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One of the simple dictionary meanings of capitalism is an economy based on private enterprise. It is also possible to simply define capitalism as the use of markets not planning to allocate economic resources. Based on factual evidences, capitalism is widely regarded as the economic system of the west. Before the collapse of the Berlin Wall and the subsequent disintegration of the Soviet Union in the early 1990s, the Eastern world was highly considered as the “socialist economic block”.
The great majority of the world for long considered the American capitalism as the best, if not perfect, capitalism among the capitalist west. The American capitalism perceived as an economic system which reward best the one who is entrepreneurial, innovative and working hard. In the capitalist Europe, the story is also similar.
The recent economic crisis which devastated the United States and Europe has long lost its breaking news status. What is news then is the measures they are taking and its impact. The United States and Europe, though both are capitalists, they took different strategic measures to mitigate the multi-faceted impacts of the crisis and to lubricate the long stacked wheels of their respective economies.
To this effect, the United States picked an expansionist approach and pumped hundreds of billions of dollars in order to stimulate its contracted economy while Europe adopted a squeezing approach and took a long list of austerity measures.
The United States in its expansionist approach and economic stimulus measures bailed out a number of its giant business empires in which the world for long believed them as too-big-to fall and cut or limited the huge compensation pay schemes of the CEOs. Europe on the contrary in its very many austerity measures, in addition to social security and other public benefits, drastically and significantly cut both the work force and their salary.
Two years after taking its expansionist measures, the United States start picking its harvest. The contracted economy very slowly but steadily start moving forward and managed to create hundreds of thousands, if not millions, of more new jobs. Europe on the other hand is still very busy in its austerity measures tightening the people’s belt beyond its limit. By doing so what Europe is currently witnessing is not the fast increase of its terribly contracted economy, rather the number of angry people filled the streets in protest of their government’s austerity measures and committing suicide.
Evaluating their respective corrective measures, some economic analysts start comparing the capitalism in the United States and European Union particularly the much crisis affected euro zone area. With the euro zone up against the ropes, all signs are that the U.S. economy and economic model reign supreme. Sure it is. But the United States has its problems too, including a severe bout of long-term unemployment.
Remember all the talk much amplified by the mainstream media that Chief Executive Officer (CEO) talent is so rarefied that its price can only be measured in double-digit millions per annum? That audacious proposition, trumpeted confidently from media towers in New York City and London, used to be a core tenet of the United States -UK consensus on the global economy.
The evidence, meanwhile, is undeniable that plenty of that presumably extraordinary talent is imbued with many shortcomings. CEOs aren’t so superhuman after all. From launching failed corporate strategies, egregious errors of proper oversight, gross infidelities with staff, pumping up resumes in the style of blustery 19-year olds who really do not yet know better, the C-suite increasingly seems like a comedy of human failings.
On mid June 2012, Jamie Dimon, Chairman and Chief Executive of JP Morgan Bank has apologised for the bank’s losses of two billion dollar on high risk trades. He said the losses occurred because traders were poorly managed and did not understand what they were doing. Following his announcement of the obscene amount of lose, what followed was the outrageous comments of share holders and financial analyst in which wiggling their fingers towards the CEO and asked him what the hell he was doing and where the hell he has been while the company made such a huge lose.
To be sure, CEOs are put under great pressure. But these are tough times for most people working in large corporations. The difference is that certain “talent” has been indoctrinated since the days of business school that they are something special and, unlike the rest of the corporate workforce, certainly deserve something very special: namely, exorbitant compensation.
But on this front, the U.S.-UK alliance is finally cracking. Just as is the case in the field of banking, the “old country” is no longer prepared to toe the American line either on the uniqueness of the financial sector or the extraordinariness of executive talent. A long time in the making, there is finally solid pressure on restricting top executive pay in London. That is long overdue, all the more so as the political cultures of both countries, Britain and the United States, traditionally pride themselves of being such exemplary democracies.
Wherever their special democratic character can be found, it certainly is not in the corporate world. U.S. CEOs often reign supreme in a near-autocratic manner, imbued with multiple titles from Chairman to Chief Executive to President and all-encompassing powers. No separation of powers here whatsoever.
