NationStates Jolt Archive

During my studies of both economics and business management, one thing has repeatedly come through, which I thought might be worth a thread here.

Then in the election thread, a discussion started about the same thing destroying the Romanian economy during the transition from communism (or state-capitalism, call it whatever you want):

Shareholder Capitalism.

Now, I'll define that simply as the system under which pretty much all major business is owned not by those who run the business, not by those who work for the business, but by completely unrelated people, namely the shareholders.

Obviously, for many that is a pretty good deal. Those who originally started the business sell it on the stock market and make tons of money. Those with money in the bank can buy a part of a company and hopefully get a good return. It is a major additional source of capital for the business itself.

But in recent times, with the liberalisation of financial markets, there have been more and more cases of shareholder capitalism going wrong...almost to the point where I would want to call it "locust capitalism".

The problem is that everyone is doing business in this framework with a very short-term view. Stockholders want to make money, and that does not necessarily mean that the business has to make smart decisions, that just means that the stock prices have to go up. And because large stockholders control the fate of those who run the business, ie management, decisions are being taken that are just not very smart.

Particularly annoying, I believe, is the current fascination with cutting costs by firing workers. I have yet to see a single theory, model or otherwise credible reason for why firing half your workforce should make your share price go through the roof, and I have been studying the topics for three years now. Firms like Deutsche Bank are making record profits, yet that does little if anything for their share price. So they also announce to get rid of another 20,000 workers and whoosh!

Why is good corporate strategy no longer worth anything?

Even worse are some hedge fonds and other investment companies, which do little more than buy up a firm in trouble, proceed to gut it and take it apart, and then sell little bits of it. In reality, that creates absolutely no value, but it still seems to magically make money appear from somewhere.

In comparison, firms owned by those who run it can make long-term decisions, they do not need to care about shareholder value, and firms like Porsche have made that a major part of their successful strategy.

This article (http://service.spiegel.de/cache/international/spiegel/0,1518,404003,00.html) lists some cases of German firms which took different paths, and how it turned out for them.

So am I right? Is the myopia of current shareholder capitalism a problem? Are there any alternatives?

And will I be lynched by people studying Finance?

I guess that's the same case for the Hudson's Bay Company. Previously owned by shareholders, now owned by an American.

i don't see why this isn't just another aspect of regular free market capitalism.

i see nothing wrong with pooling capital.

I guess that's the same case for the Hudson's Bay Company. Previously owned by shareholders, now owned by an American.
I would expect that American to also be a shareholder.

My point is not about who owns the thing, as long as that person or conglomerate actually has some sort of long-term interest in how the firm performs.

Where that owner/manager comes from is not all that important to me.

My point is not about who owns the thing, as long as that person or conglomerate actually has some sort of long-term interest in how the firm performs.

who wouldn't care about the future of his financial investment?

i don't see why this isn't just another aspect of regular free market capitalism.
I think the problem is that you don't have a management background (I assume).
We are being taught that employees are a good thing to have. Happy employees are better employees. The idea is that a reciprocal good nature is a requirement for long-term profit.
We are also told that good corporate strategies, the right organisational culture and design form the basis for a profitable business.

But these short-term investors aren't going to care for those things. It's perfectly possible to create one big spike in profits if you sacrifice the stable future of the firm. And that's what we have seen occasionally.

But conceptually, yes, it's a part of the free market. The question is whether its practical results are all that great.

who wouldn't care about the future of his financial investment?
Those who are ready to sell it after a month or two, or six.

who wouldn't care about the future of his financial investment?
Future of financial investment != future of company.

There is a difference between investors and those who play the market. Those who play the market are looking out only for their short-term investment. They don't mind a company that undercuts its own long-term future to create high profits in the short-term. After all, they'll be gone sooner than later.

The problem is, there are very few actual investors left, and the majority of share price is determined by those who play the market. Given that company stock options give CEO's et al a vested interest in seeing their stock price rise, they have incentive to go along with the market-players.

Speaking of outsourcing

Did anybody ever called Microsoft's Windows XP activation tech support?

