Key characteristics of Anglo-American capitalism, i.e. capitalism created and mainly employed by American and British companies, is built around an "unholy alliance" of three things:
1. Professional manager class.
2. Principle of "shareholder value maximisation", mainly benefitting free-floating shareholders (including professional managers).
3. Leverage.
The primary industrial consequence of this triangle of factors is reduced corporate investment.
Other key consequences are:
a. a feedback loop occurs between the factors, i.e. they are inherently destablizing, particularly so in the face of ever increasing financial capital market efficiency;
b. the erosion of capital creates a system prone to shocks, both internal and external, and from the real economy or the financial economy;
c. productivity improvements are capped due to merely reducing headline numbers and making minimum incremental improvements to infrastructure and technology. No incentive for workers or employers to invest in company-specific skills or retraining;
d. gross increase in use of "excess" capital for share buybacks and other financial equity maximising techniques instead of investment or holding, even during boom times;
e. makes central bankers management of monetary supply harder due to the additional leverage use and other factors acting as a strong accelerator during cyclical upturns and a strong decelerator during cyclical downturns;
f. strong social impacts:
f.i. increasing wealth inequality between those who can benefit from the alliance and those who cannot. This is both from the asset side (shares) and liability side (borrowing);
f.ii. the easiest way to maximise profit today is to reduce expenditure instead of increasing revenues, so jobs are cut, wages and wage growth is minimised, work intensity and hours rise resulting in more errors, worker tiredness, forced imbalance of work/life.
When combined with globalisation, the efficiency of the global capital markets with its own problems (Too Big To Fail entities), tax and regulatory arbitrage, and capital flight, the above factors can be devastating to any economy no matter how advanced and results in global inefficiencies that produce sub-par growth and high instability.
These and other historical reasons are why most advanced countries outside of the Anglo-American world reduce the influence of free-floating shareholders and maintain a group of long-term stakeholders (including some shareholders) through formal and informal means. In addition, corporate leverage is usually more difficult to obtain.
What I find especially interesting is that a select few of the most globally successful American companies are well known for NOT partaking in this Unholy Alliance, specifically Apple, Google and to a lesser extent Microsoft are incredibly cash-rich companies! Other companies should learn something from these leaders.
Finally, there's a reason why Jack Welch, the long-time chairman of General Electric (GE), who is often credited with creating the term "shareholder value" in a speech in 1981 also denounced it in 2009 as probably the "dumbest idea in the world".
1. Professional manager class.
2. Principle of "shareholder value maximisation", mainly benefitting free-floating shareholders (including professional managers).
3. Leverage.
The primary industrial consequence of this triangle of factors is reduced corporate investment.
Other key consequences are:
a. a feedback loop occurs between the factors, i.e. they are inherently destablizing, particularly so in the face of ever increasing financial capital market efficiency;
b. the erosion of capital creates a system prone to shocks, both internal and external, and from the real economy or the financial economy;
c. productivity improvements are capped due to merely reducing headline numbers and making minimum incremental improvements to infrastructure and technology. No incentive for workers or employers to invest in company-specific skills or retraining;
d. gross increase in use of "excess" capital for share buybacks and other financial equity maximising techniques instead of investment or holding, even during boom times;
e. makes central bankers management of monetary supply harder due to the additional leverage use and other factors acting as a strong accelerator during cyclical upturns and a strong decelerator during cyclical downturns;
f. strong social impacts:
f.i. increasing wealth inequality between those who can benefit from the alliance and those who cannot. This is both from the asset side (shares) and liability side (borrowing);
f.ii. the easiest way to maximise profit today is to reduce expenditure instead of increasing revenues, so jobs are cut, wages and wage growth is minimised, work intensity and hours rise resulting in more errors, worker tiredness, forced imbalance of work/life.
When combined with globalisation, the efficiency of the global capital markets with its own problems (Too Big To Fail entities), tax and regulatory arbitrage, and capital flight, the above factors can be devastating to any economy no matter how advanced and results in global inefficiencies that produce sub-par growth and high instability.
These and other historical reasons are why most advanced countries outside of the Anglo-American world reduce the influence of free-floating shareholders and maintain a group of long-term stakeholders (including some shareholders) through formal and informal means. In addition, corporate leverage is usually more difficult to obtain.
What I find especially interesting is that a select few of the most globally successful American companies are well known for NOT partaking in this Unholy Alliance, specifically Apple, Google and to a lesser extent Microsoft are incredibly cash-rich companies! Other companies should learn something from these leaders.
Finally, there's a reason why Jack Welch, the long-time chairman of General Electric (GE), who is often credited with creating the term "shareholder value" in a speech in 1981 also denounced it in 2009 as probably the "dumbest idea in the world".