American Capitalism Part 2 : The insidious nature of MNCs and the dual-edged sword of monopolization.

How some large corporations,top execs, and government policies inhibit innovation, affect economy, and go against the true nature of capitalism.

There are only two highly effective ways to grow wealth quickly and exponentially: you either own something that grows in value over time as an investor or an asset manager, or you build something innovative and sell it to a growing market with lots of demand by building a business around what you are selling(entrepreneurship), and owning a stake in your own business that grows in value. Both of these approaches are highly risky, where in 9 out of 10 cases you will most certainly fail. The high risk you take is what deems you worthy of receiving exponential capital gains in the future. You can be a stock trader that invests in high-risk assets and earn a lot of money by simply owning something of value, or you make something new and sell it to a market as a “builder”.

My last article on this subject elaborated a lot on this topic, and how exactly American capitalism works. The American Dream is enabled by such capitalistic spirit: that any person ,regardless of his genetics, color, country of origin, race, religion, can live in the USA, reinventt himself, and take advantage of capitalism to achieve true freedom. Such a system cannot be seen in any other country by far. The opposing philosophies to capitalism are socialism, communism, etc, and they have all miserably failed. Only the USA has prevailed for more than 2 centuries.

This however, works hand-in-hand with the government policies of a country. We must carefully understand how countries operate because the government policies are what enable the operations of corporations and startups. In a way, government affects the world economy, which in turn affects entrepreneurs and investors. Particularly in the USA, capitalism experiences limited interference by the government. The free market system ensures that corporations such as private/public companies and startups run by entrepreneurs and corporate executives take care of all of the country’s growth, innovation, and economy. Corporations need to always raise money to reinvest in themselves to accelerate their further growth, which drives more job creation, more inventions, more progress. They raise this money in an environment of low interest rates, where less rates implies greater loans that can be easily taken from banks or other institutions. In a period of recession or inflation, interest rates rise as well, making it more expensive and harder for corporations to receive loans. This is how every industry works, in any decade from our history, where corporations drive the growth of the economy, and the rate at which they can grow is dependent upon the current market conditions and the overall health of the economy. This is seen not just for banks, but also for any other methods of raising money from investors, such as Venture Capital firms or private equity firms, where the willingness of lending money depends on the mindset of the limited partners, which in turn depends on the current economy health. The other way corporations raise money is by going public, and receiving a public market cap on their business, where the public can invest in their buiness through a stock exchange. This however, implies an exit on the side of the original founders, execs, and the board. A new board then replaces the previous one, or in rare cases, the CEO retains his position for a long time.

The monetary and fiscal policies of a government must then operate in sync with this free market system. The monetary policy implies that a central bank, the Federal Reserve, takes care of new money printing in Washington, controlling interest rates and monitoring inflation carefully. The fiscal policy implies how the government spends its money and its tax policies. Two notable philosophies are at play here: Keynesian economics, as proposed by the famous economist John Maynard Keynes in the 1930s, and Friedmanite economics, as proposed by the famous economist Milton Friedman in the 1970s and 1980s. Keynesian economics is adopted by fiscal policies, where the government intervenes inside the free market system to propose taxations, regulation, government spending on infrastructure, and so on. Whereas the Friedmanite economics focuses on the hyper-capitalist mentality : increasing profits is the sole purpose of a business, where it benefits all stakeholders and creates more jobs, drives further economy, and encourages free-trade systems between different countries. Friendman suggests that there should be a reduction in government interference and there should be more tax cuts, and also argued that the real reason why inflation occurs only when there is more supply of money produced, than there are goods and services currently available for purchase. In other words, the presence of more printed money at Washington money printing facilities exceeds the amount of goods you can ever buy in a country, or the productivity of an economy at the current time. In simple words, to reduce inflation, you must either reduce money printing, or you must increase productivity and innovation in a country by a lot. Under the free market system, less taxation on corporations fuels more growth of businesses, which increases jobs and makes an economy more powerful. By contrast, Keynesian economics suggests that more government intervention will stabilize the economy, which sometimes involves more regulations and taxations, but more government spending has clearly shown to be the cause of more inflation, and this inevitably causes recessions and more unemployment. And as the impressive growth and success of Hong Kong city suggests, the Friedmanite economics is clearly the winner.

