How Large Money Managers Control Our Economy and What We Can Do About It
Washington, D.C. — With growing interest in how a Biden administration may rein in Wall Street, the American Economic Liberties Project today released “The New Money Trust: How Large Money Managers Control Our Economy and What We Can Do About It.” Authored by Senior Fellow Graham Steele, the paper details the growing dominance of the Big Three asset management funds – BlackRock, Vanguard, and State Street – and illustrates the concerning implications of their power, which include more anticompetitive behavior, more systemic risk, and distorted corporate governance.
The emergence of a small group of financial companies controlling a vast and growing amount of wealth, and wide swaths of our economy along with it, is not new in the history of American finance. But as “The New Money Trust” demonstrates, the phenomenon as it is developing in asset management today is extreme; BlackRock, Vanguard, and State Street manage over $15 trillion in combined global assets under management and 82% of all assets flowing into investment funds over the last decade. They provide services to and within financial markets that render them important elements of market infrastructure. And they possess significant political power by virtue of their lobbying heft, their stable of connected former policymakers, and their provision of vital privatized government services.
“The concentration of financial assets and corporate control in the hands of a few giant financial institutions has harmful implications for competition, for the stability of the financial markets, and ultimately whether workers, consumers, or executives benefit in our economy,” said Graham Steele, Senior Fellow at the American Economic Liberties Project.“This is a modern version of an old problem, and it’s one that policymakers need to focus their attention on if we want our country to be more just, equitable, and competitive.”
The Big Three’s dominance not only exacerbates financialization in the American economy, it also results in more concentrated ownership stakes in the largest U.S. companies. Just as corporate America was once under the control of tycoons like J.P. Morgan and J.D. Rockefeller, today’s corporations are now under the outsized influence of BlackRock, Vanguard, and State Street, which constitute the largest owner in 88% of the S&P 500 firms. As “The New Money Trust” explains, there is reason to believe this common ownership problem is itself driving further concentration in the rest of the economy, weakening corporate governance, and introducing more risk to the financial system.
Limiting the power of the Big Three requires more than regulation, it requires structural change. The most meaningful reforms would set hard concentration limits to restrain the Big Three’s footprint in the financial system as well as their control of non-financial corporations. Key solutions proposed include:
- Size and concentration limits: To address the growing concentration in the fund industry, the law should restrict the concentration of fund assets on the basis of competition, and existing financial stability limits should be updated to incorporate the risks of asset managers.
- Ownership limits: Common ownership limits should also be instituted to prevent the accumulation of large ownership stakes in concentrated industries and to give investors more choice.
- Structural separation: The platform and custody services of the Big Three, such as BlackRock’s Aladdin system, should be designated as systemically important market utilities and separated from other lines of business. This would help address the risks of conflicts of interest, self-dealing and other market power issues that arise from the concentrated nature of those businesses.
Read “The New Money Trust: How Large Money Managers Control Our Economy and What We Can Do About It” here to learn more.
Economic Liberties works to ensure America’s system of commerce is structured to advance, rather than undermine, economic liberty, fair commerce, and a secure, inclusive democracy. Economic Liberties believes true economic liberty means entrepreneurs and businesses large and small succeed on the merits of their ideas and hard work; commerce empowers consumers, workers, farmers, and engineers instead of subjecting them to discrimination and abuse from financiers and monopolists; foreign trade arrangements support domestic security and democracy; and wealth is broadly distributed to support equitable political power.