Corporate power

@LaContra

"Monopoly and price fixing are not synonymous terms."

Of course not. Grammatically, monopoly is the object, fix is the verb, price is the subject. But the purpose of a monopoly is to be able to hike prices, and to hike prices you must control them everywhere and hence obtain a monopoly (or, as Smith observed, a conspiracy that is essentially a monopoly wearing a disguise). So the main distinction between these terms in practise is purely grammatical.

"As for your comments regarding the Communist Manifesto ...its obvious that you have either not read it or failed to understand it"

Let me introduce you to a third possibility - brace yourself - that I disagree with you about it!

I'm referring (of course) to the well-known end of section II, which says that in order to get to the promised land of communism, all movement of people and all means of communication (the media, the press?) must be controlled by the state, all employment is to be decided and ordered by the state along the lines of an "army", the state will have total control over where people may live, no one apart from the state may own land, or inherit any property, no one may leave the socialist country without being first stripped of their belongings, and the same must happen to "rebels" (i.e. political opponents of the state).

This one damning checklist is not all that Marx wrote, and he wrote much other flowery stuff that seemingly contradicts it. And so although he denied being a Marxist, it is clearly impossible to say for certain what a Marxist is, given that you can find in his writings quotations that provide firm opposition to, and support for, so many positions.

But what is beyond question is that he and Engels clearly laid out the precise recipe for the nightmare that Lenin, Stalin and Mao delivered. It is the clearest and most direct economic and political instruction they ever provided. Also that the pub-thinker's defence of Marx ("it might work, it's just that no one has tried it properly") is a horrifying denial of history.

The one thing to be held up in defence of Lenin is the NEP - he at least gained an inkling before he died of just what Marx's economics were worth in practice, even if he continued to pay lip-service to the doctrine of historical inevitability.

danielearwicker

I think the quote we are both responding to is the one by A_Voice:

"It's an odd feature of a capitalist system and the capitalists who run it, I've noticed -- capitalists like to monopolize, like to restrict participation. It seems more and more that "free market" and "capitalism" are not only not synonymous, but are in fact at odds with each other."

If that is the quote we are responding to then, monopolising capitalists DO tend towards restricting market participation. Your quote from Smith:

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices".

...however refers to the price fixing and collusion between capitalists NOT the creation, maintenance, or the tendency of capitalism itself towards monopoly.

Monopoly and price fixing are not synonymous terms.

Smith's specific mention of people with in a 'trade' is a simple reflection of Smith's antipathy toward tradesman, masons, and craftsmen whom he considered generally dishonest and untrustworthy, again, not a reference to the monopolising of A_Voice's original question.

As for your comments regarding the Communist Manifesto ...its obvious that you have either not read it or failed to understand it but, as is so often the case, offer us scintillating insights into the work anyway.

If you think Marx would have approved of his manifesto becoming the foundation of Bolshevism or Leninism you need only return to his own words to Lafargue...

"If that is Marxism then I am not a Marxist"

Just as Nietzsche quite deeply wronged and misrepresented when he was adopted as a 'philosophical touchstone' for Nazism so too was Marx's theory of proletariat freedom and liberation debased and distorted to justify all manner of totalitarian crimes, his name co-opted by Leninism, Stalinism, Maoism and many other 'Marxist' pretenders.

Lenin, I freely admit, is a more contentious subject.
Do we ignore his pre-revolution corpus of work due to his later dogmatism and murderous ruthlessness in creating and entrenching his revolution?

Should we take down every Caravaggio masterpiece since he was a murderer?
Never read or watch Carroll's Alice in Wonderland or watch a Polanski film due to their paedophilia?
Not read Heidegger due to his Nazi sympathies and Party membership?
Disregard Washington or Madison due to their Slave owning?

I admit I don't have a definitive answer on the ethical or moral implications.... but then I study International Relations Theory not Morality or Ethics.

@LaContra
"I think I can say your quote from Smith's ‘Wealth of Nations’ is taken somewhat out of context."

Then you are mistaken about more than just the continued relevance of Lenin, comrade!

I was responding to another reader's observation that capitalists prefer to "restrict participation" wherever they spot an opportunity, which is precisely what Smith was on about. By cooperating (conspiring) instead of competing in a market, they become an effective monopoly without the need for any assistance from state power.

