Economics literatures explained shareholder capitalism as an economic system in which the dominant corporate form is legally independent companies that can pool capital from many shareholders with limited liability, complemented by an open stock market to trade these shares freely. Marshall Auerback of Asia Times recently wrote that American-style shareholder capitalism, with its incessant focus on maximising stock value, started gaining primacy over European and Japanese style stockholder capitalism in the 1980s.
It was premised on a notion best epitomised by Milton Friedman that the only social responsibility of a corporation is to encores its profit, laying the ground work for the idea that shareholders, being the owners and the main risk-bearing participants, ought therefore to receive the biggest rewards. Profits, therefore, should be generated first and foremost with the view toward maximising the interests of shareholders, not the executives or managers who were spending too much of their time, and the shareholders’ money, worrying about employees, customers, and the community at large.
George Tyler, an economist and the author of “What Went Wrong” and “Billionaire Democracy: The Hijacking of the American Political System.” stated that for all the decades-long effort to hype Anglo-American shareholder capitalism, one fact of life should have become abundantly clear to all honest observers by now is that low economic opportunity is the default setting of that brand of capitalism. George Tyler strongly argued that it is based on what’s technically called “codetermination,” a form of corporate governance that shapes key countries in northern Europe, particularly Germany. It is a mechanism to make the society-wide responsibility of capitalism matter on the shop floor as well as in the executive suite.
Codetermination literally meant cooperation between management and workers in decision-making, especially by the representation of workers on management boards. This model of distributing economic power in a balanced fashion stands in stark contrast to the Anglo-American variant of capitalism which false-headedly assumes that democratic capitalism can be delivered by having publicly listed corporations controlled solely by shareholder representatives.
According to Josh Bivens of the Economic Policy Institute, the Hijacking of the American Political System.” stated that those representatives grab any opportunity to offshore jobs and disdain higher wages, while at the same time seeking to divert funds from the given company’s investment budget to spike share value and executive compensation. Economic opportunity for others is diminished. The northern European upgrade of codetermination establishes a far better balance. It is based on a corporate governance structure that reflects the interests of employees, executives, investors and other stakeholders. Most importantly, it enhances opportunity by improving economic mobility.
Heidi Shierholz at the Economic Policy Institute stated that adamantly opposed to any changes, Republicans in the United States argue that economic opportunity should be judged solely by job creation figures, while Democrats insist that genuine opportunity requires rising real wages. The insistence on rising wages on the Democratic side of the political landscape is long overdue because economists document that opportunity in America is low. Economists at the Federal Reserve Bank of Chicago have concluded that the ability of United States youths to outdo parents which is their intergenerational earnings mobility, improved until 1980, but has deteriorated since.
Raj Chetty of the Stanford University determined that household incomes of 90% of American youths born in the post-WWII era (at age 30) bested their parents; only 50% of households headed by youths born in the 1980s did so. The difficulty of American youths to move beyond their birth endowment or parental income class is documented by Julie Isaacs in collaboration with the Brookings Institution and the PEW Economic Mobility Project. They find that the only odds greater than a poor youth in America remaining poor as an adult (39%) are the odds of a rich son remaining rich (42%). The United States thus is the worst rich democracy in which one can be born if either poor or middle class and the very best in which one can be born if rich.
George Tyler asserted that while Americans always like to consider themselves exceptional as a nation, in reality it is Northern Europe that is exceptional. Those nations provide the best opportunity on earth for youths by dint of grit, ability and pluck to determine their economic fate. Studies and OECD analyses document, for instance, that sons in Germany, the Netherlands and Scandinavia can far more easily bootstrap themselves above their parents than American or British boys. Their movement between socioeconomic classes is more fluid by a factor of two or three than in the United States and UK where odds of being stuck for life in their parents’ income class are considerably higher.
Raj Chetty asserted that public policies in both education and corporate governance are responsible for opportunity in Northern Europe being up to three times greater than in the United States or UK. First, European public policies in education and job training are more robust. OECD data affirm that the United States and the UK do the most inept job of rich democracies in providing youth with skill sets needed to seize opportunity. According to Raj Chetty, it is stunning that the share of their youths with poor numeric/literacy skills is 2-4 times larger than in Northern Europe.
A nation’s prowess in arming its youth to maximize career opportunities can also be judged by comparing their skill set to that of their parents’ generation. By that measure, the United States and the UK are exceptional only in the negative sense as they fail to provide opportunity for youths. The share of Americans age 16-24 with low numeracy or literacy skills (30%) is only three percentage points better than the cohort aged 55-65 (33%). And the share of British youth is only two percentage points better. It’s embarrassing. Heidi Shierholz stated that the tiny generational improvement in skills vital to realizing opportunity in the United States and UK is dwarfed by the much larger generational improvement accomplished by genuine opportunity nations such as the Netherlands (18 percentage points), Sweden (10 points) and Germany (8 points).
