The Just-for-Profit Community

"The men who run the global corporations are the first in history with the organisation, technology, money and ideology to make a credible try at managing the world as an integrated economic unit... What they are demanding in essence is the right to transcend the nation-state and in the process transform it."

Richard J. Barnet and Ronald E Muller,
Global Reach: The Power of the Multinational Corporation

What’s Wrong With Profit?

There has always been profit-making, and a good deal of discussion among economists about its necessity in an economic system. An excellent summary of the pros and cons, with two Nobel laureate economists contributing, can be found in the 1976 Diebold Lectures, published under the title New Challenges to the Role of Profit. Socialists, of course, have constructed their systems on the basis that profit is not necessary, but commonsense tells us that economic transactions on the whole must at least make an operational surplus to be saved against bad times, unforeseen loss-making or future expansion. It is thus easy to overlook the negative consequences of approaching business purely as profit-making, even though most people would be hard put to imagine what else business could be.

Once a proper importance is given to the community, however, the purpose of economic activity is seen to be something quite different, namely the benefit of the community itself. From this perspective, the force that drives economic activity is seen to be not profit per se but exchange, and economic theory should strive towards making it more efficient. In a world of globalisation this would be an antidote to the false assumption that economics is about making global-sized profits. With the rise of financial engineering, it is easy to lose sight of the fact that the economic world is ultimately a market place, where individuals can exchange the goods they have produced for the goods that they need. The invention of money, and its value in trade, inevitably leads to emphasis on the accumulation of money as the end of economic theory and practice.

This state of mind had no obviously bad social consequences until the industrial revolution, when mechanisation and mass production changed the scale of profit-making and, along with the emerging individualism that followed the Enlightenment, led to a de-emphasis on community, so that Margaret Thatcher could famously say, “There is no such thing as society, only individuals and their families.” The vast increase in scale of the business corporation and the mechanization of profit-making are together having a dehumanizing effect on society which is part of our economic world taken for granted. Profit-making at all costs is pushing the world into the economic breakdown experienced in the 1930’s but now on a greater scale. It is having destructive effects on society that once could not have been imagined. More than this, it is destroying the planet, and may well result in a third world war which could be a nuclear holocaust.

We need to scale back, which many, from Fritz Schumacher onwards, have said, but not only is this easier said than done,  it calls for a new approach to economics in which the value of profit-making as an end in itself is brought under continual questioning. The reason for this is simply that each of us is an integral part of a community, a sort of holographic fragment, and once we lose sight of that fact, we are all diminished, and dehumanized. We all need community, and it is a most dangerous delusion to think that by making sufficient profit, we can live in comfortable detachment from society, using it selectively for our comfort.

A century ago Max Weber wrote that “the tremendous cosmos of the modern economic order,” far from liberating humankind was creating an “iron cage” even for those “directly concerned with economic acquisition.” We are now approaching an economic crossroads where thoughtful individuals must either accept that the modern economic order is unchangeable or set to and construct something new and very different in spirit and mode of operation. Even by the most materialistic of logical reasoning we should be able to see that if an economic system is based on making profit, when profit shrinks, the system itself malfunctions, and when it shrinks as implosively as is now happening, the system is in the process of self-destruction. 

The Individual and the Community

We live in an age when human rights and individual freedom are paramount: our responsibilities towards each other and to the community are in eclipse, and when they clash with my rights as an individual, the result is usually a no contest – individual rights rule. This attitude may be seen in large part as a reaction to the opposite state of affairs, when the individual had very few rights. Yet on reflection it will be seen that what I am is largely a product of what my primary community is, and what it has silently made me as I grew up. I am a product and reflection of the community: the language I speak, my social values, the way I treat strangers and animals, my world view, including theories of  creation and the meaning of life, are largely what my community has given me, even though they are, paradoxically, my values. Nowhere is this truer than in the field of ethics: if I grow up within a society that takes slavery for granted, it is highly likely that slavery will seem a normal way of life to me, and if I grow up in a cannibal culture, I shall take eating human flesh as normal, and regard those who object to it as a bit odd or subversive or neurotic. This basic truth is the theme of Flanders and Swann’s humorous song about the young man in the cannibal tribe who shocked everyone by declaring, “Eating people is wrong.” He was, of course, an exception, but an exception that proves the rule: like the young man, we live a very uncomfortable life if we find ourselves at odds with community values.