As your own quotation from Smith makes clear, he saw how "organic" conspiracy had precisely the same effect as state-mandated monopoly. In this context it is entiirely correct to treat them the same, just as that other commenter casually did. But you're scratching around for some slight insight with which to credit Lenin, so I guess you have rather meagre pickings...

As for Lenin having been on a journey (like an X Factor contestant) from early insightfulness to later barbarism, I'm not hopeful. His achievement in the field of mass murder, although unimpressive compared with his successor, is surely just the required outcome of the revolutionary programme outlined by Lenin's teachers in the Communist Manifesto, which advocated merciless suppression of "rebels", censorship, total government control of all economic activity, etc., replacing an imperfect system with one that exhibits only the very worst traits of its predecessor. A continuous thread of historical ignorance, nastiness, naivety and bloody-mindedness runs through the whole disastrous episode.

I really must read what he had to say about imperialism though! I bet it's eerily relevant to China and stuff like that!

This is one of the most interesting, clearly expressed observations I've read in a long time. Thank you for putting such a fine point on it. This seems like a good point of reference for developing regulatory legislation that actually benefits capitalist competition while reducing malfeasance. The legal framework governing the relationships between managers, shareholders and the board of directors could certainly be improved. I hope you pursue this line of inquiry further in your future writings.

As a guy who works in a public company, I have to say that we *do* feel pressure from the Wall Street way of doing things, but almost never from the shareholders per se.

The way Wall Street manages technology companies, at least, really gets in the way of creating shareholder value. Technology companies are fundamentally based on taking the right risks, and seeing returns in about five years. Wall Street is all about the last quarter and the next quarter.

That said, as an investor, I routinely look for companies whose actions fit my criteria: I want companies that keep their businesses strong while paying me dividends every quarter. I avoid empire-builders (a behaviour that benefits the managers greatly, and the shareholders seldom).

Tzi

I understand your reluctance to delve into the pond of socialist/Marxist thought with its rigid preconceptions and deterministic outcomes...As I wrote earlier to A_Voice, the perspectives, which are sometimes called small 'm' marxist, have their roots in the Marxist perspective without the prescriptions, have largely succeeded in decoupling themselves from the straitjackets of orthodox or classic Marxism....these are the worthwhile and relevant derivatives of Karl Marx.

I am certainly not a Marxist...but I do tend toward a structuralist-marxist perspective in my research.

With Lenin (and to a lesser extent Kautsky) it isn't difficult to uncouple their rigid philosophy (their explanations as to why) from their incisive theories (their explanations of what and how)...and as theoreticians they are far more engaging than as classic Marxist philosophers.

It is difficult though to escape the meta-narrative of systems analysis seemingly intrinsic to the marxist perspective. While cleaving off specific systemic inputs and analysing them in isolation is easier and arguably more relevant, understanding them is then akin to contemplating the individual pieces as a substitute for doing the jigsaw.

Braudel? I haven't read Civilisation and Capitalism per se but I am well acquainted with his premises. He appeals to my maverick sensibilities...anyone who can offend the adherents of orthodox Marxism and classic Liberalism in equal measure must have something valid to say!
Braudel has a version of finance imperialism which he contends is either a constant or at least a repetitive theme throughout early modern Europe. He does however limit his theory of imperialism to his famous 'bell jar' model where capitalist and monopolist elites are set apart from larger society by their interwoven networks of influence and power hence the impact of his imperialism is contained. This was no doubt an accurate portrayal of renaissance city states such as Venice but I believe the theory loses traction in our modern political economies. His idea of capitalism not being naturally predisposed to a free market but instead to a state sponsored monopolist model is accurate and derived straight from Kautsky and Lenin.

LaContra,

Interesting. I'll have to get around to re-reading Lenin, and maybe check out Kautsky as well. Although I recognize how influenctial those perspectives are, I generally don't read them much because I generally disagree with the Socialist perspective of an economically driven system being the primary driver of social and historical change (I do think it's intelligible to talk about systemic factors, but I see them as influential rather than as the primary causal factor, I also think the systems dealt with by the socialist perspective, such as World Systems Theory, to be too big, and tend to prefer dealing with narrower systemic influences, such as separating out monetization, marketization, state integration, etc. as systems that can be separately studied rather than dealing with macro-systems such as a capitalist world economy, which I think is too big and links together several independent systems that are only partially linked), which means that I miss the good parts of the argument they are making.

More generally, are you familiar with Braudel's Civilization and Capitalism? The idea of an imperialism based on financial capital is not dissimilar to Braudel's description of internationl trade in the early modern period. To some degree, he explicitly links this to economic developments in the latter half of the 20th century, which he sees as being a more or less permanent element of economic history.

