I’m reading The Divine Right of Capital by Majorie Kelly, which is essentially a critique of the prevalent unquestioned self-evident truth that companies exist to profit shareholders. That is, for the majority of companies, the measure of success is how much wealth they generate for stockholders. And sometimes, it is necessary to trade in the welfare of employees, communities and the environment to achieve this aim.
I began reading this book with a certain level of hostility. In fact, I am still wary. I am wary because:
- Bloody hippies, kill them all.
- I am a shareholder and I’m not evil.
- I couldn’t imagine a different world, where society was arranged so that companies naturally delight in increasing community wealth, instead of being pressured to do it by regulators. (Okay, so now I’ve revealed myself for the right wing economic rationalist that I am. Yeah, that’s right. I’ve only been pretending to care about the environment and people and all that other crap.)
I haven’t converted or anything as wholesale as that but there was a turning point in my thinking in my early readings of the book. Ms Kelly seems to have anticipated my lack of imagination. She says approximately, “Once upon a time, the aristocratic class lived off the productivity of peasants, while contributing nothing themselves. It seems ludicrous now but in those times, it was simply the natural order of things. Some people were closer to God than others. How could it be any different? In much the same way, we accept that the only way companies can work [innovate, be productive, compete] is when they’re driven to generate profits for shareholders, who really contribute nothing to the productivity of companies.”
This was a useful analogy for me, not because I was convinced that shareholders are modern day aristocrats (read: societal deadweight) but I was suddenly able to conceive that truths and foundations that seem self-evident now may not be self-evident and essential in some future.
Boing!
As I read further, I started thinking about these rich young (or old) things, canny investors, people who caught the wave and are so invested up that they can live off their passive income (dividends, rent, interest etc.). They drive around in their Porches, hop between holiday homes, may choose to work or choose to play golf depending on the weather. In all the investment books that I’ve read, this is the ultimate goal, right? “Make your money work for you!” they cry. It’s what the smart people do. It’s what I’ve been trying to do ‘coz I’m a smart person.
Now I’m thinking, “Is this fair? Is this desirable? How can there be people who live so comfortably off other people’s labour without having to contribute to the community? Are these the new aristocrats?”
And that makes me uneasy because maybe I am evil after all.
What should I do? Do I stop investing? Stop buying shares that produce dividends? Stop putting my money in the bank? Should I live on my salary alone? Isn’t that really stupid? If the system’s there, why not educate myself and use it to my advantage? If I think it is unethical, can I protest the system with the left corner of my mouth while telling my stockbroker to ‘buy buy buy’ with the right corner of my mouth?
I don’t know. I don’t know.
These are all excellent thoughts Joan.
A shareholder needn’t be societal deadweight. They may still contribute to society by the way that they make choices. The system is not static, it is very dynamic and if one were to describe it with an equation, I’d bet it would be a very complicated differential equation.
If everyone only invested in equitable corporations who were nice to their employees then it tips the balance of things in a direction that standard economic theory would suggest against.
Also, as a shareholder, you have the power of a vote at a shareholder meeting. Given adequate leadership, groups of shareholders can have a remarkable influence on the decisions of a corporation. They theoretically have the power to decide on boards of directors etc. which also influence the behaviour of the corporation.
The fact of the matter is, no matter what you are – shareholder, employee, whatever, you can have a positive influence on the world. That’s right – THE WORLD. We dictate the nature of the system in which we live just as much as the system influences our behaviour and decisions.
Given the current state of the world, if you behave as a sheep, you will probably be acting in a way which you would describe as “evil”. But you don’t need to do this. You can go against the flow. If you do this smartly, you will benefit in the long term and people will follow you and you will effectively change the system.
There is a difference between waiting for a wave and then riding it, and going out and making your own waves.
As an investor, you control a slice of society’s choices. You get to decide what is a good investment, both for building your personal wealth, and also for building society’s wealth. Investing isn’t evil in itself, it’s only the ‘aristocratic’ culture that has evolved around it that can be detrimental.
