Keynes recognised that the legislation protecting worker’s rights might lead to powerful trades unions, motivated by political ideals rather than the long term interests of their members, being the cause of wages led inflation damaging economic activity. His mistake was to argue that it was a political problem for governments, rather than a problem for economics. So no action was taken till the advent of the Thatcher government.
Today the boot is on the other foot. Free market fundamentalism is no less political than the unions were 30 years ago. The fervent ideological belief in private industry being good, public bad, regulation bad, and above all, the primacy of shareholder property rights and the purpose of industry being to maximise their value … all that is equally damaging to industry, perhaps even more so, than was unbridled union power.
Companies are social organisations with a business objective to do with customers, markets, technologies, R&D, etc. They comprise many different groups of people with different skills, knowledge and understanding, and potentially conflicting interests. They work best when those disparate groups work together for the common good, which is the survival and long term prosperity of the company itself. Shareholders are not part of that social organisation. They put money into it with the expectation of gaining some return from their investment. If the return is not good enough, they have the AGM opportunity to make their views plain and take certain defined decisions. And they always have the option of taking their money elsewhere. The free market fundamentalist idea that companies exist to maximise their shareholders’ wealth is not just wrong, but highly destructive. It undermines any alternative motivations which people may have, working inside the company, and which are more relevant to the company’s success. And not infrequently it results in shareholders being persuaded to sell the company, or close it down, simply in order to realise their own financial gain.
This politicisation of industry has been bad news, especially for Anglo-American companies. In other jurisdictions the same tensions exist between interest groups, but the governance systems are more balanced in their distribution of rights and responsibilities. Two leading exemplars are Germany and Japan. Comparison of the motor industries in Britain, America, Germany and Japan tells an interesting story. A more equitable approach to governance will not be achieved in Britain or the United States till the failings of the current economic orthodoxy are acknowledged by those who Keynes referred to as ‘the madmen in authority’.