This book (http://www.gowerpublishing.com/isbn/9781409448303) is about a new direction for market capitalism, based on co-operation rather than the neoclassical idea of maximising self- interest. It is not argued from a moral or ethical standpoint, but has a hard-nosed foundation in economic theory. The Road leads from the predatory capitalism we suffer today to a co-operative and far more productive capitalism we could enjoy tomorrow.
Predatory capitalism is the inevitable result of encouraging almost anyone to trade in almost anything, not just sub-prime, but actually worthless, even imaginary, financial “products”. The aim is to create a fever of anticipation which sucks money out of the real economy (manufacture, distribution etc) into bubbles of speculation in derivative or imaginary “products” or in mergers and acquisitions.
Many examples have been quoted on this site – see http://www.alternativemarkets.co.uk/carbon_trading). Which trader, fund manager or banker will turn down “up to 398%” for a risky 10% making widgets? Politicians pleading for a long term orientation, or a new business ethic, won’t change the arithmetic. To do that will require biting the bullet, making speculative activity less attractive and defending the real economy from financial attack. For example:
Restraining speculation could involve the following:
· Separating retail from investment banking and cease any central bank support for the latter – if they get into difficulty (unlike with ring-fencing) they should be allowed to go bust.
· Breaking up any banks which are deemed too big to fail and require them to maintain liquidity at traditional levels if central bank support is to be agreed.
· Making illegal the sale of financial “products” unless their fundamental ingredients are clearly stated so that an estimate can be made of real value.
· Removing limited liability partnership status which has allowed hedge funds, private equity funds and the like, to escape both their business and their tax liabilities. partners would either accept liability or convert their firms into limited liability companies taxed as such.
· Imposing a financial transaction tax could eliminate the profitability of automated, algorithmic and ultra-fast trading systems, as well as generally reduce the profitability of financial trading as opposed to long term equity holding.
Today’s capitalism is exercised through the abuse of share ownership. The vast majority of shareholdings are managed by fund managers and their ultimate owners most often are not even aware of where their funds are invested. Appeals to the responsibilities or duties of shareholders are therefore irrelevant. Fund managers are intent on short term performance, and their position on relevant trading league tables, typically achieved through the speculative activity as above, or through the direct predation on real firms through hostile takeovers.
Defending the real economy from such predation and giving some influence to stakeholders with long term interest in the firm, could involve the following:
· Delaying accrual of voting rights till company shares owned for minimum of 12 months.
· Giving employees votes at company general meetings on items such as changes of ownership (mergers and acquisitions).
· Giving public support and/or tax advantage to assist employee ownership schemes.
· Granting further tax benefits for start-ups and small companies.
· Giving public investment support to gear up private investment in R&D and innovation,
These are just a few examples of the political action which The Road to Co-operation requires. They all fly in the face of the currently dominant free market economic ideology. The significance of The Road to Co-operation is that it provides the theoretical foundations for that new direction. Its total rejection of the neoclassical economic project is fundamental to any revised direction and leads inevitably to a more co-operative and productive future.