In the fog of stock prices, interest rates, indicies, exchange rates, economic data and all the other information that is thrown at us, it is easy to forget what they all really represent. Underlying it all are people creating goods and services that are used by society. So, when you get your next dividend, you might like to think what it represents. Maybe it is profit from the sale of timber unsustainably harvested from native trees (in which case you are effectively appropriating future society’s wealth for yourself, and not giving anything in return), or maybe it is profit from sustainably harvested timber (in which case you are providing an essential resource for the rest of society, without harming anyone in the process)? How do your investments rate? It’s a tough question, and I doubt the All Ordinaries gives us any clue about how to answer it.
As an investor with a social conscience, you are more likely to do good to the world through your investments than if you were to spend it and just rely on your salary. Think of your investment returns as your reward for being a responsible investor. It pays for the time and effort (and love and care… oh, and money) that you sacrifice in the pursuit of selecting worthwhile investments for society. Getting paid to do good for society — that is the Ultimate Goal.
Thank you for your thoughts.
The book points out that when someone buys the shares of a company, they are really contributing nothing to the company except liquidity. Back in the initial public offering, people who bought shares at least contributed capital but now, most transactions are speculative, gambling. I can’t see how a high share price will help a company (unless… can companies borrow against their share price? Or in a more convoluted sense, maybe the possibility of future me buying shares allows the IPO to raise more money?).
How can I justify drawing an income for doing nothing? I have limited management responsibilities and zero liability if something goes wrong (and it appears now that shareholders can even become creditors when a company goes bust!).
I understand I can do good for ‘society’ by throwing my weight around at meetings. But what good does it do for the company? I suspect they would view my weight-throwing as a burden if anything.
How will investing in sustainable companies actually help the company? They don’t see any of the profit I make off them. They have to give me dividends and listen to me when I say things at meetings.
I don’t get it. I understand how my shareholding could be good for the community. I don’t understand how it could be good for the company.
Mmm… maybe there’s no direct benefit to the community.
Maybe by supplementing your salary income with “doing nothing” income allows you to pursue a career that’s not necessarily as financially rewarding as you’d like (or need…), but that you value because it reflects your beliefs — maybe you think your continuing that job is a benefit to the community.
So maybe the sharemarket is a way of freeing clever people from the dilemma of choosing between self-comfort and utilitarianism.
Guess it didn’t work for you!
(Maybe I’m being too simplistic.)
You could even use your “shareholder-power” in a more direct way. Borrow heavily (very very heavily) and pick an evil company, like say, Rio Tinto, and start buying up big. Do so in increments and through different brokers. Make a few phone calls here and there, tell other people to buy buy buy until you’ve driven the share price through the roof. Then, at a predetermined time, everyone opens up their sealed orders from Her Majesty which say “dump Rio Tinto”. Everyone dumps their shares taking Rio to within an inch of its life then you, your Majesty, make a buy offer. You become a very major shareholder, appoint yourself chair-person of the board then either drive the company into the ground or force it to make ethical decisions which profit the community and the environment which, in the long run, will profit shareholders anyway. If you do this with enough large corps, then you will change the paradigm… and save the world!
Hey, that’s it! That’s it!
It’s as I’ve said all along. We need a benign dictatorship. Tell the people what’s good for them.
All hail, Chairman Joan!
Who’s the leader of the club
That’s made for you and me?
C-H-A-I-R-M-A-N J-O-A-N
Some very interesting thoughts Joan… I guess I have a lot of my own views about all this sort of thing but I agree with you and, well, here are some comments that occurred to me.
