Saturday, August 9, 2014

Robert Reich — The Rebirth of Stakeholder Capitalism?


In recent weeks, the managers, employees, and customers of a New England chain of supermarkets called “Market Basket” have joined together to oppose the board of director’s decision earlier in the year to oust the chain’s popular chief executive, Arthur T. Demoulas.
Their demonstrations and boycotts have emptied most of the chain’s seventy stores.
 
What was so special about Arthur T., as he’s known? Mainly, his business model. He kept prices lower than his competitors, paid his employees more, and gave them and his managers more authority.
Late last year he offered customers an additional 4 percent discount, arguing they could use the money more than the shareholders.
 
In other words, Arthur T. viewed the company as a joint enterprise from which everyone should benefit, not just shareholders. Which is why the board fired him. 
It’s far from clear who will win this battle. But, interestingly, we’re beginning to see the Arthur T. business model pop up all over the place.
The Rebirth of Stakeholder Capitalism?
Robert Reich | Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, was Secretary of Labor in the Clinton administration

2 comments:

Unknown said...

This is what happens when politically motivated people on both sides interpret history. Reich has the roots of this wrong, and it's important, because he's making this a left and right issue, when it's a Big and Public, vs Small and Private issue. Neither political side wants to talk about, because they both love Big and Public.

The roots of this wasn't the 1980s, but the 1880s, and a it has a much clearer description - Industrialism.

By the late 1800s, Industrialists had subverted capitalism altogether and turned business into something that fed ONLY the shareholders, at the expense of workers and their families. "Corporate raiders" weren't invented in the 1980s. Vanderbilt, Rockefeller, Carnegie, Mellon, Astor and a hundred others were the "robber barons" who redefined business as an opportunity to use the world around them for the sole purpose of siphoning resources and wealth to the shareholders. They created monopolies that ensured no one else could benefit. Upton Sinclair wrote of rats being shoveled into sausage bins for the sake of profit, and the unions have had to fight with giant corporations from the 1880s on through today to get what they want. It's an ongoing adversarial relationship - big vs. small.

Family businesses of every size (SC Johnson, Enterprise Cars, Joe's Java Shop) has always been better at taking care of their workers. Tyler's book, used by Reich to support the nonsense that the 1980s caused the problem, gives a myriad of family-owned businesses as examples of how it used to be. But those businesses are still that way - they've always been stakeholder oriented. And the majority of big, publicly traded corporations are just as shareholder oriented today as they were in 1950.

The lesson isn't that the 1980s were responsible for the evils of Shareholder Industrialism - a convenient political argument that isn't true. The lesson is that the bigger a company gets and the more investors it takes on, the easier it is for it to lose sight of those who actually make it work - their stakeholders.

"Big" and "Public" are the danger signs of Shareholder Industrialism. And if you look closely, left and right both strongly embrace Big, and Public, at the expense of Small and Private, which has always embraced Stakeholder Capitalism

Tom Hickey said...

Good points, all, Chuck. But modern capitalism has a natural tendency to centralization and consolidation owing to increased efficiency. Peter F. Drucker argues that there is not going back to small, so get used to big if you want economic progress. It's not just economies of scale but runs through organization. Of course, the danger is that institutions get so large they get difficult to manage, and that's why the people can do it successfully are so highly rewarded. There's an internal logic to the dynamic that got us here the way the system is now configured without changing the incentive structure that is assumed to make it work optimally, even if it means some social "collateral damage."

The US takes a very similar approach to the military.