Innovation/Global Risk

America’s Capitalism Lacks the Capitalists 

By Shlomo Maital

   Writing in today’s Global New York Times, Chrystia Freeland (one of my favorite columnists) makes a simple point.  The destructive American brand of capitalism, that so many of us dislike, was never really capitalism. It lacks capitalists.


    “The U.S.,” she argues, “created a system of capitalism without capitalists, of private sector companies whose owners have abdicated responsibility for the companies that belong to them.” 

    The evidence?  First, exorbitant salaries CEO’s pay to themselves, including bonuses, especially bankers.  Where are the shareholders? Why do they approve bonuses even in bad years?  Why are US managerial salaries so blown out of proportion, compared to Europe and to Japan? Where are the shareholders, represented by Board of Director members? 

    Second, perspective. Why do CEO’s constantly get away with inflating share prices by narrow short-term policies, then grab their bonus and run (WBGWIC, we’ll be gone when it crashes).  I worked this year with a company owned wholly by an Israeli kibbutz, a socialist collective community.  I asked the CEO whether he has problems when the ‘board of directors’ is the whole kibbutz membership.  Not at all, he affirmed.  He is instructed to think long-term, to plan and invest long term.  This is capitalism, run by socialism.  America?  Inflating the quarterly P&L is not capitalism at all, it surely is not what the shareholders want, when they seek to maximize shareholder value over time?

   Freeland quotes an expert, who says, “thinking about where the company should be in 10 or 12 years, these are not the discussions held in many widely held companies”. 

   No, American capitalism isn’t really capitalism.  The diffusion of ownership in publicly-listed joint stock companies has basically ceded control to senior management. They hold their jobs for 2-4 years, and have little interest in what happens beyond that. Shareholders who give up without a fight, who approve ballooning salaries, deserve what they get – myopic companies that destroy shareholder value rather than build it. 

    Freeland recommends that we look at Sweden.  Once a socialist haven, Sweden reinvented itself, with dynamic free markets coupled with strong social equality driven by high taxation of the wealthy.  Swedish companies are vigorously run by their shareholders.  It’s time America learned from the rest of the world.  America is indeed special – it is supremely great, best in class, in drinking its own Kool-Aid.  American capitalism?  Not even close.    

   Boards of Directors!  Rise up!  Do your job! Represent the shareholders who appointed you.  Fight for their interests.  Never ever approve exorbitant salaries for CEO’s who do not deserve them.  Make them think long-term.  Put their feet to the fire. Ask them what their 10-year vision is.  Never let them slash R&D investment just to glorify the quarterly P&L.  Be capitalists!   There is no worse system than capitalism, when those who run it do not act like capitalists.