1. Poor hippies! Why?
2. “I am a shareholder and I’m not evil”. I certainly agree with you on the second proposition, and believe the first. What I think is interesting — and sometimes a real obstacle to understanding — is that therefore one becomes defensive against these sort of small-l-liberal or mildly-socialist arguments. Nobody is suggesting — or should be suggesting, at least — that the immediate participants are all evil! Your hostility is fair enough, but it seems to me it’s a good illustration of how people become invested in certain positions (that’s a pun). It may be that many of the institutions in our society are not particularly conducive to a happy and fulfilled set of inhabitants — but if we are emotionally, psychologically, or economically dependent upon them, then we find it difficult to approach the debate dispassionately. Criticism then becomes a personal attack. To discuss these matters (indeed, any politics/economics) at all, you simply must try to stand back and get some perspective. There may be all sorts of institutions in society which are not optimal, nay even “evil”, but in which all the participants are good, honest, compassionate and so on. So it may be that the *institution* of shareholding is harmful, or even “evil”, but the shareholders are not. Certain institutions have their own internal functioning and logic which operates independently of any individual internal to it. The corporation is an obvious example, and shareholding is a part of that. In examining societies/economies this sort of institutional analysis is indispensable.
3. As for being unable to imagine a different world — this is a really common point of view, unfortunately. “There Is No Alternative” says everyone in the mainstream, ever since Margaret Thatcher. I am glad the author of this book referred to history to refute it. Because this is one of the most prevalent, and the shoddiest arguments of history. It has been repeated at every era of history, and proven wrong every time. And further, the most cursory examination of history shows a trajectory through many, many radically different forms of economic and social organisation. Not just feudal economies either. Anthropology negates the whole proposition immediately. And yes, arrangements have even existed where community wealth is shared and so on! In fact, for most of human history we have lived according to naive, but working, properly functioning, egalitarian, agricultural communism. There are plenty of other examples as well. One can easily argue that capitalism is the aberration.
4. I think you have found a deep truth: living off unearned income is neither fair nor desirable. In fact if you try to apply the most basic notions of fairness or justice to the present-day distribution of income you will find it sorely lacking. Unearned income is just the tip of the iceberg of economic iniquity. I certainly don’t think such an arrangement is the socially smart thing to do. Shareholding is parasitic, by definition, and no talk about voting ethically at AGMs will save it from being an ethical disaster in the first place.
The question then is: if we reject income from shareholdings per se, well what is a fair way to earn/distribute income? If you ask me, this is one of the first questions of economics, something everyone should think about. It never rates a mention in mainstream economics; it is worth asking why.
5. As for what you should do, I can’t really offer many suggestions there, and the other comments seem rather reasonable. Just because we might think the whole idea of owning shares is socially harmful, doesn’t mean the best thing to do is wash our hands of the whole idea. Voting ethically can make a difference. You can donate your profits to charity — better than going to someone else as unearned income, maybe. Investing ethically, to the extent it is not an oxymoron, is an option. It’s a question of strategy and how you think the effects of your choices will lead to the best outcomes, socially.
6. Stop worrying about being evil. You most certainly are not, you are clearly better than most investors (which includes most of the population) already! The first question is to try to figure out what is the nature of the system. If the sytem is non-optimal, or even “evil”, that is not your fault. It is the system’s fault that you are placed in this position. But yes, if one has an idea of what is desirable and what is not, what is fair and what is not, then one would hope to act accordingly so as to promote desirable outcomes. But all these decisions are to be made in the individual case, according to individual circumstances, surely.
Sorry for the verbosity, as usual.
Joan, I must say that the timing of the emergence of this topic is… well… timely.
I have often thought about what constitutes being ‘evil’. A person’s goodness or evilness, I believe, are not necessarily directly tied to their behaviour. Strangely, some characters from movies illustrate my point quite well. Take for example the nurse from ‘One Flow Over the Cuckoo’s Nest’. She does her job, on the surface all her behaviours reflect those of someone who is ‘good’, however, by the end of the movie it is clear that she is quite ‘evil’. Consider also, the apparent behaviour and underlying motivations in the character of Kaiser Soze in ‘The Usual Suspects’. Or how about the guy who goes to an Amnesty International meeting… but does so for the express purpose of picking up a member of the opposite sex?
Is it worse to be ignorant, carry out your actions oblivious to the ‘evil’ that may become of them or is it worse to know full well what you are doing and its consequences yet still carry out the same actions? What if you expand your knowledge, change your actions, but the consequences of your actions eventually turn out to be evil? The problem here, is that it is impossible to ever have ‘all’ knowledge of past, present and future on which to base your decisions. It is possible that we may someday figure out our ‘ideal world’ only to have a far more intelligent and ‘superior’ alien civilization come along and say… ‘hey dudes, you’ve got it sooo wrong’.