The second public policy central to creating opportunity is a codetermination corporate governance structure. George Tyler elaborated that little known by Americans, codetermination, where up to one-half of corporate board members are employees, is commonplace in Austria, Germany, the Netherlands and Scandinavia. Compared to United States boards beholden only to shareholders, corporate boards in these nations invest more, pay higher wages and increase the stock of skilled jobs at home. Rising real wages incentivize skill acquisition and work effort, all important to realizing opportunity.
According to George Tyler, investment decisions by codetermination firms produce a relative domestic abundance of high-skill, high-wage jobs. Sectors dominated by skilled jobs in the nations practicing codetermination are larger than they are in the United States. The skilled-job sector in the Netherlands for instance, which encompasses 47% of that nation’s jobs, is nearly one-third larger than the 36% in the United States.
The 18th century emergence of limited liability joint-stock enterprises was a seminal moment in economic history. Public policies were vital in creating this innovation, for example to permit the agglomeration of capital without exposing investors to undue risks. The goal was to benefit the many stakeholders and the public. Raj Chetty stated that the Anglo-American structure of corporate governance that followed has failed, with benefits unduly hoarded by just one group, shareholders. The alternative codetermination structure hews to the original expectations by benefitting all stakeholders while improving economic opportunity.
According to George Tyler, economics of corporate governance is a settled issue. The only question is whether the political will exists to toss the Anglo-American governance model in the trash bin of history.
Shareholder capitalism versus co-determination
Running Behind
Some studies indicate that 80 percent of Ethiopian intellectuals who went to work in Europe and the US have not returned. PM Abiy Ahmed addressed this issue by traveling to those places and asking Diaspora to return to help develop the country. Asmamaw Atnafu (PhD) lived in US but returned to Ethiopia to open the American College of Technology (ACT). Capital’s Tesfaye Getnet sat down with Asmamaw Atnafu to learn about what can be done to attract more intellectual Diaspora and to learn about ACT.
Asmamaw is the founder and Chief Executive Officer of Sholla Technology, headquartered in the US state of Maryland. Asmamaw has over 20 years of experience as an ICT professional and entrepreneur. Asmamaw received his PhD. in Management from Maharishi University, Iowa (USA), M.Sc. in Information Science, B.Sc. in Business Education and Associate Degree in Accounting. He also has been trained in Information Technology and Business Administration and received certificates in PMP from Project Management Institute and an Oracle Certified Expert (OCE) from Oracle Corporation. He has two research publications and patents in Enterprise Resource Planning (ERP). Prior to moving to the US, Asmamaw was head of the IT-System & Software Division at a private bank and taught at Addis Ababa Commerce College and Addis Ababa University. Excerpts.
Capital: What motivated you to open ACT?
Asmamaw: The Ethiopian Diaspora has a keen interest to participate in the country’s development initiatives if situations are conducive. The Diaspora has a vast array of knowledge, skill and experience and even working capital. I can say, a majority of the Diaspora members are eager to come and give back to their country whatever they have. The main reason for my current investment is the recent peaceful environment and the call of Prime Minister Abiy. I can’t think of a better time than this one to come and contribute my part in the country.
Capital: What can be done to attract more education Diaspora here?
Asmamaw: There are thousands of Ethiopian intellectuals all over the world who are working in high-tech companies, universities, hospitals, research centers and other organizations who are interested in coming back and working in their country. There are both financial and non financial motives that may attract Diaspora intellectuals. Like any other investor, the Diaspora is expecting a financial return while maintaining emotional satisfaction, supporting their own people and getting social recognition.
Capital: What can be done to develop more innovative ideas in Ethiopia?
Asmamaw: It is not only the number of universities and colleges or the number of graduates that matters in bringing innovation, technological change and economic growth. But it’s mainly depends on the quality of graduates. Graduates of these universities shall be tomorrow’s entrepreneurs, innovators, leaders and real community problem solvers. As you mentioned, currently both international and local employers are complaining that most graduates are not what they are expected and deficient in basic skills. ACT is established to fill this gap.
The mission of ACT is to provide relevant and quality higher education to enable productive lives, conduct research and support the community through professional engagements and use of modern teaching and learning approach. ACT prepares graduates to rapidly evolve into high business flyers and entrepreneurs that assume key management and leadership positions in a globally competitive world.
Capital: Do you think we are close to seeing the ‘cashless society’ that exists in other countries?
Asmamaw: Compared to other companies in the private sector, banks are leading in modernization of their operations. I see a huge investment by banks for technology related implementations even though they are challenged by the existing power and telecommunication infrastructure issues.
In my brief survey I found out that most banks have implemented the latest technology which include automating their core banking services, mobile banking, internet banking, ATMs and placing POS in hotels and supermarkets. I really appreciate their effort which will lead them to a cashless society. However, I see challenges. The first challenge is related to power and telecommunication infrastructure which we see several system downs.
The second challenge is related to awareness of the new system by bank customers. Most banks invested millions of dollars to modernize their systems but forgot to teach their clients. Customers should be trained and properly guided to comfortably use the online system. They should aware that they can process over 90% of their transactions online without carrying cash, standing for long lines and risk free. Using online banking technology, customers can view account balances, obtain statements, check recent transaction, make payments and transfers. ACT is working with major banks to provide short term hands on training to their major customers. This training will help customers to use the available system so that they can save time, avoid risk and facilitate their business.
