Welcome to Perspectives. Launching in February 2023, Perspectives is Common Wealth’s new blog, which aims to provide room for conjunctural analysis of questions of property and power. It will host everything from shorter topical and reactive pieces, to longer form essays, all aiming to bring the systemic importance of ownership in the 21st century into view.
The first of a two part essay — from Mathew Lawrence and Adrienne Buller — examines the intersection of the corporate economy and our privatised energy system, and how extractive ownership models shape their operation. The second part explores the non-economic foundations of our economy, from care to nature, and why need to rethink how we organise and value production and provision.
Beyond the stark headline figures related to consumer price inflation, a distinct form of inflation has been quietly picking up steam over recent weeks: financial asset prices. After a year of poor stock market performance (down 20% last year), on 3 February the FTSE 100 closed at an all time record high after several weeks of impressive rebound. For the comparatively few at the top of the income spectrum with an enormously outsized stake in these shares, the rebound is excellent news.
Amidst an unprecedented cost of living crisis, with real terms pay falling at record rates, there again feels like a startling disconnect between those living in the “real world”, and the performance of financial markets. Yet as jarring as it is to see new extremes of wealth for those at the top amid a devastating erosion of living standards, it should not come as a surprise that share prices could be enjoying record highs while millions are struggling to pay their heating bills. The stock market has never been a barometer for the health of an economy, no matter how frequently the two are conflated.
The performance of the FTSE 100 reflects the aggregate performance of the share prices of the 100 largest companies on the London Stock Exchange. But what exactly does this figure mean — what, exactly, is being indexed? To answer this question, it helps to first be clear about exactly what a share is, and what function it serves. A share itself is simply a tradable claim on the rights to a company’s future income; thus, its value should reflect buyers’ expectations of the future profitability of a firm, and their desire to own a claim to this income, meted out through dividends, share buybacks, or the eventual liquidation of one’s shares. Since the 2008 Financial Crisis, monetary policy has contributed to a break in this assumed relationship, with massive central bank purchases driving across-the-board asset price inflation. This remained particularly marked during the pandemic, when the gulf between soaring financial markets and a locked down global economy never felt more expansive.
However, with surging inflationary pressure, monetary policy has begun to pivot, with consistent incremental interest rate raises and a general mood of “tightening” prevailing on both sides of the Atlantic. In this context, ascendant asset prices can no longer be understood as a fairly straightforward story of monetary expansion. Instead, they increasingly have a much more material base in two key, interrelated features of our economy: very high corporate profits and weak labour power. Even prior to the invasion of Ukraine and its profound impact on the profits of energy giants from Shell to BP, the post-pandemic profit margins of the top 100 non-financial firms in the UK were already up by over a third at the end of 2021 compared with the year prior. In the US, the non-profit Groundwork Collaborative tracked a similar pattern. Moreover, a new study by the US Federal Reserve Bank of Kansas suggests that price rising markups by corporations — that is, the difference between the prices they charge and their marginal production costs — could account for up to half of inflation seen over 2021.
So what are corporations doing with these record profits? A combination of corporate governance rules and pressure from financial markets to “disgorge cash” have meant that companies are overwhelmingly using these profits not to invest, but to pay out their shareholders in the form of dividends and share buybacks. Buybacks by UK companies reached over £55 billion in 2022, with our analysis with IPPR suggesting share repurchases by FTSE companies were twice as high last year as their pre-pandemic peak in 2018. These exceptional payouts cement a two-decade-long trend in the UK economy that has seen the balance tilt away from labour and toward shareholders, with dividends rising six times faster than real wages between 2000-2019.
In other words, we do not need the lens of monetary policy to explain surging stock prices. There is a much more basic explanation: labour’s weakness is capital’s strength. The inability of workers to resist the imposition of real-terms wage cuts at a time of record corporate profits — which are then disproportionately distributed to investors — marks a direct transfer of income from workers and consumers toward shareholders. This acceleration of upward redistribution makes owning shares more attractive, despite wider economic stagnation. Inflation consequently bears the imprint of class division: ordinary households suffer while corporate profits surge. Distributional struggle is intensifying, but on terms that remain favourable to wealthy asset-owners.
Against the backdrop of an ongoing struggle between corporate profits and wages, another war is quietly being waged over how monetary policymakers should respond to inflation. As Cedric Durand has outlined in a recent essay, the current inflationary moment is unique in dividing fractions of the finance sector with different priorities and interests — a division enabled by the recent cementing of a historically new configuration of ownership and, by extension, power, in the stronghold of finance.