In exactly the same way, our economic values are usually taken from the kind of community within which we have grown up, and for the West this is capitalism of a particular kind. Capitalism in itself – that is, the accumulation of capital by saving – is a neutral term, meaning essentially a society’s ability to accumulate wealth, which can be applied to capital projects, for infrastructure or social benefit, but purely profit-making capitalism – using money to make more money – is not only non-productive capitalism, it is ultimately destructive of creative capitalism, for it works to concentrate money in fewer and fewer hands. Thus it takes purchasing power away from the many, which results eventually in factories producing goods for which there are fewer buyers. To use an extreme example, if half a dozen capitalists could scoop up all the money in the world, which would constitute success for them, all manufacturing and trading activity would cease. So what value then would riches have? The “trickle-down factor” which underpinned the tax policies of Reaganomics and Thatcherism, and was supposed to help the poor, is in reality a sly way to justify social injustice in the name of creative capitalism.

Socialism has been at least a theoretical alternative to capitalism for many centuries, but in practice would be more accurately called state capitalism coupled to state suppression of the individual. Even from a purely materialistic perspective, central planning as an ideology opposed to free markets has failed, and since the downfall of communism, the voices of those who advocate it have become less audible. The conclusive factor is that free-market, corporate capitalism has provided a better life materially for the mass of people than any other economic system, and capitalism in this sense is now assumed to be driven by profit-making on the one side and consumerism on the other. The two go together, and we are rarely aware of how they have filled the gap left by religion, for money-making and shopping – now called “retail therapy” – become increasingly a fulfilling aim in life for the masses, and there is no need for the “pie in the sky” heaven at which Marxists sneered.

Central to this change has been the institution and growth of a new kind of community, the business corporation, whose influence upon the individual and society goes largely unrecognized. Yet, as just noted, as we grow up within this community, it shapes us all and our values, unless we deliberately resist its influence, which is not easily done when it pervades all aspects of life. Just as we think like hunters if we live in a hunting society, living today in a society structured economically in terms of profit-making companies, insensibly influences us to see profit-making as the main goal in life. “Getting and spending,” to use Wordsworth’s phrase, has become for the mass of people a substitute for religion. No one has done more to preach laissez faire capitalism than Margaret Thatcher, with her twin principles, “There’s nothing wrong with making a profit” and “There is no such thing as society.” It is no coincidence that she took the opportunity in addressing the Church of Scotland Assembly, to argue that if the Good Samaritan had not made his money in business, he would not have had any to give away to the poor chap who had been robbed and beaten up. This morality of profit-making is, however, the first step on a slippery slope which leads from the obvious “There’s nothing wrong with profit” to “Business is business” and eventually to the anti-morality of the film character Gordon Gecko’s “Greed is good.”  There is in some quarters an almost theological passion and missionary zeal in spreading the gospel of corporate capitalism, and there are even those who would see it as an evolutionary step upward to a higher kind of human. The following statement was made at the shareholders’ meeting of Du Pont, Inc. (April 14, 1972) and quoted with approval by Frank Wallace and Mark Hamilton, authors of the book God-Man: Our Final Evolution:

Capitalism is the standard for man on earth. [Yet] as capitalism creates ever-expanding values for man, altruism destroys value in the name of an imaginary “higher cause,” such as society or the national will. Without capitalism there is no higher cause than man, the individual.

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A Brief History of Economic Microstructures

At the point when economics began as an aspiring science, the economic community was taken to be the nation, but subsequent inventions in transport and communications have all worked towards making the global economic community more prominent, so that the nation is in many respects relegated to being the  microstructure of a greater whole. Looking further back in time we can see a similar pattern of microstructures which make up, or once made up, the macrostructure of the national economy. This fascinating area of economic history has much to teach us in addressing present problems.

