by Naim, Moises
The NYSE is not the only major bourse to be losing ground to new rivals; the same is true of the London Stock Exchange, Deutsche Börse, and other old-fashioned stock exchanges. As it is, Kansas-based upstart BATS (which stands for Better Alternative Trading System) runs more trading volume than any exchange other than NYSE or NASDAQ, surpassing Tokyo, London, Shanghai, Paris, and all the rest. One indicator of the struggle facing old exchanges is the loss of value of their own shares. Shares in NXSE Euronext (NYX ticker) plummeted from peaks of $108 in 2006 to about $22 in 2012. Revenues have fallen as well: in 2009, revenues from trading operations by the London bourse operator, London Stock Exchange Group Plc, fell by more than one-third.58
Rival exchanges are only one aspect of the new scattered financial markets. Another is the advent of “dark pools” exchanges, which began informally among institutions that seek to trade anonymously (without making orders, prices, or volumes known to the public) to avoid revealing their strategies. Dark pools go against the principle that markets should be transparent in order to achieve efficient outcomes; they are also fingered as a major cause of volatility and distortions in share prices, as well as a potentially unfair advantage for their participants. How to deal with dark pools is a matter of debate for regulators around the world, and views are split as to just how dangerous they are for the global financial system. What is clear is that they are proliferating.59 The Securities and Exchange Commission estimated that the number of active dark pools in the US market shot up from ten in 2002 to more than thirty in 2012. In January of the latter year, according to Bloomberg News, dark pools handled almost 14 percent of US equity trading.60 An earlier estimate by the SEC said that dark pools accounted for more than 7 percent of total trade volume on US exchanges—a relatively small fraction, perhaps, but enough to have large ripple effects.61
The Triumph of Private Equity and Hedge Funds
The financial crisis and global market setbacks of 2008–2009 were assumed by many to have brought to an end the dominance of private equity funds and hedge funds in the markets. Over the previous decade, these little-known and often small operations gained control of enormous companies by means of leveraged buyouts, aggressive trading, and shareholder activism. After recovering from the popping of the Internet bubble at the start of the decade, private equity firms led successive record buyouts for the rest of the decade, culminating in the $45 billion purchase of the energy company TXU in 2007 by Kohlberg Kravis Roberts (KKR) and Texas Pacific Group (TPG).
MEANWHILE, HEDGE FUNDS PROLIFERATED, GOING FROM THREE thousand funds to ten thousand funds between 1998 and 2008; by 2011, the hundred largest had $1.2 trillion in assets under management.62 In 2012, hedge funds took part in half of US bond trading, 40 percent of equities trading, and 80 percent of trading in distressed debt. In 2011, Bloomberg Markets’ twenty largest hedge funds, led by Bridgewater Associates with $77.6 billion, had almost $600 billion in assets.63 The expansion of hedge funds was paralleled, albeit at a smaller scale, in Europe and Asia.
Lines began to blur as hedge funds took ownership stakes in more and more companies, acting like private equity firms while also displacing traditional banks. By 2007, the share of the primary leveraged finance market (i.e., trading in loans) handled by traditional banks slipped below 50 percent for the first time; it had been 90 percent as recently as 2000. In response, banks were purchasing shares in hedge funds themselves, thereby only accelerating the blurring of roles.
Hedge funds became the straw stirring the drink in terms of market activity and pressure on boards and management. In the United States, at a time when they held 5 percent of assets under management, they were also involved in 30 percent of trading activity. They exerted immense pressure on corporations without regard for brand and history, as when a fund (incongruously) called the Children’s Investment Fund pushed so hard for the Dutch bank ABN AMRO to be sold or broken up that it had to accept being sold to British bank Barclays. Vast amounts of money came and went in the form of massive bets, in the spirit of the most famous bet of all—when George Soros bet $10 billion against the British pound in 1992, collecting a billion-dollar profit. In 2006, a thirty-year-old trader for a fund called Amaranth lost a cool $6 billion on a natural-gas bet gone wrong. Winners in the industry walked away with gargantuan pay: in 2006, the top twenty-five hedge fund managers together reportedly earned the equivalent of the GDP of Jordan. Yet chances are that most of these people were barely known even to their neighbors in the tony Connecticut suburbs of Greenwich and Westport where hedge fund managers are known to roost.
