We theorize the structural power of finance as being based on exit. But the primary function of finance has been shifting from financing to asset management, which reduces exit options.
-> Financialization and rising financial-sector power are *not* two sides of the same coin. /2
Here's 'The end of exit', told for the US economy in three charts:
1) the declining importance of external financing for corporate investment 2) and especially of the stock market 2) the declining importance of banks & of corporate lending for banks /3
The next section charts 'The rise of control', building on my chapter on AMC as a corporate governance regime. The hallmark of that regime is the combination of weak exit options, strong control-based power, and very high diversification. /4
Now when it comes to corporate governance, the big one is the universal owner question, which @MadisonECondon and @fichtner_jan have written about.
Simply put, the question is: Will the big three push corporate behavior toward decarbonization? /5
My starting point is that the promise of universal ownership has already been broken. The big-3 could have pushed companies hard to decarbonize. They have not: Lots of evidence out there – check out @sanha926 & Baines: journals.sagepub.com/doi/10.1177/10… /6
To explain why universal owners haven't lived up to the expectations of universal owner theory we need a political economy approach – one that frees itself of the straitjacket of the #corpgov literature. /7
Assuming orderly, good-faith interactions btw shareholders and managers is to close one's eyes to the multi-level game that asset managers play. By descending priority, the goals are:
1) Maximize assets under management 2) Avoid regulatory backlash 3) Do corporate governance /8
'Actually existing asset manager capitalism' isn't about corporate governance, it's about not being broken up.
In the US, the big-3 have found themselves between a rock—the left wants to enforce green stewardship—and a hard place—the right wants to outlaw green stewardship. /9
BlackRock and Vanguard have been fighting a rearguard action (excuse the pun) that's been spectacular to watch. Here's a summary, based on what's in the paper. /10
To sum up, I'm arguing that besides the economic logic, there's also a political logic of universal ownership.
Economic: “Too big to not internalize external effects”
Political: “Too big to *not* internalize political conflicts”
/11
Upshot: private asset managers are no green deus ex machina. There's no way around thorny questions of public asset management options, public ownership, and economic democracy. Good thing @adribuller, @DantonsHead, @lenorepalladino, @its_mccarthy, among others, are on it. /12
The paper has come a long way and a lot of people have provided comments over the last three years. Special thanks to @JWMason1 for his exceptionally thoughtful comments on an early version, to Fred Block and the other editors of @pasupdates, ... /13
Someone who knows everything about index funds, ESG, and climate is @adribuller. Her recent @DissentMag piece on private climate finance is excellent and has links to her other work. Incredibly, Adrienne is writing two (2) books, both scheduled for 2022. dissentmagazine.org/article/the-li…
The sharpest mind on all things universal owner, externalities, fiduciary duty, and other asset manager incentives, legal or otherwise, surely is @MadisonECondon. "Externalities and the Common Owner" is an instant classic (also on my #IPEofMoFi syllabus). scholarship.law.bu.edu/cgi/viewconten…
FT visual on VIEs. To deal with this, Coppola et al. match "the universe of traded securities issued by firms in tax havens with their issuer’s ultimate parent" to restate bilateral investment positions.
The issue: So far, data on bilateral positions has been residency-based.
Residency-based: US Treasury International Capital (TIC) & IMF Coordinated Portfolio Investment Survey (CPIS) -> red columns
Coppola et al. use firm-level securities data to restate this as nationality-based positions -> purple
What is asset manager capitalism? (How) does index fund dominance change the political economy of corporate governance?
This has taken me forever. It's a first working paper, focused on the United States. Brief summary below. 1/ osf.io/preprints/soca…
The #CorpGov literature remains in thrall to what I call the Berle-Means-Jensen-Meckling ontology: Shareholders, while dispersed and weak, are the owners and principals of the corporation.
The rise of asset managers has pulled the empirical rug from under the BM-JM ontology. 2/
The table summarizes
- the evolution of the US investment chain
- the hallmarks of historical corporate governance regimes
It shows the similarities (green) and differences (red) btw Hilferding’s late 19th century ‘finance capitalism’ and what I call asset manager capitalism. 3/