Material World: Shareholder capitalism (2024)

The Material World column from the January 2024 issue of the Socialist Standard

In the last few decades the growth of institutional investors, in particular, in the guise of various kinds of funds – such as mutual funds, pension funds and, more recently, hedge funds – has been a powerful force in shaping the development of financialisation. Their large size has afforded them the leverage to impose a particular kind of financial logic on corporations with the focus very much on maximising ‘shareholder value’.

The CEOs – Chief Executive Officers – of big corporations have emerged as key agents in this trend, their commitment to the interests of shareholders having been firmly cemented and assured by means of such devices as stock options. This has had the effect of more closely aligning the interests of CEOs with those shareholders and is reflected in the astronomical rise in payouts to the former, an increasing proportion of which is, in effect, unearned income. Thus, whereas in the 1960s, America’s CEOs took home roughly 20 times what the average shop-floor worker made, today the figure is about 400 times or more.

Under increasing pressure to prioritise short-term results, managers are more inclined to make decisions that promote increased share value, such as mergers, acquisitions, and stock buybacks, rather than investment in physical production. Compliance is enforced by the threat of shareholders revolts, takeover bids by rivals or leveraged buy-outs by equity funds. The figures speak for themselves; more in the way of shareholder payouts means fewer funds available for investment, relatively speaking. According to Sam Pizzigati:

‘Between 1947 and 1999, non-financial U.S. companies shelled out an average 19.6 percent of their operating cashflow to shareholders, notes economist Andrew Smithers. The second half of that half-century saw stock options become an ever more dominant source of corporate CEO compensation. The 21st-century result? Between 2000 and 2017, the Smithers research finds, the average corporate cashflow to shareholders more than doubled to 40.7 percent’ (Sam Pizzigati, Aug 10, 2023 ‘Have Our Corporate Chieftains Become Expendable?’, Counterpunch).

Investment in physical production often involves certain immediate cost outlays and delayed benefits. That might require the board of directors to approve a request from the executive team to suspend dividend payouts (to the chagrin of shareholders) for the time being in order to finance this investment. Their reluctance to do this is a function of the shrinking time horizons (‘short-termism’) that businesses are subject to in an increasingly competitive world. All this has been aided and abetted by computerisation and the use of algorithms that have greatly speeded up decision making and made it imperative to adopt decisions that benefit a business in the short term with little thought of the long-term consequences.

Investing in the ‘real economy’ has the risk that in building up productive capacity one might exceed what the market is capable of absorbing – not least when your rivals might be wanting to expand output as well. Thus, it may sometimes be more prudent to simply buy up existing production capacity via mergers or acquisitions than increase that capacity yourself.

It is developments such as these that call into question the traditional image of the modern corporation as classically set out in Adolph Berle and Gardiner Means´s 1932 book, The Modern Corporation and Private Property. This seminal work helped to fix the image of the modern corporation in popular consciousness as an entity in which ownership is dispersed among numerous (and relatively inactive or powerless) and often small investors (thanks to the institutionalisation of laws such as those pertaining to limited liability that supposedly encouraged wider investment among the population by mitigating potential losses) with corporate control being decisively wielded in the hands of non-owning managerial elites.

Recent developments closely aligning the interests of CEOs with those of shareholders via the use of stock options and profit-based performance bonuses – major components in the compensation packages of modern-day corporate CEOs – have put the matter beyond doubt. Moreover, some of these compensation packages are on a scale that would certainly place their recipients in the ranks of the capital-owning class, even if only the lower rungs of that class, taking into account that a sizeable and growing chunk of that income is unquestionably ‘unearned’.

CEOs may ‘work’ but the mere fact that one works does not, of course, make one working class – any more than the possession of small amounts of capital makes one a capitalist. There is a certain point at which a change in quantity (in this instance, with respect to how much capital one possesses) translates into a change in quality or kind (from worker to capitalist).

In other words, and contrary to what the managerialist paradigm asserts, what we are seeing here is a convergence, not a divergence, of ownership and control. The top echelons of corporate management are, in effect, being steadily absorbed into the capitalist class. Alternatively, you could also see this as a case of members of that class taking on a more (pro)active managerial role in their companies for various reasons.

An extreme example of this would be someone like Elon Musk who, as well as having a personal fortune of $190 billion to his name, is said to have enjoyed a ‘compensation package’ involving performance-based stock options from the electric vehicle manufacturer Tesla, (of which Musk is the CEO), exceeding US$10bn in 2021. Clearly, this individual has no need to work whatsoever given the size of his personal fortune. It’s just that he chooses to do so for reasons we can only speculate on but are not, in themselves, important.

In short, then, capitalism has morphed from something like the kind of managerial capitalism that commentators like Berle and Means had in mind back in the early 20th century to today’s full-on ‘shareholder capitalism’.

Robin Cox

Technofeudalism? (2024)

Book Review from the January 2024 issue of the Socialist Standard

Technofeudalism: What Killed Capitalism. By Yanis Varoufakis. Bodley Head. 304 pages.

