Shareholder versus Stakeholder Capitalism

[Joecooool]

Reading this today I thought he did a great job explaining the difference.




Editor's note: Michael Lind is policy director of the Economic Growth Program at the New America Foundation.

(CNN) -- In a presidential primary season distinguished so far by the absence of substantive debates, the controversy over whether Mitt Romney and his partners at Bain Capital should be considered job creators or job destroyers raises a profoundly important issue.

Beyond the concerns about the loss of American jobs to off-shoring or automation and the food-fight tactics of Romney's rivals is a legitimate question about what kind of capitalism 21st century Americans should want.

The choice is between "stakeholder capitalism" and "shareholder capitalism." According to the theory of stakeholder capitalism, corporations are and should be quasi-public entities with responsibilities to the nation-state and to the communities in which they are embedded. The corporation should make a profit and provide a fair return to investors. At the same time, workers who contribute their labor to the company have a legitimate interest in it as well as investors who provide capital. Managers serve the company and the country, not merely the investors.

In the theory of "shareholder capitalism," the corporation exists solely for the purpose of the investors, whom the managers serve as agents. In shareholder capitalism, short-term profits are the only goal, and if that means laying off workers instead of retraining them or reassigning them, breaking up the company and selling the assets to enrich private equity partners and shareholders, so be it.

The stakeholder conception of the firm is still the norm in Europe and East Asia, as it was in mid-20th century America. But beginning in the 1970s, the shareholder conception of capitalism prevailed in the United States.

From the perspective of shareholder theory, private equity firms like Romney's are promoting efficiency, even as they make short-term profits by dismantling or destroying companies and laying off their workers.

From the different perspective of stakeholder capitalism, the emphasis on short-term profits for investors at the expense of all other considerations, including the well-being of employees and local communities, has been a tragic mistake.

What are the implications? If America continues to favor shareholder capitalism, there is no guarantee that policies to favor American business will preserve or create jobs or help anyone other than investors. On the other hand, if the United States were to move away from shareholder capitalism toward stakeholder capitalism, the law might limit hostile takeovers of companies or require workers and even local governments to have a say in corporate decisions. In some cases this might preserve jobs and factories at the expense of innovation and efficiency.

As a practitioner of the shareholder capitalism of the last generation, Mitt Romney as president would probably support policies that assume that the short-term interests of investors like Bain are identical to the long-term interests of the economy. By the same token, he would probably resist policies that increased the influence of managers, workers and local communities over companies at the expense of shareholders and financiers.

Nominated as secretary of Defense by President Eisenhower in 1953, former General Motors CEO Charles "Engine Charlie" Wilson, a symbol of old-fashioned stakeholder capitalism, told the Senate that "I thought what was good for the country was good for General Motors and vice versa."

Does Mitt Romney, today's symbol of shareholder capitalism, believe that what is good for Bain is good for America? If he wins his party's nomination and this year's presidential election, Americans will find out.

[RedLS1GTO]

Originally Posted by Joecooool

According to the theory of stakeholder capitalism, corporations are and should be quasi-public entities with responsibilities to the nation-state and to the communities in which they are embedded.

In other words...ahhh.... nevermind.

[Chris Fowler]

me thinks that someone doesn't know wtf capitalism is when they try to stick another word on the front to completely redefine it.

[RedLS1GTO]

capitalism

cap·i·tal·ism/ˈkapətlˌizəm/ - An economic and political system in which a country's trade and industry are controlled by private owners for profit.

Let's face it. It's not that difficult to define capitalism. I guess I just missed the part about "public entity" somewhere in there?

GMAFB.

[DAB]

saying the purpose is short term profits is incorrect.

[RedLS1GTO]

Originally Posted by DAB

saying the purpose is short term profits is incorrect.

No good liberal would ever let things like facts or reality stand in the way of an argument.

[Cybercowboy]

Phil, I suggest you vote for Obama again. Prior to 2009, there was nothing at all you could point at that he had accomplished, so therefore he was the perfectly pure candidate, right? And since then he's been just peachy, if you define peachy as "utter crap", which makes him quite accomplished by the standards democrats use.

[Sea Six]

Originally Posted by DAB

saying the purpose is short term profits is incorrect.

That is precisely the point in that article where I stopped reading.

I suspected the author had an agenda from the beginning. When he just "bling!" dropped that false premise in there was the clincher.

[Doug28450]

Originally Posted by Sea Six

That is precisely the point in that article where I stopped reading.

I suspected the author had an agenda from the beginning. When he just "bling!" dropped that false premise in there was the clincher.

Well...

The article is from CNN, the Communist News Network.

[Sea Six]

Originally Posted by Doug28450

Well...

The article is from CNN, the Communist News Network.

... Which is why i suspected the author had an agenda from the outset.

[Sea Six]

Originally Posted by Joecooool

Reading this today I thought he did a great job explaining the difference.




Editor's note: Michael Lind is policy director of the Economic Growth Program at the New America Foundation.

