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A STUDY IN AMERICAN CAPITALISM – FROM “MR. MAYOR” TO “HOW MUCH?”

April 27, 2014

A STUDY IN AMERICAN CAPITALISM – FROM “MR. MAYOR” TO “HOW MUCH?”
Steven Pearlstein offers a penetrating critique of whatever happened to American-style capitalism in the March-April 2014 edition of The American Prospect. His lengthy essay discusses how our capitalist model was at one time the talk of the world with its American companies which were considered to be the most productive and innovative, its labor markets the most flexible and meritocratic and its capital markets the most efficient. Such companies were also regarded to have the most open and competitive product markets while enjoying tax and regulatory regimes that were the most accommodating to economic growth. Our reputation then went from the top to the bottom in short order. Now our capitalist economy is underperforming those of European-style economic socialism. What happened?
As my followers know, I have always (though from a different perspective) traced our decline from 1974, when the banks and corporate America decided to hog all the new wealth created by the economy with the result that wages have since been stagnant or declining in median family terms, and while I have blogged on “shareholder value” and corporate governance shortcomings on occasion, my essays have centered more on wage inequality. Pearlstein thinks that the eternal quest for “shareholder value,” fast turnover trading, stock bonuses to executives based on performance or other board-set goals and, of course, playing with the books to satisfy quarterly analysts’ predictions are the major culprits. He is especially critical of managing corporations for the purpose of maximizing “shareholder value.” He is looking at corporate governance generally and I am looking at a narrower niche in re how labor is affected by corporate governance, and I see a connection that I will discuss in later parts of this essay. (Let’s look for the present at some background on how “shareholder value” has evolved into an accepted norm of corporate behavior and the apparent all-encompassing goal of executive management of corporations these days operating, as always, under fear of shareholder lawsuits based on breach of fiduciary duty.
The earliest corporations were generally chartered for public purposes, not private purposes. They were begun to build canals, street car lines etc., not to make profit.” “Shareholder value” was of no concern. Even later for-profit corporations were thought to owe something to the community that provided them with special legal protection (limited or no personal liability) and the economic ecosystem in which such corporations could grow and thrive. After all, a corporation coming into town to build a new plant did not build the streets, sewer systems and power grids it would be using in its production of goods and services; such facilities were already there, paid for by inhabitants and offered to the incoming new corporation in what amounts to an exercise in corporate welfare. There was an implicit understanding that the new company in town owed something to its inhabitants. That was then and this is now.
Fast forward to today (Exhibit A – Volkswagen and Chattanooga, Tennessee). Now states and cities send “trade delegations” overseas (checkbook in hand) to beg foreign companies to build factories in their jurisdictions back home, offering 10 or more years free of taxation and assessments, new roads, sewers, power grids, rezoning or variances for the planned activities (and perhaps even free land and direct cash payment etc.), all new such goodies to be paid for from the public till via taxation and assessment free of cost to the foreign corporation being courted by the politicians on behalf of “the people.” Some venues even promise to add studies in the language of incoming executives’ children to their public schools, a curricular sensitivity not wasted on inhabitants’ children, the tax and assessment payers who are paying for all this largesse extended by politicians to the new foreigners in town, foreigners who are immediately invited into the midst of the local Chamber of Commerce, Rotary Club et al.
Whatever happened to the old idea that corporations first came to town, hat in hand, and asked local officials what the chances are of locating a factory in their neck of the woods? Now they must be feted, bribed, cajoled, and even so, cities and states across our country vie with one another for such “development,” a competition in giveaways of taxpayer money by politicians anxious, they say, to bring jobs to town – but only a few taxpayers will be hired by the new plant, while the rest pay for such “development” with increased traffic, taxes etc. That’s development? For whom? We have come a long way from “Good morning, Mr. Mayor” in Youngstown to “O.K., we’ve got the offers of seven other cities in America, Mayor Jones. What’s your deal” in Munich.
More background on corporate management (or mismanagement) that established “shareholder value” at the center of how American corporations with publicly traded stock manage their businesses (whatever the long term consequences) will be forthcoming in Part II. Stay tuned. GERALD E

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One Comment
  1. loren boline permalink

    Gerry, Another reader, Gary Guilford. garyguilford31@gmail.com Thanks, Loren Boline Date: Sun, 27 Apr 2014 16:49:15 +0000 To: loren_boline@hotmail.com

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