A few days ago Charlie over at Excuse Me… asked me if I’d write something for him on the question of "the problematic nature of ownership in public companies. The shareholder-company relationship doesn't seem to function much like ownership..", which he in turn had been tagged for by Tom P of the Labour and Capital blog. I put together some notes in a reply to him yesterday based on a critique of the ideas of Burnham in “The Managerial Revolution”, and the later adaptation of those ideas in what came to be called the Post Capitalist Thesis, usually associated with Ralph Dahrendorf. I hope to write something more substantial soon, and post it here.
But, this morning, as I set off for my morning, constitutional it led me to think about the similarities with bourgeois democracy in general. Forgive me if this meanders a bit, but thoughts tend to do that when you are walking. I’ve spoken in the past of the idea that in society there are three sources of power. I’ve kept saying I was going to theorise this, but never got round to it, so what I say here is only some preliminary statements. Those three sources of power are not the bourgeois Constitutionalist ones spoken of by Montesquieu – Legislative, Executive, and Judical. They are what could be labelled “Economic and Social Power”, “Political or Governmental Power”, and “State Power”. The first is the power that comes as it suggests from the power that various classes have as a result of their economic or social position, the two also being closely connected. The bourgeoisie through its economic power flowing from its ownership of the means of production also exercises social power, because its members and representatives also hold positions of power throughout society from the workplace itself, to the local social clubs and so on. Its ideas and interests are spread through and dominate society on this basic level. Its this power that actually dictates in Marxist terms the class nature of “the State” considered not as the institution of the State itself, but the entire polity. However, as a result of a particular class exercising a secure Dictatorship in this field, and the spread of its ideas throughout society as being the dominant ideas, that other concept of the State “the State Power”, does fall under its control and dominance, by virtue of the fact that the real human beings that staff it, have themselves through the mechanisms of all those social institutions, themselves fully imbibed the ideas of that ruling class, and their interests become inseparable from it. Finally, there is the “Political or Governmental Power”, which is tied to but separate from both of these other powers. It can be reflective of society as a whole rather than just the dominant class, or dominant fraction of that class, and so comes into conflict with it. It may have the greatest power in the short-term as a result of reflecting majority opinion, and because of its legislative power, but that power is the most illusory precisely because it is a wholly derived power, and needs the support of one or both of the other powers to be effective.
Under feudalism the local nobility exercised powers that would normally be associated with the state. They collected taxes, tithes and so on from their area. They raised their own armies and so on. But, they needed some national body to protect their overall interests against foreign invaders, they needed some body to arbitrate in questions between them rather than continually having to resort to wars between them, and so arises the political power of the Monarch, and of Parliament. The Nobility derived their economic and social power from their ownership of land and position in society. The state power rested upon that. The political power of the Monarch and subsequently of Parliament is derived from it as a means of conflict resolution, but is limited – hence Magna Carta etc.
In fact, this separation of State Power in the hands of the local nobility not only leads to repeated conflict with the Political power, but is also the reason why no Nation State can arise under these conditions. Only when the economic and social power of those nobles can be sufficiently weakened or broken can a centralised State Power arise, something which really does not happen in Britain for example, until Cromwell. The same thing can be seen in the US. The original Constitution of the US was of a similar nature, and not surprisingly, because it was based on the kind of Libertarian ideas of the 18th century, which themselves spring out of an individualistic peasant economy. In that Constitution centralised state power was conceived of as Minarchist, and highly decentralised. It was the State’s like the old local nobility that were to exercise real State power with the Federal State only there to protect from foreign enemies, and to act as arbiter. But, the development of Capitalism in the 19th century changed all that. Capitalism requires a strong centralised Nation State as a minimum. The American Civil War, wrongly seen as being about freeing slaves in the South, was really about creating that strong centralised Nation State and removing the power of the individual States. Even today the Libertarians bemoan that victory.
If we look at Britain, we see the way in which this process develops. The bourgeoisie develops in the towns and that is where its economic and social power resides. Its in the towns that this bourgeoisie meets up in business, for discussion in the Coffee Shops and Tea Rooms, in the various social gatherings and institutions and discusses ideas, which are gradually filtered and refined, and dispersed within society at large. But, its also in the towns, that arise, from such proceedings, new forms of democracy, and new democratic institutions that become necessary to deal with the problems and issues that themselves are specific to the towns and the new forms of production and social relations. In fact, what can be seen is not only the embryonic economic and social power of the bourgeoisie developing, but alongside it an alternative form of State Power, and also of Political/Governmental Power. It is not just that the bourgeoisie takes over the existing State Power or even wins for itself a majority in Parliament, but that the old State Power that rested upon the local nobles is destroyed, and a new centralised State Power dominated by bourgeois ideas gradually develops and bursts forth, and that although the Parliamentary Power has the same form it is in reality something completely different, because it is now based upon a whole series of local democratic institutions and forums which previously did not exist, and which have grown up in the image of the bourgeois.
