Why Asset Managers Own the World: A Q&A with Brett Christophers
Class Unity recently spoke with human geographer Brett Christophers about his book Our Lives in Their Portfolios: Why Asset Managers Own the World and the rise of what he calls “asset manager society.” Christophers explains how firms such as Blackstone, BlackRock, and Macquarie have moved beyond financial securities to acquire housing, infrastructure, utilities, and other physical assets embedded in everyday life. The conversation connects this transformation to rentier capitalism, class structure, monetary policy after 2008, and the international dynamics of financial imperialism. It also examines climate investment, public ownership, municipal finance, de-risking, monopoly power, and the social consequences of treating essential assets as short-term investment vehicles. You can find the original episode, more from Brett Christophers, and the book from Verso online.
Class Unity: Hello, everyone. Welcome to today’s discussion by the Class Unity Political Education Committee. Our guest today is Brett Christophers. He is a professor at Uppsala University in Sweden and author of numerous books, including Rentier Capitalism and The New Enclosure. His most recent book, Our Lives in Their Portfolios: Why Asset Managers Own the World, was published by Verso Books. So, Professor Christophers, welcome, and thank you for talking with us today.
Brett Christophers: Yeah, thanks for having me; it’s lovely to be with you. I’m going to talk for ten to fifteen minutes or so about the book: where it came from and what I was trying to achieve with it. I’ll give a high-level overview, and then we can take it from there.
So the book grew more or less organically out of Rentier Capitalism, which itself grew organically out of The New Enclosure. In The New Enclosure, much of that was about the emergence and growth of a new type of land rentier, partly due to the large-scale privatization of land in the UK. While working on that book and, more broadly, thinking about contemporary British capitalism, one thing that struck me was that the basic economic structures and dynamics that I was describing in relation to land appeared to be replicated across other sectors of the economy.
Sure, the particular assets that might be involved in these dynamics weren’t necessarily land. But across the economy, I kept seeing the same pattern of securing proprietary control over assets and doing everything that could be done to render those assets as scarce and as monopolistically ring-fenced as possible, then making money from controlling the rights of access to and use of those particular assets.
That was what Rentier Capitalism was about: this core rentier model and how it was replicated across the economy more generally, not just in relation to land. Then, while I was working on that book and looking at rentier dynamics across the British economy as a whole—in relation to land, but also finance, infrastructure, digital platforms, natural resources, and so on—I kept encountering a particular type of investment institution. This, of course, was asset managers, about whom I didn’t know an awful lot at the time. While I was working on Rentier Capitalism, I saw that and thought, “Right, I want to come back to this.” My interest was piqued by the fact that I kept coming across the likes of Blackstone, Macquarie, and others.
That led me to ask the question, why am I seeing this particular type of actor that I hadn’t expected to be so prevalent, recurring so much across all of these different asset types within the British economy?
So that was where Our Lives in Their Portfolios came from.
As I began to do more research into that question, one of the things I noticed was the fact that more and more is now being written about asset management institutions. But one thing that struck me was that, at least within the academic sphere with which I’m most familiar, and I think within broader commentary as well, so much of the focus has been upon the very large-scale index-fund-management firms, like BlackRock, Fidelity, State Street, etc., and about the fact that they now have this kind of universal ownership of relatively small shares of pretty much every corporation.
And while I think that that’s definitely interesting and important, I noticed this whole other corner of the asset management business, in which firms are not hugely diversified, owning minority stakes in tens of thousands of companies. Instead, they are taking active ownership not so much of financial assets but of real, physical assets on which people like you and me—and ordinary people more generally—rely when going about their everyday lives.
That struck me as something interesting and original that wasn’t being written about. So that phenomenon was what Our Lives in Their Portfolios focused on. It’s about control of housing and various types of essential infrastructure by asset managers like Blackstone. At the end of the day, I was trying to do a bunch of relatively straightforward things with the book. It’s not an especially theoretical book. It’s very much an empirically driven book.
And really, it was about trying to expose a few different things. One of those was simply to try to get some kind of handle on the scale of the phenomenon and its geography. It was quite immediately apparent that asset managers, as owners of these types of assets, are much more significant in some parts of the world than others, and then even within particular countries or particular regions, they’re much more dominant in specific areas over others. Getting a handle on the scale of the phenomenon was in many ways the most challenging thing, precisely because so much of this business takes place behind a wall of secrecy with very limited disclosure requirements.
When asset managers buy and sell these types of assets, they use the types of investment funds that tend to be domiciled in tax havens. And so just figuring out what’s going on empirically was quite a significant challenge.
The second thing I noticed, and this was something that became more and more important during the project, was how strong the phenomenon had grown over the past fifteen years or so, especially since the period of the global financial crisis. Sure, asset managers were buying housing and buying infrastructure before that, but the level of investment in those types of assets went into overdrive after the financial crisis. That growth is important to understanding what basic qualities about these types of assets make them attractive investment propositions for asset managers, and why growth in that type of investment took off after the global financial crisis.
