Where does all the money go?

Matt Georges
5 min readDec 9, 2020

Although big companies aren’t as efficient as they claim to be, there is no doubt they make a lot of money. How they do it, is more about the use and abuse of market power and the ability to take advantage of offshore tax avoidance strategies than anything most smaller companies would recognise as efficiency. But maybe, if that money ends up going back into society through the shares held by millions of small investors, it’s not so bad. Is that what actually happens? Spoiler alert: no.

To stop things becoming too abstract, let’s use an example here. It’s one I’ve used before; Facebook. Depending on which sources you look at, about 50% of Facebook’s shares are owned by just seven individuals. The rest is owned by millions of people through a chain of investment companies, which might sound like a lot, but remember we live on a planet with a population of around 7 billion.

In the UK there are two main ways you might own shares in Facebook. The first is through your savings, if you have any, which you can invest in a tax-free Individual Savings Account, more commonly known as an ISA. Around 6.4million people hold some form of stocks and shares ISA. That’s about 10% of the population. You’re more likely to own these ISAs if you’re older, richer, female and live in the South East of England and London. The second route to owning shares is through your pension fund. Despite the introduction of ‘opt-out’ workplace pensions by the UK Government to encourage more people to save for their retirement, the percentage of people of working age with an active pension stood at only 53% in March 2018 (the most recent figure I could find). Even assuming absolutely no overlap between the two groups, which is impossibly unlikely, that still leaves over a third of the UK population with no access to the wealth generated by Facebook or any other publicly listed company. And that’s in one of the most advanced economies in the world. In the USA, Gallup estimate that 55% of the population own shares in some form, but be careful! That ownership is not evenly distributed. About 84% of US shares are owned by the wealthiest 10% of households. Globally, as you’d expect, the divisions are even more stark. A heroic attempt to estimate how many people on Earth own shares was carried out several years ago and came up with an estimate of 500million people — or 7% of the global population.

So, most people don’t reap any financial reward from the apparent efficiency of enormous companies because they don’t own any shares. If at this point you’re screaming, “they do get rewards in the form of lower prices,” then I suggest you look at my article on why efficiency is a mirage. In brief, the focus on low prices for today’s consumers hides stored-up costs for taxpayers (consumers by another name), both today and tomorrow. One of those costs is incurred when companies become too big to fail, which isn’t just something that banks have managed to achieve.

When BP was coming under concerted criticism for the Deepwater Horizon oil spill, there was a section of the British media calling for the UK government to stand up for the company because of the damage it could do to pensioners’ incomes. If that seems a strange conclusion to jump to, perhaps it would help to know that just five companies — including BP — pay out 34% of all UK dividends and a further ten pay out another 30%. That’s 15 companies producing 2/3 of all the shareholder income from UK stocks and shares.

Now, if something goes wrong at one of those companies it’s not a problem for the country as a whole, but the way that pensions are structured means that it’s a big problem for pensioners. When you start saving for your pension the money goes into so-called growth stocks; companies that are smaller and higher risk but have the potential to grow so that your shares are worth more as time goes on. As you get closer to retirement and then stop working, your money is moved into shares in much less risky companies that, hopefully, pump out a regular stream of dividends to keep you in the manner to which you have become accustomed. The Holy Grail is to live only off your income, leaving the capital to the next generation. Or perhaps using it to go on a round-the-world cruise for your 90th birthday.

There’s a saying that if you can’t pay back a small debt it’s your problem, but if you can’t pay back a large one, it’s the bank’s. So it is with these companies. If any of them — and especially the top five — can’t pay their dividends, it rapidly becomes a problem not just for them, but for the pensioners who rely on them for an income, for the Government that relies on pensioners’ votes and so, finally, for the taxpayer.

So big companies say they’re wealth generators, but that’s only true if you can afford to buy their shares and even then they’re so enormous that ownership can quickly flip the ‘dependency equation’. When the chips are down it seems that we need them more than they need us. They’re too big to fail. And because they’re too big to fail, they keep getting bigger.


Gallup (2020) What Percentage of Americans Owns Stock? Downloaded from https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx

New York Times (2018) We All Have a Stake in the Stock Market, Right? Guess Again. Downloaded from https://www.nytimes.com/2018/02/08/business/economy/stocks-economy.html

ONS (2020) Ownership of UK quoted shares: 2018. Downloaded from https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/ownershipofukquotedshares/2018

Grout A., Megginson W.L., Zalewska A. (2009) One Half-Billion Shareholders and Counting: Determinants of Individual Share Ownership around the World. Downloaded from http://people.bath.ac.uk/az212/Shareholders-Grout-Megginson-Zalewska.pdf

Income Diary (2020) Who Owns Facebook? — The 10 Richest Facebook Shareholders. Downloaded from https://www.incomediary.com/who-owns-facebook-the-10-richest-facebook-shareholders

ONS (2019) Pension wealth in Great Britain: April 2016 to March 2018. Downloaded from https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/pensionwealthingreatbritain/april2016tomarch2018

Link Group (2020) UK Dividend Monitor, Issue 41 Q1 2020. Downloaded from https://www.linkassetservices.com/documents/link-group-uk-dividend-monitor-q1-2020.pdf



Matt Georges

Trying to work out why a lot of people seem to think the world is getting worse but a few people don't, one article at a time.