Makers and Takers

Foroohar's thesis is that the US economy has been turned upside down. Finance, which once channeled savings into productive investment, has become the master of the real economy. She notes that finance makes up about 7 percent of the economy and about 4 percent of jobs but takes more than a quarter of corporate profits. She builds the case company by company, from Ford, Apple and GE to Goldman Sachs and Morgan Stanley, then turns to business schools, private equity, housing, retirement savings, the tax code and the revolving door between Washington and Wall Street.

Foroohar spent years at Newsweek and Time before joining the Financial Times as a columnist and associate editor in 2017, and she is CNN's global economic analyst. The book was shortlisted for the 2016 Financial Times and McKinsey Business Book of the Year.

The book is stronger on diagnosis than prescription, and its final chapter offers broad principles rather than a detailed program. It is a journalist's synthesis rather than original research, and it argues one side of a live debate. For anyone in corporate finance or equity research, it is a clear statement of the financialization critique they will hear from boards, regulators and politicians.

1. Profits do not equal investment. When buybacks and dividends exceed net earnings, as Foroohar says they did for US public companies in the years before the book, cash is leaving firms rather than funding growth.
2. Shareholder primacy was a choice. She dates the shift to policy and norms, including the SEC's 1982 loosening of buyback rules and the Business Roundtable's 1997 statement putting shareholders first.
3. Corporate finance arms can become the business. GE Capital's growth to more than half of GE's profits shows how a manufacturer can take on bank-like risk without bank-like scrutiny.
4. Financial engineering can crowd out R&D. The Apple case, borrowing to return cash while research spending fell as a share of sales, is her example of capital allocation driven by the stock price.
5. Watch who owns the plumbing. Banks that own commodity infrastructure while trading related futures face conflicts that regulators fined them for, a pattern that recurs wherever finance controls physical markets.

The book moves from the history of finance's rise to case studies of companies and markets, then to policy.

1. The rise of finance. Foroohar lays out the upside-down economy and traces how the wall between commercial and investment banking eroded, told partly through the history of Citi, founded in 1812 as City Bank of New York.
2. Bean counters versus car guys. Chapters on Frederick Winslow Taylor, Robert McNamara and Ford's Whiz Kids, and on what business schools teach, show how finance-first management took over industry.
3. Shareholder activism and the corporate bank. She examines Apple, Carl Icahn and the buyback boom, then GE's transformation into a company that behaved like a bank.
4. Markets that eat Main Street. She turns to commodities and derivatives and their role in food price spikes, then to private equity, shadow banking and the institutional buyers who profited from the housing recovery.
5. Savers, taxes and Washington. Chapters on retirement savings, a tax code she says rewards takers over makers, and the revolving door between regulators and banks.
6. Remedies. The final chapter sets out principles for putting finance back in service to business and society.

Award-winning business journalist Rana Foroohar shows how the shortsighted and misguided financial practices that nearly toppled the global economy in 2008 have come to infiltrate all corners of American business--putting us on a dangerous collision course to another economic meltdown that will make 2008 look like a mere blip in the business cycle--