Q: Won’t the II proposal destroy the idea of passive index funds that have done so much good?
A: Diversification will still be possible; fees might have to rise some but you’d get good corporate governance in exchange at efficiency-enhancing levels.
Q: Don’t institutional investors own many companies that buy from and sell to other companies, and not just competitors? Doesn’t this make them want to reduce prices and raise payments to input suppliers?
A: While there is certainly some effect of this sort, even if we thought of the entire business sector as a single entity there would still be strong incentives to raise prices, lower wages and manipulate politics to expropriate labor. At present, capital takes about 30-40% of national income and most capital is controlled by less than 1% of the population. Such individuals have a strong incentive to increase the share of national income accruing to capital, even if this comes at the expense of the whole pie. There is increasing evidence that this is precisely what is happening, as labor’s share of income has been falling as economic growth rates decline.
Q: This theory is far from being proven. Why should we act now?
A: We think more academic work should be done, but also that antitrust authorities should use their coercive powers to obtain data from institutional investors, which would go a long way toward settling the controversy.
Q: Everyone benefits from cheap diversified investments. It has been a tremendously democratizing force for investing. You want to destroy this.
A: Only about 30% of the public owns any equities and less than 1% of the public controls a majority of equity holdings. So it is a myth that ownership of equities is a widespread or democratic phenomenon. Diversification is beneficial for many people, but our proposal would not interfere with diversification.
Q: How can employers have market power over ordinary workers when (in many cases) their work requires almost no skill and thus there are huge competitive labor markets for such workers?
A: Most workers don’t have a large number of mostly equivalent job options even if they have limited skills. Many live in a particular area, know people who can connect them only to a small number of jobs, or have requirements in terms of when and how they can work that make it difficult for them to accept “any old job”. Jobs require an employer to value a worker and the worker to like the workplace. Such a match can be difficult to make, which is why people usually have few job offers they seriously consider. This suggests labor market power is very prevalent and this finding has been confirmed by a wide range of recent economic studies.
Q: Isn’t the potential of selling out to big tech companies a crucial exit option that keeps the market for venture capital for start-ups working?
A: The sell out option encourages some types of start-ups but not others. It discourages the most disruptive and transformative startups and redirects funding towards those that pose enough of a threat to existing platforms but don’t need to remain independent. These are the least socially useful start-ups as they do not have a differentiated, transformative vision. Reducing investment in these and shifting it towards more transformative, complementary start-ups would not just be good for the economy, but ultimately for the platforms in the long run as they would have fewer copy-cat platforms just looking for a quick buyout.
Q: Don’t your antitrust ideas just replace corporate monopolies with all-powerful government agencies regulating the economy and controlling it centrally, an even worse form of monopoly?
A: We largely refrain from antitrust proposals that would require detailed government monitoring or a lot of subjective judgement. This is why we do not advocate, for example, restrictions on the conduct of big tech companies even though we think they have a lot of market power. Giving antitrust authorities the ability to impose such remedies might raise some of the problems you mention. Instead we support transparent and easily enforced solutions relating to simple restrictions on holding patterns and mergers. These are easy for the public to monitor and do not create a lot of discretionary power among enforcers.