So, although a section of the bourgeoisie – the Merchant and Financial bourgeoisie – arise first, and their ideas are able to run alongside to some extent the idea of the existing landed classes, their growing economic and social power, leads to the ideas appropriate to that spreading throughout society, into the corridors of learning, and from their into the corridors of State Power itself. To the extent that the interests of the Landed Aristocracy coincide with those of these fractions of the bourgeoisie – for example in extending their reach overseas with the development of colonies, to the extent that they can use their money hoardes to act as money Capital to finance various such ventures, to the extent that as Capitalist agriculture develops Land itself becomes more and more transformed into Capital, rent Capitalist rather than Feudal rent etc. the nobility itself is able to absorb such ideas itself, and facilitates their acceptance as being the ideas that dominate the State Power. Yet, so long as the majority of the population remains employed on the land, remains the subjects of the nobility, for as long as the Merchants and Money Capitalists remain tied to the nobility, because it is through them that their trade Monopolies etc. are granted, the bourgeoisie cannot exercise Political power. Only when the Industrial Bourgeoisie arises, whose interests are in fact in contradiction with both those of the Landlords and the Merchant and Money Capitalists – they want cheap food prices to keep wages down, they want to do to the Merchants what the merchants do to the peasants and artisanal producers, buy low and sell high, and they want to minimise the interest they have to pay on the Money Capital they borrow – and alongside it the industrial working class – in the process destroying the economic and social base of the landlords – can the bourgeoisie as a whole secure that political/governmental power for itself.
And if we look at the way that works, we can see the parallel with the bourgeois democracy of the Boardroom. The economic and social power within the company is fairly obvious and comes down to the power of the Capitalist owners of the company. And the ideas that flow from that spread necessarily throughout the company at all levels even down to the companies workers who largely take on board the ideas of profitability etc. and see their interests tied to the interests of the companies owners, the company’s success being their success or at least job security. It is not just in the forum of the political/governmental power of the Boardroom where those ideas are reflected. But, rather like Parliament the Boardroom as such a forum can reflect other ideas. The owners and their ideas may dominate the society of the company, but other ideas exist alongside them just as they do in society at large. The workers will have ideas that reflect their own interests, and will be organised through their Trade Unions, and those ideas will be reflected to some extent in the Boardroom too, if only from the perspective of can or how are those interests to be addressed in the interest of social peace within the company i.e. avoiding strikes etc. Where, for example in Germany, there are Worker representatives on the Board that is even clearer. External pressures may also find their representation such as a concern for the environmental impact of the Companies activities, and a desire at least to be seen to be taking on board those questions for the sake of the Companies Public Relations.
All of this mirrors the way bourgeois democracy works. On the one hand the society/company encompasses a wide range of views and interests, which get discussed filtered and passed through the bourgeois democratic process until they find outlet in the Political/Governmental power. That power makes decisions based upon a prevailing view that emerges in that process. The task of implementing that view is the responsibility of the State Power, which in this instance means the actual Executive Directors of the Company, its full-time permanent managers – who, of course themselves are part of that opinion forming process – and who by virtue of their position have the power to frustrate those decisions, just as the permanent state machine has the power to frustrate the decisions of governments and parliaments. It is its job, ultimately, to secure the interests not of that wider society whose views are reflected by the Board, but of the people who hold the economic and social power i.e. the Capitalists owners, and in particular the dominant fraction thereof.
But, just like the Permanent State machine itself, these managers too have their own interests that they try to satisfy. In society at large the bourgeoisie allows the State Machine some leeway in its actions, and excesses of its staff, writing them off as the faux frais of production the costs it has to pay for handing over the task of actual administration of its affairs to a professional bureaucracy. So, too with that bureaucracy employed to fulfil the same functions in the day to day management of the company. But, in both cases only to a point. If the State apparatus begins to over extend its reach the Capitalists can mobilise both their economic and social power, and the political power against it. They may allow the managers of their companies a certain degree of excess, but where it extends too far as with Enron, or TYCO to an extent that threatens their own economic or political interests they will act to set the limits that tell those Managers to rein in. In fact, in the US in more brutal fashion than in Europe, where such Managers are frequently gaoled when they act to threaten the interests of the bourgeoisie.
There are I think lessons from this. The idea that the old State has to be smashed is commonplace amongst Marxists, but I think what is also important is the degree to which we see these other features of the way power is exercised shows that a simple takeover of power is not likely to succeed. The bourgeoisie over a fairly prolonged period developed alternative forms of state and political power alongside its economic and social power. And those forms complimented that economic and social power, reinforced it and so on. They were central to the diffusion of its ideas and culture, which made its revolution possible. The bourgeoisie had the advantage that it had growing economic and social power, and was taking power from an existing exploiting class whose interests it could largely subsume within its own. The working class does not. It needs both to develop its own economic and social power – which can never supplant the economic and social power of the bourgeoisie for the above reason until it also secures State Power and Political Power – but, also for that reason needs to develop the new forms of State and Political power appropriate to its economic and social power alongside it. That does not mean building Soviets now! It does, however, mean that alongside the Co-operatives that will be the basis of the workers economic and social power before and after the revolution, the working class will need to develop the appropriate Co-operative, participative and inclusive forms of state and political power on which, and from which it will be able to challenge the bourgeoisie on its own terms.