The result of more than a decade of expansionary monetary policy in the wake of the Great Financial Crisis was rising financial asset prices and, along with them, the cementing of a new class of financial titans: top asset managers. The financial market crescendo of the 2010s culminated in a global economy in which control of assets has become increasingly concentrated among a small number of multi-trillion-dollar asset management firms, whose portfolios were distributed across every industry, geography and asset class. As Benjamin Braun describes, this new configuration of ownership — termed “asset manager capitalism” (AMC) — represents a historically unprecedented combination of concentrated and universally distributed power and control, mediated through asset ownership. Prior to the current bout of inflation, AMC was cementing a new set of economic priorities, both among policymakers and among the corporations whose stocks and bonds these managers legally own and, by extension, exert control over.
The size and power of these new financial titans is profound. BlackRock and Vanguard together controlled $18 trillion in assets as of the end of 2022 — roughly 15% of the now $125 trillion in global assets under management (AUM). Together, they own roughly 10% of any given FTSE company, and in the US, together with State Street, this climbs closer to 20% or greater. This spectacular degree of concentration, combined with the universality of their exposure, makes the titans of asset management acutely interested in influencing policy, with BlackRock leading the charge and more than doubling its lobbying budget last year to $2.4 million.
But what, exactly, are they lobbying for? What, in this inflationary moment, do asset managers want? As a general principle, they are interested in one thing: growing the aggregate value of their assets under management, upon which their fees (and by extension the bulk of their income) are based. With respect to monetary policy, then, “tightening” and the unwinding of major asset purchase programmes, which keep asset prices rising, could be detrimental. At the same time, runaway inflation has the effect of eroding the real value of wealth. What is critical with this melange of potentially conflicting interests, as Durand outlines in his essay, is that the incentives of the fairly recently mighty asset management industry are increasingly at odds with those of the banks, whose interest is in rising interest rates and the expedient slowing of inflation. As a result of this “inflationary fork”, he writes, the “hegemony of finance within the mode of regulation” is acutely threatened, raising the question: who will step up to the plate?
Within this context, it matters where the asset management titans derive their power — a question with a fairly simple answer: pensions. As Common Wealth will explore in work over the coming months, the “funded pensions” model dominant in the UK has given rise to the power of asset manager giants while also increasingly imbricating the vital need for economic security and dignity in old age with the performance of financial markets — a relationship whose weaknesses were made visible during the spectacularly brief Truss premiership.
Unwinding the power of BlackRock and others over policymaking and corporate governance is thus tied up in questions about the future of pensions on both sides of the Atlantic. Indeed, this is true for much of policymakers’ ability to enact policies that might rein in the phenomenal corporate profits and shareholder payouts, with the refrain that these “pay our pensions” repeated all too regularly in the UK media and among policymakers. In practice, the modern diversification strategy of funded pensions has meant their exposure to listed equities has fallen markedly to just under 20%, with UK pensions having just 6% exposure to UK-listed equities. Nonetheless, this misconception (or, perhaps more cynically, misrepresentation) has been leveraged with disheartening frequency over recent months in defence of the record-shattering profits of global energy giants, and their commensurately record-shattering shareholder payouts.
Consider the performance of two of the UK’s largest companies, Shell and BP. The former recently reported historic profits of £32 billion in 2022, while BP posted £22 billion. These figures represent an extraordinary surge in income directly transferred from ordinary households in the form of rising bills to the energy giants and then on to their shareholders, with the sector profiting from the ongoing Ukraine invasion, among other factors.
What did these companies do with these extraordinary windfalls? Might they have seized the opportunity to effect a transformative increase in renewable investment and break from the volatile fossil fuel-dominated energy system in which the global economy is currently mired? On the contrary: Shell distributed £20 billion to their shareholders, almost two-thirds of their profits, and roughly 7.5 times their cumulative low-carbon investments. Indeed, strikingly, their accounts showed they spent almost twice as much on marketing as on “Renewable and Energy Solutions". BP handed out 14 times as much to shareholders as they invested in their "low carbon" segment for the year, while for every pound BP invested in low carbon in Q3 2022, the company invested 26 in fossil fuel capex and paid out 46 to shareholders. BP also announced its intention to roll back its prior commitment to pivoting away from oil and gas production — a move rewarded by shareholders. Meanwhile, when asked about Shell’s plans for low carbon investment, the firm’s CEO succinctly replied: “if we cannot achieve the double-digit returns in a business, we need to question very hard whether we should continue in that business.”
