The Battle for the Soul of Capitalism

Jack Bogle thinks that capitalism is doomed:

SmartMoney.com: How has capitalism veered in the wrong direction?
John Bogle: What I tried to do in the book I don’t think has been done before. All these systems are interlinked: the systems of corporate America, investment America and mutual fund America. They intersect to put the shareholder in the back seat. He ought to be up front, in the driver’s seat….
Capitalism has changed into a new system, which is not a good system. It’s a managers’ system. The rewards have to go to the people who assume the risk; that’s conventional capitalism. It’s been taken over, most notably in mutual fund America. By far too large a share of rewards has gone to the managers. There are lots of reasons for that, but the main reason is that we don’t really have an ownership society. It’s gone, and it’s not coming back. Fifty years ago individual investors directly owned 91% of all stock. In 1985 the balance changed and institutions owned more than 50% of all stock. Now 68% of all stock is held by institutions, and only 32% is held by individuals.

The growth in that number is due to more people entering the stock market. At the time of the market crash in 1929, only 2% of Americans owned stock. Today, over 50% own stock.
Later, Bogle complains about the “rent-a-stock” mindset, but that just means that the institutions have to play harder to keep investor’s money. The only people telling investors that they have no control are in the index fund industry, which Mr. Bogle has helped bring to the world.

Posted by on October 14th, 2005 at 9:46 am


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