Capital: How can we harness new technology to create jobs for youth?
Asmamaw: To make this a reality, it requires the involvement of different stakeholders such as government, educational institutions, community organizations, the business community, NGOs and the youth. I see several startups here and there defuse technology transfer which is encouraging. It will be more productive if this can be implemented in more organized and consistent fashion. Opportunities shall be created that can equip the youth with the latest technology both in cities and rural areas. We may learn from Kenya and other countries how technology has been defused among the youth and its tremendous impact in alleviating unemployment.
Capital: How can Ethiopia at least catch up to Kenya and Nigeria technologically?
Asmamaw: There is no finishing line in technological advancement. Regardless of some of its contestants speed the technology keeps growing. Some of the contestants may drop out and become losers and others may enjoy their success. If we cannot be one of the front runners now, we should keep running with others with more power and stamina and we will definitely win the race. That is what we learn from our great runners Deraritu, Haile, Kenenisa and others. Using the current technology will help us to enjoy its benefit today and simplify to adopt the latest.
Capital: What is cyber security?
Asmamaw: We are in the era of the Internet of things (IoT) flourished where devices such as phones, computers, vehicles, machineries, home appliances, and etc. that contain electronics, software, actuators, and connectivity which allows these things to connect, interact and exchange data. Even though, we are enjoying the benefits of this interconnectivity of devices there are risks associated mainly due to cyber-attacks.
The attackers are mostly malicious pranksters, looking to access personal and business machines or disrupt services with virus programs. However, there are also more serious attackers out there whose goals could range from mining valuable data such as credit card or bank information, design and research secrets, etc to even disrupting critical systems like the stock market, power grids, air-traffic controllers programs, and even the most dangerous nuclear weapons. That’s where we need cyber security.
Cyber security is the protection of internet connected systems, including hardware, software and data from cyber attacks. The attacks could be theft or damage to hardware, software or electronic data, as well as disruption or misdirection of services.
Capital: Is there a conflict between emerging technologies such as social media and cyber security?
Asmamaw: The growth of social media poses Cyber threats for both individuals and organizations. These risks are complex, constantly evolving and widespread. The use of social media platforms as a means of communicating with clients and the general public may increase risk unless used carefully and responsibly. Information posted on social media sites, for business or personal purposes, may be used by attackers to gain entry into a firm’s systems and obtain confidential information. Social media users should be trained and adopt best practices that include cyber-attack preventative practices and a response plan when a cyber security incident occurs.
Capital: What are the negative effects of social media?
Asmamaw: Studies indicated that constant use of social media can cause psychological stress along with loneliness and negative feelings of depression which has more devastating result than time wasted. It’s recommended to parents to limit students and youth screen time on social media which will result in focus on more productive tasks, decrease feeling of depression, promote true social interaction and a good night’s sleep.
Capital: What is your advice to the younger generation?
Asmamaw: As we get older we start looking back and remember how much time we wasted over the years for things which were not important to our life. Time is important and non-renewable. Make sure you use your time to learn something important to your life. Dream big and work harder and smarter towards that goal. Make sure you understand that technology is part of your life. We are in a highly Information Technology dependent society where we have to equip ourselves with the necessary knowledge and skill. Otherwise, we will be left out behind.
Addis concludes another art exhibition
Addis Ababa has hosted another warm art exhibition showcased by Leikun Nahusennay and his art students Giulia Stirpe, Yanet Yemane and Giada Piemonti since January 17th, 2019 through the end of last week. The art exhibition which was named Gygle’s, was hosted in the Italian Cultural Institute.
Leikun is a well-known artist born in Addis Ababa in 1982. While primarily identifying himself as a self-taught artist, he nonetheless completed his art degrees from the Ale School of Fine Arts (2006) and Teferi Mekonnen School (2011). His multidiscipline practice is based in Addis Ababa, where he works from the Nas Gedame Studio. He is also a member of the Netsa Art Village and contributes to the growing Ethiopian art scene.
His work has been displayed at numerous exhibitions, including Addis Calling Group Show, Addis Fine Art, Draw Me A Castle, Alliance Ethio-Française and The Fine Line Between, Lela Gallery.
Book focuses on freedom and access to information
A book focusing on the freedom and access to information in Ethiopia was inaugurated last week. The author, Amanuel Abrham, was a media house head, appointee at different government offices and still is a member of the parliament.
The Speaker of the House of People’s Representatives Tagese Chafo, opened the ceremony with his speech highlighting the government’s effort to revise various laws including the media law. He said the book will contribute to the process.
“We don’t have to hide our knowledge rather we have to share it,” said Tagese. “Let us all follow the lead of Amanuel and help this nation be a better place where we can contribute.”
“I always wanted to make one script for the nation which can solve a problem,” said Amanuel Abrahm. “I would like to thank my friends, family and experts.”
