For the first time in years, Slate has published an article that’s actually worth reading. I’ll get to it because it helsp make the larger point I want to make today. But first, a question.
Who are the elites who own the biggest corporations in America?
Whoops. It’s a trick question. The answer, believe it or not, is largely nobody. That’s right – nobody owns most of the world’s biggest corporations. Nobody.
Hold that thought, because we’re coming back to it. Our excerpt from Slate is from an article that purports to show why bank fees are so high. Ignore that part – it’s a side issue; a distraction. The important point is this:
Because numerous banks exist in most markets, the HHI for banks is quite low, and that is why economists have thought of the banking industry as competitive, and the prices as presumptively fair. However, Azar and his co-authors make an important observation: While many banks exist, different banks are frequently owned by the same entities. If 100 banks exist, but they are all owned by just a few institutional investors, then competition may be low rather than high.
Imagine, for example, that your neighborhood is served by six banks—JP Morgan, Bank of America, Citigroup, Wells Fargo, U.S. Bancorp, and PNC Bank. You might think that these banks—which happen to be six of the the largest U.S. banks—would compete vigorously for your deposits. However, it turns out that the biggest shareholders of these banks are, roughly, the same companies: BlackRock, Vanguard, State Street, Fidelity, Wellington, and Berkshire Hathaway. These institutional investors earn profits by owning shares in other companies and managing shares owned by their clients.[Emphasis added]
That’s right – all of the large banks are actually owned primarily by institutional investors. Let’s take a look at one of those corporations – we’ll just pick the very first one, JPMorgan Chase. As of this writing, JPM has 3.8 billion shares outstanding, valued at roughly $59 a piece, for a total market cap of $224 billion dollars (actually a tad less than that because I rounded; but close enough). That’s a big company, no doubt.
But here are some interesting factoids. There are no individual investors who own more than 5% of the company. The largest individual shareholder owns 3,148,451. To be sure, that holding is valued at around $180 million dollars – a hell of a lot of money. But it’s also less than 0.1% of the entire company. In fact, the top five insiders and largest shareholders combined control only 4,210,264 shares – or 0.11% of the entire company. That’s right – no single individual owns a controlling interest in the company. Not one.
In fact, there’s only one investor who does own a controlling interest, and that’s not an individual. It’s The Vanguard Group – an investment firm. In fact, a full 76% of the company is owned by institutional investors: investment firms, mutual funds, etc.
What about those funds? Where do they come from? Much smaller pools of money invested by individual investors – the vast majority invested by very small time investors, typically in the form of retirement accounts.
Big Banks aren’t alone. Big corporations across the globe are largely owned by these same institutional investors. As of 2010, 67% of US publicly traded corporations were owned by institutional investors – and that number has been steadily rising since for decades. In the 1950s, only about 7 or 8% of US publicly traded corporations were owned by institutional investors.
Later this week I’ll be discussing why this is not only bad, it’s very bad. As it turns out, this has a ton of consequences on how our economy, culture, and even our political system runs today. But for now, take a moment and let it sink in.