In response to these new extremes of profit and the headlong pursuit of oil and gas expansion amidst an accelerating climate crisis, it would be easy to fall into the common refrain that the week’s events reveal a system that is ‘broken’. However, one could argue — and we do — that the reverse is true: the system is not broken. This is capitalism, and the for-profit corporation, working precisely as they are meant to.
Many of the legal and financial privileges that underpin both the modern corporation and financial markets were created to enable the early oil companies to effectively coordinate investment and production across time and space, supporting their explosive growth and cementing their foundational role in the functioning of capitalism. Today, their operations are of systemic importance to the global economy. Mediated through property relations and the hardwiring of corporate governance in service of shareholders’ interests, a global energy crisis causing deep pain for hundreds of millions of households has been transformed into a mechanism for transferring vast wealth directly from ordinary households and businesses to shareholders.
Importantly, the energy giants are not only engines for extracting wealth, they are also planning institutions of systemic importance to the energy transition. Currently, they are planning for a future of accelerating climate and nature breakdown. Such an extreme degree of misalignment arises when the organisation of investment — so fundamental to whether and how we meet urgent social and environmental needs — is guided by the imperatives of capital markets and for-profit production.
For this reason, a windfall tax on the oil and gas industry, though welcome, does not get at the fundamental ecological contradiction at the heart of crisis: so long as the energy transition is organised by corporate entities legally oriented toward a single driving purpose — the maximisation of shareholder wealth — then they will have the motive, means, and pressure to organise (and plunder) the planet for profit, with investment driven by demand for accumulation, rather than social and ecological need. Striking at this contradiction will be critical to challenging the drivers of climate emergency.
Of course, fossil fuel extraction is not the only element of the energy system where particular forms and distributions of ownership rights are exacerbating an unfolding energy crisis. The UK’s domestic electricity system is also a mechanism for the upward redistribution of wealth. This is the result of a unique experiment to which the UK has been subject: the virtually unparalleled extent of the privatisation of its utilities. From electricity generation via transmission and distribution to retail supply, we are unrivalled among richer economies in the breadth and depth to which the energy system has been proactively shifted from public into private hands.
The result: an extraordinary bonanza for the shareholders of once publicly-held assets. Private ownership of natural monopolies such as the distribution network operators has generated some of the highest profit margins in the entire UK economy consistently over several years, with regulator Ofgem admitting that the “overall costs of the transmission and distribution networks to consumers … have turned out to be higher than they needed to be”, before rather tepidly noting that the sector’s profits are “towards the higher end of [their] expectations”. Indeed, National Grid plc (whose operations are now split between the UK and US) has paid out nearly ten billion to its shareholders over the last five years in dividends and buybacks.
While energy suppliers typically operate with much lower margins, the Big Six (now Five) still managed to distribute over £40 bn to their shareholders over the course of the 2010s. Meanwhile, Britain's gas producers and electricity generators are expected to make profits of more than £170 bn over the next two years, while the renewable and nuclear industry are also reaping extraordinary windfalls through a wholesale market designed for the era of fossil fuels. Meanwhile, the rewards of a rapidly growing offshore wind sector have been funnelled out of our domestic economy toward, often, other states and municipalities. For example, 44.2 per cent of current UK offshore wind generation is publicly owned — it’s just that it’s owned by foreign governments, from the Nordic nations to the city of Munich, with the British state owning a vanishingly small percentage of the our clean energy infrastructure.
The present design of our energy system thus serves as a highly effective mechanism for the transfer and upward concentration of wealth — a dynamic that is symptomatic of our rentierised economy as a whole. Nothing about the organisation of this system, however, is necessary or unchangeable. We can design a different future. Rather than leaving our fates to the profit imperative and hoping for the best, new forms of coordination and public investment can help scale and secure a green energy future. In contrast to the privatised control and concentrated ownership of the infrastructures of the fossil fuel age, we could develop the resources of the commons — the flow of wind, wave, and sun — in new directions: toward collective management and democratic planning, communal stewardship of shared renewable resources, and shared energy abundance.
The coordinates of our economy are set by forms of ownership that extract, transfer, and concentrate wealth by design. They underpin a social order that is constitutively incapable of realising genuine justice, freedom and democracy — unjust, because working people are largely excluded from the immense wealth they collectively create, and economic production rests on devalued social reproduction. Unfree, because the market represents not a site of free choice and opportunity but a force of compulsion, with too few having the resources and security to be authors of their own lives. Undemocratic, because decision-making over the pace and direction of development — from the allocation of a company’s surplus to the nature of the energy transition — is narrowly exercised and insulated from social control.