During the 1990s, Hong Kong, along with other “special economic zones” in China, adopted a policy of hyper-capitalism, where corporations were completely free from any government interference, and were free to grow business by hiring people and driving more globalization. Many companies from USA and other countries migrated to this side of China and neighbouring areas due to more freedom and wealth promises under this free market system. Apple and other manufacturers started out-sourcing labor and other operations to Chinese factories, which drove further globalization and mass manufacturing. This helped China a lot, allowing it to grow exponentially more powerful within a matter of 20 years. Along with this, the free-trade system, where two or more countries trade imports and exports with each other under limited constraints and additional charges( tariffs), allowed many countries to grow more powerful. Friedman’s philoshopies supports this approach of a free-trade system, that can enabling more out-sourcing to China, more globalization, more supply-chain trade routes establishment between different countries. For example, many chip companies in thr USA such as Nvidia, Intel, etc, do the chip designing in-house, but out-source all manufacturing work to Taiwan, China, etc.

However, this had a disastrous effect for the USA economy. The way it happened is very insidious and genius. China manipulates its currency by using a clever trick: it pegs its Yuan currency such that it is not allowed to float more than 2% against a fixed level. Earlier it used to peg the Yuan against the dollar, but now it pegs it against a basket of other currencies. By contrast, the American dollar was earlier was tied up with gold and later on indirectly tied up with oil, as most of the major oil trading is done in USD dollars, but still the dollar operates under a floating exchange rate system, which means its value changes based on supply and demand in forex markets. This allows cheaper exports from China, which means much more flow of money into Chinese banks and government without any downsides. This makes Chinese exports more attractive to other countries. Indirectly, this causes “money drain” from the USA into China. This is why there must be, for a short period of time only, an addition of a “limited effect tariff system” on import and export of all goods to and from China and other countries, such as those in Europe. The tariff proprosals go against Friedman’s ideologies, but they are necessary because countries like China and Europian nations have indirectly taken advantage of trade with the USA, driving the economy to further ruin.

There must be, in my opinion, a delicate balance of free trade and merchantilism in the USA, preferably in a 40:60 ratio, where more merchantilism(meaning more nationalism when it comes to driving economy forward: like building more factories in-house and discouraging out-sourcing to other countries) should be there as compared to free trade. If free trade must be increased, tariffs should be increased moderately as well.

But enough about government and nations. What about capitalism on its own? Where does the thin line between capitalism and government actions end ? In what cases does multinational corporation (MNC) culture result into so much greed and monopolization that it goes against the spirit of real American capitalism ?

To understand this, let us take a detour. BlackRock is an American multinational company and an investment firm. It is the world’s largest asset manager, with more than 12 Trillion dollars in asset under management(AUM). That is more than the Gross Domestic Product( GDP) of all other countries in the world except China and the USA. Two other companies closely associated with Blackrock, Vanguard and State Street, when combined with BlackRock have an estimated 66 Trillion dollars in AUM! This company trio have rightfully earned the title of “ the third most powerful country in the world” ! It is literally an empire that operates from the shadows.

Let me repeat that: 3 companies, when put together, are known as an entity that is the third most powerful "Country” ! What gives them such vast power and influence ?

Search for any major company in the S&P 500, such as Google, Amazon, Microsoft, etc: and you will invariably see that the majority stakeholders in these businesses, with a percentage ownership of around 4-5% or even more, are BlackRock, Vanguard, and State Street. This much ownership stake implies majority voting rights given to these corporations. In other words, these 3 companies can easily influence the decisions of other companies. These 3 companies own shares of almost all companies, not only in the USA, but also in many other countries. I was personally surprised a lot when I saw that my savings account bank, Canara bank in India, had BlackRock as one of its institutional owners ! Further research led me to see that BlackRock has invested in many countries and corporations, including big infrastructure organiations like Jio Services in India. In other words, there is a high chance that any product or service you buy in today’s world, from any sector, like a car or a mobile phone or a t-shirt, has BlackRock as one of its major investors. BlackRock has an influence bar none, where it manages lot of assets, and if it was to crash unexpectedly, it will likely result in the whole world economy crashing down with it. BlackRock also engages in circular ownership with Vanguard and State Street, where BlackRock owns stocks of those other two, and in turn they own stocks in BlackRock and in each other. In other words, they own themselves, which has some legal implications as well. For all purposes, they can be considered as a single entity.

These companies are asset managers. They provide risk management services to other companies. They buy toxic assets, such as weak debts or bonds, and turn them into valuable assets. They invest heavily in big Exchange traded funds( ETFs) and other index funds. Essentially, they bet on the market, acting as a passive investor, but at a very tremendous scale. In many many cases, they own an organization or engage in a bank operation, such that they stand to gain more money and influence, and earn more profits, irrespective of whether a market or a company fails or succeeds. This ultra-passivity and dual-sided interests goes completely against the original true spirit of the American capitalism: that taking a high risk results in high rewards over time, but this is one-sided, meaning that if I was to start a new startup and own stake in it, I will obviously want it to succeed, and would stand to gain nothing if I fail. The way big asset managers like BlackRock work is unlike this philosophy, where in many instances they operate on both sides of the same deals. This is termed as " Shareholder Oligarchy".

