Slate Money

Episode: The Finance vs Business Edition

Date: May 21, 2016
Host: Felix Salmon
Guests: Rana Foroohar (author, economic analyst), Kathy O'Neill (blogger, data scientist, author)

Episode Overview

The “Finance vs Business” edition explores how the world of finance has increasingly dominated traditional business—moving from a supporting role to becoming the main game in the global economy. Anchored by special guest Rana Foroohar, author of Makers and Takers: The Rise of Finance and the Fall of American Business, the episode dissects core arguments in her book, discussing the evolution of financialization, its impact on innovation, labor, and economic growth, and the consequences of this seismic shift for companies, consumers, and society at large.

Key Discussion Points & Insights

1. Makers vs Takers: Reframing the Debate

[02:00]–[04:05]

• Main Thesis: Foroohar’s central argument is that finance, once a catalyst for business, has become self-serving. “Market capitalism is broken, that the financial markets are no longer supporting business and it's a big problem.” – Rana Foroohar [03:13]
• The “makers vs takers” terminology is reclaimed from political discourse, moving away from Paul Ryan/Mitt Romney's use. Foroohar reframes it: "The financial sector as a whole creates 4% of jobs in this country, but it takes between 25 and 30% of all the corporate profits in the country." [18:46–19:07]

2. How Finance Overtook Business—The GM Case Study

[04:35]–[05:56]

• GM (General Motors) exemplifies the shift: company leadership moved from car engineers to MBA “bean counters,” resulting in siloed operations and issues like the ignition switch crisis.
• “The CFO's office and the sort of MBAs were running everything rather than the engineers… the root cause of that was that the money guys had taken over business.” – Rana Foroohar [05:01]

3. Financialization: The Core Data

[06:31]–[07:39]

• Only about 15% of money flowing through the US financial system goes towards actual investment in new businesses; the rest is channeled into existing assets (stocks, bonds, real estate).
• “15% of that money is going into business investment... the rest... buying and selling of existing assets.” – Rana Foroohar [06:47]

4. Business Schools & Industry Knowledge Lost

[08:16]–[10:35]

• Business schools used to be more industry-specific, now focus predominantly on finance and efficiency models.
• This shift also affected banking: local lending knowledge was replaced by finance-driven algorithms, making loans less personalized and risk assessments weaker.

5. Negative Consequences of Financialization

[11:22]–[12:56]

• Companies became more volatile and risk-prone as they relied more on financial activities.
• Hedging and speculative financial strategies sometimes undermine core business stability, e.g., airlines playing the oil markets “at exactly the wrong time.”– Felix Salmon [12:31–12:45]
• The effects extend beyond companies into increased consumer debt and broader economic instability.

6. The Case For and Against Financialization in Tech (Apple, Uber, Tesla)

[13:33]–[15:21]

• While aggressive finance powers the growth of firms like Tesla or Uber, it also leads to questionable practices, e.g., Apple borrowing to fund stock buybacks while sitting on offshore cash, thus reducing innovation and fostering artificial volatility.
• “Apple… has spent a lot of money issuing debt… which makes investors like Carl Icahn very happy… share price would get jacked up artificially.” – Rana Foroohar [13:49–14:45]

7. Stock Buybacks: Good or Bad?

[15:21]–[26:18]

• The panel questions if stock buybacks are responsible corporate behavior, or just financial engineering that boosts share prices without real economic benefit.
• Apple’s use of debt to fund buybacks while hoarding profits offshore is presented as tax avoidance more than business investment:
  “They're not actually buying back stocks with their profit… they’re leaving their profit offshore... it is entirely a way to avert taxes.” – Kathy O'Neill [25:28]

8. Who Benefits from Financialization? (And Who Loses)

[19:07]–[19:44]

• Profits in finance do not map to social good; scale has made finance more—not less—expensive, counter to traditional economies of scale.
• “Everything else in the world gets cheaper as you get more of it. Except for finance, it gets more expensive.” – Felix Salmon [19:44]

9. Pharmaceuticals: Financialization vs. Innovation

[20:38]–[24:06]

• Pharma industry’s pivot to mergers, buybacks, and portfolio strategies over R&D is a cautionary tale: “Morgan Stanley report in 2010 [said] pharma… should just give up R&D altogether and just essentially do financialized investing.” – Rana Foroohar [21:09]
• Debate over whether basic innovation can be left to VC-backed biotechs, with big pharma acting as aggregators rather than innovators.