As for getting money for doing nothing… I’m probably one of the world’s worse culprits in this regard. If only there was an easy equation which equated material wealth to… well, whatever it should be equated to. I’m disinclined to try and relate it simply to the amount of work or effort put in. If this is the case, then a person who walks a thousand km but does so in a circle deserves to be paid as much as someone who walks a thousand km in a straight line and actually gets somewhere (nevermind the sphere we live on… or toroidal space for that matter). I think the justification behind shareholding is that the shareholder takes a risk by investing and is thus rewarded if the corporation does well. Having said that, the returns on most investments are disproportionately high compared to the risks one takes.
What often goes on in my head… is that if I’m not doing something to get this money, then *someone* is. Taking the most immediate example – myself, the answer is easy – dad works for it, gives it to me. As for many of my shares, I’ve come to the conclusion that somewhere along the line *something* is ‘exploited’. It can be the environment, it can be cheap overseas labour which isn’t protected by laws, it can be the job security of employees, it can even be human lives.
I think that there are basically three ways of generating what we commonly regard as ‘wealth’. The easiest is to ‘exploit’ something – I shall define ‘exploit’ as gaining advantage by means of a process which is not indefinitely sustainable. Then there is ‘changing the rules’, changing the system, moving the finish line, stuff like that. Far more equitable, in my eyes, than exploiting stuff in truth I don’t mind this nearly as much because it often involves alot of the third thing. Thirdly, there is creativity.
Many people say that knowledge is power, but I’ve sat on committees (admittedly, of mostly lawyers) brimming with knowledge but who are some of the worst decision-making bodies in the world. Its what one does with one’s knowledge that determines ‘power’ (whatever THAT is). At the heart of this is creativity. I still hold fast to Victor Hugo’s famous quote “there is one thing that is more powerful than all the armies of the world, and that is an idea who’s time has come”. On a side note, I believe power is about choice… not so much about what you can do, but what you may choose to do or choose not to.
I think the problem with society as far as people having to take things personally and get defensive about their positions stems from our terrible tendency to try and seperate things into black and white. It all starts innocently enough with yes/no, true/false sorts of things but then grows into the myriad of us/them relationships which exist in our world.
Maybe we should even try beginning a discussion by throwing out such concepts as ‘income’ and ‘possession’. On the one hand, I’m thinking that there may be biological/behavioural reasons that we have a tendency to think this way, on the other… I’m thinking that perhaps there are some behaviours that HAD to evolve in order for us to become as ‘advanced’ as we are. I mean, truly, is being a human, and contributing to all these problems, really that much better than being a kitten and just sort of being part of the ‘natural order’ of things?
On the subject of natural order….
There’s only one thing I’d like to add, which is that there is another justification for being paid to invest in shares: by choosing to invest your money in something which (in theory) produces something that is useful to someone, you are contributing more to society than if you spend the same money on consumption, eg purchasing a really enormous turnip, or something. In light of this choice, it seems reasonably logical that investment should be rewarded financially, subject to an awful lot of ethical considerations…
Well, this is all rather interesting! And, yes, very very timely. Because we would all like to save the world, and this seems to be a good way to approach it. So, I am going to impinge on you again, if you don’t mind.
1. “Good†versus “evilâ€. We are all using these terms, and Daniel you raised some potentially intractable philosophical problems about them, which I don’t propose to answer. But we often put these terms in scare quotes, almost as if we were reluctant to use them (I am, anyway). I think there is good reason for that. For one thing, we are not (at least I am not) interested in making judgments about particular people, particularly not Joan, who is clearly beyond reproach! For another, if we stare at ourselves for too long, wondering whether we are ‘evil’, constantly examining ourselves for guilt, it may be immobilizing, even self-indulgent – though we would like to do the right thing of course! Slaves to our morals, Nietzsche might put it. ‘You must live outside yourself’, Bertrand Russell would implore us.
