Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

Makers and Takers: The Rise of Finance and the Fall of American Business, by Rana Foroohar, is an exposé on the financial industry’s role in reshaping the American economy. Written from the perspective of a former financial journalist, this book traces the history of the financial sector and documents how it has become a powerful and influential force that has increasingly directed economic activity away from building real economic value and towards pursuing short-term profits.

The book begins by describing the origins of the financial sector, and how deregulation and technological developments allowed it to expand and grow. Essentially, Foroohar argues that post-1970s reforms opened the way for banks, hedge funds, and other financial service providers to tap into an ever-expanding pool of capital, and that these financial institutions have subsequently become highly profitable by exploiting the gap between investors’ appetite for short-term gains and the fact that longer-term investments create real economic value.

This influx of capital has, in turn, fueled the dramatic rise in CEO pay, and in particular, the pay of CEOs of large financial institutions. While the increase in CEO compensation has garnered significant attention in recent years, Foroohar argues that this focus is misplaced and that the true culprits are stock buybacks and executive stock options—financial engineering techniques that reward CEO’s while doing little to promote real economic growth.

Foroohar goes on to show how the rise of the financial sector has resulted in a shift in economic activity away from manufacturing, R&D, and other activities that create real economic value. For example, she describes the decline of research and development, the decline of public infrastructure investments, and the rise of corporate tax avoidance. She further argues that these activities have translated into a decline in economic dynamism, as fewer start-ups are created and fewer high-wage jobs are available.

In the second half of the book, Foroohar presents a case for why this system of financialization has been so pernicious for the economy and for society as a whole. To do this, she synthesizes research from across disciplines to present a comprehensive case against the financialization of the economy. On a societal level, Foroohar argues that financialization has widened the gap between the haves and the have-nots, as well as contributed to a decline in economic mobility and lower levels of economic activity.

At the heart of her argument, Foroohar contends that the shift towards finance-driven economic activity has resulted in a zero-sum game where speculators and financial service providers benefit at the expense of the rest of society. In essence, she argues that financial engineering has allowed corporate executives and other players to take more money while creating fewer economic opportunities.

Ultimately, Foroohar presents an elucidating account of how the rise of the financial sector has been a key factor in the decline of American business. By looking at a wide range of economic topics such as tax policy, capital markets, corporate governance, and public policy, she provides a clear-eyed analysis of the challenges that the economy faces today and offers valuable ideas for how to build an economy that can create value and wealth for all.