Then I suppose that the last, and in many ways, the most important thing I was trying to illustrate in Our Lives in Their Portfolios, was what the implications of this phenomenon are, and in particular, what the implications are for the asset managers themselves as capitalist institutions. I was also certainly interested in the phenomenon from the perspective of the state, because many of these types of assets have historically been under significant levels of public ownership in many countries. To one extent or another, asset managers have replaced governments as owners of these types of assets. Not all of them, but certainly some of them.
From the state’s perspective, what became clear is that governments play a very significant role in shaping the terms and conditions under which investment in these types of assets occurs. They do all sorts of proprietary legal and financial work to turn these assets into things that asset managers want to invest in. Governments therefore play a very significant role in making these things investable.
First and most importantly, I was interested in the implications of this phenomenon for ordinary people in two specific respects. I mean people who rely upon many of these assets while going about their daily lives. People who live in housing that’s owned by asset managers, whether that’s multifamily housing, student accommodation, care homes, or even mobile home communities. The people who park in the parking systems that are owned by asset managers. The people who pay for electricity delivered through grids owned by asset managers, and so on. That’s the prime reference for the title Our Lives in Their Portfolios. Our lives are embedded in physical assets that are now significant holdings in the investment portfolios of asset managers.
First as ordinary people in their role as users of these types of assets. And then secondly, and also very importantly, ordinary people as owners, to some extent, of the capital that gets invested in the funds that buy these assets. This capital principally, though not exclusively, comprises the retirement savings of ordinary people which, increasingly over the last couple of decades, have been invested by asset managers in housing and infrastructure rather than in financial assets or other forms of real estate.
What emerges from the book is a pretty negative picture of the role of these asset managers and a pretty negative picture of the implications of this phenomenon for ordinary people. One of the main lines of defense against criticism that asset managers will use is to claim that what they’re doing by owning and controlling these types of assets is actually good for ordinary people. They’ll claim that it’s good for ordinary people because they are better, more efficient, leaner, and more responsive stewards of things like housing and critical infrastructure than public sector owners of these types of assets. They’ll say that what they do is good for ordinary people because if the investment funds that invest in these types of assets perform well financially, then the ultimate beneficiaries of that are ordinary retirement savers, whose pensions are ultimately invested: school teachers, firefighters, nurses, and so on.
I like to think of the book as being, in significant part, a riposte to that rhetoric, which, at the end of the day, is very misleading.
I think that’s all I’ll say by way of introduction. I guess I’ve done it somewhere between ten and fifteen minutes. Hopefully, that was about the right amount of generality. I’ll be very happy to field any questions that you might have, whether that’s specifically about Our Lives in Their Portfolios, or about the earlier two books that I mentioned. Or even if it’s questions about asset managers that I don’t necessarily address in the book. I think there are a lot of things to say about asset managers, some of their private equity operations, and the roles of the big three index fund managers that I don’t address in the book. I’m happy to discuss those as well. So wherever you want to take it, I’ll do my best.
Class Unity: To begin, one of our questions was, how does your work relate to the tradition of classical political economy, including Marx’s Capital? We ask this question particularly in regard to the concept of rentiers, and the role they play in contemporary capitalism. If the classical political economists realized that capitalism was removing us from the rent system of the previous feudal eras, your description implies that we’re just returning to a kind of rentier-based economy. How do you understand that with regard to classical political economy?
Brett Christophers: That’s a very good question. What I’m not doing in Our Lives in Their Portfolios, and what I didn’t do in Rentier Capitalism, is argue that rentier capitalism represents a new form or modality of capitalism that has succeeded another form of capitalism, that was not rent-based. That’s not what either book argues. The better way to put what I’ve been trying to say is that I would argue that capitalism has always had rentier dimensions throughout history. Indeed, all forms of income generated by capitalist firms have rentier elements, even if in some cases those elements are very minimal. If one understands and defines rent in the way that I do in Rentier Capitalism, which is as income that’s generated by virtue of control of scarce assets, I would argue that rent is inherent to capitalism.
The case that I tried to make in Rentier Capitalism is that capitalism, since around the 1970s, in particular British capitalism, has seen this rentier component become much more prevalent and much more dominant. Rent has come to the fore of the capitalist system during that period. That’s not to say that we have a new form of capitalism; it means that the shades within what we understand as capitalism change over time and they change in ways that are readily explicable. In the UK case, for example, there are lots of different explanations for why rent and rentiers have become so much more high-profile and significant in recent decades.
To the question of how that relates to classical political economy, I suppose that I would align with people like Lefebvre and Harvey, who have always made the case that rent and rentiers didn’t disappear with 20th and 21st-century capitalism in the way that some people expected. Readings of the political economy in the 20th century actually paid relatively little heed to rent and land. Lefebvre and Harvey have always pushed against that and mentioned that if we want to have a realistic reading of contemporary capitalism, we have to place rentiers and rent much more centrally in the story than many political economists have wanted to do.
Class Unity: I have a question which follows up on that. I enjoyed the book because it is very accessible, straightforwardly written, and very concrete.
