September 20, 2019

From Amazon to the Financial Times and Trudeau, the big push is underway to ‘reset’ capitalism

And this revolution may not be as benign as some think

Terence Corcoran | Financial Post

The old pink lady of Fleet Street made history of sorts this week, donning a yellow front page that contained a five-word declaration that it was pursuing a New Agenda. Despite its reputation and self-declared role as a defender of free markets, the Financial Times of London has frequently flirted with assorted compromises. But nothing matches the big yellow ribbon of newsprint wrapped around the waistline of Wednesday’s edition with a blaring headline that declared:


Beneath the big black bold type was a much smaller but no less meaningful sub-headline that read: “Business must make a profit but should serve a purpose too.”

The absurdity of that statement deserves comment.

First there’s the logical meaning of the words, which is that making a profit is not a purpose. Here we have one of the world’s leading financial and business papers implying that making a profit is some strange underlying attribute of business that just happens to exist but has no special relevance in the business of running a business.

Never mind that profits are the sole indicator of a healthy and sustainable business enterprise, that profits provide dividends to shareholders and the investment capital that business invests. Profits also set the market price for investment capital and allow business to produce all the products and services that modern corporations deliver to the world’s people.

That’s the other implication of the FT’s slogan about the need to “serve a purpose,” as if all the activities of business are not in themselves purposes, as if all production and services provided by corporations were incidental sidelines that have no purpose: food, clothing, transportation, technology, medical equipment, pharmaceuticals, energy, minerals, financial services, steel, construction materials, forest products, insurance products, retail services, computers, smartphones, media, films, real estate development. None of this comes from government.

In recent months, the plot to overthrow profit maximization and shareholder primacy became more deeply entrenched in the United States and Canada

These are the purposes of what has often been described as the Anglo-American corporate model, a dynamic production machine whose variations have constantly expanded the supply of goods and services to the world’s people, and turned a profit in the process. A good summary description of corporate capitalism’s achievements appeared on this page in Philip Cross’s review of the book Big Business: A Love Letter to an American Anti-Hero.

So what is the Financial Times trying to reset — aside, perhaps, from its own stodgy image as a dreary must-read for the world’s public-sector bureaucrats?

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The Anglo-American shareholder model is often associated with free-market Nobel winner Milton Friedman, who wrote a defining defence of profit maximization back in the 1970s. But Friedman did not invent the model, nor was he the only defender of the idea that shareholders should be paramount.

Two American academics, Henry Hansmann and Reinier Kraakman, wrote in 2001 that “The strongest and clearest claim we make is an ideological or normative claim. It says that there is increasing consensus among the relevant actors, around the globe, that what we term the ‘standard shareholder oriented model’ of the business corporation is the most attractive.”

Under the model, they said “ultimate control over the corporation should rest with the shareholder class” and managers should run the corporation “in the interest of its shareholders.”

Lipton, the New York corporate reform advocate, has been on this theme for some time. He sees the corporate reset to a new paradigm as a sensible response to the extreme corporate makeover proposed by such U.S. Democratic leaders as Elizabeth Warren. The new paradigm may be a steep price to pay for warding off Warren’s radicalism.

Friedman’s contribution was to explain why the principle of shareholder control and profit-seeking should remain paramount. Changing the fundamental purpose of corporations would transform corporate managers into a kind of “public employee or civil servant even though he remains in name an employee of a private enterprise.” Such changes effectively turn undemocratic CEOs and board directors into decision makers to achieve objectives that “cannot be achieved by democratic procedures.”

It may be, as Yvan Allaire argues elsewhere on this page, that the corporate governance revolution has little significance and that the new paradigm is benign. But that seems doubtful. The reformers, from the FT’s new yellow agenda to Lipton’s new paradigm, have much greater ambitions.

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