Unicorns, Guardians, and the Concentration of the U.S. Equity Markets

54 Pages Posted: 9 Mar 2017 Last revised: 28 Mar 2018

See all articles by Amy Westbrook

Amy Westbrook

Washburn University School of Law

David A. Westbrook

University at Buffalo Law School

Date Written: March 3, 2017


Developments in the private and public equity markets are changing the role equity investment plays in the United States, and therefore what "stock market" means as a matter of political economy. During the 20th century, securities and other laws did much to tame the "animal spirits" of industrial capitalism, epitomized by the "Robber Barons." In order to raise large sums, businesses offered stock to the public, thereby subjecting themselves to the securities laws. Compliance required not only disclosure, transparency, but more subtly, that the firms themselves undergo a process of Weberian rationalization. A relatively broad middle class was comfortable investing in such corporations, and the governance of firms and thus much of the economy was understood to be answerable to this class. Citizens understood such arrangements as theirs, part of "the American way."

In recent years, in conjunction with rising inequality in the United States, there has been a decisive shift from broad-based ownership of firms to much more concentrated forms of ownership in both private and public markets. Private equity markets are concentrated by legal definition: relatively few people are qualified to participate directly. Yet private equity has become the preferred method of capital formation, epitomized by "unicorns," firms valued at over $1 billion without being publicly traded. Public equity markets are dominated by funds with trillions of dollars under management, and small staffs, who are in effect "guardians" for the portfolios that ensure long-term stability for individuals and institutions, notably through retirement and endowments. The governance of the U.S. economy has to a surprising degree become a matter of grace: the nation now relies on a small elite to make good decisions on its behalf about the allocation of capital, the governance of firms, and the preservation of portfolio value. This consolidation of ownership rivals that of the late 19th century, and may challenge the law to address the equity markets in new ways.

Suggested Citation

Westbrook, Amy and Westbrook, David A., Unicorns, Guardians, and the Concentration of the U.S. Equity Markets (March 3, 2017). Volume 96:3 of the Nebraska Law Review, Forthcoming, University at Buffalo School of Law Legal Studies Research Paper No. 2016-43, Available at SSRN: https://ssrn.com/abstract=2928949 or http://dx.doi.org/10.2139/ssrn.2928949

Amy Westbrook (Contact Author)

Washburn University School of Law ( email )

1700 College Avenue
Topeka, KS 66621
United States

David A. Westbrook

University at Buffalo Law School ( email )

School of Law
528 O'Brian Hall
Buffalo, NY 14260-1100
United States

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