Ownership of the world’s publicly listed companies is in the hands of the few, says the OECD. As stock prices soar, the inequality will worsen. Since 2016, the global economy has grown 14 per cent and world market capitalisation by 34 per cent.
Lex is not making the rookie mistake of comparing stock with flow. Even correlation between growth rates is a stretch. Stocks in Japan, for example, were more driven by the post-crisis financial markets in the early years of last decade than its own economic output. The German index is, appropriately, more attuned to the global car market than the domestic economy.
But the yawning discrepancy in growth rates, allied to the increased concentration of direct ownership in the stock market, still sends a strong message about the real economy and the way money is allocated.
Capital is funnelled to fewer companies, the number of minnow IPOs is dropping, and accrues to fewer pockets. In an already unequal world, as per French economist Thomas Piketty, this bestows more wealth in the hands of those who have inherited it or otherwise already have it.
How responsible are those tasked with marshalling this flow of funds? Ownership is highly concentrated. Institutions own 41 per cent of global stock market capitalisation. In half of the world’s listed companies the three largest shareholders hold more than half the capital.
Institutional ownership is especially high in industries like pharmaceuticals and online services.
Did You See This CB Softwares?
37 SOFTWARE TOOLS... FOR $27!?Join Affiliate Bots Right Away
Big pension and other fund managers corral the savings of hundreds of millions of retail investors. In theory, that grants a voice to those who could never hope to have a say in issues like executive appointments, strategy and approach to environmental issues.
In practice, a sprawling portfolio — institutions owned $US30 trillion ($45 trillion) in aggregate at the end of 2017 — curbs the desire to press for change at any individual holding.
The growth of cheap index funds further reduces scrutiny of individual companies. As one observer puts it: “How much corporate governance do you get for two basis points?” Owners are getting bigger, wealthier and far less accountable.