BlackRock, Vanguard, and State Street—collectively known as the Big Three—are asset managers that wield immense influence over the global economy. With stakes in nearly every major corporation, they shape industries, influence policies, and impact everyday life. This blog explores their role, the concept of universal ownership, and the implications for competition, governance, and society.
1. What Is BlackRock?
The Basics of Asset Management
- BlackRock manages $10.6 trillion in assets, more than half of the U.S. GDP.
- Asset managers pool money from clients (pension funds, insurers, etc.) and invest it in stocks, bonds, and other assets.
The Rise of Index Funds
- Index funds, pioneered in the 1970s, allow investors to own a small piece of every company in a market index.
- BlackRock specializes in passive investing, holding shares indefinitely rather than actively trading.
Key Insight: While BlackRock doesn’t own the money it manages, its control over investments gives it significant influence.
2. The Concept of Universal Ownership
What Is Universal Ownership?
- Universal ownership means holding shares in nearly every major company.
- BlackRock, Vanguard, and State Street collectively own 25% of shares in many corporations, making them the largest shareholders.
Implications for Competition
- Companies with shared major shareholders may avoid aggressive competition, leading to higher prices for consumers.
- This creates a “neo-monopoly” where profits flow to the same entities regardless of market dynamics.
Example: BlackRock holds stakes in Nike, Adidas, and Under Armour, benefiting regardless of which brand outperforms.
3. Influence Beyond the Market
Corporate Engagement
- BlackRock conducts private meetings with companies to influence decisions, often preferring closed-door discussions over public votes.
Political Connections
- BlackRock has a revolving door with government institutions like the U.S. Treasury, Federal Reserve, and international bodies.
- Larry Fink, BlackRock’s CEO, has been involved in shaping monetary policy and even sought a government position.
Key Insight: BlackRock’s ties to both corporations and governments amplify its power.
4. The Loophole of Passivity
Self-Regulation
- BlackRock self-certifies its compliance with passive investment rules, avoiding stricter oversight.
- This lack of external regulation allows it to operate with minimal accountability.
The Financial Sector’s Feedback Loop
- BlackRock, Vanguard, and State Street are major shareholders in each other, creating a self-reinforcing cycle of control.
- This interconnected ownership consolidates power within the financial sector.
Key Insight: The financial sector effectively owns itself, limiting transparency and competition.
5. The Impact on Society
Wage Stagnation and Inequality
- Asset managers prioritize shareholder profits, often at the expense of workers’ wages and benefits.
- The concentration of wealth means the top 1% owns 50% of corporate equity, while the bottom 50% owns virtually none.
Rising Costs for Consumers
- Universal ownership discourages price competition, contributing to higher costs for goods and services.
Key Insight: The Big Three’s strategies benefit shareholders but often harm workers, consumers, and small businesses.
Conclusion
BlackRock and its peers didn’t create the current economic system, but they’ve mastered it to their advantage. Their influence extends beyond markets to politics and society, shaping decisions that affect everyone. While they claim to be passive investors, their actions suggest otherwise. A more equitable system would give workers and consumers a greater say in how wealth is distributed.
FAQs
1. What is passive investing?
Passive investing involves holding shares in a market index indefinitely, rather than actively trading stocks.
2. How does universal ownership affect competition?
Shared major shareholders across companies reduce incentives for competition, leading to higher prices for consumers.
3. Why is BlackRock considered powerful?
BlackRock’s stakes in major corporations and ties to governments give it significant influence over economic and political decisions.
4. What is the financial sector’s feedback loop?
Asset managers like BlackRock, Vanguard, and State Street are major shareholders in each other, consolidating power within the sector.
5. How does BlackRock impact workers and consumers?
By prioritizing shareholder profits, BlackRock contributes to wage stagnation and rising costs for goods and services.