This gives them an unprecedented monopoly and influence over many things. For example, if you invest in some fund, such as a 401(k) or a student loan or some college scheme, or any trust fund or retirement plans, or in other index funds, there is a very good possibility that some part of your money goes into the operations of BlackRock and its other assets. All this happens indirectly behind the scenes, you won’t even know it happened. BlackRock can easily influence operations of other companies: they started the ESG policy, where they gave high ratings to companies that followed their interests, and low ratings to companies that were anti-establishment(such as Tesla). High ratings implies further investments and protection offered by BlackRock. This ESG trend led to ruining of many brands such as BudLight, and losses of many other companies. BlackRock also funds a lot of government lobbying so that their execs can get into positions of power and influence, and shape government policies to suit their own interests. To show how this works, look at what they did during the 2008 financial crisis : following the market crash, the USA government called Larry Fink, the founder of BlackRock, to ask for advice on how to recover the country’s economy. BlackRock then helped the USA government by buying toxic assets from them and managing them under their portfolio, which indirectly saved the government from a lot of debt and ruin. Now in recent times, the Federal Reserve( which has no official power over the free markets and corporations when it comes to handling capital operations), employed BlackRock to purchase assets under a contract, which saved the Federal Reserve by a lot during the Covid pandemic. In other words, due to the absolute influence BlackRock has, it can sway political and government to further its own interests, gain more profits, control the mainstream news to theoretically brainwash the common public, and drive the world economy under their hands. We once again see here how government decisions can sometimes enable corporations like BlackRock to gain more influence over an economy. This is clearly the opposite of the American capitalism approach of more risk, more rewards, more freedom, more business growth in a competitive market of ever-changing supply and demand. BlackRock insulates itself from risk by working from both sides of the market. However, this must change: BlackRock must be broken down and its influence must be reduced because it goes against the premise of a capitalist philosophy. In some ways, while BlackRock emerged from capitalism, it shows us the dangers of capitalism taken at its limit, and steps that we must take to curb that influence and ensure that the American dream of capitalism must not be extinguished.

Another example of this, is the ulterior motives of NGOs and non-profits such as Bill Gates’ Foundation, that owns a lot of stake in the United Nations and other affiliated organizations, and are also tied up with such schemes that BlackRock enagages in. From the outside, people like Bill Gates will tell you thst they care about humanitarian efforts like reducing disease and poverty, but at the same time they take advantage of schemes that profit them a lot. Another example : Google restructured itself under a holding company named Alphabet, to split itself up so that it can remain a monopoly yet have different product lines. According to Tony Fadell, the founder of Nest Thermostat, and the person who designed the iphone under Steve Jobs, he sold his company to Google which acquired it and, quite literally, ruined it, all for profit and no innovation. Google’s work environment, corporate culture of management teams, and monopolistic mindset, is the complete opposite of a startup culture that drives more innovation, more valuable products and services, and more economy growth. In some ways, Apple has managed to stay out of this corporate mindset and remain a startup spirit. The creation of monopolies in markets, like BlackRock, and other large MNCs, stops new innovation, kills good ideas, and turns talented people into robotic workers, and causes corporate and political decisions that further ruin the economy. This, while still being a core part of a capitalist society, goes against the true spirit of capitalism.

In other words, this monopolization goes against the principles and ideologies of Milton Friedman, and other economists as well.

Greed is good. However, absolute power corrupts absolutely. There is a reason why, in an anime “fullmetal alchemist: Brotherhood”, there are 7 anthropomorphized incarnations of the seven deadly sins : pride, lust, greed, sloth, envy, gluttony, wrath ; and only one of them is inherently good: greed.

However, greed when used to gain monopolistic influence like BlackRock or Google does, is always bad as it inhibits further innovation and negatively affects the world economy or operations of some companies in the USA. This happens very slowly but surely under a capitalist environment, so we must be careful. There are methods to fight such power, but that’s a topic for another discussion later.

The very purpose of America, and capitalism, is to generate new idea factories, where people take huge risks and earn huge rewards by becoming entrepreneurs, by creating more jobs, and driving the economy of a country. There must a steady balance between startups turning into monopolies, a balance between free trade and tariffs, a balance between asset managment and government policies, a balance between capital gain profits and innovation. Because without any new invention or research, driven by reinvesting in itself by a company to accelerate value growth, there can be no more growth of capitalism as well.