When I telephoned Vivek Ramaswamy on Tuesday afternoon, I did not expect to find a common cause. Ramaswamy is a tech entrepreneur, frequent contributor to conservative media including the editorial page of the Wall Street Journal, and author of a book whose very title sounds like it was formulated in a Fox News lab to tickle the max the base and trigger the libs: “Woke, Inc.: Inside America’s Corporate Social Justice Scam.”
I had contacted Ramaswamy to discuss his new venture, Strive Asset Management, an investment firm which he says will urge companies to stay out of politics. Among Strive’s backers, however, is one of the most politically active people in business, Peter Thiel, a billionaire venture capitalist who backed Donald Trump and is now funding a slate of doting congressional candidates. of Trump.
I turned out to be right: I disagreed with a lot of what Ramaswamy had to say. Not only do our politics radically disagree, but we also disagree on what “politics” means in modern American capitalism. Yet, despite our disagreements, something strange happened. I found myself nodding my head with what is perhaps Ramaswamy’s fundamental point: that three gigantic American asset management companies – BlackRock, Vanguard and State Street – control the global economy too much.
The companies manage funds invested by large institutions such as pension funds and university endowments as well as those from companies and, in some cases, individual investors like me and maybe you too. Their holdings are colossal. BlackRock manages nearly $10 trillion in investments. Vanguard has $8 trillion and State Street has $4 trillion. Their combined assets under management of $22 trillion is equivalent to more than half the combined value of all stocks of S&P 500 companies (about $38 trillion). Their power is bound to grow. An analysis published in the Boston University Law Review in 2019 estimated that the Big Three could control up to 40% of S&P 500 shareholder votes within two decades.
Why is it a problem? Ramaswamy argues that the main problem is that corporations are using their clout to push companies in which they have large investments to adopt liberal policy positions – things such as focusing on climate change or improving the diversity of their workforce. work. I think it’s a duck, as I’ll explain below.
The real danger posed by all three is economic, not political. The American economy is plagued by monopoly and oligopoly. In many industries, from airlines to Internet advertising, health care, banking and cellphone providers, Americans can only do business with a handful of companies.
BlackRock, Vanguard and State Street have been extraordinarily good for investors – their passive investing index funds have cut costs and improved returns for millions. But their rise has come at the cost of an intense concentration of corporate ownership, potentially accentuating the oligopolistic effects of already oligopolistic industries.
Harvard Law School professor John Coates has written that the growth of indexing and the Big Three means that in the future a dozen people in investment firms will hold the power over most American businesses. . The researchers argued that this level of concentration will reduce companies’ incentives to compete.
Indeed, there is some evidence that their concentrated ownership is associated with lower wages and employment and is already driving price increases in some industries, including airlines, pharmaceuticals and consumer goods. Companies dispute it. In a 2019 paper, Vanguard researchers said that when they study many industries over a long period of time, “we don’t find conclusive evidence” that common ownership leads to higher profits.
In late 2018, months before his death, John Bogle, the visionary founder of Vanguard who developed the first index fund for individual investors, published an extraordinary article in The Wall Street Journal assessing the impact of his life’s work. The index fund had revolutionized Wall Street – but what, he wondered, “if it gets too prosperous for its own good?
Bogle pointed out that asset management is a big business — the more money BlackRock, Vanguard or State Street manages, the more it can lower its fees for investors. This makes it difficult for new companies to enter the market, which means that the Big Three’s hold on the market looks set to persist. “I do not believe such a concentration would serve the national interest,” Bogle wrote.
Harvard’s Coates argues that policymakers will need to act cautiously to manage the dangers of concentration without limiting the benefits to investors of these companies’ low-cost funds. “There is no doubt that finding the right balance will take judgment and experimentation,” he wrote.
But the more pressing issue is that we recognize the problem. The growing influence of three big fund managers is not expected to diminish. Ramaswamy’s view of the problem is wrong, but he is right that it is a problem. How much power do the three corporations need to accumulate before we decide it’s too much?
Farhad Manjoo is a columnist for the New York Times.