It's being run by those damn robots!!! Gahhh!!!

I had to call them 6 six times in a row while working for a computer services.

Geez, I forgot a magic phrase that takes me to an actual human.

Future of financial investment != future of company.

There is a difference between investors and those who play the market. Those who play the market are looking out only for their short-term investment. They don't mind a company that undercuts its own long-term future to create high profits in the short-term. After all, they'll be gone sooner than later.

The problem is, there are very few actual investors left, and the majority of share price is determined by those who play the market. Given that company stock options give CEO's et al a vested interest in seeing their stock price rise, they have incentive to go along with the market-players.

usually those who play the market have very little say in how a company is run or seldom even care, so i'm not sure what exactly you see wrong with people playing the market.

usually those who play the market have very little say in how a company is run or seldom even care, so i'm not sure what exactly you see wrong with people playing the market.
Hence the last sentence in my message.

They may not have much direct say in how the company gets run, but they have direct say over how the stock is valued. Given that the CEO's often have stock options and bonus packages based on certain thresholds of share price, those who control the company go for the things that those who play the market consider valuable to them.

usually those who play the market have very little say in how a company is run or seldom even care, so i'm not sure what exactly you see wrong with people playing the market.
Well, there is your small-time players, who wouldn't have the influence anyways, even if they tried.
And then there is the large investment companies (Carlyle comes to mind), which buy precisely for the reason that they do want a major say in the company through the board of directors.

The problem is that everyone is doing business in this framework with a very short-term view.

The internet 'tech wreck' was all built on the foundation of long term busines plans. ("We're losing money now, but in the long term we'll be profitable!")

-Kinda throws a wrench in your whole postulate.



Also, it would seem here that people do understand the difference between an investor and a trader - but few know the difference in performance they experience;
http://www.phoenixinvestments.com/PublicSite.jsp?Target=/Common/News/ChasingPerformance.html

www.ifa.com/Media/Images/PDF files/tradingHazardous.pdf

I don't know; in all honesty I think companies have been downsizing like that for years, but the only difference now is that the presence of shareholders (many of which are mutual funds owned by middle class investors...the penetration of stock ownership in to the lower classes is definitely a good thing) pressures them to say things about it to reap the benefits as well as avoid the risks.

Also, shareholder pressure forces greater transparency in to the market and can force through reform faster; the system today is far more open and fluid than it was during the 80's or mid 90's, and I think we ultimately stand to benefit from it. At the same time, however, there is also the greater risk of corporate manipulation to bolster stock prices, but overall the rise of fluid, transparent shareholding and stock trading is to the benefit of corporations.

Well, the real problem is not actually the shareholders, but the corporate boards. Most shareholders don't care, so people "cross-appoint" each other to them, becoming a dead-weight upper class that grants benefits to each other. It's a failure of the control mechanism designed to look after the interests of the shareholders, not just the board.

So am I right? Is the myopia of current shareholder capitalism a problem? Are there any alternatives?Well, stock speculation did mostly cause the Great Depression, so it's good to be worried about it. I don't see it as being even the free market's twin, more like another personality of the free market.
An alternative would be to get rid of capitalism in favor of a better system.

I'd say you're mixing up the difference between the day trader and normal investor. While there are plenty of people who only play the markets for a quick sell, the average investor is (forgive my choice of words) invested in their company, be they the owner, the founder, the board, managers or whoever. The small time, short term trader also tends to have the problem of hurting himself far more than he hurts the company he invests in. Your average shareholder is the responsible long term investor.

The internet 'tech wreck' was all built on the foundation of long term busines plans. ("We're losing money now, but in the long term we'll be profitable!")

-Kinda throws a wrench in your whole postulate.


Not really. The tech market was a rapidly expanding emerging market in which no one really knew what to expect. The theoretical long term possibilites turned out to be pretty much nil, and the market destabilized. That's quite different from long term buisiness built in an established market where the basic rules of the game are already in place.

Well, stock speculation did mostly cause the Great Depression, so it's good to be worried about it. I don't see it as being even the free market's twin, more like another personality of the free market.
An alternative would be to get rid of capitalism in favor of a better system.

