Commentary on Political Economy

Monday 1 August 2011

Systemic Risk and Private Corporations - Comment on Stephens

Commendable effort from Philip Stephens in his last FT Column. At we have repeatedly covered the growing relevance and threat of "systemic risk". As the antagonism that the rest of society opposes to the existing framework of "measuring" the allocation and utilisation of social resources according to "profitability", it is the very "lack of profitable investments" that leads capitalist firms to cast their net over the globe and simultaneously to seek further industrial concentration with its attendant evils of disparities and "systemic risk" to the reproduction and therefore the survival of the entire "society of capital".

What Stephens neglects - where he goes wrong - is the fact that we cannot and should not start at "the enterprise level", in terms of making corporations "more accountable" (to whom? to shareholders? but they already are!) in terms of the "fairness of remuneration" (according to what "standard"? that of "profitability"? but they already are! THAT is the entire "problem"!).

Rather, we ought to start directly at the political level! It is in Westminster and Whitehall that the rot starts! THAT is where we must start changing the "institutions" that decide on who produces what and when and how, and how the pro-duct is distributed.

To amplify the points made above, essentially Stephens is arguing that corporate remuneration ought to be decided on the basis of "productivity". But the problem is that it is precisely such "productivity" - the "rate" fixed by "the market" - that capitalist executives point to as the determinant of their "pay" in a "competitive global market"! Shareholder democracy is "powerless" to counter this "argument" because "shareholders" themselves, for one, expect "market rationality" to be applied (that is, the "maximisation of company profits") which runs counter to "social needs". And for another the "shareholders" who hold a majority of "voting rights" (shares) are the very executives whose "remuneration" is voted on by companies at their "general meetings"!

Stephens is therefore wrong from a purely "analytical" point of view - because he criticises the "system" from within its own "logic", applying its own "meter" - which is that of "profitability"! The only way in which we can replace this "meter" is politically, by changing the political institutions that allow "private corporations" to decide on the use of social resources and their "shareholders" to vote (!) on how corporations are run!

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