a February 8 comment to Jerome's diary What were they thinking? from February 7th, 2009:
Galbraith distinguishes between "Entrepreneurial Corporations" with owner-managers, and "Mature Corporations" with a professional management and rather remote shareholders. What Galbraith did not envision when he wrote 40 years ago was the rise of the "CEO class", separate from both managers and shareholders, with its "executive compensation" culture.
a comment to rdf's diary Corporations Must Maximize Profit from May 14th, 2009
According to Galbraith in The New Industrial State, large US corporations up to at least 1970 did not operate as if their most important concern were profit maximization but rather self-preservation of the corporation itself. This was to the detriment of the shareholders, and with CEOs being rather obscure figures not receiving the outrageous compensations they receive nowadays. Since 1970 we have seen the rise of a fantastically remunerated CEO class and things like fiduciary responsibility to the shareholders have become convenient ideological justifications for doing things that the CEOs want to do. Also, since shareholder value as currently understood seems to depend less on dividends that on rising stock valuations, it is not even clear that "delivering shareholder value" requires "dividend maximization", let alone "profit maximization".
This was to the detriment of the shareholders, and with CEOs being rather obscure figures not receiving the outrageous compensations they receive nowadays.
Since 1970 we have seen the rise of a fantastically remunerated CEO class and things like fiduciary responsibility to the shareholders have become convenient ideological justifications for doing things that the CEOs want to do.
Also, since shareholder value as currently understood seems to depend less on dividends that on rising stock valuations, it is not even clear that "delivering shareholder value" requires "dividend maximization", let alone "profit maximization".
And finally, a comment that spawned a relatively long subthread in Fran's Salon for 15. February:
JK Galbraith's claim in The New Industrial State is that as corporations get larger and transition from entrepreneurial (owner-managed) to mature (professionally managed) the source of economic power and influence ceases to be capital and is instead organizational ability. Therefore the seat of power within the corporation shifts from the shareholders to management. Also socially, the educated elite replaces the capitalists as the most influential class. Also, the claim is that the mature corporation is run with its health as a corporation as the highest priority, above profit generation or "shareholder value". Management and the "technostructure" run the company for their own self-preservation like the owner-manager of an entrepreneurial corporation runs the corporation for their own profit. What he was writing in the 1960's seems to fit the facts of the large American corporations like IBM, AT&T Bell, Ford, etc... Also, back in the 1960's management didn't get the outrageous remuneration they get these days. Galbraith didn't envisage the rise of the CEO class or the "executive compensation" rationalisation, just like he didn't envisage that Friedman, who Galbraith derided as a hopeless romantic, would rise to be one of the most (devastatingly) influential economists of the 20th century. So this got me thinking... I think what happened since Galbraith wrote his book was that the Owner class realised they had lost control of the corporations to professional management, and so the scions of the Owners rather than idly sit on their portfolios got MBAs and seats on boards of directors and started appointing each other as CEOs and giving themselves and each other outrageous remunerations and invented "executive compensation" as a rationalisation for what amounted to looting the corporations they were running. And the best part is that they no longer needed to actually own shares in the companies they managed/looted, all they needed was to have CEOs appoint board members and boards appoint CEOs, both within and across companies (through "institutional" cross-ownership). Meanwhile, shares with (as Galbraith already observed) little decision power and decreasing (as a result of looting by the CEO class) profit were dumped on pension funds and retail investors.
What he was writing in the 1960's seems to fit the facts of the large American corporations like IBM, AT&T Bell, Ford, etc... Also, back in the 1960's management didn't get the outrageous remuneration they get these days. Galbraith didn't envisage the rise of the CEO class or the "executive compensation" rationalisation, just like he didn't envisage that Friedman, who Galbraith derided as a hopeless romantic, would rise to be one of the most (devastatingly) influential economists of the 20th century.
So this got me thinking... I think what happened since Galbraith wrote his book was that the Owner class realised they had lost control of the corporations to professional management, and so the scions of the Owners rather than idly sit on their portfolios got MBAs and seats on boards of directors and started appointing each other as CEOs and giving themselves and each other outrageous remunerations and invented "executive compensation" as a rationalisation for what amounted to looting the corporations they were running. And the best part is that they no longer needed to actually own shares in the companies they managed/looted, all they needed was to have CEOs appoint board members and boards appoint CEOs, both within and across companies (through "institutional" cross-ownership). Meanwhile, shares with (as Galbraith already observed) little decision power and decreasing (as a result of looting by the CEO class) profit were dumped on pension funds and retail investors.
See also Alfred D. Chandler's "The Visible Hand: The Managerial Revolution in American Business"
"interlocking directorate" from my high school (late '60s) days taking history courses comes to mind.
After many complaints, the local government ombudsman investigated, and demanded that planning procedures were brought into line with accepted practice before the next year. On returning and finding that nothing had been done he threatened the council members with being barred from holding office, whereupon he was informed that what he thought about banning people didn't matter, as a selection of local families had control of the parties, and if he banned someone, then the only person that the party would put up for their seat would be that banned members cousin, who would do exactly the same thing. Any idiot can face a crisis - it's day to day living that wears you out.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
I am not sure that there is quite as substantial an overlap between the new CEO robber-barons and the old money robber barons
You raise a good question for research. I personally do see the connection, but it would be difficult to substantiate, although I suppose it is about family wealth, which could be somewhat discernable. But another point is that even among the robber barons, there is infighting and some level of turnover, no? The problem with robber barons is that they undermine democracy. So all this talk about reforming the system through government regulation is already somewhat compromised because of the influence of the robber barons themselves and the corporations they control (as managers, owners, whatever). Fox, chickencoop, etc.