It is a sprawling theme, with untidy edges, but its significance may be measured initially by thinking of the city states of Greece and Renaissance Italy, and the walled towns of mediaeval Europe, all of which, with their surrounding farmland, were basically self-sufficient, and needed to be in a period when there was often a thin line between national government and warlordism. The step from self-sufficiency to greater affluence was made by economic groups of various kinds, from the caravans that plied the Great Silk Road, to the craft and trading guilds in mediaeval Europe, and the market towns, permitted by charter from the crown. Markets, combined with fairs, might be one-day events or last for a week or two, and in some instances actually issued their own temporary currency to kickstart trading beyond simple bartering. Some of these initiatives were purposeful and quite clearly economic in nature, as, for instance, the Hanseatic League, an alliance of city states along the Baltic and North Sea, born out of a common need for trade and for fighting the pirates who disrupted it. One almost accidental economic group grew out of the Benedictine revolution which, over a period of a thousand years or so, covered Europe with houses dedicated to religion and education but played an enormous part in developing agriculture and, particularly through their offshoot, the Cistercians, dominated the export trade in wool. The ruins of these once great institutions which are scattered across Britain today are fossil evidence of their social and economic influence. In the light of the economic chaos now spreading across the world, it is worth noting that the first monasteries began with the onset of the Dark Ages and were basic survival units by necessity. It is also worth noting that as they became prosperous, their ideals tended to become confused, or worse, and that their social usefulness was coming to an end by the sixteenth century.

This thumbnail historical sketch is a background to understanding that the joint stock company, which is so taken for granted today as the economic micro-community, also has a history of development. It was born in answer to a particular kind of economic need, has expanded and diversified and is now suffering from hypertrophy and decay. Like the other micro-structures noted here, its usefulness will not end overnight but will, in the natural order of things, recede in the face of other economic groups which answer to what society in general needs.

The joint stock company is an enormously flexible, almost protean, structure, so much so that it is sometimes seen as a model for the state, as when people talk of Great Britain Plc or America Inc. The way in which it has expanded in size and mutated as a profit-seeking group is largely the subject of this page, but it is also a method of organising people for more than one end, and is conventionally used as the vehicle for registered charities. Like all other human groups based on ideals and principles, the joint stock company has suffered an entropy as the lower aspects of human nature corrupt the executive. While it may not at first seem to be an idealistic structure, the joint stock company cannot function properly without due regard for transparency, honest accounting and the rule of law, and is in particular danger because, being set up to make profit, it is prone to internal decay through greed and dishonesty.

One particular development of the joint stock company is worth noting, in that it casts doubt on the myth that the company is run for the benefit of the shareholders, who are joint risk-takers and ultimate deciders of policy. As the company grows beyond a critical size, the shareholders become almost powerless, since no individual is likely to own more than a minute fraction of the stock, and even a pension fund may own less than a quarter of one per cent. In practice this means that it is difficult to organise a shareholding majority to determine policy and annual reports are so complex that the shareholder can do little more than tick the box that recommends leaving decisions to the chairman. In this situation, the board of directors becomes in effect a company within a company, with its own agenda, including fat salaries, pension and retirement provisions, option rights and bonuses which are paid for failure as well as performance.

Nowhere is this seizure of profits by company directors more blatant than in the large investment banks. Lloyd Blankfein, the chairman of Goldman Sachs, and arguably the principal agent in spreading the so-called “toxic bonds” throughout the global system, was awarded $68 million as a Christmas bonus in 2007, and Charles Prince, the chief executive of Citigroup, was given $42 million as he resigned in 2008 after losing the bank $64 billion and halving the value of its shares. Alan Fishman, CEO of Washington Mutual, probably holds the record, being awarded $20 million for three weeks work between his appointment and the bank being put into administration in September 2008 – a euphemism for being looted by JP Morgan Chase, to which the Fed handed over its $300 billion of assets.  Forbes, the premier business magazine, reports that bonuses paid on top of salaries to the Wall St banking and investment houses over the past five years have totalled a quite incredible $250 billion – that is $250,000,000,000 divided among a few thousand bankers, brokers and salesmen.  To put this grotesque figure into perspective, it is almost exactly the same as the total budget for New York City during this period. In the last few years, as the balance of profit allocation has shifted, the average wage of the American citizen has actually gone down. US Government Census figures show the median male wage at $44,600 in 2003 and $42,300 in 2006. The implications of these figures is now starting to feed through into public consciousness since Senate enquiries into the collapse of the American banking system have put some of these modern day pirates under questioning. What is quite jaw-dropping is the way in which huge remuneration is now taken for granted. When Richard Fuld, director of the failed Lehman Brothers, was asked on television if he thought earnings of $480 million over eight years was “fair,” he looked rather puzzled, as if he did not understand the question.

