We cite a nice paper by José Azar where he reports that in 1999 less than 20 percent of firms in the S&P 1500 had a substantial shareholder in common, a shareholder that owned 5 percent of more of their stock. In other words, if you randomly picked any two publicly traded corporations, it was relatively unlikely — a one in five chance — that they had a large shareholder in common.
By 2014, the proportion had reached 90 percent. In other words, almost every corporation shares large shareholders with other large corporations.
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[...] It’s not that there’s been a huge change in the distribution of the ultimate wealth owners, but the actual stocks are owned by a relatively small number of financial vehicles that then, in turn, are owned by a widely dispersed group of people.
But as Azar and others have pointed out, from a shareholder-value perspective, that really changes the logic of profit maximization. If each firm has a different set of shareholders, “maximizing profits for the shareholders” is basically the same as “maximizing profits for the firm.” But when you have the same shareholders across all these different firms, those two objectives are quite different.
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If you’re a shareholder who owns all of the major airlines, you want them to just divvy up market share in a stable way. The last thing you want is to see them all competing and offering fare cuts that are just going to the customers and not to you.
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If you take competition out of the mix, it’s unclear what function private ownership is supposed to accomplish. If the evolution of finance gets you to a situation where you have a single set of institutions — or in the long run, maybe a single institution — that owns all of these firms, then pressure from shareholders is going to be against competition. They don’t want to see these firms trying to gain market share or anything else at each other’s expense.
really fascinating stuff - he's basically saying that because ownership is more dispersed (mediated by huge index funds and the like), then shareholders end up owning lots of shares in firms that are competitors. in that case, "ruinous competition" ends up benefiting customers and NOT shareholders overall, so that changes the dynamics of profit maximisation
Seth Ackerman follows up with:
It’s hard to listen to what you just said without thinking of the debates that took place in the late nineteenth and early twentieth centuries, where many people — arguably including Marx — predicted either that firms would be consolidated into the hand of a very small number of controllers or that the underlying wealth would be concentrated into the hands of fewer and fewer people. And in either case, it would undermine the basic logic that made capitalism an economically and politically successful system in the first place.