It was protectionism more than speculation that caused the Crash. The market was already fairly unstable going in to 1929, but the passage of the Smoot-Hawley tarrif was what really pushed investors over the edge and caused them to start bailing. If you remember, there were numerous mini-crashes through 1928 and 1929 before the major one in October.

Also, the economic slowdown did not occur until early 1930, which was the point at which the global trade system began to collapse to to the tariff and retaliatory measures in response to it by foreign central banks.

It was protectionism more than speculation that caused the Crash. The market was already fairly unstable going in to 1929, but the passage of the Smoot-Hawley tarrif was what really pushed investors over the edge and caused them to start bailing. If you remember, there were numerous mini-crashes through 1928 and 1929 before the major one in October.

Also, the economic slowdown did not occur until early 1930, which was the point at which the global trade system began to collapse to to the tariff and retaliatory measures in response to it by foreign central banks.I don't agree. There were measures of protectionism, but there were volatile economic changes all throughout US history until the establishment of Keynesian economics, so I don't think that those particular crashes were due to protestionism.

In addition, the Depression was felt here more than everywhere else, and yet other places were also protectionist.

I don't agree. There were measures of protectionism, but there were volatile economic changes all throughout US history until the establishment of Keynesian economics, so I don't think that those particular crashes were due to protestionism.

In addition, the Depression was felt here more than everywhere else, and yet other places were also protectionist.

Our tariff was so high that it literally threatened to halt all of our trade; this was a truly stifling tariff that was combined with government policy restricting rather than expanding the money supply to create a perfect storm.

The US got hit hardest because we were one of the few major economic nations that had emerged from WWI without significant damage and had the most to lose from the collapse of international trade; the Smoot-Hawley tariff was simply so stifling that it pretty much guaranteed the decimation of our foreign trade and resulted in the chain of events leading to the Depression.

Our tariff was so high that it literally threatened to halt all of our trade; this was a truly stifling tariff that was combined with government policy restricting rather than expanding the money supply to create a perfect storm. In which case we should have concentrated on satisfying the local market. Contrary to popular opinion, it isn't always better for a nation to export.

(Getting rid of such a high tariff would've helped, too, I'll give you that.)

The US got hit hardest because we were one of the few major economic nations that had emerged from WWI without significant damage and had the most to lose from the collapse of international trade; the Smoot-Hawley tariff was simply so stifling that it pretty much guaranteed the decimation of our foreign trade and resulted in the chain of events leading to the Depression.How high was it, and what products were tariffed?

Our tariff was so high that it literally threatened to halt all of our trade; this was a truly stifling tariff that was combined with government policy restricting rather than expanding the money supply to create a perfect storm.

The US got hit hardest because we were one of the few major economic nations that had emerged from WWI without significant damage and had the most to lose from the collapse of international trade; the Smoot-Hawley tariff was simply so stifling that it pretty much guaranteed the decimation of our foreign trade and resulted in the chain of events leading to the Depression.

IIRC, Smoot-Hawley was passed in 1931 and replaced by the RTAA in 1934. If so, then it seems more like a reaction to the collapse in international commerce, not the cause.

In which case we should have concentrated on satisfying the local market. Contrary to popular opinion, it isn't always better for a nation to export.

Comparative advantage is best, as is responsible government management of fiscal stimulus and contraction.

(Getting rid of such a high tariff would've helped, too, I'll give you that.)How high was it, and what products were tariffed?

Quadrupled tariffs on 20,000 products, set ceilings of 60%-87% on 3200 major products and went as high as 400% on agricultural products. The aftermath was a fall in exports of over 60% and a fall in imports of over 75%.

IIRC, Smoot-Hawley was passed in 1931 and replaced by the RTAA in 1934. If so, then it seems more like a reaction to the collapse in international commerce, not the cause.

It was passed in June of 1930; the decimation of trade occured during the following years and the Reciprocal Trade Agreement Act of 1934 was passed to try and recover from its devastation.

