Charles Hampden-Turner, Linda O’Riordan and Fons Trompenaars have recently released a two volume work Capitalism in Crisis. This deserves some attention as they are all established business writers, who want to recognise problems with capitalism, and fix them. This is not radical left stuff, it is also fairly simple.
Here I will simply summarise the opening salvo, because its not available online as far as I can see, and I think it deserves some publicity. If this felt to contravene copyright by either authors or publishers please contact me via the comments. I clearly do not make money from this action.
Shareholder dominance = Shareholder extraction
Firstly they point out that wealth is created by all the people in the production/distribution/sales process working together. They call these people ‘stakeholders’. I personally strongly dislike this term but, despite being business writers, they Do NOT limit the term to people within or invested in the business, as is usual, and include people such as:
employees, suppliers, customers the community, the government, the environment and the shareholders.
They emphasise that while shareholders are important, they should be the last to benefit.
they can only collect what the other stakeholders have created between them.
Without the work of others there is nothing for shareholders. However, the system has now been [politically] structured so that shareholders get priority, and they tend to increase their percentage of their wealth generated at the expense of other stakeholders, therefore reducing the percentages that go elsewhere. [This priority is often explicit in business talk: “we must look after our shareholders” “Our sole responsibility is to our shareholders” and so on. ]
The authors allege that this set-up decreases productivity and innovation, probably as there are fewer rewards within the business itself, and less constructive connection with communities outside.
As we have seen repeatedly, companies engage in share buy backs, pushing the share prices up, and allowing managers who have been rewarded with shares to sell back to the companies on a rising market. It helps actions which temporarily drive up the share price, but weaken the company in the long run – such as sacking experienced staff. Going by the share price, and for maximum leanness or profit now, does little for company robustness or resilience.
Another problem is that those companies who spend money on improving themselves and their staff, in researching problems, and improving products, don’t give as good shareholder returns, and the share price often becomes cheap (not a good investment) and raiders can buy them up, and strip the spending away, funneling it back to the shareholders which now includes themselves. [Or they can engage in asset stripping, as was big in the Reagan years, in which components of the firms are sold off for more than the company is valued on the share market. The killing is made, and the often productive company destroyed.]
Money
Is the purpose of industry to make money? Or is the purpose of money to make industry?
“Industry” by which the authors seem to mean collaborative building or making, is what generates wealth. It needs money, but once its purpose becomes to make money then it can be hampered, as people focus on the money rather than on problems or the building – [the easiest route to personal benefit becomes selected, rather than company benefit]. Innovation is hampered because little monetary reward is given to innovations which are not directed or anticipated by superiors. Money can support innovation but not create it out of nothing.
Money by itself is sterile. No two coins ever created a third coin or ever will.
Money gives a single focus on getting more of it, or more ‘goods’. Past financial results govern predications of what will happen, and the push towards future performance, rather than paying attention to what is happening in the world – and this includes exploitation and destruction of our environment. Yet:
the unit of survival includes our environment and we will sink together.
Finally people try to control finance, which is impossible [it is a complex system], and company efforts to rigorously control its finance or the finance of the world further disorganises the company and the world financial system. [Although it is not discussed here, this can generate the problem of “debt capitalism” [1], [2], [3], [4], [5], [6], [7], [8] (please note that many analysts reduce the total debt to GDP ratio by not including private debt which is important and nowadays seems to compare with government debt). Debt gives corporations ‘energy’ and financial stability, but eventually the debt grows to such an extent that it overwhelms the productive economy: growth comes from increasing debt rather than from production of useful items; property prices inflate and so on. Eventually, the system, or the currencies of the world, will probably have to collapse, and billions of middle class people will probably lose their savings and their homes.]
[This does not mean that companies should not look after their finances, but that over-control, or over-borrowing, can be disastrous. Finding the mean may not be easy]
The Wealth Cycle vs The Wealth-destruction cycle
In a wealth creating cycle, the focus is not just on profit to shareholders. Investors support the other stakeholders and then take a fair share of the wealth created between them all.
[Illth should also be minimalised, but this is hard in a primarily profit seeking environment, as harms are considered an externality or a bonus.]
In other words, wealth is encouraged by looking after the producers or increasing job satisfaction, rather than by treating producers as disposable servants or slaves. Good relationships are often important to human functioning, creativity and production.
In a wealth destruction cycle, relationships and good conditions are severed or destroyed by monetary concerns. The priority given to shareholders, means that they extract money from the other “stakeholders.” Wages are held down. Workers are threatened by redundancies. Workers are substituted for by machines, or by export of production overseas, and sacked. [A high unemployment rate, and low hyper-strictly monitored unemployment benefits, helps keep workers nervous and exhausted. Trainings become threatenings, consultation processes become enforcements.] R&D is cut as it often fails and is an expense. Supplier payments get delayed, and reliable, high-quality suppliers can be threatened if they do not cut prices. The tax payments which support the societies the companies use for earnings and production are minimised or avoided, often by complicated networks of ownership, overseas debt, transfer pricing and so on. Local environments, and living conditions, are destroyed, as few shareholders live in those environments, and its nearly always cheaper in the short-term to destroy.
The money is transferred away from workers upwards to shareholders, by the way the system is organised.
Shareholder focused management has conquered labour of all types, lowering wages (or increase in wages) for most people, and this means there is less money in circulation for basic products, which probably puts prices up to keep shareholders happy, which causes more poverty or precarity.
No wonder employees become disengaged, growth slows and world market-shares shrink. Wages in the US have flat-lined for a generation or more. There is growing resentment among people.