14 comments:
Hi Arthur/Boffy
But what if the analogy breaks down? What if the capitalist owners behave like rentiers, and the managers act like owners?
Here's Tom P quoting an academic study:
"both managers and investors seem to accept that shareholders in general are in some sense owners of the firm, with concomitant rights and responsibilities. Managers accept that they have a general duty to manage their companies for the benefit of their shareholders, and that shareholders as a body can legitimately expect them to engage in a constructive discussion as to what that duty might entail. Investors for their part recognize that the shareholders of a company have a duty to watch over it and to ensure that it is competently managed. For both sides, however, these rights and duties seem to reflect general, almost theoretical features of the capitalist system as operated in America and Britain, and to refer to shareholders in the abstract. They are not apparently conceived as duties owed by or to any particular shareholders, either individually or collectively. The owner-fiduciary model, in other words, acts as an ideal description of the system but not as a real description of the situation with which the actors are in practice faced. In conceptualizing this real world of day-to-day practice, neither managers nor investors cast the latter as owners."
http://labourandcapital.blogspot.com/2009/03/ownership-and-speculation.html
Some people even argue that the problem in the financial sector is a wildly bastardised version of 'workers control' - hence the obscene salaries paid to City traders at the expense of the formal owners. My head hurts when I think about this and I look forward to your longer post on the matter......
Charlie is talking complete rubbish. The idea that the problems in the financial sector are the result of some form of "workers control" is ridiculous. They were paid those salaries with the full knowledge of their owners and society at large, this was because of the huge sums of money they helped make. These salaries had nothing to do with the currebt crisis anyway.
A genuine worker owned firm would never have been so reckless and would live by a different set of values. You only have to look at genuine co-operatives to see that.
Charlie/Montreal,
I understand the point that Charlie is making, and I don't think its as outrageous as the words he used to describe it actually seem.
What he is describing is basically the argument the Libertarians use that flows from the Burnhamite Bureaucratic Collectivist argument i.e. a new class has arisen in society the Bureaucrats who rile by control of the emans of production not ownership, and that applies as much to the West as it applied to the USSR. So they extract the surplus product in the form of high salaries not profits.
It is as I said before a crass subjectivist argument whether applied to the West or to the USSR. But, its clear that bureaucracies that act on behalf of other social groups DO as a result of certain circumstances and at certain times manage to win for themselves some wiggle room, and do in that space look to their own bureaucratic needs.
However, in both cases (the West and the USSR) as I've argud elsewhere those bureaucrats DO remain that bureaucracies of classes, and the underlying property relatoins on which those classes rule - or even as with the TU bureaucracy don't rule. Ultimately, they are limited in that action by that, or else they have to become something completely different - for example they have to base themselves on some other class that carries through a social revolutoin to change those udnerlying relations, and installs some other ruling class.
As montreal says, these high paid managers do so normally with the say so of the owners, but its clear that sometimes if the owners are not on the ball the Managers can have too big a hand in the till. That was the case with TYCO with the $7,000 shower curtains and so on.
The main point is though as Blackburn demonstrates:
a) Owners still (at least back then in the late 70's) still dominate Company Boards.
b) Managers by the laws of Capitalism are forced probably more than are owners to act more consuistent with those laws.
What could be argued, and has been is that in the application of some of those laws - for example the cocnept of share hodler value, ensuring continuous improvements in dividends or share prices - changes what was once the driving force of profit maximisation - extending market share - and led to a longer term view, has resulted in short-term profit maximisation, and cooking the books to show those results, and which payment by bonuses and share options ecnouraged.
But, isn't what is going on now precisely the owners saying "enough is enough"!
I've dug some stuff out of my archives i.e. the Loft, and will write something more when I've rad my old essays and stuff again.
Boffy correctly senses I chose my phraseology out of a sense of devilment - but also because the 'large city traders' salaries as a function of workers control' is a theme which regularly pops up on the web, and not just on the libertarian Right.
I'm interested in the concept of class as 'relationship to the means of production', and how/whether the increasing financialisation of capitalism in the West is changing this. I understand that it is very common for half or more of all shares in listed companies to change ownership in the course of any year, and that, in any event, a considerable degree of formal ownership lies in the hands of institutional bodies such as pension funds. (Hence the argument of people like Robin Blackburn for a 'pension fund reformism'). This is what is I meant by describing 'capitalist owners behave(ing) like rentiers, and the managers act(ing) like owners'.
I think this is, in principle at least, empirically testable: under what circumstances do managers/CEOs behave in ways that formal owners dislike? Or, perhaps more pertinently, under what circumstances do formal owners intervene in the life of corporations (as oppose to simply dispose of the stock)against the wishs of management?
I have a hunch - no more - that financialisation has changed things on thisd front.
Charlie,
Briefly. I would argue that the traders/analysts etc. are productive workers. They exchange their complex Labour Power with Capital, and create Surplus Value the same as any other worker. However, does that make them working class???
I'd have to say no. That's because I've given Engels letter to Bloch before now as my idea of what his and marx more mature view of class comes down to, which is far more individualistic than many Marxists woudl probably want to acccept. Basically Engels says, there a whole load of shit going on out there in society that every individual comes into contact with that influences them in their opinions, they all interact and come together and congeal into different groupings.
