A systemic problem
The JSE should look for inspiration in the Accountable Capitalism Act
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.