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The Joint Stock Company: A Just-for-Profit Community

Banks and giant corporations are now taking over control of world events from national governments in a way that the first generation of economic theorists could hardly have foreseen. In the single-minded pursuit of profit they are seizing the world’s resources from governments, without regard for the future of the planet or the welfare of its people. The trading group, which has played a vital part in creating civilization, has evolved into corporate bodies, now far richer and more powerful than many sovereign states. What appeared in history as the joint stock company was the beginning of a development that has mutated in ways once hardly imaginable.  

The company limited by shares has evolved into three major forms which, though different in their aims, are pushing corporate capitalism towards a limit and making the concept of the sovereign economic nation increasingly unreal. These three forms are

All these quite different economic structures can trace their historical origin to an informal arrangement between traders and monied investors to share the risk and profit of overseas ventures. The origins of this new kind of trading group cannot be dated exactly, but the earliest association of individuals sharing risk and profit by legal contract was probably the Merchant Venturers of Bristol, which was incorporated in 1552 and survives to this day as a kind of shadowy freemasonry, powerful enough financially to have founded Bristol University. Later associations, such as the Dutch East India Company (1602) and the Hudson Bay Company (1670) were very powerful groups, set up by government charter and given a monopoly of trade in the designated areas. Fascinating as is their history and connection with government colonial policy, their significance in the present context lies in the fact that shares in them came to be traded in markets in Amsterdam and London, and these stock markets, originating in coffee shops, are now at the heart of global trade today.

The most critical mutations to the joint stock company came in the nineteenth century with the clear concept of limited liability and of the company as a legal entity separate from its members, a persona ficta. The first change enabled the company to take on larger ventures and greater risks, and changed the traditional balance between risk and return. The second meant in practice that the ethical obligations of the company were separated from those of its directors and shareholders. The company’s moral responsibility was to maximize profit for its shareholders, and this principle takes precedence over almost everything else. If more profit can be made by polluting the atmosphere or making the employees work for lower wages or in unhealthy conditions, the directors are caught in a moral dilemma, and experience shows repeatedly that the profit principle invariably takes precedence. The limited company, as Mussolini once remarked, is a body without a soul, and its one moral principle is “Business is business.” These precedents were not established without many legal objections being overcome, and after lengthy debate in Parliament and Congress, for liability for one’s debts and a duty of care to one’s employees are not principles to give up lightly. Yet the objections were overcome because the potential of the Industrial Revolution was in many instances too great to be handled by individual enterprise, particularly as regards railways, canals, shipping and mass produced goods in general. Capital on a huge new scale was required.

Thus came into existence a new kind of human group, the just-for-profit community, which soon generated a host of social questions that in time became codified in company law. The different names which the joint stock company was given in different countries indicate some of its characteristics – Société Anonyme in French, Aktiengesellschaft (Share Association) in German, Limited Liability Company in England, and in America simply Incorporated Company. While the joint stock company is not strictly anonymous, the names of its members and directors are not revealed by the company’s name, and thus individual responsibility is blurred and often hidden. One will say that Acme International Plc has discharged toxic waste into some watercourse, not that John Smith, the managing director gave orders for it, and if a fine should be levied, it is the company (i.e., ultimately the shareholders) which pays, not the person responsible.

The latest developments in the joint stock company demonstrate the final decoupling of business from morality, as the pursuit of profit becomes ever more single-minded, and ultimately the decoupling of the company from manufacturing and from trade itself. It is making money, not trading or manufacturing, that inspires the corporate community. The stock markets are dominated by companies engaged in “financial engineering,” which adds not a matchstick to the productive capacity of the economic body. Like hunting, money-making becomes all-absorbing, and an end unto itself, but unlike the hunter, who eventually ages and retires, the new money-making human’s appetite continues unabated till death. He (rarely she) has lost the ability to find pleasure or purpose in anything else.

