trillion) under management. On the same day the report came out, Fink sent a letter to the CEOs of America's largest companies urging them to stop focusing on short-term boosts to profit growth and instead pursue long-term investment strategies.Ironically, much of the Goldman Sachs report contains evidence that supports Sanders' concerns.The "traditional" or Goldman Sachs view of capitalism's efficiency is based on the assumption that firms and individuals operating in free markets will allocate scarce resources most efficiently because they have the most effective incentives. These incentives ensure they will either thrive (if their markets grow) or fail (if their markets stagnate).But now we have Goldman Sachs highlighting that despite sluggish global economic growth over the past several years, companies have been able to increase their profit margins. It reports that in the US after-tax profits accounted for 10% of GDP in 2014 compared with just 5% in 2000. After a brief drop in 2008, profits quickly resumed their upward trajectory.With profit (and therefore the owners of capital) increasing its/their share of the economic pie, labour has less to take home. In the US, labour's share is down from a peak of 58% in 1970 to 53% in 2014. The Goldman Sachs report shows us government's share (in the form of average corporate tax rates) has also shrunk, not only in the US but in all the major economies. The globalisation and financialisation of economic activity means the consequences have spiked to a different level It is all reminiscent of the story told by Thomas Piketty in his bestseller, Capital in the Twenty-First Century. It is also the sort of statistical trend that is driving support for Sanders and taking him close to a Democratic nomination, just as it propelled Jeremy Corbyn to the leadership of the UK Labour Party.Competition authorities worldwide will pay close attention to the section discussing how companies are dealing with low revenue growth. "When revenue growth evaporates, a more concentrated market structure is one of the few alternatives to prop up profitability," says Goldman Sachs. In short: the fewer, the merrier. When industries face weak end-market growth on the one hand and low cost of capital (thanks to trillions of dollars of quantitative easing) on the other, merging is a great way to protect profits. It is precisely why there has been a sharp increase in merger and acquisition activity over the past few years.For Goldman Sachs and other investment banks, this helps to lift share prices and generates massive advisory fee income from the merging parties. The $108-billion Anheuser-Busch InBev acquisition of SABMiller is not only expected to support ABInBev's share price performance but tagged to generate advisory fees of more than$200-million.Reduced levels of competition allow companies to hold on to the lower raw material prices instead of passing them on to consumers.story_article_right1Less damaging to consumers has been the increased use of technology, which has helped to boost margins for those companies with effective IT strategies. It also leads to increased capacity, such as Uber in the taxi market and Airbnb in the accommodation market.Perhaps with an eye turned to the upcoming US presidential elections, with even Hillary Clinton determined to sound populist, Goldman Sachs warns that because companies have done so well and governments and households badly, there could be increased regulation with attendant costs that companies may not be able to pass on to end-customers.Abedian said the battle was no longer between Marxists and capitalists or between left and right."The globalisation and financialisation of economic activity means the consequences have spiked to a different level."It is no longer about capital as a factor of production, it is about the global political economy and ineffective regulation of capitalism. Decades ago, when companies operated within national jurisdictions, self-interest led to self-control. This doesn't happen in a global environment."A global bank can do a lot of damage," said Abedian, who supports the calls for global regulations.The rise of Corbyn and Sanders and the push for a more effective global tax policy were not accidental, said Abedian. It reflected the groundswell of opposition to global corporate interests - the more so given the signs of decaying efficiency...