But perhaps most importantly, in using the language of ‘good’ or ‘evil’ we tend to overlook one of the main potential justifications – ‘but everybody else does it!’ We neglect the social dimension of the problem. And this is precisely the hallmark of a problem that stems from a social institution that is independent of any one of its members. This justification is a good justification for a particular individual to engage in harmful action in a society with harmful institutions; but it is not at all a justification for the social institution constituting that behaviour in the first place. In a bad society, it’s hard to help but to do bad – you have few other options. Vice versa in a good society. That is why I prefer to think at the level of social institutions rather than individuals; such institutions affect what we do, and set the limits to what we can do. Though of course individual actions, or collective actions, can change institutions – and that is the point, really. Answering questions about the way social institutions do/can/might operate is difficult enough, is necessary to answer everything else, and maybe is sufficient to answer everything else.
2. Money for nothing. I think we are *all* culprits in this regard, so although we should recognize that, let’s not get too bogged down about it! Certainly a great proportion of the population holds shares in the first place. But here was something interesting: Daniel, you suggested a potential income norm: income for ‘work or effort put in’. I see two possible interpretations: if two people put in the same amount of ‘effort’ then their ‘work’ (I mean output) will vary depending on their talents, education, experience and so on. So we can have ‘income according to output’ or ‘income according to effort’. I can think of other possibilities: ‘absolutely equal income’, ‘income according to need’, ‘income per household on some fixed scale’, ‘income according to bargaining power’, ‘income according to property owned’, and many other possibilities and variants and mixtures, sensical and nonsensical.
Putting aside the problem of practical difficulties for a moment, at least for the basics of life, like health, education, housing, food and so on, our primal impulse is that these ought to be distributed according to *need*. ‘To each according to their need’ is such an obviously superior ethical principle that, without any education on the point, a large majority of the US population thinks it is in the US constitution (its most famous appearance is in the Communist Manifesto). But there are problems with implementation. Where do needs stop and non-essential desires begin? Who decides what is a need? To provide perfect health care for every person, say, might be prohibitively expensive. And what to do once we move beyond these basics of life? With technological progress, do more conveniences become quasi-necessities? (Like a TV today, perhaps…) Interesting to think about; Bertrand Russell’s proposal for a desirable economy incorporated distinctions like these (see his book ‘Roads to Freedom’). Income according to work, or output, is also a common idea on the left. So is income according to effort. And if everything is just too hard, there always remains the equal income approach – this is the position Bernard Shaw took, for instance (e.g. his ‘Intelligent Woman’s Guide…’).
I don’t know about this ‘walking in a straight line’ argument. If a society decided that ‘income according to output’ were to be its income norm, then a person who walks in a straight line has zero output, so gets zero income. Alternatively (and I think this is what you meant), suppose a society declared ‘income according to effort’: the society says, yes, it is unfair to reward people for doing nothing; no, we will somehow measure the effort you put in to your work, and reward you accordingly! Surely that society did not mean that every exertion anybody ever makes deserves income! So as I exert myself to write an overly long comment on a blog, or to go on a holiday, or exert myself to play an enjoyable game of tennis, I don’t think I would be making a claim on income! I think what would be intended would be, the effort you put in to your *work*. And what is work? Well, that must be decided, but it may not be that difficult a question: we all think we know what work is, right? We could choose to include housekeeping, or cooking, or studying, or looking after children, as work too, though, if we saw fit. But then there are other obstacles, obviously: how to measure effort? How can you compare effort between people? What if you can’t get work anyway? Are these obstacles insurmountable?
Remarkably, there are proposals to organize an economy so that precisely these questions are answered, in my opinion quite practically and plausibly so – certainly very clever. The model of a desirable economy which I most prefer at the moment, ‘participatory economics’, seeks to provide income according to effort, and details institutions for doing so. Long story, you can visit http://www.parecon.org for further details.
