Problems of financialisation I can buy. It is the language of shareholder primacy/stakeholder capitalism I dislike. The “stakeholder” language is used by WEF and ESG types to set up cartel arrangements and evade accountability. It is primed for misuse by activist networks.
The problem is not fiduciary duty to shareholders, it is the incentives facing managers. Financialisation should be critiqued directly. Also, our fiscally strapped states are not going want to on the wrong side of the Laffer curve.
In the article I linked to the definitions of shareholder and stakeholder capitalism from the 1931 debate between Adolf Berle and Merrick Dodd.
The problem is a belief system in which the ONLY function of a corporation is to promote shareholder value. Corporations are legal entities created by the state in which the interests of the charter seekers (shareholders of the corporation) AND the state are taken into consideration.
It is in the interest of the state to have a flourishing economic base in which the proceeds of economic activity are distributed in sufficiently egalitarian fashion as to prevent political instability.
It is in the interest of the corporation to maximum return for its owners. Under stakeholder capitalism, the interests of both the state and the corporation are taken into consideration.
Under shareholder primacy only the corporate interests are considered.
The state is the de facto dominate partner. In autocratic nations like China you don't see ziggurats of finance. You see massive infrastructure projects, which at least involve something real, but frequently are wasteful (see ghost cities in China).
In Democratic countries like the US it is possible for corporations to gain the upper hand, in which you have SP. But is also possible to obtain a balance between the two, in which you have SC. And when you have that the resources currently going to ziggurat building go to economic development instead, giving impressive results, as we saw in the decades after WW II.
You have way more confidence in the capacity of state bureaucracies than I do. Yes, I take the point that there are problems with both financialisation and the incentives structures of managers, but you could reasonably argue that much of the problem is precisely managers not paying enough attention to interests of shareholders.
Also, I wouldn’t cite China as a good example. Its structure of indebtedness and misplaced investment is even worse than the US’s. Yes, there are some things they are clearly doing better at, but there are also things that matter that they are clearly doing very badly.
‘Stakeholder capitalism’ has become a hopelessly compromised term. You really don’t want to go there.
But it is a terminology currently being wielded by folk deeply embedded in said ziggurats, or sitting on top of them, so you have already lost that game. Fiduciary duty is a legally well-defined term. Stakeholder is incredibly fuzzy, hence its appeal to folk who very much are NOT in the accountability game.
All that needs to be done to shift form SP to SC is ban stock buybacks (as was the case before 1982) and raise the top income tax rate to around 70% or higher (as was the case before 1981).
The US economy operated under these two things for nearly half a century in which the economic results were quite positive. Based on this actual experience it seems pretty low risk from an operational standpoint.
I doubt our fiscally-stressed welfare states are going to move to the wrong side of the Laffer Curve on income tax rates.
The postwar US was also much more economically dominant and had a decades-long break from high migration that continued until 1965. Isolating the two factors you nominate seems a big leap.
I don't think China is a good model. I was using it as an illustrative example. SC culture does not require anymore state capacity than what we have now. Which one you have depends on the economic environment. One set of tax and other policies selects for SP another set selects for SC.
Being a CEO sucks. When I worked in IT I had full access to executive emails. They are overworked, on medication, sacrificing familial relationships, and a media target. They are also smart and skilled sk can easily take an easier job.
How do you propose to keep the best ceos in their jobs after these tax hikes? Why wouldn't they just quit. Even in my case, after I hit a marginal tax rate of about 20% my motivation evaporates and I'd rather work on hobbies than do what's socially valuable. Art is a lot more fun.
I imagine the current crop of CEOs would quit. But there would be people to replace them. After all, during the postwar era, CEOs were paid a fifth of what modern CEOs earn. And yet people did those jobs.
CEOs are like sports coaches in which they are trying to beat the competition in the "game" of business. The average CEO (or coach) beats the competition half of the time. That is the performance of the median CEO or coach is invariant (50% win/50% loss) over time. Thus, I suggest the CEOs sixty years ago did as good a job as those today, even though they were paid less money.
The same thing is true for sports coaches, they were paid less then, but there were still great coaches back then.
Problems of financialisation I can buy. It is the language of shareholder primacy/stakeholder capitalism I dislike. The “stakeholder” language is used by WEF and ESG types to set up cartel arrangements and evade accountability. It is primed for misuse by activist networks.
The problem is not fiduciary duty to shareholders, it is the incentives facing managers. Financialisation should be critiqued directly. Also, our fiscally strapped states are not going want to on the wrong side of the Laffer curve.
In the article I linked to the definitions of shareholder and stakeholder capitalism from the 1931 debate between Adolf Berle and Merrick Dodd.