In 2008, hedge funds lost an estimated 18 percent of their value. Yet there were plenty of exceptions, including George Soros, along with the fund run by the then not-yet-notorious figure John Paulson, who made billions betting against troubled subprime mortgage instruments, and a cohort of other obscure people who made hundreds of millions of dollars in the midst of a market bust.64 Perhaps not surprisingly, the market recovery amid the bailouts of 2009 proved profitable to hedge funds, although industry observers noted that a shake-out was under way. In fact, one argument in defense of the lightly regulated sector is that it produces winners and losers so definitively and efficiently that it acts as a kind of constant corrective helping to bring stability to the markets; according to Sebastian Mallaby, author of More Money Than God (a best seller on hedge funds), they “do not so much create risk as absorb it.”65
But hedge funds have also fallen under the regulatory gun and now face more constraints. In 2011 it was reported that due to new financial regulations, George Soros decided to close his funds to investors and would thereafter concentrate exclusively on managing his own funds. Volatile markets can also inflict enormous losses on these risky vehicles. John Paulson’s fund suffered a significant setback when its market bets didn’t pan out. (It lost $9.6 billion in 2011, the biggest-ever loss by a hedge fund.)66 At the same time, however, other hedge funds with names, approaches, locations, and technologies that are as surprising as they are innovative took their place as the biggest profit-making machines in the world. Hedge fund colossus Bridgewater, for example, made $13.8 billion for its investors that year.67
ONE LESSON THAT SEEMS CLEAR IS THAT SPECIFIC FUNDS MAY COME and go, and their manager’s compensation may veer from merely large to the enormous and back, but the proliferation of these small, obscure shops with a huge capacity to affect markets and prices is bound to continue. In this new financial world, individual brainiacs armed with computer algorithms are frequently outwitting and outmaneuvering huge banks held back by cumbersome rules, complex internal practices, and slower-moving hierarchies.
Hedge funds are to traditional power in financial markets what Somali pirates are to the power held by the world’s most advanced navies.
IN SUM, NEW ENTRANTS SUCH AS HEDGE FUNDS, NEW STOCK EXCHANGES, dark pools, and previously unknown start-ups that suddenly upend an entire industry are harbingers of things to come: more volatility, more fragmentation, more competition, and more micropowers able to constrain the possibilities of the megaplayers.
Indeed, neither the public clamor about the dislocations created by economic globalization nor the massive shocks produced by the financial crisis of 2008 and the ensuing Great Recession have derailed the process of international economic integration. It continues largely unabated, and the predictions of a protectionist surge prompted by the attempts of countries to fence in their economies to protect jobs have been proven wrong. International trade and investment flows continue to grow and to feed the forces that constrain the power of traditional business players.
WHAT DOES ALL THIS MEAN?
One of the paradoxes of our era is that, at the same time that corporations have become larger, more ubiquitous, and more politically influential, they have also become more exposed to risks that not only can hurt their sales, profits, and reputation but in, some cases, may even put them out of business. The list of companies that seemed untouchable by competitors or governments, and
whose permanence was taken for granted but are no longer around, is long and continues to grow. The same is true for titans of banking and industry whose power and invulnerability proved to be far more fleeting than anyone—including them—had expected.
Even the large corporations that continue to thrive and are highly unlikely to be driven out of business by market forces face a more constrained set of options. For example, ExxonMobil, Sony, Carrefour, and JPMorgan-Chase still have immense power and autonomy, but their leaders are more constrained today than they were in earlier periods. They cannot exert their huge power with the same liberty enjoyed by their predecessors—and the consequences of misusing it are more immediate and dire than in the past.
As we saw in this chapter, corporate power isn’t what it used to be.
