Below is CNBC video which looks at what capitalism is and the history behind it. It began in the 17th century in Europe and has spread to most parts of the world. Critics of the present form of capitalism argue that it harms the environment, increases inequality and slows economic growth. The video has some good data on inequality and discusses the fact that shareholder value is no longer the main priority of some firms.
HT to my learned colleague David Parr for this piece from vox.com. Sen. Elizabeth Warren (D-MA) rolled out a big idea to challenge how we think about inequality and the fundamental structure of the economy. She has been concerned with the current structure of capitalism which since the 1980’s has really focused on the interests of shareholders and executives at the expense of employees further down a company’s ‘pecking order’. Reagan and Thatcher started the recent privatisation trend in the 1980’s and, with great success, a lot of the commanding heights of the economy were up for sale. This put any left wing political opposition in a quandary. Do they renationalise these industries and payout shareholders or just start to move their ideology further right on the continuum. The latter was the only real option with the expense of buying back the industries and also upsetting their maybe voters who had bought shares for saving purposes.
Warren with other Democrats is proposing the Accountable Capitalism Act in order to alter the balance of interests in corporate decision-making and giving voices to workers in corporate boardrooms. The legislation would:
- reduce the huge financial incentives that entice CEOs to lush cash out of shareholders rather than reinvest in businesses
- curb political activities – using lobbying funds
- ensure workers and not just shareholders get a voice on big strategic decisions.
bring about more meaningful career ladders for workers and higher pay
- ensure that Corporations act like decent citizens who uphold their fair share of the social contract and not like sociopaths whose sole obligation is profitability — as is currently conventional in American business thinking.
- limit corporate executives’ ability to sell shares of stock that they receive as pay — requiring that such shares be held for at least five years after they were received, and at least three years after a share buyback.
Business executives, like everyone else, want to have good reputations and be regarded as good people but, when pressed about topics of social concern, frequently fall back on the idea that their first obligation is to do what’s right for shareholders. A new charter would remove that crutch, and leave executives accountable as human beings for the rights and wrongs of their decisions.
More concretely, US corporations would be required to allow their workers to elect 40 percent of the membership of their board of directors. Since 80 percent of the value of the stock market is owned by about 10 percent of the population and half of Americans own no stock at all, this has been a huge triumph for the rich – see graph.
Meanwhile, CEO pay has soared as executive compensation has been redesigned to incentivize shareholder gains, and the CEOs have delivered. Gains for shareholders and greater inequality in pay has led to a generation of median compensation lagging far behind economy-wide productivity, with higher pay mostly captured by a relatively small number of people rather than being broadly shared. The graph below show the share of wealth with the top 1% owning 38% of the country’s wealth and the bottom 90% holding only 19% of wealth.
This kind of huge transfer of economic power from rich shareholders to middle- and working-class employees would provoke fierce resistance. But reform of corporate governance also has some powerful political tailwinds behind it.
I am on holiday now and out of internet range – back on the 8th January. Have a good xmas and new year.