The hard task of building a society capable of realising justice, democracy and substantive freedom for all therefore starts from a simple point: ownership matters. An agenda for reform that does not restructure property relations is a strategic dead-end. Even where partial progress toward a more equal and dynamic economy can be made, it will quickly stall, snared in the contradictions established by underlying patterns of ownership. The strategic imperative that emerges for this is clear: the democratic economy begins where the primacy of property ends. This implies rethinking not only the form but content of ownership, redistributing wealth but also, more foundationally, rethinking the role property plays in shaping our societies. In turn, that means prising open and politicising fundamental economic phenomena — wage-setting, price-setting, the allocation of investment — which for too long have been treated as the prerogative of property and markets, systematically insulated from democratic ordering. This would recognise the fundamental truth that property is a liquid, constantly evolving process, politically constituted, with the nature and distribution of economic rights bundled up in ownership capable of being disaggregated and arranged in a myriad number of ways, ways that can both open up or foreclose substantive economic democracy and freedom. In relation to the corporation and energy system, three interlocking approaches can begin the urgent task of building an alternative architecture of ownership capable of securing these changes, and with it, knitting together the coalitions necessary to drive forward and embed durable change.
First: the democratisation of production. Recognising that the corporation is social in origin and maintained by public power, we should reclaim the company as a vehicle of collective enterprise. In place of oligarchic company governance, where political rights are currently allocated based on wealth, meaningful change would ensure the government of the firm was based on who participates directly under its rule: its workers and other vital stakeholders. More democratic control of investment could also ensure the pursuit of purposes beyond profit and accumulation, which organise today’s corporation to the near-total exclusion of other aims. In place of a narrow business monoculture, we should actively nurture a new pluralism of diverse and purposeful enterprise forms, which thrive through meeting needs, innovating usefully, and providing good work. And rather than ceaseless competition, we should experiment with new forms of collaboration and coordination within and beyond the firm in pursuit of shared missions. Finally, the corollary of an agenda for reclaiming the company from within is a strategy for reorganising the way financial markets interact with the corporation. Here, our guiding principle should be to move from extractive financial “discipline” to generative and supportive investment oriented around social and environmental needs.
Second: reshaping economic coordination. In particular, a market-driven energy transition where investment is guided by the profit imperative will simply fail to decarbonise at the pace required while being indifferent at best to climate justice. Instead, effective decarbonisation will require reviving tools of public ownership and investment, of social coordination and planning, to guide and directly do what the transition demands, rather than just nudging the market in the hope it acts. With the passage of the Inflation Reduction Act — an era-defining piece of legislation that will, for better and worse, decisively shape global efforts to decarbonise in the decade ahead — the turn toward state-led coordination is already accelerating. This is the new terrain of politics, one of opportunities and threats. The imperative to forge mechanisms of purposeful planning will only grow more urgent and necessary, as will the need to ensure the turn to green industrial strategy supports climate justice. We can begin with our response to inflation: instead of relying on blunt instruments like interest rate rises — whose ultimate goal is to reduce inflation by weakening labour power — we should pursue policies that can both defend and increase the incomes and power of working people while ensuring capital fairly bears the costs of economic adjustment. That will require reimagining the institutions through which prices and wages are set and markets are designed; in turn this shall necessitate rethinking what economic rights are assigned to asset-holders to organise the economy in their interests.
Third, redesigning provision. Patterns of ownership shape both how we produce goods and services and the terms on which we access them. What you have determines what you get and how you get it. Currently, many of the basics that we need to live are provided through markets as commodities, with property relations a critical intermediating institution. However, there are alternative ways of structuring provision that are decommodified and universal. Can we rethink the provision of energy, treating it as a right, not a commodity? What other goods and services should we provide as a social guarantee, not something delivered by for-profit entities? And can new mechanisms such as a Living Income social security system ensure everyone has the means to live dignified and secure lives? In rethinking provision, we can begin to build the foundations of abundance: ensuring that everyone has access to the things we need to thrive, while doing so in ways that do not rely on the exploitation of other people and places.
In the months ahead, our work will explore these questions and more. From the case for a public power system to rewriting the rules of the company and the future of the pension system, we will explain why deep reform is the most prudent response to our age of overlapping emergencies. And beyond that, our work will analyse how ownership shapes housing and the asset economy, data and technological development, and the politics of care, developing out our agenda in these areas. A single, unifying thread animates them: the necessity of reimagining property if we are to adequately respond to our age of crisis. We look forward to exploring them with you.