Monday, 4 March 2013

Corporatism taking hits

One of the differences between a capitalist enterprise and a Corporate is the division of power between owners and managers. In the case of the big Corporates, a significant proportion of whose shareholders are other big Corporates, the executives are supreme. The normal rules of free enterprise capitalism just don't apply; true capitalist enterprises always put profit before turnover, whilst big Corporates for whom market share is measured in whole percentages are obsessed with size. The world of big Corporates is a world of acquisitions, mergers and takeovers in which the managers alone are the winners. So don't be misled into believing that either the Swiss referendum result on executive pay or the EU noises on bankers bonuses are a fundamental assault on capitalism; they aren't. Not only does Corporatism strangle free-market capitalism, it stifles innovation and economic growth. 

The proposed legislation isn't directed at owners or shareholders of capitalist enterprises, who may continue to make as much money as they like without restriction. No, it's specifically directed at greedy employees who currently hold too much power over their own rewards. 

Of course the threatened executives have lost no time in whining that such moves will damage national competitiveness in nations taking such moves; on behalf of the City's big money boys Boris writes in the Telegraph that "Some will say that banking is indispensable to a global economy, and we will simply lose talent to cities outside the EU – Zurich, New York, Singapore" (presumably penned before news of the Swiss referendum came in). It's rubbish. What they're actually suggesting is that over-powerful executives will make corporate domicile decisions on the basis of the magnitude of their own rewards rather than shareholder interests - QED the need for such measures.

The next necessary step will be to democratise decisions taken by fund manager on behalf of real shareholders - anyone with a pension fund. Otherwise Tarquin from Global Investments plc will just vote in support of Global Pharma plc's Rupert and his proposal to pay himself the GDP of a small developing nation. 

Economists may argue quite correctly that such sanctions against a tiny fraction of top earners will make bugger all difference to either shareholder returns or national competitiveness and whilst true misses the point. It's really not about the money - it's about killing a cancerous culture that's simply not in the common interest.

13 comments:

right_writes said...

Governments are generally comprised of the same sort of folks Raedwald.

The management culture...

Ugh!

TrT said...

Corporate Directors already face annual confidence votes in most companies.

We dont need a new law, we need shareholders to exercise their existing powers.

Anonymous said...

If bankruptcy applied to banks as it should, then shareholders would take the necessary steps. Litigation against foolhardy directors would then curtail excesses.

G. Tingey said...

Can you spell "Zaibatsu"?
Or "I G Farben"?

Blue Eyes said...

My small c viewpoint is that in general the governance of any private enterprise should be left to the shareholders. However the state regulates all sorts of corporate governance stuff already. Maybe this corporate culture including ridiculous "executive" and the senior-management merry-go-round is a result of excessive statutory interference? If so, the fix might well be yet another layer of regulation. Or it might be to remove much of the existing regulation.

What is an "executive" anyway? It seems a very dated term to me.

Anonymous said...

If its good enough for Switzerland, ts good enough for the UK. Agreed on "corporatism"; as well as killing our capitalist culture, it is also killing our ability to govern our own country.

Coney Island

Weekend Yachtsman said...

According to R. North (who probably knows), the EU has no power to regulate pay. In fact (again according to R. North) it's specifically forbidden from doing so, by one of the clauses of the Lisbon treaty.

So what we are seeing here is smoke and mirrors. In a while, the EU will admit it can't do this (quietly) and Cameron will claim a mighty victory (very loudly).

They're up to their usual tricks, people.

Mr Ecks said...

As long ago as 1993 Doug Casey pointed out that modern "financial regulation" had created a legal set-ups that enable management to run their own show beyond the reach of shareholder sanction and to rip-off shareholders, employees and to a considerable extent customers alike(customers can always take their business elsewhere in a free-market but modern corporate socialism--such as the energy companies---means its is a choice between a "regulated" Tweedle-dum and Tweedle-dummer). Why would people invest in companies where they have little power over their investment vs idiot managers--because--thanks to the state regulating for the supposed benefit of all, thats nearly the only kind of company there is.

Anything that gives shareholders some power back is good. But remember this is more from the state whose meddling antics caused the problem in the first place.A different level of the stste (the euuuw) now trying--without authority--to meddle with a subservient level of the state (supposed UK govt)--I doubt anything the euuuw does will ever improve matters.

Anonymous said...

Since, as mentioned, the shareholders are other corporate companies, and in many cases other financial conglomerates, shareholder power is largely illusory.
Don't get too hung-up over the Swiss referendum. It isn't law yet, and may never be.
Several hundreds of billions (or trillions) of whatever currency, tends to speak very much louder than our version of democracy (which largely consists of bending over and getting shafted)
Three political parties, speaking from the same script (with a fourth learning the words as it preens over a lame-duck election result) does not a democracy make. Especially as they have been "captured" by the same businesses you seem to think they can control !

Anonymous said...

The Swiss measure only seems to put the onus on shareholders to determine top pay i.e. not so very different from the current situation in the UK. Certainly nothing we couldn't live with and quite different from the EU's nonsense.

Edward Spalton said...

G.Tingey,
The way in which parasitic management and parasitic government reinforce each other in ripping off the public became apparent to me around 20 years ago. The trade association of which my small business was a part was no longer interested in defending the interests of firms like ours. The new Chief Exec was a former civil servant. He and the larger firms were keen on new burdensome regulation, showing government what good boys they were.. The association effectively became an arm's length agency for government. A friend of mine who transferred from a substantial local firm to a large multinational told me "We like this. We have our own department for this sort of thing. It burdens our smaller competitors and raises the bar against new competitors"

hovis said...

Ah regulatory capture and corporatism, one other element that facilitates all this is academia which provides a fig leaf of justification (credentialism) as well another pool of cororatists to staff the whole caboodle.

Gordon the Fence Post Tortoise said...

So that's it - lazy, self regarding, greedy morons who walk into a senior job because of some non meritocratic selection process who set about filling their pockets before they get found out...

It's understandable only in a donkey world full of carrots where sticks are banned.

I don't know about the sticks though - some rather more permanent increasingly seems to be an appropriate response to the abuse perpetrated by the "corporates" and their public sector cronies.

Think the final scene in "The Life of Brian" but with windmills instead of crosses. A sort of mass Admiral Byng moment.