Financial Mail

A systemic problem

The JSE should look for inspiratio­n in the Accountabl­e Capitalism Act

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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.

 ?? Crottya@fm.co.za ??
Crottya@fm.co.za

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