Who has the wealth of wealthy stockholders?

The question seems absurd: the stockholders have it, of course.

But I’m not asking who owns the stock; I’m asking who has the wealth? There is a difference. And the difference matters because many good people condemn the free market system on the mistaken belief that the wealth of the wealthy benefits only the wealthy.

One such well-meaning but mistaken person is Amy Traub, Associate Director of Policy and Research at Demos, an equality-focused public policy organization. Here follow excerpts from her arguments against the motion in a recent Intelligence² US debate on the topic, “Long Live Walmart.” Note the drumbeat on profits to the wealthy, and the implication that that wealth is held by the wealthy alone (emphases added):

(13:30): The company pays its workers poverty wages. It offers few benefits and it manipulates workers’ hours and understaffs its stores. That low wage business model serves one purpose. It’s so the company can maximize profits that go to some of the wealthiest people on the planet. There’s a growing gap in our country between the wealthiest few and everyone else.

(15:22): And those profits widen the gap between the wealthiest few in our country and everyone else, pulling our economy further out of balance.

I want to take a step back now and look at the other half of the inequality equation. Where do Walmart’s profits go? Walmart netted $15 billion last year. Sam Walton’s heirs still own about half of Walmart. These six billionaires are some of the wealthiest people in the world. So, on the one hand, the Walton heirs have inherited wealth that expands each year as the company pays dividends. On the other hand, the workers, like Emma Raid, who help generate that wealth, worry about holding onto the car that gets them to work every day.

(17:27) Walmart’s business model isn’t worthy of a long life. It’s a prime example of the inequality that keeps working people living on the edge of poverty — a business model that has funneled profits to the ultra-wealthy, and a model that undercuts the fundamental promise of our country that hard work should pay off.

Yes, Walmart’s profits go to stockholders, some of whom are extraordinarily wealthy indeed. But, again, who has the wealth of the Walmart stockholders? Who uses it? Who benefits from it?

Financial Wealth vs. Productive Resources

To answer that fully, we need to distinguish in our thinking the financial representation of wealth, in this case shares of stock, from the real productive resources the stock represents.

Financial assets such as the stock held by Sam Walton’s wealthy heirs are legal title to Walmart. Those shares of stock represent real assets. The true wealth is not the stock, which is just paper or electronic records of ownership. The true wealth is the real assets owned, the productive resources: the buildings, parking lots, equipment, computers, trucks, tools, machinery, shelves, shopping carts, lights, bar code scanners, plastic shopping bags, and all the rest that the stock represents.
Who has these real assets? Who uses them day to day for their material benefit? Not the shareholders, certainly. They can be continents away. Those who use these real assets are Walmart’s employees and customers.

Their wealth serves others, not themselves.

We park in the stockholders’ parking lots, move inventory around with their forklifts, stock and find goods on their shelves, work and shop by their lights, stay comfortable with their heating and air conditioning, transport our purchases in their shopping carts, check them out using their bar code scanners, and carry them away in their plastic bags.

In this important sense, Walmart’s employees and customers have the shareholders’ wealth. They are the ones who use it. The shareholders’ wealth provides tools and equipment that make the employees more productive and therefore higher paid (defending that claim must wait for another post), and it provides goods and services at low prices to customers. Their wealth serves others, not themselves.

Self-Indulgent and Idle Wealth

The case is drastically different, of course, for stockholders who sell their stock and/or don’t reinvest their dividends, converting their financial wealth to cash that they spend on self-indulgent extravagance. Wealth held in the form of mansions and penthouses, yachts and cars, expensive trips and meals — only the owners of these items have them. This kind of wealth serves them alone. (And, sadly, to the extent they leave these luxuries idle, they serve no one at all; they are just waste.)

But as long as wealthy owners of Walmart stock hold onto it and reinvest their dividends, their wealth is merely ownership rights to Walmart’s assets. It’s not cash they can spend, nor luxuries they could buy if they cashed out. It’s not cars, yachts, mansions or anything they themselves use and enjoy.

It’s just ownership rights to Walmart stores, with their parking lots, shelves, lighting, shopping carts, cash registers, forklifts, distribution centers, trucks, inventories of unsold goods, and so on. Others have that wealth; others use it and others — not the stockholders — benefit from it.

I don’t mean to deny or ignore the value of financial wealth to its owners. It can be cashed in at any time for whatever its owners want. And even if financial assets are never cashed in and the dividends are all reinvested, the peace of mind that comes from the financial security that financial wealth provides is a great benefit, a real and enviable blessing.

Nevertheless, as long as stockholders hold their shares and reinvest their dividends, their stock ownership confers on them no material benefit. As long as wealthy people keep their wealth in financial assets, the real, physical assets those financial assets represent support the standard of living of others, not themselves.

The next time you head into a Walmart, take a moment for gratitude to the wealthy shareholders who didn’t spend their past profits on themselves, but reinvested them so as to build that store and get you the products you’re about to buy at the low prices you’ll pay. Enjoy your use of the Walmart stockholders’ wealth.