So all this talk about reforming the system through government regulation is already somewhat compromised because of the influence of the robber barons themselves and the corporations they control (as managers, owners, whatever).
'somewhat compromised' wins the understated euphemism prize, jjellin!
they'll just have to spin the lies harder and harder, and keep coming up with guileless-looking cherubs like cameron to spin... and the public in our discomfort will be ever more motivated to decipher the bullshit, blogging will continue to grow to facilitate this.
eventually the lies will become so flimsily outrageous tha a tipping point of trust will come, things are speeding toward that convergence mostly in italy and the UK, imo. ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
to decipher the bullshit, blogging will continue to grow to facilitate this
You're really on to something there. Well, I suppose deciphering the bullshit sounds a little more discerning than what the stenographers of the media do. We might comfort ourselves with that.
I've been thinking the same thing, but could not figure out how to express it so well. Perhaps if I had read Galbraith, it would have helped.
The "managers" who have taken over, are really the owners who have figured out how to cut out all the other so-called "owners" (stockholders) in order to gain control of the corporations and the flow of money into their own pockets, which they feel completely entitled to, in just the manner you have described.
There must be or have been some advantage to having multiple owners, aka stock holders, that enticed the original owners to open up their companies to the public in the first place--tax benefits for corporations, for example. Because otherwise, why would those owners have gone through the trouble of pretending to include the stockholders as "partners." I suppose it was to raise money. Once the money from the stockholders was acquired, the owners then had to work out the problem of cutting them out from any real decision-making and power over top management (the real owners).
There must also be some advantage to being "management" rather than "owner," and perhaps it has to do with responsibility and liability. If you are "management" and the company blows up a town or poisons a river, you walk away, while the corporation cleans up the mess. The individual manager and his family are protected, while the corporation drones, not being human, respond to management commands, yet feel no pain.
This seems to be the definition of 'liberty' in the US, and is also the implicit state religion - the ability to act in greedy, destructive, violent and oppressive ways to others with no danger of consequences.
Every statement, opinion, or position from the radical right in the US can be reduced to the belief that 'leaders' should have total freedom of action to maximise personal benefit, with the minimum of legal, moral and personal accountability. Corporate culture is an instantiation of this.
Here's another look at Robert Nozick, whom In Wales mentioned in her equality diary.
Robert Nozick - Wikipedia, the free encyclopedia
Robert Nozick argued that a consistently libertarian society would allow and regard as valid consensual/non-coercive enslavement contracts, rejecting the notion of inalienable rights. He wrote in Anarchy, State and Utopia: "The comparable question about an individual is whether a free system will allow him to sell himself into slavery. I believe that it would."[3]
Robert Nozick argued that a consistently libertarian society would allow and regard as valid consensual/non-coercive enslavement contracts, rejecting the notion of inalienable rights. He wrote in Anarchy, State and Utopia:
"The comparable question about an individual is whether a free system will allow him to sell himself into slavery. I believe that it would."[3]
Absence of that kind of 'freedom' - and having to live with consequences - defines you as someone who is excluded from that set.
So it's not that criminality doesn't exist as a concept. It's just that it's very selectively applied, and that being above some or all of the concepts of law and civilised behaviour marks you as a member of that set by definition.
We've seen this over and over in both politics and business in the US and the rest of the globalised world.
The criminality has an extra layer of indirection - muggers will steal from you directly, while CEOs will steal from you by way of legal, political and financial coercion.
But the results are depressingly similar, and often just as fatal.
That just sounds so medieval. It seems to me that the whole of US history has been about unwinding that political and social hierarchy and making this "freedom" thing available to more and more people by dispersing power among them.
The reality, depressingly, is that there is always a push back by the few colluding against the many to consolidate power. Globalization seems not to have introduced ideas of democracy to the world as much as it has introduced new methods of oppression to those who have power and want to keep it--without moral responsibility.
I wonder if globalization is one step forward and two steps back, or the reverse?
In some ways globalisation is also a misnomer. It has only been acceptable when effectively an extension of the US empire. Otherwise its Chinese workers stealing our jobs. notes from no w here
Maybe Iran is but a first convulsion (and maybe not even the first) of globalization in the political dimension, which makes it much scarier for those in power, and much more significant historically. I keep hearing people say that the protests there are already far beyond Mousavi and even the election itself. What does that really mean?
But, as I argue in my article, these new guys do not have the technical expertise to run a modern economy, and I must say that even in the five years I have been going there Iran had made great strides in modernising (not all of the oil money was siphoned off).
The new people in control can typically be identified by PhDs (Iranians have inordinate respect for qualifications, particularly Western qualifications) from the Imam Khomeini University in "Strategic Studies" and the like. These are (allegedly) handed out if you get your name right on the title page. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
As VI Lenin might have said, JP Morgan Co. is merely JP Morgan plus SAP.