I want to back up a little bit and get your view on some more abstract things, like the previous question. How do you understand classes and how should we understand class? Especially as it relates to the key terms you use in this discussion, “rentier capitalism” and “asset manager society”. These are fantastic terms that you coined.
In traditional Marxism, there was the narrative that feudalism was vanishing. All of the old classes were gradually being done away with until there was the proletariat and the bourgeoisie. It was a dualistic picture. All that remains are those who work but don’t get the proceeds of production and those who don’t work but do receive those proceeds. Wages and profits are the only terms there. Ownership and control are assumed to be the same thing. In the hands of the capitalist, it’s kind of a caricature, but that’s what it was. Similarly, there’s the common sense picture of employees and employers, where the difference is one of degree in income.
Even in mainstream economics, the difference between profit and rent has been obliterated, and everything is kind of indistinguishable from returns on investment. There is no longer the profit of enterprise that Marx talked about; in mainstream theory, it is all aggregate profits and surplus value.
So I’m just wondering, you present the material in a very low-altitude, no-nonsense way, but it seems like, simmering underneath, there is a radically different picture of classes. Namely, we have owners, controllers, and workers. Could you unpack the concept of class that you use? Specifically, with an eye to these distinctions, which I think are usually neglected. What are the differences between profit and rent, or capitalist and rentier, or ownership and control? It seems like a lot is going on in the background there.
Brett Christophers: Yeah, that’s a good question. And it’s a question to which, unfortunately, I do not have a good answer. Partly because I haven’t committed the time and effort into thinking about what that argument presupposes about changes in class relations under contemporary capitalism. And part of that is a recognition that, frankly, that’s not where my own strengths lie. Some people are better at doing that type of work than I am.
The one place where I have tried at least to dabble in those questions is in a piece I wrote a couple of years ago about class, assets, and rentier capitalism, which I don’t think was great. But I tried to take some of Eric Olin Wright’s work, thinking about classes and how we define them in terms of their relations to productive assets. What I tried to do was something similar for the relations of workers to unproductive assets, asking how various types of workers are situated vis-à-vis assets like digital platforms, housing, infrastructure, oil and gas. I tried to write in a relatively straightforward way about how we can think systematically about different types of relations to those assets on the part of workers.
Are they the workers who are involved in acquiring those assets for companies? Are they the workers who are involved in, for example, the legal and regulatory work of shoring up the private-property rights attached to those assets and rendering them income-producing? Or are they the workers who are fixing the pipes and maintaining the properties—the workers who are “sweating” those assets? That is the only real work I’ve tried to do there: thinking in a relatively speculative but also somewhat systematic way about the question of class in relation to unproductive assets rather than productive assets.
The other thing I haven’t mentioned, which I did address in Rentier Capitalism, is the fact that a lot of these rent-generating assets, housing being the obvious one but not the only one, are owned by households rather than by capitalist corporations. So, to at least gesture to the question of what that might mean in class terms, it’s obviously not a Marxian notion, but I found Piketty’s notion of what he calls “petty rentiers” to be quite useful. He describes how societies have gone from having a very small number of wealthy British rentiers a hundred years ago to a situation today where, in countries like the UK, France, and—to a lesser extent—the US, there are a relatively large number of “petty rentiers.” Each of them might own one or two investment properties, and that’s another complication and wrinkle in classical understandings of class structures.
I think a country like Australia would be a great example of this. Very many of those people, not all of them of course, but very many of those people are neither wealthy nor high earners in employment-income terms. Adkins, Cooper, and Konings’sbook The Asset Economy is quite good on this point. They are people for whom income from property has become their primary source of income, and they’re not high earners in terms of wage income. That’s another way in which the idea of rentier capitalism confuses classical class conceptions.
So I tried my best to gesture in that direction in the article and a little bit in Rentier Capitalism, but I don’t go there in the new book. This will sound like an unsatisfactory answer, but it is the truth. It’s increasingly a recognition of where my relative strengths lie as a scholar. One thing we realize as we grow up is that we’re not all good at everything. And sometimes we’re no good at anything. But one of the things I’ve tried to do as I’ve spent more time as a writer and as an academic is to find what it is that I’m good at.
And what I’ve realized is that I’m not really a theorist, even if I had aspirations of being a theorist in the past. What I’m quite good at is taking complex worlds, particularly around finance and questions of finance that are often rendered even more opaque than they actually are, and trying to render those worlds both accessible and interesting to people who don’t know much about that. That’s something I’ve realized that I can actually do reasonably well. So that’s what I’ve increasingly focused on, and that’s what I was trying to do in this book. I hear where you’re coming from with that question, but I can’t do better with my answer than that.
Class Unity: Maybe we should zero in on one of the concepts you develop in your book around the contemporary economy. You coined the term “asset manager society,” in distinction from “asset manager capitalism.” I confess that this distinction confused me, and I was wondering if you could elaborate on these terms, particularly in regard to their significance in recent history, since 2008 and over the past couple of decades.
Brett Christophers: Partly, this was positioning. Many writers and academics say, “I’m doing something different from those who have been discussing asset managers and using this idea of asset manager capitalism. I’m using a different term, and that is a way for me to signal that I’m positioning myself differently.”But there is certainly more to it than that.
