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

In the grand story of modern capitalism, the rise of finance stands as a defining chapter, one that reshaped the very fabric of our economy and society. Imagine a world where banks were simple institutions, safeguarding deposits and making prudent loans to businesses and families. This was the reality for much of the 20th century, thanks to laws like the Glass-Steagall Act, which kept commercial banking separate from the riskier business of securities trading. This separation created a stable financial environment that supported steady economic growth for decades.

But as the decades wore on, pressures mounted. Financial institutions, driven by the lure of higher profits, began pushing the boundaries of regulation. The rise of new financial products, like negotiable certificates of deposit, and the expansion of credit to consumers transformed banking into a far more complex and lucrative enterprise. Debt became the lifeblood of finance, fueling profits but also sowing the seeds of instability.

One striking example is how finance’s share of corporate profits ballooned from about 10% to nearly 25% over 25 years, despite representing only a small fraction of total employment. This imbalance signals a shift where finance was no longer merely a servant to the real economy but had become a master in its own right. The repeal of Glass-Steagall in 1999 symbolized this transformation, allowing banks to merge commercial and investment functions, creating financial behemoths whose complexity and interconnectedness would later contribute to systemic crises.

Through this period, the financial industry’s growing political clout ensured that regulation often favored its interests, diluting safeguards and increasing risks for ordinary people. The stage was set for a new era, where financial markets and firms would wield unprecedented power — an era we now recognize as financialization.

Yet this story is not just about numbers and laws; it is about the changing relationship between finance and society, a relationship that would come to define the challenges we face today. From here, we move deeper into the consequences of this shift — how the rise of finance has contributed to the fall of American business.