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The Transnational

There are some similarities between the multinational and transnational company, but in practice successful multinationals tend to become transnationals, the critical difference being that although the company may be physically headquartered in a particular country – usually the one with the most favourable tax regime – its identity is global. That is to say, it does not perceive itself as, say, a French or American company with operations in many countries, but as something above nationality. Its managers invariably communicate in English and feel their allegiance less and less to the country of their birth and more to the company. Transnationals treat with each other as fellow members of a kind of alternate United Nations. With increase in size comes a change in the ethos of shareholder loyalty. When profits are counted in billions, a huge rise in rewards to the executives makes little impact on dividends. Thus has developed a shadowy brotherhood (it is very much a male-dominated thing) of directors who parasitize companies. A chief executive who has lost billions for his company, far from being penalised, will stay on with bonuses intact or be paid off with a large “golden handshake” and then hired by some other company, despite his or her failure. There is an identifiable class of perhaps two or three thousand directors who sit on the boards of each others’ companies as non-executives and set salary levels on a “scratch my back” basis.

Further, because transnationals have so much financial power, there has developed a corrupt symbiosis between political parties and big business, with ministers doing favours while in office, and handing out contracts, in expectation of finding lucrative appointments later. This so-called “crony capitalism” is increasingly tolerated, and in some countries taken as quite normal, and is predictable because of the connection between money and political power. As a typical example, after a decent period of retirement from being prime minister, Tony Blair took up “advisory” positions with two American banks, netting him about half a million pounds a year. What past, present or future services may justify this reward is a question that is never asked.

The corporation sees every human activity and need through the lens of profit and reduces it to profit. In one sense this is the necessary engine that drives the innovation of the entrepreneur, but there is a much more sinister side. As an example, it was not long before a growing demand for organic food was seized upon by big business, which immediately set itself to making use of the label “organic” while stripping out as far as possible any costs incurred by organic practice, for profit always comes before human welfare or business integrity. The New York Times (13/5/2001) in a feature article about developments in organic farming reported that a half of the organic production of California is controlled by five giant farms, which keep within the letter of the law but often grow their organic vegetables next to fields which are sprayed with pesticides or contain genetically modified plants. Milk is “ultrapasteurized” in the interest of increasing shelf life, destroying valuable enzymes and vitamins, and cows tethered all day in grass-free compounds and sheds are fed organically certified grain to enable their milk to be legally certified as organic. The foods which are compromised in this way are produced by agricultural giants, owned by even larger holding companies whose shareholders are, in turn, companies with no slightest interest in healthy food for its own sake. At the top of the organic food chain one will find multinationals like Dean Foods with a shareholder list that includes even bigger companies, like Microsoft, Exxon-Mobil and Coca Cola. The interest that these have in healthy living may confidently be taken as zero.

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The Hedge Fund

In some ways the hedge fund is the most revolutionary mutation of the joint stock company. It is essentially an investment and trading holding company, but in practice it is a corporate player in a global casino. The hedge fund is the very embodiment of the economic dictum of the disgraced financier Bernie Cornfeld, “If you are serious about making money, don’t mess about with corn or steel bars – make money with money.” It manufactures nothing, nor does it provide any service to society, but buys and sells financial instruments, from stock options to interest rate swaps, on a large scale and using borrowed money. The scale is often so vast that a few, or even a single hedge fund, can move markets in their favour. Thus it was when George Soros gambled on the pound sterling losing value. The very fact of his hedge fund’s massive selling of the pound made it lose value. A gambling economy adds nothing to the wellbeing of society and indeed saps it, for it is an inducement to gain wealth without work. There is no moral issue involved in a flutter on the 3:15 at Ascot, but loading the dice in the way that Soros’s Quantum Fund did, certainly brings ethics into the picture.

Hedge funds make money by spotting anomalies in the market, thus, for instance, borrowing money at low rates from Japanese banks and investing the loan in American Treasury bonds at a higher rate, taking the risk that the value of the yen will not fall significantly against the dollar. A hedge fund may typically borrow ninety per cent of the money it needs to purchase, say, US treasury bonds. Thus if it is later able to resell those bonds in the market at a higher price, it will have multiplied the profit on its own investment by roughly ten times, since it is using other people’s money. This kind of leverage has helped hedge funds in the past to return annual dividends to their investors of thirty, even forty, per cent. But leverage works both ways, and when losses occur they eat savagely into investors’ funds. Hedge funds add an extreme but incalculable degree of instability to the global financial structure because they deal with enormous sums of borrowed money which is gambled on contracts, sometimes so complex that even professional economists will confess they do not understand them. To deepen the obscurity, many deals are made privately, or over the counter (which is really under the counter), and do not appear in any statistical picture.