Just so that we can be sure that I’m on the same page as you all are, asset manager capitalism is a concept that people are using to refer to a particular type of asset management company, first and foremost, and to the particular form of influence that those asset managers wield today. Discussions under that header focus predominantly on the big index-fund-managing asset managers, the likes of BlackRock, State Street, Vanguard, Fidelity, and others. As I alluded to earlier, this happens across major publicly listed financial markets in general, in equity markets in particular, but especially in the U.S.—pretty much every listed company has those big three or four asset managers as relatively significant shareholders.
You’ve all seen the data. On average, for an S&P 500 company, somewhere around 20 percent of the shares in those companies are owned by BlackRock, Vanguard, and State Street, between them. The gist of the literature has been asking what it means for contemporary capitalism now that the ownership of capital has changed in this way. Entities whose shareholdings were immaterial thirty or forty years ago have now become the largest shareholders. A lot of that literature is about questions of corporate governance; it is in the tradition of Gardiner Means and, going back further, Hilferding. There are vestiges of that there as well. So it’s literature that has been focused on the ownership of capital, what that means for control of capitalist corporations, and the role of those different types of shareholders: what kind of influence do they have and how do they wield that influence?
Now, the reason I use a different term is precisely because, and I argue this briefly in the book, my view is that those questions are actually very important. But they’re relatively distant from the everyday lives of most people in the world. And I’m yet to be convinced that it makes a huge amount of difference whether 20 percent of the shares of S&P 500 companies are owned by a series of different index funds managed by BlackRock, State Street, and Vanguard rather than being held by smaller asset managers or by pension fund trustees directly. Those are important questions, but they’re relatively distant from most people’s everyday lives.
Whereas, in my view, if Blackstone owns your house and the toll road on which you drive to work, and sets the terms, conditions, and costs under which you have access to those assets, along with their physical condition, I would argue that asset managers are much closer to and much more significantly engaged with people’s everyday lives, and therefore their social lives. Hence, an asset manager society, rather than merely the relatively passive ownership of financial assets by other asset managers.
So, that’s why I wanted to use a different term. And that’s why I use the particular term I do, to signal that what I’m interested in is a pretty different corner of the asset management world. They’re all asset managers, but the reality is that in a company like BlackRock, only a tiny part of its business is the type of business that I analyze in this book. That is a completely different part of its business than its index fund business. They work in entirely different ways, and so I didn’t want to use the terms that others are using.
Of course, what I’m talking about in the book is capitalism. It’s a form of capitalism that asset managers lead. So yes, I realized that there are no clean distinctions in the way that maybe the terminology suggests there is. Nonetheless, I think it’s a useful distinction to make.
Class Unity: I thought this stuff about the climate crisis was really interesting. These companies are moving into that space, and the state is taking a backseat, saying, “We’ll do risk management, and that’s it.”
During the pandemic, there were a lot of bankruptcies in shale-oil companies in the US. Did the companies building this green infrastructure immediately move into that area too? I know it’s not an ideological thing for them, it’s opportunistic. But is it that they know that their expertise and their momentum is going in this green direction? Or is it just whatever comes up next, they’re going for that? For instance, if there are big opportunities in buying up vast numbers of shale oil companies that are declaring bankruptcy, are they going to embrace fracking?
Brett Christophers: That’s a good question. I don’t know the specifics of what happened in the shale oil sector.
So, the answer to that question that I can give you will be guided by an interview I did a couple of years ago with a small asset manager firm that focuses on the energy sector. What I found interesting was that this was an asset manager that had historically run funds focused predominantly on fossil fuels. Sooil and gas exploration, particularly in Texas and the Gulf of Mexico. When talking to this asset manager, I was interested in finding out, first, what they were raising funds to invest in and, second, what kinds of conversations they were having with their traditional clients in the context of the climate crisis.
The thing that was interesting to me, coming out of that conversation, was that they were still desperate to continue to invest in oil and gas. This was maybe two years ago, but they believed that the future of oil and gas investment remained bright, not least because of demand in places other than the West, such as China, India, Indonesia, and other countries. They see the future of oil and gas investment as bright, but their clients, according to the person I spoke to, were increasingly reluctant to give them money to invest. Whereas in the past, they would have no problem raising a $500 million fund for investing in oil and gas drilling in the Gulf of Mexico.
They were struggling because their traditional, reliable customers no longer wanted to give them money to do that. And so, in that particular case, the asset management firm was, in the words you use, just following the money. However, they were finding themselves constrained by the desire of their clients to move away from that type of investment. And I think we’ve seen all of those questions play out very vividly with BlackRock over the last year in the US, where on the one hand, you have people on the left saying, “Nasty BlackRock, still invested in oil and gas companies.” In contrast, you have people on the right saying, “Nasty BlackRock, being woke and trying to put money into renewables.” They’re between a rock and a hard place. I’m not expressing sympathy for them, but that’s where they are.