The fundamental driving force is economic and thereby social relations buts thats as much as you can say Engels claims.
Again on the actions of managers. I'll have to reprodcue Blacburn's argument but basically he says if owners had been runing these comopanies what would they have done differently - answer probably squat other than that they may not have done it so well!
As for the managers of the pension Funds they are private companies operating in a market as well. The same pressures apply. TRustees can still go o a better performing manager. But, e should still demand control of those fudns for the reasons I've set out elsewhere.
Not sure the American Civil war was essentially about creating a strong centralised state. Do you have analysis to back this up?
I would argue, like Marx, that this was a conflict involving 2 social systems living side by side and the contradictions that created.
I am not sure the focus should be on managers when looking for a rising power in society but on the technical elite that grows from the advance in technology. As work increasingly becomes a button pressing exercise, this elite becomes more important. Though even this power is superficial, at least for now.
To Windy Miller the Red,
I'll have to get out some details to back up the idea of the Civil War being about creating a single nation state. I don't think it contradicts the ideaof it also being about two separate social systems - in fact I think it reinforces it - or the idea that it was a part of a process seen in all industrialisations until recently of seizing a surplus from within a colonial area - Lenin speaks of Siberia performing that function uner Tsarism.
To make my position clear I don't think Managers do perform this function. I reject Bureaucratic Collectivism. For similar reasons I reject thee idea of a technocracy being a new ruling class.
Charlie,
This is an attempt at the longer response earlier promised. ON the rentier Capitalist argument, I suppose my answer is that given by Engels refered to in this answer. Capitalist long ago DID lose their social function, DID become rentiers or coupon clippers, BUT Capital continues to operate as Capital.
What significance does it have that owners act as rentiers??? They call their broker every so often, or today they check their Bloomberg or log in to their Internet share dealing account, and move Capital to where they think they can make a better rate of profit. In fact, what they do is what Marx said Capital does anyway, except they do it more efficiently - they reallocate Capital threeby averaging the rate! As much as anything such acts are a competitive whip on the nack of the managers to respond to the needs of the owners for more profits. Its what led to the shareholder value concept of the 90's. To an extent it might actually be seen as more a return to the driving force of the 19th century short-termism as opposed to the longer term style of earlier decades, and which characterised Japanese companies in particular - that of profit maximisation by ever icnreasing marekt share.
Critique of the Post Capitalist Thesis
The post-capitalist thesis puts forward the idea that there has been a decomposition of capital; ownership and control being separated and motives other than profit guiding the policies of the new managerial elite; and of labour, increasing differentiation along the lines of skill etc. The class structure has also been complicated by the rise of a new middle class divided between bureaucrats who associate with the bourgeoisie and white collar workers who identify more with industrial workers. Dahrendorf argues changes in the class structure have created a new pattern of class conflict based on an unequal distribution of authority as exercised in imperatively co-ordinated associations. I suppose that you could see the pension funds as such associations. Society is seen to be comprised of a set of such associations. Conflict isn’t removed indeed Dahrendorf sees it as necessary for the system, but institutional changes and narrowing of inequalities enable it to be regulated. In other words we have a pluralistic system with a collection of competing elites. From the perspective you are interested in Pension funds could be one of these, but going back to something I said earlier there could be others such as Environmental lobbies etc.
Dahrendorf sees the development of Joint Stock Companies as the beginning with the separation of ownership and control, which he says Marx didn’t understand. Marx did. Engels in Anti-Duhring says, “Partial recognition of the social character of the productive forces is imposed on the Capitalists themselves. Appropriation of the large production and communication organisations, first by joint stock companies, later by trusts, then by the State. The bourgeoisie proves itself a superfluous class; all its social functions are now performed by salaried employees.” The point being that Capital continues to act as Capital under Capitalism whether its owned by individuals, trusts or the state. As Blackburn points out, Marx never argued that individual capitalists controlled the market or even their own firms. On the contrary, they were alienated by the anarchy of Capitalist production as much as the worker.
The degree of separation has been over-emphasised – at least it had in 1980 I’d want to check the current figures. Michael Barratt-Brown found that when he studied the top 120 British companies a third had boards consisting mainly of the owner and his family or nominees. In the US, “Fortune” reported in 1966 controlling ownership of 150 of its top 500 firms rested in the hands of an individual or members of a single family. Barbara Shenfield’s “Company Boards” (1971) found that among 25 of the largest British companies “None of the companies had any doubts that their primary objective was to be efficient and profitable, and that being socially responsible would serve no useful purpose if it hindered these overall company goals.
