Abstract

This paper provides an examination of some problems caused by the concentration of influence in the capital markets of developed countries. In particular, I argue that large asset managers exercise quasi-political power that is not democratically legitimate. In section two, I will examine the economic driver behind the size and power of the big asset managers: the passive investing revolution. I will discuss several respects in which this revolution has fundamentally changed capital markets, most notably by making a large share of investors universal owners. In the third section, I argue for my central analytical conjecture: asset managers exercise quasi-political power. They use their influence to shape the rules of the game in public capital markets in order to implement social and environmental policies that have traditionally been the exclusive purview of states. “Asset manager capitalism” is a recent term coined to refer to the contemporary system of corporate governance that succeeded the Berle and Means corporation with its dispersed ownership; the argument of this section is that asset manager capitalism is also a new political-economic regime. In the fourth section I defend my central normative claim: asset manager capitalism is an untenable and illegitimate political-economic arrangement, for at least two reasons. First, the power of asset managers is not checked by any institutional constraints, and is not rendered legitimate by any democratic process. More fundamental than this procedural critique is an argument that the interests of asset managers could not be aligned with the public interest, given the fact that the distribution of capital is highly unequal. I conclude by discussing several proposals to reform asset manager capitalism.