USPatriot_2011, the analysis of the situation need not be over-complicated. Under the present Anglo-Saxon 'capitalist' system, are there identifiable groups of individuals, with relatively unchanging membership, who are consistently able to reap proportionately more benefits, and suffer proportionately less costs, than the rest of society, regardless of the underlying conditions? Yes, there are. Namely, senior management, non-retail financial institutions, and corporate legal advisors. Should such identifiable groups stably exist under a free market system? No, they should not - their advantages ought to be arbitraged away.

As a result, we have a major bug in the system. Now, the exact nature of the problem and the best way to resolve it can be debated, but the fact that we do indeed have a problem cannot be denied.

@ Tzi
Regarding Hobson contra Lenin…

Whereas Lenin’s ‘Imperialism: The Highest Stage of Capitalism’ uses Hobson’s ‘Imperialism’ as a foundation text, I think they diverge inasmuch as Hobson views imperialism as a political policy decision by capitalist states where territory, especially in Africa, was often claimed regardless of its value or worth to the State (vis-à-vis Security or diplomatic leverage) or to its capitalist counterparties (vis-à-vis agriculture, trade, mineral wealth). In other words: Imperialism for imperialism sake not necessarily for economics or profits sake. Hobson also gives credence to the claimed French rationale for imperialism, the ‘mission civilisatrice’ whereas Lenin dismisses such a claim as a mere contrivance to obscure the rapacity of the capitalist enterprise.

Lenin, as noted above, considered Imperialism to be a natural progression or outgrowth, not of natural monopoly capitalism but of State Monopoly Capitalism, ie monopoly encouraged and manipulated by the State. It would seem that he considered imperialism as a natural (indeed the only) avenue for growth of capitalism as their natural (domestic) markets matured and ultimately stagnated, denying capitalist enterprise the growth and profits they desire.

Thus based on the Leninist perspective, the Soviet Union never developed into an imperial power and never engaged in imperialism because the profit motive was absent. The Soviet Union self identified its behaviour as hegmonic and revolutionary and thus the 'satellites' in Eastern Europe were considered primarily a security buffer for the 'centre' for which in turn security from Western imperialist aggression was afforded.

For me though the central difference is that Lenin had the opportunity to read Kautsky‘s ‘Finance-Capital and Crisis’ (1911) after Hobson’s ‘Imperialism’ in 1902. This allows Lenin (following Kautsky’s lead) to begin to elucidate on a future strain of ‘imperialism’, one freed from the bounds of territorial conquest, militarism, and colonialism. An imperialism based on banking, the export of capital, finance capitalism, and an emerging oligarchy of finance capitalists. An ultimately superior strain of imperialism based on ideology and finance, freed from the constraints of geography and overt management and control.

Very much like today’s system of deregulated international finance capitalism.

..I think.
:)

Danielearwicker.

Something seemed amiss, so after a little digging I think I can say your quote from Smith's ‘Wealth of Nations’ is taken somewhat out of context.

The paragraph you quote (Ch10~PtII~Para26) relates to cartels and price fixing among interests, factions, or guilds, especially guilds of craftsmen and tradesmen (carpenters, masons and such), and professions (such as lawyers or doctors). Thus, Smith contends, that whenever these people congregate the outcome invariably results in a conspiracy to raise prices. So Smith was making comment regarding the tendency of individuals with a specific skill or trade to collude amongst themselves in price fixing which distorts the price mechanisms of a free market.

This isn't strictly addressing the question from A_Voice regarding the perceived capitalist tendency towards monopoly.

Whereas when Smith does address the market and pricing distortions of monopolies (Ch7~Para27) he states:

"A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures..."

Hence in Smith's day while monopolies had the same effect as price fixing cartels, monopolies were in fact an artifice, a construct whose writ was created or bestowed (granted), just as the before mentioned East India Trading Co had its monopoly in India licensed by the Crown, and later rescinded.

The idea that monopoly was a natural tendency, an inherent and predictable occurrence within capitalism was not explored until Hobson (1902) and then further by Kautusky (1909), and then by Lenin (1916). Lenin though did not indicate whether he felt monopoly would simply develop naturally if capitalism was left to its own devices but followed the thinking of Marx that monopoly was actively created, encouraged, and manipulated by capitalist states, (as of course it was at that time) which in turn led to a natural progression toward imperialism.