The Inflation Reduction Act was a real boon for them because it enabled someone like Larry Fink to say to the people on the left, “We are investing in renewables,” and they could also say to their critics on the right, “It’s thanks to the Inflation Reduction Act that we’re able to do renewables investment and earn a healthy return,” so they don’t have to worry about sacrificing financial returns on the altar of sustainability. Those are the questions that are going to remain completely central going forward.
The only other thing I would reiterate—one of the book’s main arguments in this context—is that everywhere I look in the West, governments that fully recognize that there is enormous infrastructure investment required in the climate context, whether that is for mitigation or adaptation, have nonetheless universally decided that governments themselves shouldn’t be carrying out those investments. Even in countries like the US or the UK, where fiscal constraints are obviously as imagined as much as they are real, they have persuaded themselves that governments cannot and should not carry out the bulk of that investment themselves, and therefore it must be the private sector that does that.
It’s almost inevitable that they turn to asset managers because if you look around the world, where surplus private capital circulates predominantly among asset management firms and sits as a dry powder in their investment funds, it’s utterly inevitable that asset managers are going to play an increasingly central role in responding to the climate crisis, just as they already do in responding to the housing crisis, insofar as the answer to that crisis is new construction. Governments around the world—Ireland would be a classic case, but also the UK, New Zealand, and Australia—all see asset managers as their answer, even though asset managers clearly aren’t the answer. They see asset managers as the answer because they think that’s where all the capital is. And as you say, governments have restricted their role to a risk management role.
Class Unity: The book, in general, paints an incredibly pessimistic future regarding these major, pressing problems. And if the idea of a green transition is sort of one of the major pillars of left-wing policy these days, what does it mean to say that by pushing green infrastructure, we’re really just handing control of infrastructure to the asset manager society? What should the left-wing critique be here?
Brett Christophers: To respond to the first point, I think it is a very pessimistic picture. But it’s a picture that is hard not to end up with when you think about these questions, the infrastructure investment requirements, and where governments are ideologically in terms of borrowing and spending.
What should the left be doing? There are several different parts to that answer. The left should be doing what at least some parts of the left are doing in the US, much more successfully than in the UK, which is pushing for public ownership of renewables. There have been some, albeit relatively modest, victories in New York that have pushed that argument.
There is a role for better regulation of private ownership over infrastructure. I don’t think regulation is ever going to be the complete answer. Regulation will never successfully stand in for competition in natural monopoly sectors in the way that ideologues originally suggested it would. Regulators get captured. People in the UK, where I’m from, have been saying, “Well, regulation can do the job,” for 30 or 40 years now. And it plainly hasn’t done the job in any of the privatized utility sectors or utility infrastructure sectors in the UK.
The left should be saying, insofar as it’s our retirement savings that are being invested via asset managers, that we don’t necessarily want our money invested in things like rental housing where it is enabling explicit exploitation of tenants by asset managers who are hiking rents. The left can be much more active about what happens in terms of the investment of worker capital. And they should be saying that there are certain things that probably shouldn’t be owned by asset managers when they are held in short-term investment funds. It’s a legitimate thing to say that these types of funds shouldn’t be owning certain types of assets.
But the first of those is by far the most important. I’ve found it very hard to see a positive future for housing access and housing affordability in a place like the UK without a substantially renewed role for public ownership of housing. There are, of course, all sorts of other things you can do around the edges. But to me, that’s an absolute necessity, and it’s so far from being a likelihood at the moment that it does look pessimistic.
Class Unity: You mentioned one way for the left to combat what’s going on here is by regulating what assets asset management firms can hold. That would have to be at the national level, I suppose. But it’s an international phenomenon because you say that these companies have holdings and assets worldwide.
It also affects people locally, and very often it’s local municipal governments entering into contracts with Blackstone and other firms. So, what level of resistance would be most promising, practical, or doable? If somebody says that Blackstone owns their house and they want to do something about that, what would you recommend to them?
Brett Christophers: That’s a really difficult question. It is really difficult for that individual to do much of anything about it. Part of the reason is that it’s such a smart business model. It’s actually not Blackstone that owns the house. Blackstone establishes a fund, which is just a collective investment vehicle, and for most of these funds the majority of the money is not Blackstone’s. Maybe 1 or 2 percent is owned by Blackstone. So even if a Blackstone-controlled fund owns the house in which that person lives, the house is actually owned, in terms of its beneficial owners, to a significant extent by people like you and me—and even by the person who lives in the property. The asset manager is functionally an intermediary. Sure, it is an intermediary that has established the business in such a way that it can extract an outsized share of any financial gains the investment generates. But precisely because it is an intermediary, it can respond to criticism of its business by implying that doing anything about it will harm the ordinary workers whose money it is putting to work. As I say in the book, that is a really misleading discourse because those ordinary individuals don’t actually see much of the gains at all.
But that’s a pretty involved argument to make. Part of the beauty of the business, from the perspective of the asset managers themselves, is that it is very hard to attack because it is not one actor owning something. It is one actor bringing to bear a whole investment constellation that has spread its tentacles throughout our society. You have to chop off all those arms at the same time, which is very, very hard to do. Any loosening of the hold that asset managers have over these various types of assets would take a lot of work by a lot of people in a lot of institutions.
