Exit, control, and politics: The structural power of finance under asset manager capitalism

Abstract

Political economists have theorized the structural power of finance as a function of the scarcity of financial capital, which empowers its owners and intermediaries to (threaten) exit. This theory has trouble explaining the non-death of the rentier at a time when financial capital is abundant and lacks a credible exit option. This paper presents a theory updated for a world characterized by financial capital abundance, and by a shift in the predominant function of finance from banking to asset management. Today, asset managers pool financial capital on a scale that often puts them in a position of (near) control, while also maintaining a high degree of portfolio diversification. This defining feature of asset manager capitalism, although observable across asset classes, is most pronounced in the corporate economy. Whereas the control-based dominance of finance capital during the early 20th century was characterized by credit-debt relationships between banks and corporations, today asset managers’ equity holdings dominate; and whereas the shareholder capitalism of the late 20th century was characterized by impatient investors wielding the threat of exit, the power of asset managers in corporate governance is based on their large and illiquid, yet fully diversified shareholdings. Theorizing the structural power of finance as based on control and diversification helps explain both the rentier’s longevity and asset managers’ contribution to that outcome.

Untangling the role of power in knowledge sharing and job performance: the mediating role of discrete emotions

“…Those in power expect to be treated kindly by others; thus, a person in power may perceive others to be disrespectful because their treatment of the power holder does not match the power holder’s high expectations (Foulk et al , 2018). According to social distancing theory, power leads to cynicism and distrust (Braun, 2021). In addition, a power holder’s achievements may cause a rift in his\her relationships with colleagues because the power holder may perceive hostility from less powerful colleagues (Cohen-Charash and Mueller, 2007; Yu et al , 2018; Usai et al , 2018).…”

“…The above definition implies that power is a structural concept whereby individuals have the opportunity to possess resources and influence others. The control and influence of this power are conferred on these individuals by their organisations (Braun, 2021). For example, organisations grant particular individuals high-ranking positions and entrust power and resources to them.…”

Channeling the capital of others: How Luxembourg came to be asset managers’ “plumber” of choice

“…Thus, while mutual and pension funds typically also retain the governance rights that derive from their clients' shareholdings, today's large asset management companies wield an amount of power over corporations not seen in the Global North since the early twentieth century (see Hilferding, 1910). Braun (2021aBraun ( , 2021b and his collaborators (Braun and Buller, 2021; Christophers and Braun, this issue) have detailed two characteristics that differentiate AMC from its predecessor regimes of corporate governance. The first regards the question of "exit"-that is, the long-held power of financiers (to threaten) to pull their funding from firms, sectors, or countries if certain conditions are not met.…”

“…Braun (2021a, 2021b) and his collaborators (Braun and Buller, 2021; Christophers and Braun, this issue) have detailed two characteristics that differentiate AMC from its predecessor regimes of corporate governance. The first regards the question of “exit”—that is, the long-held power of financiers (to threaten) to pull their funding from firms, sectors, or countries if certain conditions are not met.…”

“…This existential importance begets the question: how is it that the "plumbers" of Luxembourg (and elsewhere) have become so essential to the functioning of global finance capitalism? While my interviewee's metaphor sentimentally alludes to unsung work being done in the houses of appreciative clients, what Luxembourg's "plumbers" are in fact servicing is the more than $100 trillion currently housed in investment funds worldwide (Weeks, 2020a)-a figure so alarmingly large that Braun (2021aBraun ( , 2021b and others have come to call the politico-economic regime surrounding these funds "asset manager capitalism" (henceforth "AMC").…”