10. Wider Economic Impact: Are We Sacrificing Growth?

[30:07]–[31:04]

• “After [finance] gets too big, it is a headwind to GDP growth. And it actually that that effect kicks in when finance is half the size of what it is in the US.” – Rana Foroohar [30:43]
• Excessive financialization is linked to wage stagnation, increased consumer debt, and overall weaker growth.

11. Housing: Private Equity’s Infiltration Post-Crisis

[34:46]–[42:16]

• Big investment firms (e.g., Blackstone) became the largest single-family landlords in the US after the housing crisis, exploiting regulatory gaps to buy up distressed properties for rental.
• “There were no provisions saying you had to keep a certain percentage… affordable… in a lot of neighborhoods, you have unemployment rates that are higher than the national average, but rents that are also higher than the average.” – Rana Foroohar [39:27]
• The absence of local, responsible ownership—traditional in housing—undermines community and increases inequality.

12. Policy Fixes & Systemic Incentives

[42:16]–[44:37]

• The group debates abolishing the mortgage interest tax deduction to reduce market distortion:
  “We really should abolish them." – Rana Foroohar [44:25]
• Further, regulations ought to focus on changing the incentives that currently make "financialization" the logical (if damaging) path for companies.

Notable Quotes & Memorable Moments

• “Business is now in service in large part to the capital markets rather than the other way around.” – Rana Foroohar [04:05]
• “Only 15% of money that's floating around and going through the financial system is actually going towards investment.” – Kathy O'Neill [06:31]
• “Debt is the lifeblood of finance… and the tax code in the US actually really supports this in ways that I think are very unhealthy.” – Rana Foroohar [07:49]
• “The financial sector as a whole... creates 4% of jobs... but it takes between 25 and 30% of all the corporate profits.” – Rana Foroohar [18:46]
• “Finance, as it gets bigger, gets more expensive; there are no economies of scale...” – Rana Foroohar [19:32]
• “The model is about incentivizing broad, deep economic growth at a time when, whatever you want to call the 2% economy, secular stagnation—Is this model actually creating underlying growth?” – Rana Foroohar [29:16]
• “You get companies that can [achieve] the same market share as the corporate giants of the past, but create fewer jobs.” – Rana Foroohar [27:58]

Timestamps for Important Segments

• Main thesis and episode’s central contradiction: [03:01–04:35]
• GM and the ‘Bean Counter’ takeover: [04:35–05:56]
• Only 15% of financial flows go to real investment: [06:31–07:39]
• Business schools and decline of local expertise: [08:16–10:35]
• The rise of consumer debt and financialization’s costs: [11:22–13:33]
• Apple, stock buybacks, and cash hoarding: [13:33–15:21], [25:28–26:18]
• “Makers vs Takers” terminology and profit distribution: [17:31–19:07]
• Pharma and financialization: [20:38–24:06]
• Housing policy and private equity buyout consequences: [34:46–44:06]
• Call for ending mortgage interest deduction: [44:06–44:37]

Numbers Round

[46:22–48:47]

• Venezuela’s infant mortality up 100x since 2012: [46:22] (Kathy O’Neill)
• 671,000 papers on SSRN, now acquired by Elsevier: [46:49] (Felix Salmon)
• $4 of debt for every $1 growth in China: [47:40] (Rana Foroohar)

Tone & Style

The tone is sharp, inquisitive, and occasionally playful, with Felix Salmon’s dry wit and Rana’s passionate advocacy for economic change punctuated by Kathy’s grounded, critical questioning. The banter is lively, yet the analysis remains rigorous—a trademark for Slate Money’s approachable but deeply informed economic scrutiny.

Summary

“Finance vs Business” frames the rise of financialization as an existential challenge to capitalism’s original promise and social contract. Through incisive examples—from GM to Apple, pharma to private equity in housing—Rana Foroohar argues that finance’s dominance undermines real innovation, exacerbates inequality, and ultimately endangers long-term growth. The debate moves beyond finger-pointing at corporate actors, urging a reimagining of economic rules and incentives that reward genuine, productive enterprise—true “makers” over “takers”—for a more balanced and sustainable prosperity.