Even where control is not in the hands of owners there is no evidence that the interests of owners and managers diverge. Lerner’s study of Fortune’s top 500 firms concluded, “No fundamental differences in the level or stability of profit rates, which might be attributed to management control were found.” In Britain, Theo Nichols “Ownership, Control and Ideology” came to a similar conclusion. As Blackburn points out the development of the manager more accurately reflects the logic of the market. The Managers with controlling power normally have large stockholdings themselves, though normally spread. Thus they are themselves interested in jacking up the rate of profit. The role of the manager is to subordinate the company to changed market conditions. Whatever personal motives may drive the manager they are always mediated by the market. Failure to do so will frustrate their own ambitions drive down the company share price and lay it open to take-over. For that reason they may be more conscious of the need for profit maximisation than the individual owner. Ploughing back profits raises the capitalisation of the stock and thereby the share price. When shareholders sell they pocket a Capital Gain, which if taxed is taxed at a lower rate than income tax. So, as Blackburn says rather than a decomposition of Capital its really a more effective means of its accumulation.
Another point is that the functions of the classic manager are increasingly being undertaken by specialist Departments. For example, Accountancy Departments, marketing Departments and so on. The people who ACTUALLY undertake the function are really specialist workers. And in fact because their specialism means they have limited social power their wages are not that high, which is why they have increasingly become unionised.
I’d want to check the data on ownership as I said, but I doubt its changed substantially. Certainly, in the US you can think of large firms like Microsoft where the original owners still exercise considerable control. Some of the old US aristocratic families still exercise control over their industrial and banking empires too. What I think is different as I have written elsewhere is the degree to which this wealth has become even more concentrated, and the extent to which that has meant that in addition to this continued link to the original “family” business, these uber Capitalists have huge investments in all the other large companies – often on a global scale – as well of course as other assets such as Government Bonds. So these tiny minority form a kind of “State Capitalist Class”, who use Stock Markets to shift their wealth about at the press of a button, thereby instantly changing the Capital Value of these companies, and effecting an averaging of the rate of profit.
I don’t really see how the role of Pension Funds changes this. Firstly, as I’ve said the pension Funds DO have a considerable amount of Capital that could if used by workers make a considerable difference. But, compared with the total value of Capital in the economy it is still a minority. The pension managers themselves are under the same competitive constraints as all other sections of Capital. They have to compete with other Managers, or else Trustees will move the business, and that could be devastating for the company. But, there is another point. If we look at these bureaucracies which run the pension Funds, or run the Boards of private companies in what way are they any different from the bureaucrats who run the Capitalist State? They are not. In fact, as Ralph Miliband sets out in “The State and Capitalist Society” they are often the same people, they move from private industry to the state and back again in all advanced Capitalist countries, but Capital is happy to allow them to run things, precisely because they can be trusted. Why can they be trusted, because they come from the Capitalist class itself or its near periphery, they have gone through the upper echelons of its education system, the Public Schools, the top Universities, they belong to its hallowed sanctums and so on, and as a result they are fully soaked with bourgeois ideology, they see no difference in their own private interests and the interests of their firm and the interests of society. As Miliband says we have the old saying, which is perhaps not so apt today about “What is good for General Motors is good for America.” And as he says we have no reason to really believe they do not believe this – they believe they ARE the state.
So, these bureaucrats will, of course, attempt to feather their own nests, but Marx said the same was true about the conflict which faced the Capitalists themselves – that is the desire to live well, and the NEED to accumulate – but the constraints in which they operate limit the extent to which that can conflict with the overall interests of Capital. Just as occasions see the State acquire some independence in the form of Bonapartism, so occasionally such bureaucrats will overstep the mark, but in the US, in particular – Britain’s Capitalists seem more forgiving – such behaviour is usually severely punished.
I don’t think that the events of this last year in respect of the Credit Crunch change that. I don’t think that it was individual greed by bankers or Pension Fund or Hedge Fund managers that was the cause. As I’ve argued elsewhere, Capital in the US and UK in particular, and Japan, needed to expand credit over the last 30 years to keep the economy running while they restructured – see my recent documents on the new international division of labour – and shifted employment to lower paid (often) service industry etc. The encouragement of sub-prime lending was a fundamental aspect of that, which is why credit regulations had to be lifted. CNBC recently had a good background programme by David Faber (House of Cards) on this, which showed why they all had to participate i.e. if one company didn’t lend another would.
So, the reason lies within the workings of the system itself not in the machinations of individuals. Hope this helps, if you have particular questions it might help to pose those, and I’ll try to respond.
Many thanks for this Boffy.
I think there is a little more to be said, but let me have a couple of days to work out my thoughts.
I'm grateful for the time and thought you've put into a question from a stranger.
Boffy,
I don't think real nub of the problem here revolves around any assertion of 'post capitalism', but of how capitalism now works in its ultra-financial phase. I full accept that the market driven structural imperative to accumulate ('increase shareholder value') governs the system as a whole. But I think there is a bit more to unpack...
Conventional economics recognises a problem it labels the 'principal-agent' issue: if you employ someone to do something on your behalf how can you ensure they act in your interests, not their own. (This idea seems to occupy some of the same conceptual space as the managerial 'wriggle room' you spoke of in your first reply). A vast amount of (very dull) mainstream management theory literature exists about how to align the interests of the agent/manager with that of the principal/shareholder, mainly through setting targets - and bonuses - based on increasing share value and/or offering the agents themselves stock in the specific company. But there appears to be a widespread feeling that these mechanisms haven’t worked very well. In particular:
*It has encouraged a vast wave of acquisition and mergers, often followed by asset stripping and disposal of the remains, which boost short term profits (& hence linked bonuses etc) but not necessarily underlying company value or its long term prospects;
*It is not unknown for managements to simply cook the books, Enron style.
