European Tribune - Maxed-Out Incomes (2)

The directors of such [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own.

Exactly. Good old Adam Smith......much maligned IMHO.

The evolution of 'private copartnery' enterprise models is actually addressing the Principal/Agency problem you refer to, by enabling new forms of risk/revenue sharing engagement between stakeholders.

I did a bit of research the other day in relation to the incidence of the UK Limited Liability Partnership I bang on about.

As of last Thursday 29th May, there had been 46,036 of these beasties incorporated since 6th April 2001, and getting on for half of these were in the last two years.

This is despite almost complete silence from BERR (formerly DTI) on the subject of LLPs - which I call the Corporate That Dare Not Speak Its Name.

Similarly, professional firms have routinely become LLPs (they blackmailed the DTI into introducing the form in the first place) but most would never dream of advising their clients to use LLPs, since there is far more money in complex and conflicted enterprise models.

No one - apart from the tax-man, and he doesn't find out for a couple of years - has the faintest idea what most of these LLPs are doing, since there are no reporting requirements other than minimal accounts after maybe 21 months or so.

Similarly in the US the simple but effective LLC is also in pretty pervasive use, and Vermont appears to be ahead of the game by actually making them Virtual.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

Agency theory legitimized and camouflaged the usurpation of governance of publicly held corporations from share holders by corporate executives.  Share holders merely vote on a slate of candidates proposed by the board, whose members have been hand picked by the executives.  Financial corporations, through the massively disproportionate bonuses and stock options awarded these executives, has effectively captured the US Congress and Executive Branches through the mechanism of campaign finances and has used the resulting control to remove regulatory restrictions on its own behavior, which now is almost exclusively oriented towards the short term personal profits of the controlling executives in the various enterprises.

Over the last thirty years financial corporations have used their power to manipulate the equity markets to their own benefit, notable exceptions occurring when miscalculations were made, to inflate gigantic real estate bubbles for their short term profit, oblivious to longer term consequences, to force non-financial corporations into sub-optimal stock market strategies, such as stock buy back, to protect themselves from financial predation, and to opportunistically break up US manufacturing companies, ship the capital equipment to China and elsewhere, fire the workers, dump any pension obligations on the public, sell the real estate and other tangible assets for more than the stock market value of the former enterprise, import goods that are cheaper in every sense as a replacement for former domestically manufactured goods and done so without consideration for national account balance concerns and under market conditions best described as a competitive feeding frenzy.

This would be bad enough were it part of a well thought out program of extracting the maximum wealth from that economy for the benefit of the very few. But the only parts that apparently were thought out were those that involved making the short term profits. The long term consequences of these actions on the health and stability of the society and economy within which they were occurring were ignored. They were considered to be "externalities."  Throughout this process the role of government has been ridiculed, stigmatized,  minimized and, ultimately, suborned into one of supporting the ongoing looting via  governmental regulatory agency actions, congressional actions and executive actions.  But instead of a program of governance we have had an un-managed, un-mitigated rolling catastrophy, in large part because no one organization had enough power to actually be accountable.  The government, in effect, has become the zombie of a cabal of pirates who are fighting for control, with the leadership and direction frequently changing.  Worse still, there is no clear prospect for the general public to even grasp, let alone acknowledge, the situation.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

In economic circles, so much emphasis is put on the corporation in theory, and very little on what the corporation actually produces. It doesn't matter if they're making soap or pistons.

The fact that something such as planned obsolescence might contribute to so-called "agency theory" simply reinforces he point that this has all become a metaphysical exercise.

God help us if a corporation ever patents "cold fusion."