It’s taken quite a long time to come into being, and I think it would take quite a long time for it to be undone. Not to mention the fact that, as I’m sure you all have noticed, it doesn’t tend to be the chief executives of Goldman Sachs and JPMorgan who have the ear of government in places like the US these days. It tends to be the chief executives of Blackstone and BlackRock who have the ear of government and who fund the campaigns of the leaders of both main parties. That’s another real thing to remember about the strength that those asset management companies currently have.
Class Unity: Can you say a little bit more about the relation between asset manager society and the role of the state and government? Particularly with regard to financial policy and things like quantitative easing. Since 2008, in the United States, many trillions of dollars have been issued through quantitative easing. How does this enable and support the asset market?
Brett Christophers: The financial policy—particularly monetary policy, but also fiscal policy—that we saw across the Global North in the period following the financial crisis was very beneficial to asset owners of all types, not just asset managers, because it bolstered asset prices. This goes back to something I mentioned earlier. Insofar as that monetary policy led to a period of low interest rates for an unprecedentedly long time in the decade or so after the financial crisis, it also had a huge impact on the relative desirability of different classes of assets for investment institutions.
I probably didn’t say as much about this in the book as I should have done, but for investors who had historically relied on investing in bonds to secure an annual yield of 4 percent or 6 percent, whatever it was, they found that in a very low-interest-rate environment they could no longer rely upon bonds to deliver that annual income that many investors want. Lots of investors aren’t just interested in capital gains. They want a regular annual income, and bonds have historically provided that relatively predictably. And that was precisely one of the main reasons that we saw this surge in investment in things like housing and infrastructure in the period following the financial crisis, because investors could no longer get that 4 percent or 6 percent predictable yield from bonds; housing and infrastructure were able to supply that regular annual income plus the possibility of capital gains.
That was why a lot of money was moved out of fixed income and financial securities into real assets in the period following the financial crisis. Monetary policy was absolutely central to the flowering of the asset manager society after the financial crisis and, of course, to the growth in the value of the assets that circulate within the asset manager society. I don’t necessarily need to go into detail, but fiscal policy has always been very important as well. So low taxation of assets, low taxation of wealth—it is obviously a happy breeding ground for asset managers as long as they invest in these types of assets. So, monetary policy is absolutely central.
The Treasury in the U.S. is, as far as I understand it, brimming with recruits from the asset-manager sector. It is another one of those revolving doors where people move in both directions. They move from asset-management firms into government policy positions, and then they move back in the other direction as well. There is a very close link there.
Class Unity: One of the topics that we’ve been studying in our group recently is imperialism. We were reading Hilferding, Lenin, Luxembourg… the classical theories. And in your book, you do mention Hilferding and Lenin. What they were describing was the export of industrial capacity over the globe. Now, we seemingly have a rush to privatize infrastructure all over the globe. So what is the international character of this, and for a more dramatic question, do you see this as a source of future geopolitical conflict in the way imperialism led to the world wars?
Maybe that’s a larger topic, but just in general, how do you understand this in the context of the traditional theory of imperialism and international control of the economy?
Brett Christophers: My crude take on this is that it is a sort of continuation of financial imperialism, in the same way that you could describe the relationship between private sector creditors in the Global North and sovereign debt in the Global South today. Many theorists describe that particular financial constellation in a precise way. Just in empirical terms, the thing that’s been particularly interesting about the period since the financial crisis is that one of the main things you have seen during that period is asset managers who are overwhelmingly based in the Global North and who put to work capital that is overwhelmingly raised in the Global North. Though the growing role of sovereign wealth funds from places like the Middle East as contributors of capital to the funds managed by Western asset managers adds a certain important wrinkle to that story. But historically, prior to the financial crisis, it was relatively uncommon for asset managers to invest in housing and infrastructure outside the Global North. It did happen—for example, through investment in hydropower facilities in South America. Brookfield from Canada has long been a big player there. But it really took off after the financial crisis.
And I think it took off for a bunch of different reasons. One of the reasons is that this has become a much more competitive industry. Some of what should have been easy wins and were historically available in the Global North perhaps no longer are. Asset managers, as all capitalists do once their core markets become more competitive, look to tap other geographical markets as well. They’ve looked further afield over the last decade or so; they’ve begun to explore investing in things like farmland and toll roads, plus renewable power on a huge scale outside of the Global North.
The other thing is that they’ve seen an assortment of parties do more to remove some of the risks or perceived risks that historically put them off that type of investment. It might have been the case, for example, that 15 or 20 years ago, an asset management firm in the Global North would have run a mile at the idea of putting money into solar power facilities in Senegal, Namibia, or somewhere else in Africa or Brazil. But the combination of generous development-finance institutions based principally in the Global North, philanthropic institutions, and the willingness of those actors to shoulder a lion’s share of any financial risks associated with that investment has been hugely significant in increasing the willingness of asset managers to put money into the Global South.