*Less obviously criminal, but still pretty breathtaking, was the kerfuffle over Barclays management ignoring the interests of their shareholders by accepting an offer of funding from Middle East investors at an interest rate of 14%, as an alternative to lower cost, better term UK government finance. What can they have been trying to avoid except the idea of owners who might, in theory at least, tell them what to do?
*Especially in the financial sector, the costs- to shareholders – of ‘bribing their agents to stay honest’ in terms of wages, stock holding and bonuses has risen exponentially
*Managers, including managers of non financial institutions, have systematically taken risks in the credit markets through increasingly complex financial instruments (CDOs etc) which help boost profits but expose the owners to undeclared or mis-assessed levels of risk.
I take your point about some capitalists – Bill Gates and so on – still having a direct and constant interest in their firms, but I’ve also read in passing throwaway remarks to the effect that it is not that unusual for 90% of the share capital in FTSE firms to change hands in the course of any given year. In such circumstances any ‘active’ exercise of ownership rights is surely unlikely. As you imply, which of these two scenarios is most common might be empirically established, but I suspect the balance has changed in the last 20 years.
I claim no expertise in any of these issues – I’m just parroting what I’ve picked up in some fairly indiscriminate reading. Nor do I have a particular political axe to grind – I’m trying to understand this strange world in the first instance. Most of all, I look for a link to your own focus on workers co-operatives. If managers resist even the interests of capitalist owners then simply nationalising firms won’t have any great effect: only pressure from below will.....
“I don't think real nub of the problem here revolves around any assertion of 'post capitalism', but of how capitalism now works in its ultra-financial phase. I full accept that the market driven structural imperative to accumulate ('increase shareholder value') governs the system as a whole. But I think there is a bit more to unpack...
Conventional economics recognises a problem it labels the 'principal-agent' issue: if you employ someone to do something on your behalf how can you ensure they act in your interests, not their own.”But, I think is precisely the POST-CAPITALIST thesis. It suggests that the interests of the managers ARE different from those of the Capitalist Class, or in the Bureaucratic Collectivist Model, that the interests of the Soviet Bureaucracy were different from those of the working class. Now, to a degree it is clear that this is true. But, for a Marxist, as opposed to a subjectivist, the question is to what degree is this difference in interest a fundamental contradiction, to what extent is it rooted in the objective conditions of productive relations! The answer has always been that the bureaucracy – and we can locate the Managerial elite as being such a bureaucracy – is ultimately limited within any particular mode of production, to acting in such a way that this particular Mode of production is reproduced. To put it in basic terms the bureaucracy knows on which side its bread is buttered, and its existence itself ultimately resolves itself into the defence of the particular mode of production that gives rise to it in the first place.
In the USSR etc. the picture is clouded, by the fact that the working class as ruling class is weak unable to control this bureaucracy, and the existence of powerful Capitalist classes, and a Capitalist alternative, presents that bureaucracy with the option of acting not as the agent of the ruling working class, but of the Capitalist class. And, we see, sections of that bureaucracy looking to exactly that route. Yet, for the masses of ordinary members of that bureaucracy, it is obvious that a Capitalist restoration would give them no advantage whatsoever. Under Capitalism, most would lose their jobs, and certainly what minor privileges they might have.
That is probably, one of the reasons that Western businessmen, even today, report that within that existing State bureaucracy there is no real understanding of the ideas of competition, or private ownership.
But, in a powerful Capitalist economies no such dilemma exists for the top bureaucrats, managers etc., and nor does it likely exist for the lower tier Managers, who see their interests completely aligned with those of the owners of these businesses, apart form the normal bureaucratic – perhaps even human, certainly human under class society – inclination, to look first to your own welfare.
“It has encouraged a vast wave of acquisition and mergers, often followed by asset stripping and disposal of the remains, which boost short term profits (& hence linked bonuses etc) but not necessarily underlying company value or its long term prospects;”I’m not sure, how much this objection is valid. As a Marxist I see acquisitions and mergers as a central component in the way Capital DOES develop, by centralisation and concentration. Manchester Liberals, and Stalinists, because they have had this concept of the “anti-monopoly Alliance”, which is essentially a Popular Front with small Capital, have made the argument about such actions, but logically it makes no sense. If, you are a Capitalist or a Manager of a Capitalist business, why would you simply sell off or dispose of ,“asset strip”, businesses that were even POTENTIALLY profitable? Surely, the most rational explanation of asset stripping is that Capitalists or their Managers get rid of dead wood, so that what is left of the business, is efficient and capable, thereby of raising the rate of profit!!!! Isn’t that exactly what Marx says Capital does???
“It is not unknown for managements to simply cook the books, Enron style.”True, and every bureaucracy through history has done the same. The question is to what extent is this systemic, to what extent does it constitute a qualitative change in productive relations. The answer is that within developed Capitalism it does not change anything fundamentally. The Enron examples are a minority, and Ley, and others went to gaol.