Of course no individual investor can make a difference by voting their proxies, but mutual fund companies and institutions can. Vanguard and American Funds have huge amounts of assets and own 5% of many companies' outstanding shares.

@USPatriot_2011: When companies prefer to buy back their shares to increase e.p.s. when the share price is at a record high, then yes, shareholders should recognize that and stop the managers from doing so. CEOs are good at knowing what's good for them, but not as good at knowing what's best for the company.

* Quick addendum- this was for a 3-month development cycle, not permanent. Permanent would be bad, as 80-hour weeks of work alone aren't sustainable if you want to have an outside life. For a burst then getting two weeks vacation afterwards, it seemed quite doable.

@bamps

One of the Board members in my company offered my department, R&D, 30 million USD to "speed up development"; this included doubling anyone's salary who was willing to work 80 hours instead of 40, new and faster equipment, and any perks employees wished as long as they finished the job in half the time. Obviously, very few people were against this. As a younger engineer, one with few time commitments outside work, I was exuberant.

Then the VP of engineering said that it wouldn't be worth the money or effort, and tried to get us to over-commit our time without the cash incentives. Needless to say, this didn't turn out very well.

Point being, bamps, you are 100% correct.

I'm not sure if this accurately is managers vs. capitalists. Most board members are selected by a block of shareholders with controlling interest, and typically own shares themselves. Also the senior most executives are often on the board, and also own shares. So effectively, this is not managers acting against shareholders -- this is certain shareholders being privileged vis-a-vis other common shareholders.

Everyone is a capitalist, and is following capitalism, but not all capitalists are created (or treated) equal.

Not mentioned however is the ability of shareholders to vote with their feet and sell their shares of a poorly-managed company. This is much less desirable than shareholders effectively influencing management, but at least a company with an underperforming stock price will tend not to be very influential.

The author clearly is stuck in academia and has little real world experience with business. And Mr. Roe should spend more time across the river with his counterparts at the Business School. The author’s rant against corporate management makes it seem that corporate malfeasance is rampant, a point I strongly disagree with. There are exceptions, and notable ones at that, but the overwhelming majority of corporations adhere to the law.

That the author believes shareholders could better determine the actions a company should take is profoundly ignorant of the complexity of the decisions that must be made. It is often not a clear cut decision to close an underperforming plant – there may be intercompany dependencies with product lines or personnel that need to be considered, as well as the long-term business cycle and strategy for the company and its products. It is totally unrealistic to expect individual shareholders to devote the time necessary to gain enough knowledge to make intelligent decisions regarding matters of such importance. Factor that knowledge required to know one company by twenty or thirty – the requirement for an investor to hold a diversified investment portfolio – and you have an impossible governance situation. That is why boards exist and are mandated to act in the fiduciary interests of the company’s shareholders.

Shareholders need to elect strong members to the board and boards have become stronger in recent years. Requirements for outside directors and limits as to the number of boards on which a member can serve are good steps in corporate governance.

I am not an advocate of electing each board member every year as Institutional Shareholder Services Inc. (ISS) recommends. To throw out an entire board at one time leads to a massive loss of corporate knowledge and history, which are very important in running a company. Staggered boards retain knowledge and lead to better decisions for all stakeholders – shareholders, employees, and the public. Sometimes hostile takeovers are warranted, but not for the vast majority of companies.

LaContra,

I'm going on tangent here, but what do you think of Hobson's Imperialism compared to Lenin? It's among things I've been meaning to compare more closely since I haven't read Lenin's writings on Imperialism since high school and have been meaning to pick it up again now that I have more background.

Well, it isn't too hard to compile a "blacklist" of the Manegerial Class, and sell any company's stock when the management its falls into the hand of this blacklisted class. Also, boycott their products for good measure. Let's see how these "Professional" managers deal with that kind of manegement challenge!

As an alternative: let ME tell what to do. In all sincerity. :P

On the other hand, less managerial control/influence means more shareholder-driven anarchy. Or, in more practical terms, more power in the hands of shrill, putative shareholder-populist 'shareholder politicians'.

The governments of the US and its component States are THE bad example that other countries look as how not to run a developed country. Is 'shareholder-dominated power' (except in some special cases like executive pay) really an answer?

I'm not convinced. Then again, the staus quo has its downsides, too; what's to be done?

P.S. James Madison (paraphrase): "A government's first challenge is to control the people. It's second is to control itself."