(CNN) -- In a presidential primary season distinguished so far by the absence of substantive debates, the controversy over whether Mitt Romney and his partners at Bain Capital should be considered job creators or job destroyers raises a profoundly important issue.

Beyond the concerns about the loss of American jobs to off-shoring or automation and the food-fight tactics of Romney's rivals is a legitimate question about what kind of capitalism 21st century Americans should want.

The choice is between "stakeholder capitalism" and "shareholder capitalism." According to the theory of stakeholder capitalism, corporations are and should be quasi-public entities with responsibilities to the nation-state and to the communities in which they are embedded. The corporation should make a profit and provide a fair return to investors. At the same time, workers who contribute their labor to the company have a legitimate interest in it as well as investors who provide capital. Managers serve the company and the country, not merely the investors.

In the theory of "shareholder capitalism," the corporation exists solely for the purpose of the investors, whom the managers serve as agents. In shareholder capitalism, short-term profits are the only goal, and if that means laying off workers instead of retraining them or reassigning them, breaking up the company and selling the assets to enrich private equity partners and shareholders, so be it.

The stakeholder conception of the firm is still the norm in Europe and East Asia, as it was in mid-20th century America. But beginning in the 1970s, the shareholder conception of capitalism prevailed in the United States.

From the perspective of shareholder theory, private equity firms like Romney's are promoting efficiency, even as they make short-term profits by dismantling or destroying companies and laying off their workers.

From the different perspective of stakeholder capitalism, the emphasis on short-term profits for investors at the expense of all other considerations, including the well-being of employees and local communities, has been a tragic mistake.

What are the implications? If America continues to favor shareholder capitalism, there is no guarantee that policies to favor American business will preserve or create jobs or help anyone other than investors. On the other hand, if the United States were to move away from shareholder capitalism toward stakeholder capitalism, the law might limit hostile takeovers of companies or require workers and even local governments to have a say in corporate decisions. In some cases this might preserve jobs and factories at the expense of innovation and efficiency.

As a practitioner of the shareholder capitalism of the last generation, Mitt Romney as president would probably support policies that assume that the short-term interests of investors like Bain are identical to the long-term interests of the economy. By the same token, he would probably resist policies that increased the influence of managers, workers and local communities over companies at the expense of shareholders and financiers.

Nominated as secretary of Defense by President Eisenhower in 1953, former General Motors CEO Charles "Engine Charlie" Wilson, a symbol of old-fashioned stakeholder capitalism, told the Senate that "I thought what was good for the country was good for General Motors and vice versa."

Does Mitt Romney, today's symbol of shareholder capitalism, believe that what is good for Bain is good for America? If he wins his party's nomination and this year's presidential election, Americans will find out.

rong

[DAB]

there really isn't much point trying to debate a topic if one side won't even use facts, and just makes up stuff as they go.

let them yammer on, but you don't have to listen to them, nor give them your printing press or microphone or camera.

stopped watching and listening to CNN a long time ago. if i want fiction, then at least have it involve some car chases and explosions.

[RedLS1GTO]

Originally Posted by DAB

if i want fiction, then at least have it involve some car chases and explosions.

[Cybercowboy]

Originally Posted by DAB

there really isn't much point trying to debate a topic if one side won't even use facts, and just makes up stuff as they go.

let them yammer on, but you don't have to listen to them, nor give them your printing press or microphone or camera.

stopped watching and listening to CNN a long time ago. if i want fiction, then at least have it involve some car chases and explosions.

That article is written for people who will never pull the lever for anyone but the (D) candidate and its purpose is to help them feel smug while doing so. Ignorant and smug.

[DAB]

Originally Posted by Cybercowboy

That article is written for people who will never pull the lever for anyone but the (D) candidate and its purpose is to help them feel smug while doing so. Ignorant and smug.

those kind of people can read???

[Loco Vette]

Originally Posted by Joecooool

According to the theory of stakeholder capitalism, corporations are and should be quasi-public entities with responsibilities to the nation-state and to the communities in which they are embedded. The corporation should make a profit and provide a fair return to investors. At the same time, workers who contribute their labor to the company have a legitimate interest in it as well as investors who provide capital. Managers serve the company and the country, not merely the investors.

In other words, Fannie Mae and Freddie Mac.

[Sea Six]

Originally Posted by DAB

; if i want fiction, then at least have it involve some car chases and explosions.

Yeah.


I'm just going to go ahead and give you the clap.

[RedLS1GTO]

Originally Posted by DAB

those kind of people can read???

Read? Yes... sometimes.

Do simple math? Not a chance.

[Sea Six]

Originally Posted by Loco Vette

In other words, Fannie Mae and Freddie Mac.

Oh, snap!

[repo]

Originally Posted by Joecooool

According to the theory of stakeholder capitalism, corporations are and should be quasi-public entities with responsibilities to the nation-state and to the communities in which they are embedded.

The responsibility ends when they pay corporate taxes. How the Gov't spends and or disburses those dollars is up to them.