The Divine Right of Capital: Dethroning the
Corporate Aristocracy by Marjorie Kelly, Berrett-Koehler Publishers,
Inc. 2001
Marjorie Kelly co-founded the magazine Business
Ethics in 1987 and was
its editor until 2006[1].
In the preface to her book, she says that she had believed “that
voluntary change by progressive businesspeople would transform
capitalism. I no longer believe that.” She had concluded that change
was being blocked by “the mandate to maximize returns for shareholders,
which means serving the interests of wealth before all other interests.”
The subtitle suggests that the issue is the power
of a wealthy aristocracy and the solution is to take away that power and
give it to a democracy. By contrast, we believe that most power is
really in the people who manage the flow of capital, skimming a bit for
themselves. These are the CEOs of large corporations, the
politicians/lobbyists who channel tax monies and, most of all, the
investment bankers, hedge fund managers and other intermediaries who
take fees from churning capital. Our solution is to build direct
relationships between individuals who could provide capital and the
entrepreneurs who would be stewards of that capital.
Kelly makes the point that all the buying and
selling of shares is not providing new capital to American businesses.
It’s just speculative trading, placing bets on whether the stock price
will go up or down. To support this conclusion, she draws from the
Federal Reserve Board’s Flow of Funds Accounts, showing that stock
buybacks by corporations were greater than the amount of new issues of
stock. Figure 1 of the book shows how the amount of shares outstanding
has gone down since the 1980s, while the market value of those shares
has increased many times. Her point is that:
“Stockholders for
decades have been an immense cash
drain on corporations. They are the deadest of deadwood.”
Digging into the components of the Federal Reserve
table (F-213 Corporate Equities) shows that financial intermediaries are
draining off money from financing business growth. Over $100 billion of
new capital went into mutual funds and real estate investment trusts in
2006, while the equity capital of nonfinancial corporate businesses
decreased by $614 billion. Every year since 1998, capital has flowed
out of productive businesses and into financial intermediaries.
The income of individuals who work for financial
intermediaries has reflected the commissions and fees from this capital
flow[2].
Greg Ip, in the October 12, 2007 Wall Street Journal, reported a study
from the University of Chicago that the highest half of one percent of
taxpayers included more than twice as many from Wall Street as from all
nonfinancial companies.
To support the aristocracy vs. workers inequity,
Kelly shows that output per employee in the 1990s increased at three
times the rate of compensation increases, that the work week has gotten
longer while wages and benefits have decreased and that, when employees
come up with new products or efficiencies, the benefits go to the
shareowners.
“Protecting the interests of the monied class seems
the only moral value the corporation fully recognizes.”
As the book moves into suggested solutions, the
basic premise is:
“The time has come to recognize that
all human beings have
equal economic rights. . . . Shareholder property rights can
remain in some measure, but they must take their place
alongside property rights for employees and the community.
Aristocratic privilege must give way to economic equality, in
a new corporate order that recognizes a constellation of
economic rights.”
Part of Kelly’s solution is to broaden the
ownership of capital and she draws upon the Employee Stock Ownership
experience, as well as the share distribution concepts of
Jeff Gates,
Peter Barnes and others. But her primary remedy is “to
reconceptualize the public corporation as a semipublic government . . .
to structure corporations to be accountable to a broader set of
interests.” The concept is to separate control from ownership, “away
from control by the financial aristocracy and toward control by ordinary
people.” rather than moving toward direct ownership by “ordinary
people.”
The first step Kelly suggests in moving corporate
control from owners is to have “employees naturally seen as voting
citizens of the corporation . . . with access to all the tools that
stockholders now use . . ..” Another action would be reversing the U.S.
Supreme Court’s ruling that corporations are persons under the
Constitution and “untangling the twisted legal reasoning under which
wealth privilege and corporate privilege hide today . . ..”
The book’s final chapter, “A Little Rebellion,”
draws upon what worked in the American Revolution, to change our
thinking. Then it was getting people to carry the thought that all
persons have equal rights to “Life, Liberty and the Pursuit of
Happiness.”[3]
Today, the thoughts are “that all person have equal economic rights,
that corporations are subordinate to the people.”
To change our thinking, Kelly suggests many
specific and highly practical actions. Some of them are
attention-getting antics reminiscent of the Yippies, others are
organizing and lobbying around issues and many are simply setting an
example for the rest of us to see.
It is heartening to have an author who has kept the
fire of rebellion and tempered it with the wisdom that comes from
history and from personal battles.
[1] When it
merged into The
CRO, a new corporate
membership organization for “Corporate Responsibility Officers.”
[2] From testimony
by Robert Kuttner before the House Committee on Financial
Services,
October 2, 2007: “Since repeal of Glass Steagall in 1999, after more than a
decade of de facto inroads, super-banks have been able to
re-enact the same kinds of structural conflicts of interest that
were endemic in the 1920s - lending to speculators, packaging
and securitizing credits and then selling them off, wholesale or
retail, and extracting fees at every step along the way.”
[3] The
Virginia Declaration of Rights, adopted June 12, 1776 phrased the rights as “the
enjoyment of life and liberty, with the means of acquiring and
possessing property, and pursuing and obtaining happiness and
safety.”
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