If you believe reports by the likes of McKinsey on the global infrastructure gap, which say that an overwhelmingly significant majority of future infrastructure investment has to occur across the Global South, and if you combine that need with the genuine fiscal constraints under which most governments in those parts of the world operate, then it does not take long to conclude that asset managers are going to play an enormously significant role in future infrastructure investment there. They will be siphoning off the gains—to the extent that those gains are realized—and delivering them to themselves and to their clients in the Global North. Understanding that as a form of financial imperialism does make sense.
Will that lead to geopolitical conflict? I don’t think that it’s any more or less likely to lead to geopolitical conflict than the fact that a huge amount of the expenditure of states across the Global South is going to be going towards paying interest on sovereign debt that private sector actors hold in the Global North. And that doesn’t seem to generate significant geopolitical conflict today for reasons on which I am no expert. So, I don’t think the flows I’ve been talking about here are any more or less likely to elicit conflict than that fact is, but the seeds of conflict would certainly seem to be there.
Class Unity: A good concrete example of some of the domestic conflicts that can arise from this was in your discussions of Chicago. I’d always heard about the parking meters, but I didn’t know all the details. So it was very interesting to discover. At one point, I think you use the term “structural incongruity.”Sometimes, the requirements of these companies for state-guaranteed, riskless streams of revenue obstruct the ability of local governments to do whatever needs to be done just to make things work. And anyone who has driven in Chicago, on Lake Shore Drive at five o’clock, knows that it’s chaos, and it doesn’t have to be that way. But apparently, it’s going to be that way for about eighty more years.
This seems less speculative and even easier to relate to for most people. Could you say something about how conflict could be baked into these arrangements?
Brett Christophers: One question I often get asked is, “What limits are there to the expansion of the asset manager society?”
Those limits can theoretically come in different forms. One limit is the drying up of the supply of capital invested through their funds. Another concerns the willingness of local governments, which may be swayed to one extent or another by the concerns of local citizens over these types of agreements. There are horror stories, with Chicago’s parking system being one. Another example in the book was the Bayonne water supply in New Jersey and the horrific outcomes there. So, I think that local governments would be cautious, in many cases, about entering into these types of agreements, which can lead them to be hamstrung in the way that that particular deal has hamstrung the city of Chicago.
However, the other side of the equation—and I’ve seen this in the UK municipal context as well, although not specifically in relation to asset managers—is that it is altogether too easy for local-government managers to say, “Well, that was just a function of poor negotiating on Chicago’s part. We know better, and we won’t allow ourselves to be taken to the cleaners in the same way Chicago allowed Morgan Stanley to take it to the cleaners, or the same way Bayonne, New Jersey, allowed KKR to pull the wool over its eyes.” But, at least in the UK, local governments often operate under very severe fiscal constraints that limit their capacity to pursue alternatives for major infrastructure investment. Beggars can’t be choosers, right? If this is what is on the table and you need the investment, then maybe asset managers are what you end up with.
But that is still one significant limit: the fact that a lot of this is very visible.
At the same time, the world is a weird place. In 2018, Californians had the opportunity to vote to repeal the Costa-Hawkins Rental Housing Act, which limits the ability of municipalities to regulate residential rents in California. California has proportionately the most rent-burdened residents in the country; there’s just a litany of disasters when it comes to rent there. And 60 percent of voters voted against the proposition to repeal it, which to me is completely mind-boggling—it is baffling.
That’s a case where the problems are very visible, and they’re experienced on a day-to-day basis by people. And yet, people still tend to vote against their own best interests even where those problems are very visible, which again comes back to lobbying power and financial power. Blackstone was the biggest contributor of capital to the campaign against that proposition. And Blackstone was one of the biggest landlords in the state, right? None of it’s surprising.
Class Unity: Regarding the questions of possible limits to the asset manager society, can we talk about the socialization of risk and the role that that plays? One of the details I was struck by was when you describe that the assets are bought so that they can be sold five years later at a higher price and that this in itself is one of the larger sources of revenue, even more than rents. When you think about this generalized across all aspects of society, whether it’s real estate or infrastructure, eventually, there won’t be an incentive to fix anything, and society itself will break down on a material level.
What examples of real dysfunction can arise from this? How is that offset by contemporary society?
Brett Christophers: It is a bizarre thing, right? Often, when they sell these things after four or five years, another asset manager comes along, takes the asset off their hands, and holds it for another three or four years. While I was working on this, part of me felt like a witness to a game in which they were passing an explosive to one another and hoping it would not blow up during their tenure, so they would not be left holding the bag. But sometimes it does blow up. One of the best examples I discussed in the book was a care-home chain in the UK that was passed among about five different asset-management firms over fourteen or fifteen years. All of them played the same game of underinvesting and loading it up with debt. Eventually, it failed.
Whenever I read about those cases, the asset managers always assume that they will not be the ones left holding the bag. But the problems become so bad that one of them is inevitably left holding it in the end. Arguably, Thames Water in the UK fits this pattern today, although its major shareholders are now pension funds rather than asset managers. It is a similar story throughout the UK water sector: ridiculously bad practices, huge debt leveraging of the investment, extraction through dividends, shareholder loans, and all the tricks I discuss in the book. Thames Water is an example that has recently blown up in investors’ faces, albeit in this case the investors are pension funds rather than asset managers.
