Money manager capitalism
Money manager capitalismMoney Manger Capitalism is a capitalist economy where money/ fund managers (mutual funds/ asset management companies) dominate the market for savings and investment and their decisions have a substantial impact on the capitailst economy's performance. Minsky argued that the US economy evolved through three stages prior to the 1980s—commercial capitalism, finance capitalism, and managerial capitalism—and that it entered a new stage, money manager capitalism, in the 1980s. Minsky was correct when he proposed that money managers had become major players in the economy. Between 1950 and 1990, money managers saw the fraction of US corporate equities under their control grow from 8 percent to 60 percent (Porter 1992, 69). Over the same period, pension funds increased their share of total business equities from less than 1 percent to almost 39 percent—while their fraction of corporate debt rose from 13 percent to 50 percent.
Institutional investor assets tripled in the 1990s. Mutual funds have seen especially explosive growth. From the start of 1998 to the end of 2001, total mutual fund assets rose from $4.8 trillion to $6.9 trillion. And 2001 was the first year in which the majority of US households (52 percent) owned such funds. Minsky was also right when he wrote that money managers, obliged to maximize the value of their assets over each short period, would pressure corporate managers to take steps that raise stock prices. Business executives enjoyed considerable independence from bankers and stockholders in the early postwar years—a period that Minsky called “managerial capitalism.”
The situation has been very different since the early 1980s. One source of institutional pressure on an enterprise is obvious: Fund managers can sell company stock. Minsky explained how “block trading” developed to accommodate purchases and sales by billion dollar funds. The stock market crash of October 1987 showed that uneasy block traders can have a profound impact not only on individual companies but also on the entire market (Minsky 1990, 70). Institutional investors promote greater corporate attention to stock prices in another way as well—by fueling acquisitions and buyouts.
Fund managers have a strong incentive to support whatever organizational changes promise to boost near-term value, Minsky wrote, and that opens the door to both friendly and unfriendly challenges to corporate control (Minsky 1990, 70). Useem agrees: “During the mid-1980s, institutional holders . . . rendered shares to would-be acquirers; they invested funds in takeover and buyout funds, and they gave votes to strategic block investors. These developments help explain why mergers and acquisitions of publicly traded companies more than doubled between 1980 and 1988, and leveraged buyouts rose by a factor of 10.”
Although companies have since found many ways to resist hostile take-overs, corporate consolidation and the financial restructuring of enterprises continues with help from money managers. Hyman Minsky is well known for books and essays on the cyclical instability of capitalism. Minsky often looked beyond business cycles and focused instead on the structural evolution of economic systems over long periods of time.