The rise of asset managers challenges conventional wisdom about how capitalism functions, and how it might be changed. EricLevitz
Photo-Illustration: Intelligencer; Photo: Getty Images Capitalism isn’t what it used to be. Since 2008, critics of the world’s dominant economic system have been lamenting its imperviousness to change. And for good reason. In earlier epochs, financial crises and pandemics wrought economic transformation. In our own, they seem to have yielded more of the same.
In the 21st century, however, pension funds have been superseded by a new breed of shareholder, the asset manager. Whereas pension funds pool the retirement savings of households, asset managers pool the holdings of pension funds, insurers, sovereign wealth funds, and myriad other investors. In other words, they’re huge.
This is not how capitalism is supposed to work in theory. And it isn’t how corporate governance has ever before worked in practice. To the political economist Benjamin Braun, the contemporary structure of corporate ownership is so novel and consequential as to mark a new era in economic history, the age of “asset-manager capitalism.”
As Matt Bruenig of the People’s Policy Project observes, the fact that asset-manager capitalism has proved compatible with low prices and market competition serves as a proof of concept for market socialism. Historically, the most biting criticism of socialism’s viability has been the incapacity of central planners to rationally allocate society’s productive resources.
In theory, the reign of asset managers could mitigate this problem. BlackRock’s interests are not aligned with those of society as a whole. It exists to maximize the value of its clients’ capital, and its clients are the minority of the population that holds a lot of savings . Nevertheless, precisely because they own virtually everything, large asset managers’ have less parochial interests than the dominant shareholders of yesteryear.
Alas, even though there is some correspondence between the lofty rhetoric in Fink’s annual letters and BlackRock’s financial interests, large asset managers do not reliably live up to their billing as socially conscious stewards of upright corporate behavior. Between July 1, 2020, and June 30, 2021, BlackRock supported 64 percent of shareholder resolutions related to improving corporations’ environmental practices and one-third of those linked to social and governance reforms.
Shareholder primacy was always a tendentious theory of corporate governance. But now that asset managers have become the world’s predominant shareholders, the theory no longer makes sense on its own terms. Since asset managers tend to own a large piece of the companies they invest in, they typically have a direct voice over corporate governance .
During the stagflation crisis of the late 1970s, this latent conflict came to a head. Under Jimmy Carter, organized labor fought for legislation that would have forced the federal government to prioritize full employment over the minimization of inflationary risk. The financial sector, meanwhile, pushed for austerity to curb inflation.
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