I don't agree. There were measures of protectionism, but there were volatile economic changes all throughout US history until the establishment of Keynesian economics, so I don't think that those particular crashes were due to protestionism.
Of course, the Keynesian system also inhibited the rapid development of superior goods and services. The greatest advances in telecom technology have happened since deregulation. Information technology has sprung forward, the wasteful inefficient airlines that kept ticket prices impossibly high are fading away as discount regional carriers are making air travel increasingly less expensive for everyone involved. Not to mention, one of the greatest economic booms in history happened after deregulation, with the nineties being downright amazing. Since deregulation we have faced so very few shortages that it's tough to remember when they happened. Honestly, can you tell me when the last gasoline shortage was (that was not brought about by a natural disaster of tremendous magnitude, and whose effects were rapidly countered by a release of petroleum from other sources)?

At the same time, states that continue to cling to Keynesian ideas continue to have economies that lag in the international markets. Typically Germany and France are recognized as the leading disciples of a Keynesian system. Neither state is set to undergo the transfer to an information economy, and will most likely suffer great shocks when the regulation is lifted and their economies are opened to the market.

I'd tend to say that the crashes and booms prior to the second world war had far more to do with the fact that the US was still a developing economy, and such crashes and booms are to be associated with such an economy. The second world war proved to be the crucible for the US Economy, which shaped it into a modern economy rather rapidly. And is proof that regulation does work during war time, but peace is so radically different in the economic needs of the population that regulation doesn't work.

Of course, the Keynesian system also inhibited the rapid development of superior goods and services. The greatest advances in telecom technology have happened since deregulation. Information technology has sprung forward, the wasteful inefficient airlines that kept ticket prices impossibly high are fading away as discount regional carriers are making air travel increasingly less expensive for everyone involved. Not to mention, one of the greatest economic booms in history happened after deregulation, with the nineties being downright amazing. Since deregulation we have faced so very few shortages that it's tough to remember when they happened. Honestly, can you tell me when the last gasoline shortage was (that was not brought about by a natural disaster of tremendous magnitude, and whose effects were rapidly countered by a release of petroleum from other sources)?It's interesting that you mention information technology, as ISP providers were the first to suffer when the bubble burst.
California suffered a major energy crisis a few years back due to deregulation.
In addition, it's difficult to say what the effects of deregulation are because unemployment statistics don't take into account how many workers are actually making enough to live on.

At the same time, states that continue to cling to Keynesian ideas continue to have economies that lag in the international markets. Typically Germany and France are recognized as the leading disciples of a Keynesian system. Neither state is set to undergo the transfer to an information economy, and will most likely suffer great shocks when the regulation is lifted and their economies are opened to the market.And they will likely be worse off, in the way that the U.K. was (and is) due to Thatcher's policies.

I'd tend to say that the crashes and booms prior to the second world war had far more to do with the fact that the US was still a developing economy, and such crashes and booms are to be associated with such an economy. The second world war proved to be the crucible for the US Economy, which shaped it into a modern economy rather rapidly. And is proof that regulation does work during war time, but peace is so radically different in the economic needs of the population that regulation doesn't work.While this may be true, those crashes and burns would have been even worse if the U.S. hadn't been protectionist for most of that time, so I'd have to say that wartime isn't the only time that regulation is a good thing.

Of course, the Keynesian system also inhibited the rapid development of superior goods and services. The greatest advances in telecom technology have happened since deregulation. Information technology has sprung forward, the wasteful inefficient airlines that kept ticket prices impossibly high are fading away as discount regional carriers are making air travel increasingly less expensive for everyone involved. Not to mention, one of the greatest economic booms in history happened after deregulation, with the nineties being downright amazing. Since deregulation we have faced so very few shortages that it's tough to remember when they happened. Honestly, can you tell me when the last gasoline shortage was (that was not brought about by a natural disaster of tremendous magnitude, and whose effects were rapidly countered by a release of petroleum from other sources)?

At the same time, states that continue to cling to Keynesian ideas continue to have economies that lag in the international markets. Typically Germany and France are recognized as the leading disciples of a Keynesian system. Neither state is set to undergo the transfer to an information economy, and will most likely suffer great shocks when the regulation is lifted and their economies are opened to the market.

