Stakeholder Capitalism

I read an interesting article in the Wall Street Journal. The authors write about the Dark Ages, the Industrial Revolution, Capitalism, and Stakeholder Capitalism. It made me wonder if the scenario they described could eliminate economic development and the good work economic developers do.

In the article, they quote Karl Marx as saying capitalism,

“accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic Cathedrals…achieving more massive and colossal productive forces than have all preceding generations together in scarce one hundred years.”

I was not aware Marx appreciated capitalism. The article goes on to say, however, that  Marx thought all value came only from labor; and financiers, entrepreneurs, and managers were taking from the laborers. He thought government could take their place and then laborers would get all value.

History shows us, of course, that is a false theory. As the authors point out, the government could never “replicate the efficiency and innovation of private financiers, entrepreneurs, and managers.” So misery, lack of innovation, lack of productivity, and lack of freedom were the result. Terrible atrocities have come from socialism and its logical conclusion-communism.

Entrepreneurs, private financiers, and managers all play an important role in economic development; in the creation of opportunity. Economic developers spend a lot of time and energy working with entrepreneurs. Entrepreneurs start and run small businesses. Small businesses drive our economy by providing most of the jobs. Many start-ups need financing so private financiers are often matched with entrepreneurs by economic developers. Economic developers work to create productive relationships.

The article goes on to recount the Dark Ages version of socialism.

The worker labored only to give a share of those labors to the king, the church, guilds, and the village. We’ve all seen movies where the lowly peasants have to give to the lords and kings of the realm. These “stakeholders”, by their actions, prevented growth. They took from the workers. There was no reward for working hard. There was no way to save for the future.

The authors refer to the “Enlightenment” period during the 18th-century and the resulting Industrial Revolution. It was a time of liberation. People were allowed to “think their own thoughts, have a voice in their own government, worship as they chose, and own the fruits of their labor and thrift.”

The case is rightly made that as people enjoyed personal advancement under an umbrella of the rule of law and private property rights, without intimidation, they actually served the “public interest” by unleashing productivity and progress. These were the “productive forces” Marx talked about.

Today, there is a real danger of new stakeholders intimidating workers and the companies they work for, into serving their particular version of the public interest. They do this by punishing companies that don’t acquiesce and rewarding companies that do. It doesn’t matter what the issue is or who the stakeholders are at any given time. What matters is the particular version of public interest of a few powerful people, as opposed to the will of the people as a voting whole, does not work towards the ultimate benefit of anyone, except the few powerful stakeholders and their friends.

The article describes this scenario as extortion. It states one of the targets is corporate America. The new stakeholders accuse corporations of getting more than their fair share. The article points out that 70% of revenues go to labor. The authors also make another very interesting point. The idea that “rich capitalists” own corporate America is a myth.

“72% of the value of publicly traded companies in America is owned by pensions, 401(k)s, individual retirement accounts, charitable organizations, and insurance companies funding life insurance policies and annuities.”

The authors of this article show great concern over these powerful new stakeholders who are, in effect, taking from companies as in the Dark Ages. They sound the alarm that it not only endangers capitalism and prosperity but freedom and democracy.

Economic development depends on capitalism. Entrepreneurism, competition, personal advancement, accumulation of wealth, freedom, and democracy are at the core.
Economic developers facilitate the creation of high-wage jobs by helping companies to expand, encourage them to relocate to a community, and attract talent.

Onerous, unnecessary, and perhaps unlawful outside pressures removing the freedom and ability to create, innovate, make decisions, and compete will also prevent economic development and therefore growth and progress for all.