Just to give you some idea of how you might go about ‘measuring effort’, the argument runs like this. We start from the following proposition: if all jobs were roughly equal, and people work with similar intensity, then effort is roughly proportional to time worked, more or less. More talented, knowledgeable or experienced people will produce more for the same effort – but we decided to reward on the basis of effort, not output, so we can approximate effort by time worked. If you want to earn more, you can work a bit longer. We can only ever roughly approximate in these matters. All jobs, however, are not equal. We therefore propose to (very roughly) equalize them! Not in the sense that everyone does the same job; not in the sense that people are forced to do things they don’t want to do; but in the sense that we try to balance, very roughly, the arduousness, empowerment, and menial aspects. That is, give people ‘jobs’ which are not single ‘jobs’, but a balanced combination of jobs. This notion of a ‘balanced job complex’ also has added benefits: it avoids people working rote jobs day in day out, turning into vegetables in the process; workers get a bigger picture idea of what’s going on in their workplace and in the economy; less wasted potential perhaps, hence more efficient perhaps; more people get a chance to work in organizational/managerial/administrative positions; and hence there is a real chance for a workplace to function on a democratic basis. When there is a sense of genuine democracy and cooperation, of ownership in the enterprise, the incentive to slack off is much diminished; one could have various disciplinary/survey/peer review systems maybe; these things can be agreed upon in each individual case according to the circumstances, no point specifying these things too precisely.
Well, if you are interested in these matters, then dozens of issues arise from that basic argument, we are essentially re-configuring the whole concepts of ‘job’ and ‘division of labour’. Further questions need to be asked, many things need to be thought through. But I won’t bore you with further details, you can read about them yourself if you like, I only wanted to convey the gist. Make up your own solutions.
3. Daniel, you raised the idea of beginning a discussion by throwing out concepts. I like this idea very much. It seems to me that we have to think these things through from the beginning if we are going to have any understanding of the basic economic questions, like ‘How should we distribute income?’, ‘How should we organize work?’, ‘How should we decide what to produce?’ Concepts are only useful to the extent they help us answer these fundamental questions, and we don’t want to carry the baggage of assuming some concept or institution is eternal and inevitable. It might not be!
Regarding ‘income’, I tend to think it *is* a necessary concept, but only because I can think of reasons why: the people in society produce a certain pile of stuff; that stuff has to be distributed amongst the members; the share of each member, their claim on the social product, is just their income – seems like a natural concept. For ‘possession’ – particularly of objects which are not personal things, but large-scale things – I am not sure how natural it is. Daniel, you suggested these concepts evolve as a sort of biological necessity – some of them may also be *logical* necessities.
4. Is being a human, and contributing to all these problems, really that much better than being a kitten and just sort of being part of the ‘natural order’ of things? Well, in one sense what we are talking about is precisely a species-survival (or at least species-not-stuffing-itself-up) thing. But as we do it we seem to think of it as an ethical thing too. Whether we think ethics are just well-selected evolutionary memes is interesting but doesn’t affect what we do in practice, unless we therefore decide to ignore them, which I am sure is not what you mean! Concepts of justice, and alleviating suffering, certainly mean something to us when we discuss these things.
I’m not sure I have understood this all but I’m glad that discussions are happening.
I’m also glad I’m not evil.
I think I’ve gotten my brain around the problem of share ownership. I don’t think I object to earning income without effort — for example, we own houses, houses get rented out, we profit from our ownership.
People might similarly argue that we get profit from owning (parts of) a company. But now I get it. A company is not something one can ‘own’ because essentially, a company is people. To ‘own’ a company is giving a few shareholders too much power over the employees — power to fire them, cut their pay, take away holidays, put them in unsafe work environments, all in the name of the bottom line.
I’ve just gotten my AGM agenda for two companies I ‘own’. Now that I’m reading the agendas with my ‘Divine Right of Capital’ brain on, I am aghast at how shareholder-centric the resolutions are.
I can’t even figure out which way to vote. The language is all wrong. I can only vote FOR or AGAINST shareholder interests. I can’t vote FOR employee interst or community interest. The vocabulary isn’t even there.