”Less obviously criminal, but still pretty breathtaking, was the kerfuffle over Barclays management ignoring the interests of their shareholders by accepting an offer of funding from Middle East investors at an interest rate of 14%, as an alternative to lower cost, better term UK government finance. What can they have been trying to avoid except the idea of owners who might, in theory at least, tell them what to do?”That was my first reaction too. But, I have subsequently reconsidered. It has come out that many of the US Banks who took TARP money were told they had to have it, whether they needed it or not!!! Now, its being questioned whether they will be allowed to give it back!!!! Why, because having taken money, they have to do – to some extent – what the State tells them to do. Its necessary to understand that Capital is not homogenous. Money Capital has had a good run, but Industrial Capital is still powerful, particularly in the US with the giant multinational Corporations, and the interests of Money Capital and Productive Capital are at odds. Productive Capital produces Surplus Value, Money Capital rips it off!
Look at Lloyds TSB, and Bank of America(?) Bother were fairly conservatively run Banks (so was Barclays). Bother were leaned on by the State to buy up failing Banks – HBOS and Merrill Lynch – and the consequence was that the dire condition of these Banks has near destroyed the Banks told to take them over!!! Barclays has managed to stay out of the mire, but now the State is using its control over the Banks to effectively tell them to lend to sub-prime borrowers, the very thing that led to the crisis in the first place!!!! Can you wonder that Barclays Managers and shareholders want to keep the State out???
”Especially in the financial sector, the costs- to shareholders – of ‘bribing their agents to stay honest’ in terms of wages, stock holding and bonuses has risen exponentially”I’m not sure this is true. Wages/Bonuses for top traders etc. in Financial Services has certainly risen substantially. But, I theorise this in the same way that Marx theorised Complex Labour in general. We see similar things from outside the Managerial sector. Pop Stars, Footballers, etc. get paid even more than City spivs. Why, they have a monopoly position, and the market has placed a very high premium on their talents. We can argue that this “talent” is dubious, in the case of pop stars etc. it is a lot to do with a fabricated celebrity culture and so on, but nevertheless, consumers are prepared to pay high values for the product, and part of the reason is the supposed status of those whose “labour” provides it.
”Managers, including managers of non financial institutions, have systematically taken risks in the credit markets through increasingly complex financial instruments (CDOs etc) which help boost profits but expose the owners to undeclared or mis-assessed levels of risk.”Nothing new. Capitalism is supposed to be all about taking risks. If anything, the modern Capitalist Manager is marked from the 19th century Capitalist by the continual attempt to AVOID risk. That is why Futures markets were created. In fact, the CDO and other derivatives markets were themselves originally designed in the 1980’s by Michael Milkin to do precisely that – TO AVOID RISK, by sharing it out in the same way a book-maker lays off bets. The idea was to package together a small percentage of sub-prime loans (only a proportion according to the law of probabilities would go bad), with a much larger proportion of non sub-prime loans (which again according to the law of probabilities should have very few go bad) so that overall the package would be profitable so that no one was left holding the loans that did go bad.
The pressure to simply give loans to anyone if anything came from above, from the Capitalist State, particularly in the US, which wanted to get everyone into a house, and borrowing money to finance consumer spending, in order to continue economic growth. Under those conditions, the individual mortgage providers were left in most cases with no option, but to provide the mortgages because if they didn’t someone else would. And so long as they could then sell those on – which whilst the bubble continued they could – they removed the risk form their own shoulders.
But, as I said this is nothing new. Every such bubble in history has been the same. I have a book I acquired a few years ago called something like “Panics, Manias, and the Madness of Crowds”, which details a lot of these events from the Tulipomania of the 17th Century, to John Laws Mississippi Scheme, to the South Sea Bubble, The Railway Mania, and even all of the various Witch Trials and other such nonsense. In fact, there is a school of investing known as the “Contrarian School”, which bases itself on precisely this phenomenon, and which says that to make money, you should always do the opposite of what the crowd is doing.
It works. Whenever I’ve been on an aeroplane, I always wait patiently for everyone else to get off, before bothering to get out of my seat. It saves a lot of hassle, and by getting on to the bus to the airport last, you get to get off first, and so get through the check-out first.
In the Tulipomania, in February 1637, tulip contracts sold for more than 10 times the annual income of a skilled craftsman.
Tulipomania Now it may be true, as Marx says in Capital, that you may be more inclined to make such gambles if you are doing it with other peoples money, but there is more than enough evidence that people do it with their own money. Just look at the irrational behaviour of people in terms of house prices. It is precisely the kind of behaviour Contrarians point to. People rather than buying at the bottom of the market, all react in the same way, believing that when prices have soared they have to buy, before its too late!!! But, when everyone has already bought pushing prices up like that, that is the very time when they are about to crash!!!
In contrast, look at the experience of the Tech Wreck. IN the late 90’s when everyone was saying there was a new paradigm based on technology, Warren Buffett, declared that he was out of the market, that he could see nothing worth buying, and because he just didn’t get what people were saying about this new paradigm, he wouldn’t buy something he didn’t understand. The share price of Berkshire Hathaway underperformed, and even fell leading some to say that Buffett was too old, and so on. Then the inevitable happened. Tech prices fell 75%, Buffett;s Berkshire Hathaway was unaffected because he didn’t own any, and when other prices fell to where he thought they were cheap he stepped in and bought good profitable companies at much lower prices than he would otherwise have had to pay. But, although, Buffett is worth $40 billion, the money he gambles with in Berkshire Hathaway is not his own.
