The United States operates on a mixed economy. In theory, a combination of free market principles and government regulations allows for competition and innovation while preventing foul play.
But is there really a fair competition, or does somebody own the finish line? Big businesses and financial institutions in the U.S. have an extended history of teetering on the edge of what’s legal and what’s not, all in the name of maximizing profits. The focus of this article though, will be a trend that’s only risen in the last few decades.
Enter: horizontal shareholding.
There are some large investment firms called Blackrock, Vanguard, and State Street. Essentially they invest people’s money and manage their assets for them, and their services are used by both individuals and large companies. These major firms (who all happen to own some large chunks of each other), hold the majority of shares of competing companies in similar industries. For example, Blackrock and Vanguard are the largest non-individual shareholders of CVS, Walgreens, and Rite Aid. Now apply this trend to every major industry, from food processing to airlines and big tech, and that’s the current state of the U.S. stock market.
Because these firms own so many of these particular companies’ shares, they can sit on their board of directors to vote on decisions these companies make. Oftentimes these firms are not incentivized to support competitive moves because there’s little net gain–new gains would come at the cost of their competitors, who the firms also own a share of. Instead, they make decisions that allow all of the major players in an industry to squeeze more money out of consumers. For example, rather than one company lowering prices and taking sales from their competitors, all of them can keep or raise their prices at the cost of the consumer.
Is this an insidious plot to rule the world, or are these firms just fulfilling their responsibility to make money for their clients? It makes perfect sense to own shares of companies in the same industry for investment diversity. For example, if a single automaker royally goofs up because their cars explode, their stock price would probably plummet. However, the investor who owns a little bit of every automaker won’t experience a heavy loss. This could just be smart investing.
However, history can teach us that if there is money to be made, legally or not, people will stop at nothing to get it. If big investment firms can stifle competition to increase returns, they will. That’s just the nature of Wall Street.
So then, is the free market really free? In my opinion, the market is pretty unfair but ultimately it’s still free. You can still do what you want although it’s becoming more difficult. You can start a small business, although big businesses may try to shut you down. You can choose what you buy at the grocery store, but prices are rising and everything on the shelves is owned by a few conglomerates. Today we still have access to the features of a free market, but they may soon disappear. Good luck next generation!