Phillip Adams’ was bemoaning the failures of capitalism this week in The Weekend Australian, adding it to the pile of other failed ‘isms’ and he points out that we need new answers to stem the widening gulf between those that have and those that don’t. He proposes a hybrid economic model.
We don’t need to invent a hybrid. We have already done it, we just don’t recognise it. Democratic capitalism has succeeded in achieving communism’s ultimate goal. It has shifted the ownership of the means of production to the citizens away from unelected elites. In most Western nations, the citizens provide the money for substantial chunks of the equity markets and the bond markets. It is just when we put our money into our retirement funds, managed by institutional investors, the ownership of those funds is suddenly assigned to those institutional investors. Our money become ‘their investments’. When really, these investors are merely managing our money and it is our money that buys the shares (which are units of ownership in companies), so we own the companies. The key is to make the institutional investors listen to a wider array of voices as to what constitutes a long-term ‘value’ building in a company.
The problem is we are still living in an age that assigns a higher moral value to people with money (or control of other people’s money) rather than people with knowledge. We lionise business leaders for their ability to make money, not their ability to change the world for the better. We agonise that we will not have enough money in retirement to maintain our lifestyle, so we turn a blind eye to bad company behaviour in favour of returns. We value our ability to buy things, more than our ability to understand things.
Perversely though, more and more of us comfortable in our middle class lives are getting uncomfortable about how big business is shaping our society, our planet and the futures of those who may not have the opportunity to worry about whether to go to Bali or holiday at home this year.
If we want this to change, we have to challenge this power structure and its associated values. We need to engage with institutional investors and get them to step up to the plate in engaging with company management and boards on issues that matter to us. We need investors not to punish companies on the stock market when they choose to do something that is better for all of us in the long term, but shaves off some profit in the short term.
Institutional investors need to democratise investing and create opportunities for people to engage with them and share their views. A starting point may be a simple online tool, like Vote Compass. It was used in the latest Australian election to help voters understand what mattered to them and which party best represented their views. A similar tool could help institutional investors understand how we feel about particular issues. Institutional investors could then represent these views to senior managements of companies and hold them to account on behalf of us all.
- New Study Shows HFT Hurts Long-Term Institutional Investors (valuewalk.com)
- One Percent of Institutional Investors Outperform After costs: State Street (valuewalk.com)