CHAPTER NINE
HYPER-COMPETITION FOR YOUR SOUL, HEART, AND BRAIN
WE NATURALLY LOOK FOR EVIDENCE OF SHIFTS IN POWER IN THOSE areas where its impact is most dramatic and brutal: on life and death, war and peace, the control of governments and the rise and decline of enterprises. And in each of these areas, we have seen that the decay of the power of the megaplayers is opening new paths for small and hitherto marginal actors, some of whom may gain access to capabilities that can limit the options of the once powerful.
But power dwells also in the church or religious group that collects the tithes and regiments the life choices of its adherents; in the union that gathers workers’ dues and negotiates on their behalf for better wages and labor conditions; in the charity that brings private funds to bear on social works at home and fighting poverty abroad. Power also rests in the university whose research labs produce the most important scientific findings and innovations or whose graduates land the most prestigious jobs; in museums and galleries and music record labels; in symphony orchestras, book publishers, and movie production houses. And, of course, there is power in the media, the channels and filters we turn to for information, and whom we trust to be honest and useful, or to pull others toward our own point of view.
The stakes vary. Most, fortunately, fall short of life and death. Harvard versus Yale resembles Manchester United versus Chelsea more than it does, say, the US military versus the Chinese People’s Liberation Army or Al Qaeda. As purely economic enterprises, the fates of the BBC, the New York Times, El País, or other prestige outlets affect far fewer workers and livelihoods than does, say, the profit and loss of Monsanto or WalMart, even if their influence on debate and policy matters acutely to media circles and helps to keep our democracies healthy. On the other hand, the distribution of power in the philanthropic world among foundations and donors has intense and immediate effects on billions of people near and far, determining which projects are funded (and how) and which emergencies are deemed most urgent. The importance of workers’ ability to organize themselves to improve their economic fortunes needs no explanation. And the power of organized religion on other spheres of life and the intensity of rivalries between faiths is likewise obvious: the evidence—all too often bloody—scars history.
That is why our panorama of the great change taking place in the workings of power today needs to extend beyond business, politics, and war. The aim is not to be exhaustive. We will, however, examine what has happened to the power of long-dominant organizations in four areas that directly affect a large proportion of humanity: religion, labor, philanthropy, and media.
RELIGION: THE NINE BILLION NAMES OF GOD
“They are stealing our sheep.” So one Jesuit described the tide of change sweeping Christianity in Latin America, long a Catholic bastion.1 Who are “they”? The new evangelical, Pentecostalist, and charismatic Protestant churches that have sprouted across the region in the last thirty years—much as they have in the United States, Africa, and elsewhere—are giving the Catholic Church fits, and swiftly emptying its pews. A 2005 survey found that the proportion of Latin Americans who consider themselves Catholic dropped from 80 percent to 71 percent in the decade between 1995 and 2005. Worse still for the Church, only 40 percent said they actually practice their faith, a dramatic drop in a continent where the Catholic Church was dominant for centuries. In Brazil, for example, half a million Catholics leave the church each year. Whereas in 2000 the Catholic population represented 73.6 percent of Brazil’s population, by 2010 that percentage had decreased to under two-thirds, or 64.6 percent. Only two-thirds of Colombians now call themselves Catholic, one-third of Guatemalans have left the Catholic Church since the 1980s—and the statistics go on.2
In La Paz, the capital of Bolivia, some former Catholics told reporters they felt “abandoned” by the Church. “It didn’t really exist for me,” one said. Now, they belong to the New Pact Power of God Church, a charismatic ministry where ten thousand people pray in multiple shifts every Sunday. Scenes like this are common across Latin America. But the sheep have not been stolen. The sheep aren’t sheep anymore: they are consumers, and they have found a more attractive product in the market for salvation.3