I'd tend to say that the crashes and booms prior to the second world war had far more to do with the fact that the US was still a developing economy, and such crashes and booms are to be associated with such an economy. The second world war proved to be the crucible for the US Economy, which shaped it into a modern economy rather rapidly. And is proof that regulation does work during war time, but peace is so radically different in the economic needs of the population that regulation doesn't work.

Sort of true, as you also leave out key points. It is true that Keynsian systems don't baloon their GDP quite as quickly as those that don't. . .but at the same time, the point of Keynsian systems is not to maximize GDP, but to best protect workers from the vagaries of the market, and on that count, Keynsian systems seem to work very well. Win, lose, or draw, workers in the US benefitted from much higher wages, more job stability, and lower numbers of hours required to earn a living wage than what we see right now. By contrast, the 90's boom mainly benefitted the wealthy, as they owned most of the stock options, and the middle class increased their wealth only through working longer hours rather than through increases in wages. As a consequence, the average male worker in the US now works 50 hours per week. I don't necessarily see the rise in the US's GDP as an adequate compensation for this.

It's interesting that you mention information technology, as ISP providers were the first to suffer when the bubble burst.
California suffered a major energy crisis a few years back due to deregulation.
In addition, it's difficult to say what the effects of deregulation are because unemployment statistics don't take into account how many workers are actually making enough to live on.
Couple reasons for the problems faced by the tech sector. The bubble was caused by several factors. Technology had changed very rapidly, one might call it a paradigm shift in communications. And the traditional providers did not spring to fill this void. As a result a vast quantities of smaller, untried firms jumped in and began providing. Only problem being there were too many for the market to support, and the ones that had the biggest problems, the worst business models and the rest collapsed, leaving healthy, stable companies in their wake. The interesting thing is a lot of the technological advancements that were needed for the revolution in the early nineties were available before that, and the traditional providers didn't spring for them. Would you rather have the build up, the bubble, the burst and healthy firms develop from that, or would you rather advances be made at a much slower pace, not necessarily in the best interests of the consumer? That is why the smaller firms were able to provide services that AT&T and friends didn't. Lots of market entry, saturation shortly followed by market exit. In effect, regulation led to complacency amongst the biggest telecom firms, this complacency led to zero change and adaptation, and less stable smaller firms came into existence, the bubble would have never happened if the large firms were capable of adaptation, but government protection had made it so that they weren't, they were monolithic giants. Stability and slow gains for the consumer, or minor instability and massive gains for the consumer, you take your pick.

There was also a lot of very poor investment decisions. I like to cite Lucent, who invested in low bandwidth technology, when they should have focused on broadband technology. My family lost a good chunk of money when Lucent collapsed.

To cite that only as the cause of the power shortages in Cali is somewhat misleading. PG&E just didn't have the equipment to power the area. They had not upgraded their generating capacity during the years of regulation, and decided to sell off their natural gas equipment because it was rather inefficient and caused them to lose money. Unfortuneately not many firms were tooled to build new generators because orders for new natural gas generators had been low for quite some time, so the capacity was not there. Eventually PG&E discovered that it could not continue to run its energy network as it was and had to purchase from Enron at high prices. PG&E went bankrupt, the government of Cali had to bail them out, and now the average Californian pays about $1500 dollars per year more than the average person in the rest of the US for energy



And they will likely be worse off, in the way that the U.K. was (and is) due to Thatcher's policies.
Because the UK has not had a consensus against regulation. There were plenty of poor decisions in the economy of the UK. Beyond that, I don't know what you're talking about. French and German firms are increasingly less competitive on the global market, and the only way they stay afloat is because they get free taxpayer money from the government, see: French farmers and Lufthansa.

While this may be true, those crashes and burns would have been even worse if the U.S. hadn't been protectionist for most of that time, so I'd have to say that wartime isn't the only time that regulation is a good thing.
I'd doubt it.