Because the business model is to buy and sell, and because the business model is essentially to sell only to another asset manager, someone gets left holding the bag at the end of the day. The only real question is, how long can that game carry on? The asset managers are very good at getting concessions from governments in terms of getting expenditure co-funded. They’re very good at saying, “Look, we need you to carry out co-investment here, and we need public money to help invest in these assets; otherwise, we’re going to withdraw our capital.”And they’re very good at scaring governments. The idea is that if governments don’t play ball, then capital will flee en masse.
I’ve actually got a somewhat different view from others who write a lot about this on the left. In some cases, capital would flee en masse if the government wasn’t forthcoming in de-risking investment. And I think renewables are the best example of that. If you look at countries that have substantially removed the support mechanisms historically supporting investment in new renewable-energy facilities, private investment has collapsed. And that’s a pretty real sign that de-risking is actually necessary in certain countries. However, I think there are certainly other contexts where governments have been hoodwinked, to one extent or another, into believing that if they don’t carry out that de-risking, the asset managers and other private-sector investors won’t invest.
We are seeing a level of dysfunction that we might expect to lead to resistance sooner rather than later. But—and I’m constantly amazed by this—many people in society seem willing to accept that dysfunctionality. And I think one of the problems here, and this goes back to your class question, is that the people whose lives are most embedded in the asset manager society, whose financial expenditures go disproportionately towards funding the perpetuation of asset manager society, are poor. For instance, on the rental housing side, most wealthy people do not rent. So their lives are not affected by the housing question at all. Then, on the infrastructure side, the share of household outgoings that go towards paying things like energy bills, transportation bills, and public utility bills is vastly higher for poor households than it is for rich families.
So, the rich are relatively less affected by these dysfunctionalities. And it tends to be rich people’s voices that governments hear for all sorts of different reasons, not least because they tend to vote more than poor people do. That sort of inequality of impact of the asset manager society, and therefore, inequality in the experience of dysfunctionality, is a significant part of the explanation for why it persists in the way it does.
Class Unity: I was wondering about the term you use, “de-risking.” In another place you use the expression that there’s a sort of “guaranteed revenue” for these companies by the state. I find those expressions very striking because, supposing we’re in the neoliberal era, we always hear about free markets and the benefits of competition. But the impression I got from your book is that the asset manager society might just be a more concrete description of neoliberalism. It’s not a free market; it’s a monopoly, especially in how all of these assets were amassed under these companies after the global financial crisis, when, as you know, foreclosed homes were bought up cheaply. So I’m thinking about things such as—and I’m following on from the previous comment here—gentrification, rising rents, asset price inflation.
It sounds like they want to be landlords but really they just want to cut costs to show high revenue on paper so that they can sell these assets again. And the consequence is a state-backed monopoly for investment with no risk and guaranteed revenue. The impact on normal people is that we have to pay more in rent. I mean it’s just a wild thought.
Brett Christophers: That’s absolutely the reality. I wrote a piece in the New Statesman recently in which I took issue with the increasingly widespread idea that we are seeing the end of neoliberalism with the return of industrial policy and everything else. I’ve never really understood the argument. It tends to be the dominant view, which takes neoliberalism to be a political economy of markets and competition. Rhetorically, it is; but in reality, it never has been.
Wherever you look, markets tend to be a very strange phenomenon. In reality, they tend to be oligopolistic or even monopolistic, and prices are subject to degrees of government control much more widely than people often imagine. So I made the argument very strongly in The New Enclosure, and I continue to make the argument, though more implicitly than explicitly these days, that the signature feature of neoliberalism is not markets or competition but private ownership.
Everything that generates revenue can be owned. That’s what is most noticeable about Bidenomics, the return of industrial policy, and the alleged death of neoliberalism. The one thing that isn’t changing is the idea that everything that will be invested in will be privately owned. There’s no significant role for public ownership in any of this. So, the idea that it constitutes a significant change is just misplaced. It’s a change at the margins. The fundamental issue, the question of ownership, is not changing. It arguably represents a doubling down on private ownership. So you’re absolutely right.
When I was researching the book, the prevalence of those guarantees and the removal of risk from the shoulders of “risk capitalists” were quite remarkable. The only thing that I’d add to that, and this is something that I’m working on at the moment, is that there are particular areas—renewables, for instance—where governments pushing the private sector to lead the transition do have to make those guarantees or subsidies because otherwise, the private sector won’t invest. It’s not profitable enough.
And that’s a real problem if you expect the private sector to do something that is not profitable without subsidies. You have no choice but to continue those subsidies. The only alternative is public ownership, which seems to be out of the question right now.
Class Unity: Thank you for talking with us. It has been a pleasure. Brett’s book, Our Lives in Their Portfolios, is available now.
Brett, we hope to talk to you more in the future. Thank you.
Brett Christophers: It’s been a pleasure for me, and I would like that very much. Thanks for having me.