The roots of the modern evangelical movement trace back to an early-twentieth-century African-American ministry called Azusa, which was based on concepts drawn from the Bible story of the Pentecost. The movement that arose, Pentecostalism, gathers a broad range of larger denominations and independent local churches that share a few core concepts about individual deliverance (through being born again) and elements of worship such as speaking in tongues. But the autonomous churches that have garnered millions of adherents to become a social and political force in the United States, Brazil, Nigeria, and many other countries are not all Pentecostal; they include other kinds of evangelical and “charismatic” groups, each with a typically self-proclaimed prophet or apostle, but quickly forming their own chapters and hierarchies. Many preach the so-called prosperity gospel, which holds that God smiles on the accumulation of wealth in this life and will reward material donations to the church with prosperity and miracles. Indeed, in a recent Pew survey of religious attitudes in the United States, where 50 of the largest 260 churches are now prosperity based, 73 percent of all religious Latinos agreed with the statement “God will grant financial success to all believers who have enough faith.”4
The rise of Pentecostal and charismatic Christian churches, and not just in Catholic or mainline Protestant–dominated countries, has been staggering. Estimates vary, partly because of the fluidity of terms and boundaries, but the impact is still clear. A Pew survey in 2006 estimated the proportion of “renewalists”—both Pentecostals and charismatics—to be 11 percent in South Korea, 23 percent in the United States, 26 percent in Nigeria, 30 percent in Chile, 34 percent in South Africa, 44 percent in the Philippines, 49 percent in Brazil, 56 percent in Kenya, and 60 percent in Guatemala.5 Even in “non-Christian” India, renewalists make up 5 percent of the population; put another way, there are well over 50 million Pentecostals and charismatics in India, and some estimates claim that China has at least twice as many. Many renewalist churches are completely local, often not more than a storefront congregation of the kind familiar in black and immigrant neighborhoods of North American cities. Others have sprouted major organizations with hundreds of chapters and an international presence.
Though Pentecostalism first arose in the United States, historic American missions like the Assemblies of God are no longer the fastest to spread around the world. The big exporting countries in the redemption business today are Brazil and Nigeria. In Brazil, the Universal Church of the Kingdom of God, founded in Rio de Janeiro by pastor Edir Macedo in 1977, now has five thousand chapters. It spread to the United States in 1986 and has a presence in almost every country. Its latest plan, which received authorization from the Brazilian government, is to build a ten-thousand-person megachurch in São Paulo that will be the equivalent of eighteen stories high, modeled on Solomon’s Temple. “We will spend tons of money, without a doubt,” Macedo said.6
Another large Brazilian denomination, the Reborn in Christ Church, was founded in 1986 by a husband-and-wife team kno
wn as Apostle Estevam and Bishop Sonia; it owns newspapers, radio stations, and a TV channel. In 2005, it sponsored a new political party, the Brazilian Republican Party, which joined a coalition with President Lula da Silva’s Workers Party in the 2006 elections. Yet another Brazilian church grew out of the epiphany of a surfer and former drug addict named Rinaldo Pereira. In the span of ten years, his Bola de Neve church formed more than one hundred chapters with up to several thousand members each. The church name means “snowball”—an apt title these days for a grassroots evangelical ministry.7
In Nigeria, meanwhile, the Redeemed Christian Church of God, founded in Lagos in 1952 but whose spread truly began in the early 1980s, operates in one hundred countries. Its pinnacle annual prayer meeting at a revival camp along the Lagos-Ibadan expressway gathers up to a million devotees. In the United States, it claims about three hundred parishes with fifteen thousand members and growing.
In the wake of these new leaders in the transnational market for souls, many other churches are spreading—divine fruits of the More, Mobility, and Mentality revolutions.8 In fact, the roughly 2.2 billion Christians around the world are so dispersed that, as a recent Pew report put it, “no single continent or region can indisputably claim to be the center of global Christianity.”9 The share of the Christians in the population of sub-Saharan Africa, for example, has risen from 9 percent in 1910 to 63 percent a century later.10 Talk about the Mobility revolution: in 2010, Christians made up almost half of the world’s 214 million migrants, opening new possibilities for the expansion of the faith and spreading it further beyond the reach of any centralized denominational authority.11
