Rana Foroohar begins with an indictment of one of America's most-beloved companies: Apple. To most Americans, Apple stands for Steve Jobs—for Jobs's commitment to functional gadgets, approachable interfaces, and sleek, innovative designs. But recently, Foroohar writes, the company has strayed from the pursuits of its cofounder. Under the leadership of chief executive officer Tim Cook, Apple has shifted its focus, away from the development of groundbreaking technologies and toward the gaming of financial markets. In the spring of 2013, for instance, Cook announced that Apple would be borrowing $17 billion, not because it needed the capital for new plants or a new product line, but because it could borrow the money cheaply (through a low-interest bond offering) and could use the funds for a massive stock buyback that would boost dividends and increase the firm's lagging share price. Apple has pivoted, then, away from investment and innovation and toward the miserly business of financial manipulation.
The example is a useful starting place for Foroohar, as it encapsulates much of what she believes has gone wrong with the American economy over the last four decades. Globalization, automation, and other structural changes have certainly contributed to decades of anemic growth. But Foroohar argues that an understudied part of the problem has been the hegemony of the financial sector. “Our economic illness has a name: financialization,” the Time editor and CNN analyst writes. Indeed, Makers and Takers makes the bold argument that—far from greasing the wheels of industry—the financial sector evolved in ways that dragged down our economy's productive capacities. The author chronicles how Wall Street became divorced from its basic mission—funneling capital to long-term investments, to “Makers” like Steve Jobs—and degenerated into an elaborate web of self-enrichment that subordinated the tangible needs of American business to the narrow interests of Wall Street traders (Foroohar's “Takers”).
The basic chronology goes something like this. As the American economy buckled under the stress of supply shocks, inflation, and increased global competition in the 1970s, two things happened. First, finance became increasingly myopic, privileging the short-term gains of buybacks and arbitrage to considerations of long-term growth. Second, greater and greater segments of industry were swept up in the logic of financialization, unable to resist a laser-like focus on balance sheet–driven management. As public policy gradually accommodated these changes in the 1980s and 1990s, finance slowly became an end in itself, transforming from facilitator to handicap, to a point where the most important banks (think Goldman Sachs in the Abacus CDO deal) exerted something near gangrenous influence on the marketplace.
Business historians will not be shocked by many of Foroohar's arguments. Scholars like William Lazonick, Greta Krippner, and Louis Hyman have explored the complex origins and enduring effects of the process we now call financialization. Makers and Takers does not reinvent this understanding. Nevertheless, Foroohar deserves enormous credit. Her book is the most comprehensive explanation for why finance is detrimental to the economy generally—an insight many readers will have long taken to be true, but for which they now have Foroohar's impressive account. Indeed, this is the primary value of Makers and Takers. It distills something many readers will have long suspected, but have never totally put together. For business historians and scholars of the financial sector, this is a valuable contribution.
Makers and Takers has many other strengths, too. The author's narrative is incredibly wide-ranging, moving deftly between such topics as commodities trading, the transformation of business education, and the spread of systems analysis at government agencies. The vast collection of oral histories also makes the discussion particularly rich. Only a journalist as esteemed as Foroohar could assemble such colorful interviews with Carl Icahn, Howard Schultz, Gary Gensler, Elizabeth Warren, and other business and political leaders. To weave those materials together into an accessible account of financialization, and to gesture to important academic work every step of the way, is a very impressive feat indeed.
Like any work of journalism, however, Makers and Takers is skimpy in a few critical places. Foroohar's first two chapters—a truncated ninety-page history—do not provide the reader with a clear definition of “financialization.” Two years ago, I attended a conference on finance and the history of capitalism where the participants—in classic academic fashion—spent roughly an hour debating the parameters of the concept. The author obviously wants to avoid such an arcane discussion, but Foroohar might take a moment at the start to explicate more clearly. Does financialization stand for the doctrine of shareholder value? The increasing size of the financial sector? A much deeper Wall Street culture? Her historical explanation for the rise of finance is also not as tight as it could be, as it relies too heavily on vague references to things like inflation and the Chicago School of Economics. Readers may also be underwhelmed by some of the prescriptions she offers in conclusion. But no blemish significantly detracts from Makers and Takers, a wonderfully written and timely new book, especially in the present age of right-wing populism. At perhaps no other time has it been more important to understand the underlying causes of our economic troubles.