Sort of true, as you also leave out key points. It is true that Keynsian systems don't baloon their GDP quite as quickly as those that don't. . .but at the same time, the point of Keynsian systems is not to maximize GDP, but to best protect workers from the vagaries of the market, and on that count, Keynsian systems seem to work very well. Win, lose, or draw, workers in the US benefitted from much higher wages, more job stability, and lower numbers of hours required to earn a living wage than what we see right now. By contrast, the 90's boom mainly benefitted the wealthy, as they owned most of the stock options, and the middle class increased their wealth only through working longer hours rather than through increases in wages. As a consequence, the average male worker in the US now works 50 hours per week. I don't necessarily see the rise in the US's GDP as an adequate compensation for this.
I'd like to make note of the radical benefits of the average American in other areas as well. You seem to focus entirely on the monetary benefit to investors and employees. The nineties boom did more than benefit the wealthy. Increasing free trade has lowered prices on virtually everything. Hell, think about DVD players. You can buy a DVD player for thirty bucks. How about broadband internet? People own more luxury goods, and more stuff in general, now than they did in the past. You're not taking everything into account. If everything has stayed the same, then how come your average American owns more things? Multiple color televisions, DVD players, access to cable, more and better cars, computers, chuck norris, broadband internet access, stereos, cell phones, access to a million and one television channels and the rest?

Couple reasons for the problems faced by the tech sector. The bubble was caused by several factors. Technology had changed very rapidly, one might call it a paradigm shift in communications. And the traditional providers did not spring to fill this void. As a result a vast quantities of smaller, untried firms jumped in and began providing. Only problem being there were too many for the market to support, and the ones that had the biggest problems, the worst business models and the rest collapsed, leaving healthy, stable companies in their wake. The interesting thing is a lot of the technological advancements that were needed for the revolution in the early nineties were available before that, and the traditional providers didn't spring for them. Would you rather have the build up, the bubble, the burst and healthy firms develop from that, or would you rather advances be made at a much slower pace, not necessarily in the best interests of the consumer? It depends, but typically I would not say that simply because something is better for the consumer it is better...when something is better for the people producing it, then it is better. The consumer's livelihood does not depend on the technology, but the worker's livelihood does.

In addition, I would not say that workers becoming unemployed is in itself a bad thing due to the typical capitalist reason that they can train for new jobs. What capitalists don't answer is: what do the workers do in the time that they're training?

That is why the smaller firms were able to provide services that AT&T and friends didn't. Lots of market entry, saturation shortly followed by market exit. In effect, regulation led to complacency amongst the biggest telecom firms, this complacency led to zero change and adaptation, and less stable smaller firms came into existence, the bubble would have never happened if the large firms were capable of adaptation, but government protection had made it so that they weren't, they were monolithic giants. Stability and slow gains for the consumer, or minor instability and massive gains for the consumer, you take your pick.Regulation doesn't have to lead to complacency, it did in this case though. A company could easily be regulated to update its services and make them better.

There was also a lot of very poor investment decisions. I like to cite Lucent, who invested in low bandwidth technology, when they should have focused on broadband technology. My family lost a good chunk of money when Lucent collapsed.Which is part of what happens when you move to a shareholder-based economy.

To cite that only as the cause of the power shortages in Cali is somewhat misleading. PG&E just didn't have the equipment to power the area. They had not upgraded their generating capacity during the years of regulation, and decided to sell off their natural gas equipment because it was rather inefficient and caused them to lose money. Unfortuneately not many firms were tooled to build new generators because orders for new natural gas generators had been low for quite some time, so the capacity was not there. Eventually PG&E discovered that it could not continue to run its energy network as it was and had to purchase from Enron at high prices. PG&E went bankrupt, the government of Cali had to bail them out, and now the average Californian pays about $1500 dollars per year more than the average person in the rest of the US for energyBut Enron could only sell the electricity to California at such high prices due to the deregulation.

I'd doubt it.How many nations became industrialized without a huge wall of protectionism?


To get back to the other topic, I wouldn't say that the '90s boom happened because of deregulation within the U.S., but because of NAFTA and the WTO and the following steady flow of wealth from poor countries to rich countries.

