Fri Jun 26th, 2009 at 06:58:20 AM EST
On the face of it, one of the puzzling aspects of recent economic history is the way CEOs,
investment bankers loan sharks and (other) corporate raiders have taken control of the WesternTM planning system away from the lower-level organisations that used to plan and implement industrial production in advanced industrial economies (what Galbraith called the technostructure).
I've been mulling over what could have happened, and I have come to think of three points that I believe are important:
- Activist shareholders are more likely to be raiders than builders. A shareholder in a modern, technologically advanced company cannot stay sufficiently abreast of the operations of the company to make a useful contribution to the management. Looting, on the other hand, requires no detailed concept of the day-to-day operation of the company, only power to set required dividends and the will to go the nuclear option and liquidate the enterprise if it fails to provide those dividends.
- Insufficient marginal taxation means that it is more profitable for CEOs to assist the looting in exchange for a cut of the take, than to resist the looting in order to preserve their long-term tenure within the firm. If marginal taxes are raised, steady salaries become more valuable relative to lump sum payments. And vice versa. Looting gives you lump sum payments, tenure in a healthy organisation gives you a steady salary.
- Insufficient countervailing forces within the corporate hierarchy. If more groups from within the company were represented in the boardroom, it would be harder to loot the company (or at least to loot it profitably). People and groups within the company's technostructure have both the knowledge to exercise actual influence from the boardroom (as opposed to shareholders and their nominal representatives), and a strong interest in the preservation of the corporate technostructure that pays their salaries and is the source of their personal power. Of course these groups could also be bought by a prospective looter, but the more people you have to cut in on the take, the less profitable looting becomes.
promoted by whataboutbob
There are various ways to attack this problem, and I will suggest two here:
To solve the problem of insufficient marginal taxation is technically speaking the simplest: Raise marginal tax rates.
To remedy the lack of countervailing forces within the corporate hierarchy, I am personally partial to giving employees formal representation in the boardroom. Preferably via direct elections, using secret ballots, with one employee given one vote. This should not be construed simply as a way to impose socialism on the corporation - although I am not ashamed to say that this is part of the purpose. I also believe, however, that giving the employees (effectively representatives of the technostructure) a strong formal representation will serve the interests of long-term investors and society at large (at the expense of the interests of looters).
The interests of the technostructure - perpetuating the organisation and securing its independence from outside interference - align very well with the interests of long-term investors: The capitalist enterprise can only be perpetuated as an independent organisation if it has a steady and stable revenue flow, and investors who take the long view will ultimately benefit from such stable and steady revenues. The interests of the technostructure also correspond with the needs of society at large, at least to a much greater extent than the interests of the corporate raider does. This should hopefully be fairly self-evident: Maintaining an advanced technological society requires a functioning planning system, and a functioning planning system requires a strong technostructure. Corporate raiders, on the other hand, are not a requirement for a functioning industrial society.
[This diary is an adapted and expanded version of this comment]