The problem is a belief system in which the ONLY function of a corporation is to promote shareholder value. Corporations are legal entities created by the state in which the interests of the charter seekers (shareholders of the corporation) AND the state are taken into consideration.
It is in the interest of the state to have a flourishing economic base in which the proceeds of economic activity are distributed in sufficiently egalitarian fashion as to prevent political instability.
It is in the interest of the corporation to maximum return for its owners. Under stakeholder capitalism, the interests of both the state and the corporation are taken into consideration.
Under shareholder primacy only the corporate interests are considered.
The state is the de facto dominate partner. In autocratic nations like China you don't see ziggurats of finance. You see massive infrastructure projects, which at least involve something real, but frequently are wasteful (see ghost cities in China).
In Democratic countries like the US it is possible for corporations to gain the upper hand, in which you have SP. But is also possible to obtain a balance between the two, in which you have SC. And when you have that the resources currently going to ziggurat building go to economic development instead, giving impressive results, as we saw in the decades after WW II.
You have way more confidence in the capacity of state bureaucracies than I do. Yes, I take the point that there are problems with both financialisation and the incentives structures of managers, but you could reasonably argue that much of the problem is precisely managers not paying enough attention to interests of shareholders.
Also, I wouldn’t cite China as a good example. Its structure of indebtedness and misplaced investment is even worse than the US’s. Yes, there are some things they are clearly doing better at, but there are also things that matter that they are clearly doing very badly.
‘Stakeholder capitalism’ has become a hopelessly compromised term. You really don’t want to go there.
https://www.lorenzofromoz.net/p/which-esg-practical-cartelising-or
More attention to shareholders would simply grow a bigger ziggurat.
I've used the SC term in my original paper, my book, and dozens of substack posts. It would be too confusing to shift to new nomenclature
But it is a terminology currently being wielded by folk deeply embedded in said ziggurats, or sitting on top of them, so you have already lost that game. Fiduciary duty is a legally well-defined term. Stakeholder is incredibly fuzzy, hence its appeal to folk who very much are NOT in the accountability game.
All that needs to be done to shift form SP to SC is ban stock buybacks (as was the case before 1982) and raise the top income tax rate to around 70% or higher (as was the case before 1981).
The US economy operated under these two things for nearly half a century in which the economic results were quite positive. Based on this actual experience it seems pretty low risk from an operational standpoint.
I doubt our fiscally-stressed welfare states are going to move to the wrong side of the Laffer Curve on income tax rates.
The postwar US was also much more economically dominant and had a decades-long break from high migration that continued until 1965. Isolating the two factors you nominate seems a big leap.
Around 1971 seems to be the big change point.
https://wtfhappenedin1971.com/ (The first graph, from the Economic Policy Institute, is highly misleading.)
1971 was the year that the link between the US$ and gold was broken. Financialisation is perhaps easier in a completely fiat money system.
Banning stock buybacks may well be a good idea, I have no opinion on the matter.
But Stakeholder Capitalism really is a term with a whole lot of associations you probably don’t want to have.
https://newdiscourses.com/2025/04/totalitarian-stakeholderism-left-and-right/
1971 was also the year that Klaus Schwab started writing about stakeholder capitalism. https://www.weforum.org/stories/2021/01/klaus-schwab-on-what-is-stakeholder-capitalism-history-relevance/
I don't think China is a good model. I was using it as an illustrative example. SC culture does not require anymore state capacity than what we have now. Which one you have depends on the economic environment. One set of tax and other policies selects for SP another set selects for SC.
Being a CEO sucks. When I worked in IT I had full access to executive emails. They are overworked, on medication, sacrificing familial relationships, and a media target. They are also smart and skilled sk can easily take an easier job.
How do you propose to keep the best ceos in their jobs after these tax hikes? Why wouldn't they just quit. Even in my case, after I hit a marginal tax rate of about 20% my motivation evaporates and I'd rather work on hobbies than do what's socially valuable. Art is a lot more fun.
I imagine the current crop of CEOs would quit. But there would be people to replace them. After all, during the postwar era, CEOs were paid a fifth of what modern CEOs earn. And yet people did those jobs.
CEOs are like sports coaches in which they are trying to beat the competition in the "game" of business. The average CEO (or coach) beats the competition half of the time. That is the performance of the median CEO or coach is invariant (50% win/50% loss) over time. Thus, I suggest the CEOs sixty years ago did as good a job as those today, even though they were paid less money.
The same thing is true for sports coaches, they were paid less then, but there were still great coaches back then.
https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Ffe7dcae2-28a6-4c8c-bd76-bcee3681eb28_610x247.gif