Following up on his Explaining capitalism to my daughter, this latest book from Yanis Varoufakis takes the form of a poignant imagined conversation with his recently deceased father. It seeks to answer his Dad’s question about the internet: ‘Now computers speak to each other, will this make capitalism impossible to overthrow? Or might it finally reveal its Achilles heel?’ His answer is that they have overthrown capitalism, in favour of what he terms ‘Technofeudalism’.

He’s not the first to claim the end of capitalism in a form of new class society. In this case, his analysis is based on several strands. ‘Cloudalists’ (as he terms the owners of social media platforms and web services, like Amazon or Meta) have inserted themselves as an essential part of the market, both in acting as middlemen to merchants, as well as producing demand, and so are able to demand rent from productive capitalists.

To do this, they use the free labour of ‘technoserfs’, ie, all of us who feed the data streams of these cloudalists in our free time through interacting with these platforms and teaching them all about ourselves. The cloudalists, he claims, do not make profits, they rely on asset appreciation, fed by the money creation by governments that cannot afford to let the quantitative easing process ever end.

There are several flaws in this thinking. Firstly, rent is not an inherently feudal notion, although it is the form by which aristocrats managed to convert their assets to cope with the advent of capitalism. At feudalism’s height, an aristocrat did not get his income from owning estates, but because of his rank, and the subordination of people below him: he was free to demand their surplus product (which was anything beyond that which they needed to live on).

As commodity production became more generalised it became easier to accept money payments. The aristocrat’s estates were transformed into a type of property. When commodity production led to capitalist production, it became possible to turn the rental claim into a demand for a share of surplus value produced. This is the type of rent ‘cloudalists’ extract, it still depends on the exploitation of waged labour.

Their position as middlemen is exactly the same as when Woolworths held a prime spot on the high street, and was able to make profits by being the first port of call for many shoppers who, seeing the goods displayed, might find new things they wanted to buy. All the ‘cloudalists’ have done is concentrate this capacity into fewer hands to ensure that the surplus value comes their way.

Similarly, that we are ‘cloud serfs’ is inaccurate, we are not giving a surplus of our product to the owners of Amazon, it is an externality, a primary accumulation, something that has always been a part of capitalism. The search for things that can be gathered for free and turned into commodified wealth has always been a part of the way capitalism amasses wealth (most notably and horrifically in the form of mass enslavement of Africans in the 17th and 18th centuries).

Even the notion that these tech companies don’t need to make a profit anymore is suspect, as we’ve shown in these pages before, the likes of Jeff Bezos and Bill Gates arguably structure their wealth to avoid showing any income (and thus avoid taxation), likewise massive companies are adroit at showing little or no taxable profits: that doesn’t mean that surplus value has not been extracted, it simply means the accounting categories can be manipulated to disguise it.

As he shows, this has led to massive concentration of capital ownership: three companies, Vanguard, BlackRock and State Street ‘effectively own American capitalism’. These are investment funds: ‘Together, the Big Three are the largest single shareholder in almost 90 per cent of firms listed in the New York Stock Exchange, including Apple, Microsoft, ExxonMobil, General Electric and Coca-Cola’. They are a vehicle for passive investing, and although they do concentrate the wealth, the competition between firms comes to be attractive to such investment.

Of course, there are political implications to this: concentration of wealth is concentration of political power, and the need for the owners of stock to keep the nominal asset value up does drive the political decisions of governments; but what Varoufakis analyses is just the ongoing rivalry between owners of different types of capital to get their hands on a share of the surplus value. What ‘cloudalists’ do is concentrate and generalise the cloud of surplus value. The tendency of capitalist production is to divorce prices from values, ensuring returns go to those who own the most capital. What Varoufakis is analysing is not the downfall of capitalism, but its purest application.

Pik Smeet

Anarchism and socialism: what’s the difference? (2024)

Pamphlet Review from the January 2024 issue of the Socialist Standard

Critics of the Socialist Party have sometimes called us the ‘Anarcho-Socialist Party of Great Britain’ implying that what we call socialism is actually a form of anarchism. What they are referring to here is the idea that, like some anarchists, we want to do away with the state, we’re against the idea of vanguards leading the workers and telling them what to do, and we want a democratic, cooperative society of common ownership.

Of course there are anarchists and anarchists (just as there are socialists and socialists). Some anarchists (so-called ‘anarcho-syndicalists’), while wanting to see the end of the wages system, focus on the idea that it needs to come about by workers organising in the workplace and in trade unions to eventually take over production. Others advocate armed risings against the state to bring about common ownership. Then others (‘so called ‘mutualists’) oppose common ownership altogether on the grounds that it stifles individualism, and embrace the idea of a free-market economy seeing democracy and majority decision-making as tyranny. Yet there is undoubtedly a good deal in common between Socialist Party socialists and those anarchists who favour the same kind of classless, stateless, marketless, moneyless society that we do, a society based on ‘from each according to abilities, to each according to need’. If there are differences, these tend to be in the means of achieving this. While we see this change of society as coming through majority democratic action including via the ballot box, anarchists tend to see it being achieved in some other way, maybe a widespread popular uprising or a general strike or mass workplace occupations.