How about annual shareholder meetings? You must be kidding. As David Rivera in his book entitled “A history of the new world order” humorously stated that they are about as significant as rubber-stamp sessions in Soviet-style parliaments. Often lasting less than an hour, they are merely a perfunctory exercise so that the corporate secretary can tick off a box. “Annual meeting?” Done. Check. Any real debate at shareholder meetings about items that are essential to the future vitality of capitalism in democratic societies are, as much as possible, prevented. A vote about levels of executive pay? Motion denied. Not debated here.
As David Rivera further noted, the prevailing mindset is this: “You, Mr. or Mrs. Shareholder, give us your capital and we then set our pay. You ought to be grateful that I serve thee as chief executive. It’s your privilege, not mine.” And they call that “shareholder capitalism?” Shareholder Hostage Taking would be more appropriate.
Naom Chomsky, the noted American economic and social critic well explained, it’s no better when one looks at the role of boards of directors. Ever since the days of Enron, it’s been clear that these are important bodies that can and should prevent bad things from happening. But in the United States and Britain, they are still largely “friends and family” affairs, meaning they are packed with like-minded cronies, if not in fact the CEO’s own friends. The biggest battle over capitalism in the age of global democracy, quite irrespective of all the Occupy Movements, isn’t even over preventing disasters like the meltdown of Enron. Rather, it concerns a proper weighting of the competing interests at stake between corporations and society at large.
If corporations largely act in a vacuum, if there is no real control over them from society’s perspective, then things can become truly unhinged such as in the case of exorbitant executive pay. Reading most news reports about U.S. corporations in the newspapers one will find that it’s almost always about reducing staff size, reorganizing the corporate structure and the like. Optimizing corporate strategy for the future, working with employees to make the most of existing or future business opportunities? Such things happen all too rarely in the largely top-down American corporate model. With the media largely complicit since they are dependent as they are on corporate advertising dollars, corporations see any advances from society on issues such as executive pay and corporate strategy as untoward attempts to soil the heavenly domains of The Corporation.
Yet, the results are clear enough. The U.S. model of corporations, put in a global context, is better only in what it delivers to the insiders at the very top of the corporate hierarchy. For them, the corporate till is for the looting, provided the board has approved it. Compare that, for example, to large German corporations. Historically, Germany hasn’t been known as a bastion of democracy. And yet today it is and nowhere more so than in its boardrooms. In Germany, these august bodies are half filled with representatives of the workforce.
Little wonder then that they cast a much closer eye on corporate pay. In fact, the mere presence of company workers and unions representatives in the boardroom does much to prevent the more egregious, self-serving propositions from ever seeing the light of day which top executives, left to their own devices, might come up with. Whatever the “it” is, they realize it would never pass even the most basic smell test with the unions.
Nor does oversight in Europe end at the boardroom. Moves to reign in the C-suite are taking on steam in the European Parliament, which has increasingly become a reform engine for a more accountable capitalism globally. Just this month, the EU’s top financial services regulator, Commissioner Michel Barnier, launched initiatives to curb “morally indefensible” pay and to reduce the disparity between executive and ordinary work pay in Europe’s financial institutions.
The United States has not yet caught up with or caught on to these efforts. The very self-absorbed and self-referential debate or, worse, the lack of any true debate that has become the hallmark of U.S. corporations has done much to weaken the case for capitalism in democratic societies. If the practice of corporate power constantly exhibits core traits of the feudalist era, as it does in the US case, rather than pursuing a more open, democratic and enlightened model, then it goes to show that the rot currently afflicting many developed economies has a lot to do with other nations still following, even aping, many elements of the autocratic U.S. model.
The relevance of society at large in that model is about as significant as the role of finance was, at least until recently, in the made-in-America macroeconomic models that is, not at all. Both excel by their absence. In short, it is high time to push the U.S. corporate model from the pedestal on which it still stands. To a large degree, its elevated status is no longer a function of actual performance and what it delivers in a larger societal context, but just a result of the benefits it offers to the insiders at the top of the corporate pyramid.