”but I’ve also read in passing throwaway remarks to the effect that it is not that unusual for 90% of the share capital in FTSE firms to change hands in the course of any given year.”I’d be surprised if that were true other than in the context that a percentage of shares are turned over several times during a year – so if 10% were turned over 9 times for instance.
“In such circumstances any ‘active’ exercise of ownership rights is surely unlikely. As you imply, which of these two scenarios is most common might be empirically established, but I suspect the balance has changed in the last 20 years.”I’ll try to check the actual data, but a look at the percentage of shares of any of the major companies traded on any single day leads me to doubt that this is correct. In most of the major companies share holdings are held as long term investors both by the main individual owners, who normally still have some personal link to the company, and by institutional investors such as Pension Funds, and Mutual Funds who hold these shares for the purpose of income from dividends, and for long term Capital growth. The only people who regularly trade such shares are the day traders, and City Traders. The Day traders generally speaking only trade very small amounts of shares in comparison to the total number of shares, whilst the City Traders working for Banks, Hedge Funds, etc. may buy and sell millions of pounds worth of shares, but again this is only a minority of the total shares, and it can be the same shares simply being bought and sold. In addition, Hedge Funds often trade through derivatives markets buying Share Options, Futures or Contracts for Difference rather than the actual shares themselves.
”I claim no expertise in any of these issues – I’m just parroting what I’ve picked up in some fairly indiscriminate reading. Nor do I have a particular political axe to grind – I’m trying to understand this strange world in the first instance. Most of all, I look for a link to your own focus on workers co-operatives. If managers resist even the interests of capitalist owners then simply nationalising firms won’t have any great effect: only pressure from below will.....”This I think is the most crucial point, and something that should concern all socialists. We can easily understand the circumstances that lead to a lack of control by workers in the USSR and elsewhere over what is supposed to be their property. We might even understand the kinds of pressures within Capitalist society that lead workers to fail to exercise control over their Trade Union, the Party and even their Co-op. In the case of the latter, the fact of it being a Consumer rather than Worker Co-op can be seen as an additional factor leading in that direction, and is similar to the way workers are encouraged to view their relationship with their Trade Union as essentially that of a consumer of a form of insurance policy. Yet, we are forced to admit that the latter cases are materially different from the forcible exclusion from control that existed in the USSR!
Moreover, some time ago I wrote some Notes on Anti-Duhring, and picked up on this point.
“It is not necessary for us to examine here how this independence of social functions as against society increased with time until it developed into domination over society; how, where conditions were favourable, the original servant gradually changed into the master; how this master emerged as an Oriental despot or satrap, the dynast of a Greek tribe, the Chieftain of a celtic clan, and so on, according to the conditions; how far he finally made use of force in the course of this transformation; and how the individual rulers ultimately united into a ruling class. Here we are only concerned with establishing the fact that the exercise of a social function was everywhere the basis of political domination; and further that political domination has existed for any length of time only when it discharged this, its social function.” (p229-30)Engels was talking hre about the way a ruling class emerged out of primitive communist society. My comment in relation to this was,
“Of course with hindsight we can now also add to Engels examples the Stalinist bureaucrat who exercised a social function, and thereby exerted political domination. The warning here for socialists is that if the kind of social stratification Engels describes arises spontaneously under primitive communism then it can clearly arise with equal spontaneity under socialism/communism.”A consideration it is worth while paying attention to I think!
The Table here suggests that my thesis is correct.
LSE Capitalisation is $2,865,243 million, whereas, average daily value of trades is $20,351 million.
That is on average 0.7% of shares traded in any single day! Which means basically the same shares are probably simply bought and sold many times during the year.
"Which means basically the same shares are probably simply bought and sold many times during the year"
Well, perhaps. or it could mean almost all of them were bought and sold once or twice a year. I think I need to dig a little deeper.
On your wider points, I'll just say you haven't convinced me but, as ever, you've given me food for thought. Many thanks.
Charlie,
I think the fact of only 0.7% of shares being traded on a single day means its basically just a small number of shares being recirculated. If, large institutions or shareholders bought and sold large amounts it would mean terrific volatility in share prices, besides which there are numerous regulatory hurdles that have to be gone through whenever the percentage of a companies share held exceeds or falls below a specific level.
I keep a check on such trades of major companies, and that simply isn't the case.
On the other things, I hope you'll come back when you've thought about it, and question what it is that you still are not convinced about. Such comradely discussion is the best way of everyone considering such matters.
If nothing else, I think from a propaganda perspective it opens the door to calls for the kind of workers ocntrol voer their pension funds I have been calling for, and to a degree workers control over the companies they work for, though I think that is more problematic for reasons I've set out previously.
But, as a final point on this the reason I see nothing qualitatively different is that the kind of things being raised were discussed by Marx 150 years ago in Capital.
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