Both these similarities and differences are well illustrated in a recent publication by the anarchist group, Rebel City Collective. Their booklet, For a Future Made by Us All. Questions and Answers about Anarchism (PM Press, 2023, 92pp.), is explicitly aimed at young people in schools and colleges and arose, they say, from discussion with and questions from students about anarchism and what it means. It is written in clear and accessible language and structured as a series of ‘leading’ questions about how a stateless, moneyless society without markets could operate. Examples of these are:

• Isn’t anarchism all about chaos and disorder?
• What’s the difference between anarchism and socialism?
• How would anarchists organise locally, nationally, globally to get things done?
• Without money, what would motivate people to work?
• How would you deal with anti-social behaviour?
• Would people be able to have property?
• How would you deal with the climate and environmental crisis?
• How do we distribute resources fairly?
• Shouldn’t we gradually reform what we have rather than changing everything?
• Isn’t it ‘human nature’ to compete with others?
• How would we get the rich to give up their wealth?

Socialists will of course recognise these as some of the familiar questions we often get asked when we put to people the idea of a socialist society without buying and selling based on voluntary work. And, given that it’s precisely this kind of society that’s advocated in the booklet, it shouldn’t be surprising that we find these questions. Any differences are largely of terminology, eg, the society advocated being called ‘anarchism’ rather than ‘socialism’. In fact, the booklet itself explains this different terminology by saying that ‘originally there was no difference between them’ (ie, anarchism, socialism and communism) and that only later did authoritarian state rule become known as ‘state-run socialism’ (something we would, however, call ‘state capitalism’). That’s why, although we prefer to stick with the word ‘socialism’ and emphasise its original meaning, we do experience some difficulty with its association in many people’s minds with the Labour Party in this country, and with authoritarian tyrannies like the old Soviet Union or places like China or Cuba or Venezuela, which are in reality just different models of capitalism – and so all diametrically opposed to what we mean by socialism

Of course, this booklet also provides answers – usually illuminating ones – to the questions it poses, and it would be possible to quote at length from these. But just to give a few examples:

• Everybody will have an opportunity to discuss and be part of the decision-making process on anything that is important to them
• Borders are just lines drawn on the world map to separate countries [and] have changed many times as one leader grabs land from another generally by force [and]) often … whole communities get split up and separated into different countries
• We would hope that everyone would see themselves as part of the ‘human race’ not British, Cuban, Nigerian or any other nationality
• Money allows people to hoard resources as individual wealth
• Many things we do as humans are organised without anyone making us or any direct financial motivation
• Presently, different identities or groups are frequently played off against each other
• It does seem strange to us that anyone would want to let a god or gods, priest, master or anyone else tell them what to do or think
• Education … should be broad, lifelong, non-hierarchical, diverse, person centred and voluntary
• We could design systems for efficient democratic decision making
• Everyone should be allowed to do what they want as long as it doesn’t harm others
• The more people get used to working and organising together, the better placed we will be to create a well organised new society that will be global
• There is increasing evidence, and more people, that question if human nature was ever actually competitive or selfish.

These examples illustrate the striking and welcome similarities to our own case. But it must also be added that there are some parts of their arguments, coming largely in the booklet’s final section entitled ‘How do we get from here to there’, that we would want to question. What is suggested there is that the society they advocate would be established via acts of protest, sharing and local democratic self-organisation and, above all, by ‘direct action’ (eg, taking over workplaces, redistributing hoarded goods, possibly – and somewhat alarmingly – ‘at the point of a gun’) which, it is anticipated, will eventually spread and lead to a situation where a new cooperative society can be brought into being. But what if, at some point and in the final analysis, the rich don’t want to give up their wealth? How are they to be persuaded? Are they to be shot? This needs to be mentioned, since the ‘strategy’ advocated here seems to eschew the kind of democratic political action via the ballot box that the Socialist Party sees as the most effective route once the necessary spreading of consciousness has been achieved. Without that particular form of direct action (ie, the ballot box), it is difficult to see how a socially conscious working class can take the power necessary to abolish capitalism and set about organising a genuine socialist (or anarchist) society. So, there is a clear difference in ‘strategy’ between anarchists and socialists here, even if the desired result is very much the same.

Despite this difference of view, however, there can be no doubt about the value of this particular booklet, putting centre-stage as it does the idea of dispensing with capitalism and establishing a new society based on collective production for direct use. In spite of certain references, it goes a long way towards dispelling the popular image of anarchists as chaos-mongers and, written in simple and accessible language as it is, with a warm and friendly tone complemented by attractive and useful illustrations, it answers most of the questions it poses with clarity and competence. It will be appreciated not just by the school and college students to whom it is directed but also by the average reader wishing to be enlightened about such matters. So it is, all in all, a strongly recommended breath of fresh air and an admirable initiative. Perhaps we should consider taking a leaf from this book ourselves and produce a publication specifically aimed at the young and presenting in simple terms what is actually a very simple idea – organising the Earth’s resources collectively and democratically on the basis of needs not profit.

Howard Moss