Generically the contracts are referred to as derivatives, and the size of the market in them is mind-boggling. Officially recorded are more than $500 trillion – that is to say, half a quadrillion, a figure which is approaching the limit of our ability to comprehend. Insofar as most of these bets are made with money borrowed from the banks, a wrong guess will put the banks as much at risk as the hedge funds, through what Alan Greenspan termed “cascading cross defaults.”

 A large part of the problem is that almost all major financial institutions now behave in differing degrees like hedge funds, as the legal “walls” between “ordinary” commercial banks and investment banks have been system­atically demolished. This protective legislation, notably the Glass-Steagall Act, was put in place in the 1930’s to prevent the sort of gambling by custodians of public money that had helped bring on the 1929 Crash, and after it was repealed by the Clinton administration, under pressure from the giant investment banks, there was nothing to stop them from “making money with money” in ways that previously would have been illegal, essentially by gambling on margin with shareholders’ funds.

The process has been running wild since Alan Greenspan turned on the credit tap of the Federal Reserve in 2001 and quantitative easing became normal practice. Despite enormous losses suffered by financial institutions, after their equally enormous profits, the directors and managers will walk away scot free. Since they are all limited liability companies, no individual can be held responsible unless there is manifest criminality. Criminal negligence or recklessness, however, is virtually impossible to prove in a court of law. In this situation, when there is systemic bank failure, it needs to be pointed out that economic science – theory and application – fails. It needs only a small percentage of these financial bets to default – i.e., when the counterparty is unable to pay up – and the world banking system breaks down, revealing the dysfunctionality of the current economic paradigm.

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The Sovereign Wealth Fund

The third development of the joint stock company is an equally strange mutant, and an economic paradox, since it effectively marks the transformation of capitalism into a profit-driven socialism. As certain countries have accumulated large reserves through the sale of oil or exported manufactures, and as gold has effectively been demonetized, the problem of how to hold these funds, almost entirely in US dollars, has led to the setting up of national investment holding companies, which go by the name of Sovereign Wealth Funds. Most of their holdings are in the form of shares in publicly quoted companies. Across the globe SWF’s hold over $3.8 trillion, of which about a half is held by the Persian Gulf SWF’s (Kuwait, Qatar, Saudi Arabia and the Emirates) which together hold almost $2 trillion. To put this in proportion, the Gross Domestic Product of the UK is about $2.3 trillion (very approximately, since the exchange rate between the £ and $ has been on a roller coaster for some years). So in principle the Gulf States could cooperate to buy up Britain by buying up its financial assets, if they so  wished.

Viewed thus, it can be seen that as SWF’s grow in size across the globe, a host of economic and geopolitical problems arise and start to assume worrying proportions. First is lack of transparency, since there is no obligation on any country to let anyone see the books, nor any authority to demand it. An attempt was made by Australia at the 2008 World Economic Forum to establish minimum rules of disclosure, but without much enthusiasm or response. Secondly, it is quite possible for a foreign SWF to hold a commanding stake in some enterprise that may be vital to another country, and the European Commission has proposed a Code of Practice to make sure that member states do not give away strategic enterprises. Let it just be supposed that Russia’s SWF acquired a large, or even majority, stake in Boeing. There is nothing that could be done under present law to prevent the Russian government appointing directors who would run the company for the benefit of Russia’s global ambitions. Less obviously perhaps, a large shareholding would mean that Boeing’s employees would be literally working for the benefit of Russia. This very simple example illustrates how a very rich nation could end up enslaving other national communities, and this is perhaps the greatest danger of the bankrupting of America and – though it has not yet made headlines – Britain. We could all end up spending a large part of our lives working for another country, without any awareness of our far away masters and without hope of escaping.  Enslavement can be created without visible chains.