And the system that sets this problem up, then sets about blaming people [who have little power or responsibility, but who seem different]: migrants, refugees, [racial minorities, university professors, radical communists, feminists, scientists and so on, anything other than the managerial and shareholding elites.] This sets up a further hampering of the system, as real problems are not faced up to, especially if they cause corporate, or group based, unease.
Our means of controlling the anxiety generated by the system in which we live typically makes things worse – we become more alarmed by the scapegoats and suffer more from the real problems we ignore. This in turn leads to more escapism and less focus on real problems. For many the escapism comes through drugs, alcohol or consumption, which further hamper people’s ability to deal with reality and adds to their problems.
Mind-set, Re-set
The usual solution is to change world view, and indeed that is important. [We can see the effects of the change in which a billionaire becomes the hero of displaced Americans and then tries to steal an election. Whether this change in world view will generate any long term change or not, it has certainly altered things.]
So the ideology of the Industrial Age is giving way to an ideology for the Age of Nature, which is a possibility, [but it is being hard fought against, and on many fronts. Not only by corporations by by Religions, who insist that we are not part of the World, we are part of Spirit or Soul, or our residence is in heaven above. ] However, the Age of Nature implies that ‘we’:
must learn to sustain what sustains us.
rather than believing in The Market or a kind of deity that rewards prudence and punishes sloth.
[An ideology of the Age of Nature, involves what I have called thinking ecologically. That is thinking in terms of systems and interactions, and the ways systems change with changes elsewhere, they way that changes circle on themselves. To go back to the beginning point, shifting the economy so that it benefits shareholders and shareholder companies, changes the whole focus of the way the economy works. People near the bottom, are of little consequence, as they get little money, and are not deemed worthy of money. There is no sense, as there was in the 1950s, 60s and 70s that the economy was about improving life for all, or that if lower profits helped worker integration, power and enjoyment then that was worthwhile. see footnote below]
The economy is more like a tree or living system. Nature is circular, systemic, paradoxical and fractal…. the whole is inevitably more than its parts.
We cannot command other creatures without consequences. Process works in multiple loops: self-interest spurs our willingness to serve others and serving others is in our own self-interests.
The question is whether we can make that change to viewing things from an ecological perspective, rather than a “dominance of shareholder wealth perspective”? It will be difficult as so much benefit is geared to wealth. This is the ultimate problem of climate change,
The reason I quite like this approach is that it’s focus on how shareholders and some managers have levered the system to benefit themselves and destroy our ability to perceive the world reasonably accurately, reminds us that the solution to destructive capitalism can be political. Neoliberal ideology helped support the takeover of the old system of capitalism, which worked reasonably well, and helped support ordinary people. So a new political development may be able to restore a modified version of this older ‘state of the world.’ Otherwise we are faced with the unstable prospect of either crashing, or overthrowing capitalism and that leads to its own dangers…
*
Footnote
From the Parliamentary library. Australian Conservative hero and deceased Prime Minister, Robert Menzies on social justice. In other words it is not necessary to live as we do:
“The country has great and imperative obligations to the weak, the sick, the unfortunate. It must give to them all the sustenance and support it can. We look forward to social and unemployment insurances, to improved health services, to a wiser control of our economy to avert if possible all booms and slumps which tend to convert labour into a commodity, to a better distribution of wealth, to a keener sense of social justice and social responsibility. We not only look forward to these things; we shall demand and obtain them. To every good citizen the State owes not only a chance in life but a self-respecting life.”
Menzies saw social justice as an issue of rights rather than charity.
“The purpose of all measures of social security…. is not only to provide citizens with some reasonable protection against misfortune but also to reconcile that provision with their proud independence and dignity as democratic citizens. The time has gone when social justice should even appear to take the form of social charity.”
Charity is a benevolence to be given or withheld to supplicants at will. Social justice is a defined right of respected citizens to social security in times of need.
Menzies, who had seen the excesses of laissez faire and the effects of boom and depression, rejected the view of government as merely “ holding the ring, while private enterprise fought and won on the basis of the fight going to the strongest and the devil take the hindmost ”.
Liberalism was not to be the servant of private enterprise. Again and again, using remarkably similar words, Menzies rejected this notion.
“We stand for the dynamic community force of private enterprise; we are its protectors and encouragers but we are not its servants. We prefer the live hand of the private entrepreneur to the dead hand of socialism; but if the individual is to have social and industrial justice and to be guarded against what might become the tyranny of the strong, private enterprise must accept its duties or even its burdens.”
the community has a definite responsibility to provide adequate security for individuals against the results of economic disaster. None of us accept any philosophy which says that those who fall by the wayside are to be left to fend for themselves.
The first answer to this foul doctrine of the ‘class war’ is to do all we can in a positive way to show both employers and employees that they work in a common enterprise, in which neither can succeed without the other, in which each should share in prosperity, in which the employer’s greatest asset is a body of contented employees who feel that they are understood and fairly treated, and the employee’s greatest asset is a successful business which can guarantee to him steady employment and expanding opportunities. We say to the employers of Australia that they have a great responsibility on this matter. One of the tragedies of modern large-scale industry is that the relations between employers and employees tend first to become remote, and then estranged and then embittered. The wage-earner in an industry is a human being whose welfare should be the care of the industry in which he co-operates. Legal duties and legal wages are not all. We have fallen behind advanced industrialised nations in our realisation that the personal factor in industry requires constant attention and a warm and sympathetic understanding. The best employers know this; but there are still too many who have failed to appreciate that an automatic resistance to all claims, and a belief that the only obligation to employees is to be found in minimum wages and conditions, are just as much an encouragement to the ‘class war’ as the subversive activities of mischievous agitators.
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