A sys­temic prob­lem

The JSE should look for in­spi­ra­tion in the Ac­count­able Cap­i­tal­ism Act

Financial Mail - - BOARDROOM TAILS -

The JSE had re­ceived 57 re­sponses to its con­sul­ta­tion pa­per by the Oc­to­ber 22 dead­line and is now pre­sum­ably por­ing over the de­tails to iden­tify pos­si­ble reg­u­la­tory changes in view of the “re­cent events” that wiped out hun­dreds of bil­lions of hap­less in­vestors’ money. It is a noble un­der­tak­ing. Sadly, it might also be point­less — the prob­lem is sys­temic and the JSE and most of the re­spon­dents are likely part of it.

The fact is, if you set out to cre­ate a sys­tem that would en­sure huge inequal­ity, en­vi­ron­men­tal degra­da­tion and the oc­ca­sional an­ni­hi­la­tion of in­no­cent peo­ple’s wealth, it would look a lot like what we have to­day

— a lim­ited li­a­bil­ity cor­po­rate struc­ture over­seen by in­sti­tu­tional fund man­agers. It is a sys­tem de­signed to al­low peo­ple to ex­er­cise power with­out re­spon­si­bil­ity or ac­count­abil­ity. The com­fort­ing ve­neer of the cor­po­rate gov­er­nance in­dus­try has al­lowed the sys­tem to thrive in an os­ten­si­bly demo­cratic set­ting.

Adam Smith, the po­lit­i­cal econ­o­mist much loved by free-mar­ket ad­vo­cates, op­posed what was known in the 18th cen­tury as joint stock com­pa­nies be­cause of the sep­a­ra­tion of own­er­ship and con­trol. He be­lieved such com­pa­nies “can … scarce ever fail to do more harm than good”.

It wasn’t the own­ers of busi­nesses who pushed for lim­ited li­a­bil­ity but a grow­ing “ren­tier” class whose mem­bers were ac­cu­mu­lat­ing wealth and faced lim­ited in­vest­ment op­por­tu­ni­ties in owner-run and -man­aged man­u­fac­tur­ing or land en­ter­prises. As one com­men­ta­tor says, lim­ited li­a­bil­ity was not the in­evitable out­come of ad­vanced tech­nol­ogy and eco­nomic ef­fi­ciency, but was largely a po­lit­i­cal con­struct to ac­com­mo­date and pro­tect the ren­tier in­vestor who had no in­ter­est in be­ing an en­tre­pre­neur but did want to grow his wealth.

Af­ter a ten­ta­tive launch in the UK in the mid-19th cen­tury, lim­ited li­a­bil­ity be­gan to as­sert it­self. Halfway through the fol­low­ing cen­tury its hold across the globe was the busi­ness equiv­a­lent of Fran­cis Fukuyama’s

1989 “end of his­tory” claim for lib­eral democ­racy — a claim that turned to dust al­most as soon as it was made.

In the late 20th cen­tury, as their re­sources grew ever deeper, the ren­tiers were able to trawl the globe in search of in­vest­ment op­por­tu­ni­ties. There has been far too much at stake for the pow­er­ful ren­tiers to al­low any se­ri­ous chal­lenge to lim­ited li­a­bil­ity and money-man­ager cap­i­tal­ism. The sys­tem re­mained un­changed even in the wake of the wide­spread de­struc­tion caused by the reck­less­ness of risk-tak­ers in the lead-up to the global fi­nan­cial cri­sis.

To date the only se­nior po­lit­i­cal fig­ure to chal­lenge its stran­gle­hold is US sen­a­tor El­iz­a­beth War­ren, who re­cently in­tro­duced the Ac­count­able Cap­i­tal­ism Act. As War­ren sees it, if pow­er­ful cor­po­ra­tions are con­sid­ered the le­gal equiv­a­lent of peo­ple, they should also have a le­gal obli­ga­tion to con­sider the im­pact of their choices on the com­mu­ni­ties they op­er­ate in. Some es­ti­mate that if im­ple­mented, War­ren’s plan would re­sult in the re­dis­tri­bu­tion of tril­lions of dol­lars from rich ex­ec­u­tives and share­hold­ers to the mid­dle class. This might ex­plain Pres­i­dent Don­ald Trump’s crazed re­sponse to the ham-fisted way in which War­ren han­dled her claims to Na­tive Amer­i­can her­itage.

Per­haps the JSE should look for some in­spi­ra­tion in the Ac­count­able Cap­i­tal­ism Act.


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