The failure of stakeholder capitalism

March 18, 2006 - 16:42:

William Pfaff chimes in with an enlightening piece about the riotous protests going on in France, positing observations about the differences between the modern (American) model of capitalism and the previous model that the French are trying to protect:

The earlier model said that corporations had a duty to ensure the well-being of employees, and an obligation to the community (chiefly but not exclusively fulfilled through corporate tax payments).

That model has been replaced by one in which corporation managers are responsible for creating short-term “value” for owners, as measured by stock valuation and quarterly dividends.

The practical result has been constant pressure to reduce wages and worker benefits (leading in some cases to theft of pensions and other crimes), and political lobbying and public persuasion to lower the corporate tax contribution to government finance and the public interest.

In short, the system in the advanced countries has been rejigged since the 1960s to take wealth from workers, and from the funding of government, and transfer it to stockholders and corporate executives.

The Capitalist EarthwormThe second change Pfaff discusses is the effect of globalization and an internetworked environment, demonstrating the widening segmentation of the employers and the employed. Essentially, and certainly this is true in larger organizations, the “faceless masses” that occupy the millions of cubicles in Western workplaces now cost too much to maintain. What with health care, benefits and the cost of physical space, it simply makes more sense to move the engine of the economy to cheaper, more “accommodating” (and less developed) countries:

We need go no further with what I realize is a very complex matter, other than to note the classical economist David Ricardo’s “iron law of wages,” which says that in conditions of wage competition and unlimited labor supply, wages will fall to just above subsistence.

There never before has been unlimited labor. There is now, thanks to globalization – and the process has only begun.

It seems to me that this European unrest signals a serious gap in political and corporate understanding of the human consequences of a capitalist model that considers labor a commodity and extends price competition for that commodity to the entire world.

Truly the economic theories that have dominated the landscape for the last century are in need of a serious rethinking. And if not, then we must refactor our institutions and indeed, our civilization, to deal with the obsolescence of formerly dependable insulating walls that kept economies independent and serving of the local geographic population. As those walls now no longer exist, the socialist system is in jeopardy of withering away completely and the striation between those who have and will continue to have more and those who never will in capitalist systems means that we’re in for a rough ride ahead (bubble or not).

Surely as the internet diffuses power throughout the world’s connected, those folks lacking economic mobility or the opportunity and privilege that others speak of freely will take to this new medium to make their voices heard and, perhaps, make their struggles felt — offline. It’s happening in France now; though none can say if it’s a short term anomaly, it does seem that a great deal of unrest is pervading the societies of the world as modern capitalism colonizes new markets. I can’t help but consider what this means and what the 21st century will look like as territorial conquest fades from relevance and ideological domination becomes the new tell tale indicator of power and influence.

Author: Chris Messina

Head of West Coast Business Development at Republic. Ever-curious product designer and technologist. Hashtag inventor. Previously: (YC W18), Uber, Google.

3 thoughts on “The failure of stakeholder capitalism”

  1. Germany has done pretty well holding to the model that I assume you are talking about, I believe termed corporatism. Given they are stuck with very high unemployment, etc. but that is one of the downfalls of said system, not to say it doesn’t have its upsides. I think such systems can work, it just means that the government must pick up a greater burden in terms of social welfare (serious unemployment benefits and so forth). The happenings in France you talk about are just one dynamic in a series of problems, being in Spain I hear about them basically every day.

    I love your last line, “…ideological domination becomes the new tell tale indicator of power and influence;” it will be interesting to see how this works out in terms of economics, as we saw with the USSR ideological domination can’t do everything.

  2. Just to clarify my last point — which I think you got — is that back in the day it was the “hip” thing to do to invade other countries and occupy them physically. Nowadays that’s no longer necessary — and in fact, it’s far too costly, as we’re witnessing in Iraq and Afghanistan.

    But those places are not internetworked or open. The biggest challenges will come from places like China, who are internetworked but have very different cultural norms and laws to reinforce them.

    So in that example, not long ago Google was chastised for doing business in China and following the local laws with regard to censorship. That’s business. Google is not a government that will go to war to change the laws of another country. They will do business as long as possible under those conditions because of the economic value it brings to Google shareholders.

    What is interesting to observe, however, is that by Google doing business in China (and of course others like Yahoo and Microsoft, etc there as well), we will start to see ideological domination occur… in that the law doesn’t need to be broken to cause change — simply by being present and entering into the thoughtspace of the citizenry, change may happen from the inside out…

    …which is why there is an interesting and dangerous precedent being set by satellite TV — in that it more often than not reinforces certain views and stereotypes of people who either don’t know or don’t care about alternative points of view. Both FOX News and a great deal of Arab television fits this description.

    Anyway — the point I’m making at the end is that geography is becoming irrelevant in determining power… though natural resources and environmental refuge are certainly important and becoming more so… power and influence as measured by cultural influence that’s leveraged through the internetworked world is what will set the course of history for the forseeable future.

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