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Privatisation: Capitalism Versus the Community

We are already working for others in a way that our parents and grandparents did not, through the process of privatisation, which has taken public assets into the ownership of huge just-for-profit companies. This has resulted in a curious situation whereby my pension comes partly from shares held by a pension fund in privatised enterprises across the world. Thus I have Brazilians and Indians working for me, at a distant remove, but they also gain from holding shares in  British companies, not least the once publicly owned British water, transport and communication companies and building societies, etc. Who then gains from this global economic arrangement, which seems to be rather like everyone taking in everyone else’s washing? The answer to that question is the directors and the banks. It is a perfect illustration of the radical shift that happens as the just-for-profit company grows in size. Shareholder power becomes an illusion, directors organise the company to take an increasing share of its profits and, in some extreme cases, have looted companies and left them in bankruptcy, all perfectly legally.

In an astonishingly short time the general public has come to accept as a norm the state sell-off of public assets which we know as privatisation. Before the Thatcher government introduced the term and the concept in 1982, it was unknown, but what followed from it is a textbook example of the history of unintended consequences. Privatisation started innocuously with the sale of a small biochemical company Amersham which had somehow been inherited by the Atomic Energy Commission, a public utility, and its privatization was little more than a tidying up of the Commission’s accounts. Having disposed of it by a public sale of shares, the government of the day became aware of wider possibilities, and with all deliberate haste moved to repeat the operation on an increasing scale, overcoming public resistance by offering shares in the national telephone network, the gas and water boards and railways at a knock-down price. In effect, the public were bribed with their own money to buy assets they already owned, and the whole process was encouraged by pension and insurance companies who were eager to have these reliable big utilities in their portfolios. Many of the directors of the original enterprises had previously derived their job satisfaction from serving the public, and regarded  themselves as public servants, and at first they objected to privatisation.  Their resistance was, however, soon overcome by “stuffing their mouths with gold,” a phrase originally used by Aneurin Bevan to describe how he had overcome doctors’ initial resistance to the National Health Service. The directors of Thames Water Board opposed privatisation in 1988 but voted in favour in 1989 after intensive lobbying by the Thatcher administration about the advantages it would offer to the public and, not incidentally, a tripling of their salaries.  

Privatisation seemed, indeed, like an all-round winning formula, offering a whole array of benefits to the political party in power from a succession of windfalls to the public purse. By this magical stroke, the cost to the taxpayer of the railway system, waste collection or prison services could be removed and transformed into profits for those who had bought shares. Within the space of some fifteen years, the privatization phenomenon became unstoppable and swept the world, establishing in the process a new kind of socio-economic norm. As nationalisation was the identifying word for socialism, privatisation rapidly became the identifying word for capitalism. It was as if it gave focus to a crusade which Margaret Thatcher described as “eroding the corrosive and corrupting effects of socialism.” Once governments across the world saw the benefits of getting cash for public utilities, they seized upon privatisation as an all-purpose political solution and it has very rapidly become completely acceptable, hardly even questionable. Once politicians were offered inducements of various kinds to promote privatisation, there was little resistance to the International Monetary Fund’s relentless use of it as an integral part of its lending programme.

The IMF’s conditionalities are looked at in more detail in A New World Order, but it is worth emphasizing here how they have forced privatisation on the world as a deliberate policy. There is little public awareness of the agenda of the World Bank that is helping change the global political power structure. Privatisation has become central to the IMF’s lending strategy, and there is every reason to think that this has been done deliberately, with the intent of diminishing the financial power of elected governments and increasing the political power of transnational companies. In this way the concept of the autonomous nation state is being eroded, and for all practical purposes “government by the people, of the people and for the people” is becoming an increasingly hollow phrase. It is no longer possible for the people of the country to own the services, transport and utilities, even the water which falls as rain on their land, which belong to them as a community and thus their sense of community is diminished. Worse than this, they are no longer working for each other in these areas of social welfare but as paid employees for a faceless corporation which has no interest in them as human beings: on the micro scale, they have become “profit centres.” The profit motive slowly is taken as the meaning of life. In this way a dreadful travesty of globalisation is happening: so far from humankind coming together in a global family, growing in mutual understanding and cooperation, communities on small and large scale are being dissolved and replaced with global macrostructures characterised by impersonality, ruthless competition and deception in the cause of corporate greed.

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What’s Wrong With Profit? | The Individual and the Community | A Brief History of Economic Microstructures | The Joint Stock Company: A Just-for-Profit Community | The Transnational | The Hedge Fund | The Sovereign Wealth Fund | Privatisation: Capitalism Versus the Community


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