I'd like to make note of the radical benefits of the average American in other areas as well. You seem to focus entirely on the monetary benefit to investors and employees. The nineties boom did more than benefit the wealthy. Increasing free trade has lowered prices on virtually everything. Hell, think about DVD players. You can buy a DVD player for thirty bucks. How about broadband internet? People own more luxury goods, and more stuff in general, now than they did in the past. You're not taking everything into account. If everything has stayed the same, then how come your average American owns more things? Multiple color televisions, DVD players, access to cable, more and better cars, computers, chuck norris, broadband internet access, stereos, cell phones, access to a million and one television channels and the rest?

The two major factors have been the housing bubble and the increase in family debt. The first pumped up the price of the median housing value substantially, which allowed people to refinance their rates and effectively shift their spending from housing payments to direct consumption. The second is the rise in debt.

Now, Vetalia would probably say to this that 1) there is no housing bubble, and 2) measurements of debt are inaccurate. Both statements are partly true, but I say partly because such statements selectively leave out some important information.

It is true that the bubble is highly regionalized, because while housing values have not gone up markedly in, say, Omaha, they have spiked significantly in places like New York City or Las Vegas. The reason why is geography: all Omaha has to do to reduce housing values is plow under another cornfield and pave it over with a housing development; in Las Vegas, we'd have to level a mountain range to do the same thing. The simple fact, however, is that prices in cities where the bubble has occured have made owning a home prohibitively difficult for middle-class residents who didn't already have a home, spiked property taxes for elderly, and put those who do own a home at high risk of forclosure if their higher-value mortgage costs more than the value of the house (as is what happens if the bottom falls out of the housing market). As such, the housing bubble not only exists (the same people who are downplaying the housing bubble are also the people who wrote Dow 36,000) but also poses a great risk to the places where, incidentally enough, the greatest growth and highest numbers of middle-class workers live.

The second statement is also partly true, in that many of the things we'd call savings, like stocks, are not counted as such by the people who tabulate median household debt. But I do think that their information is still informative, as it indicates that the amount of savings in truly safe locations like savings accounts and bonds, has fallen sharply, while at the same time the amount of debt in things like credit-cards has spiked sharply.

During my studies of both economics and business management, one thing has repeatedly come through, which I thought might be worth a thread here.
........So am I right? Is the myopia of current shareholder capitalism a problem? Are there any alternatives?



Look up "corporate governance" and "agency problem". Then go read Kraakmans' Anatomy of corporate law.

Yes, is a problem.

Alternative: Look up "corporate sustainability"

Typically Germany and France are recognized as the leading disciples of a Keynesian system. Neither state is set to undergo the transfer to an information economy, and will most likely suffer great shocks when the regulation is lifted and their economies are opened to the market.
I would hope that you would have had a look at the article I posted in the OP, which actually talks about how German firms are coping.

Keynesianism wasn't all that big a factor...the German "Social Market Economy" came more from Ordoliberalism, then sorta perverted by the SPD which had in mind to create the sort of security that has since come back and haunted the German economy somewhat.

The alternative to shareholder capitalism in the German economy was what people call "Rhineland Capitalism", which was basically a network of very close relationships between major companies and the major banks. Thanks to rising labour costs, some very bad administration and many other pressures, firms became increasingly bad places to give money to, yet the banks continued to do so. That is what has destroyed a number of major German companies.

Nonetheless, it's not really fair to say that German companies are not competitive, considering that the country is still the largest exporter on the planet, having broken records in recent years. Indeed, that is the only thing that's kept the economy afloat, considering the bad domestic climate (although indications are that that is over now...surveys say that people want to invest again).

But Rhineland Capitalism isn't necessarily dead. Thanks to some good corporate strategy and a good product, Porsche Boss Wendelin Wiedeking has made the company an international success story...but you try buying a Porsche share. You can't, the stock is only traded with the explicit permission of the company after a background check. They're not traded on the free market.

What do you think would have happened to a freely traded Porsche when Wiedeking took over?