The problems with CEO capitalism
Robert J. Samuelson’s June 22 op-ed column, “The CEO backlash,” stated the problem with modern capitalism very well: “CEO capitalism creates incentives for executives to favor policies — reducing jobs or research and development— that boost stock prices for a few years at the expense of long-term growth.” But Mr. Samuelson dismissed this by stating that it is unclear if it is really a problem.
Capitalism relies on rational actors who trade capital knowing its true value. Capitalists are rewarded based on the value of the products or services they provide. Ideally, capitalism is a meritocracy, yielding the best economic outcomes. However, capitalism is fragile. Even a small deviation quickly leads to undesirable results. Think, for example, of the monopoly that uses anti-competitive methods to drive an innovator out of business. This results in a lowerquality product at a higher price, among other undesirable things.
When high-level executives move from company to company every few years and are able to boost stock prices using gimmicks and speculation, they cause a distortion of the ideal conditions on which successful capitalism relies. While the executive is rewarded, the company generally pays the price because of reduced investment in the future. The slower long-term growth means fewer jobs and lower pay for those lower down, and it is a significant contributor to the inequality we see today.
So, yes, it is very clear that “CEO capitalism” is a real problem and not just a “rhetorical debating point.”