Proper Gander: The maxim of maximising (2025)

The Proper Gander column from the March 2025 issue of the Socialist Standard

In The Prophets of Profit, a five-part documentary on Radio 4, the BBC’s Business Editor Simon Jack ‘tracks how a simple idea became so powerful and why it shapes all of our lives today’. This idea is a common approach to running companies, and its ‘prophets’ are economist Milton Friedman and his successors. Being a radio programme, there aren’t any visual distractions to the words spoken by Jack’s interviewees or his explanations of the technicalities of commerce, which are more detailed than most documentaries bother with. However, this makes it harder to discern that buried underneath the talk of ‘maximising shareholder value’, ‘creative destruction’ and ‘equity-based compensation’ are the practicalities of goods being made and used by people.

The series takes 1970 as its starting point, when Milton Friedman’s article ‘The Social Responsibility of Business is to Increase its Profits’ was published in the New York Times. Clear from the title, Friedman’s ‘simple idea’ is that the main aim of corporate executives is to encourage profits, and any responsibilities a company has to wider society are covered by the wealth it generates. The documentary describes his influence through economists such as Michael C Jensen and Bill Meckling, who went from ‘disciples of Friedman to preachers for a new muscular brand of shareholder supremacy’, according to Jack. They, and those they inspired such as ‘corporate finance specialist’ Don Chew, believe that businesses have been held back by legislation and placing too much emphasis on cultural and environmental concerns or perks for staff such as pension schemes.

Chew quotes the view that ‘we’ve reached the point where every corporate interest is represented except for shareholders in the corporate boardroom’. To ‘correct’ this, executives should focus on directly maximising the value of shares, and this would lead to a better return on capital for shareholders than investment in wider issues. A sympathetic government would support this approach by minimising tax rates, regulation and legislation. Techniques to enhance share value which became popular through the 1970s and 80s included firms borrowing more to finance targeted growth, and ‘using cash generated by the business to buy back shares from existing shareholders so they can go and invest the proceeds in new industries’. Chew brags that Americans in particular have become adept at squeezing money out of failing organisations and in to growing industries, so the loss of one company means a boost to others. This is one application of ‘creative destruction’, a concept popularised by political economist Joseph Schumpeter, but which was earlier critiqued by Karl Marx. Those with an optimistic view of capitalism would say that overall this can lead to economic equilibrium, ignoring the hardships workers face when on the wrong end of ‘creative destruction’.

Maximising shareholder value also supposedly creates an equilibrium by being the most effective discipline to mould a well-run company for all, generating taxes for governments to spend while making innovative, decent products and happy workers. With this view, we’re expected to believe that wealth will trickle down to where it deserves to be. The series covers some of the actual consequences of the drive to raise shareholder value. Michael Jensen advocated ‘equity-based compensation’: executives being paid in shares to give them additional motivation to improve the company’s coffers. He didn’t foresee that many would be paid with salaries and bonuses as well, leading to a massive gulf between their income and that of most workers, nor that firms involved in scandals during the 2008 financial crash tended to have executives motivated by ‘equity-based compensation’. And as explained by economist Sir John Kay, a short-term focus on generating wealth can have disastrous effects, such as when crashes of Boeing’s 737 MAX aircraft were blamed on prioritising profits over investing sufficiently in safeguards.

The series uses the late-80s privatisation of the water industry as an example of Friedman’s ideas being put into practice in the UK. Michael Howard, the Tory Minister who oversaw this says that when owned by the state, the water industry had to compete for funding with other institutions such as the NHS. He claims that since privatisation, investment in the sector has always been higher than it was beforehand. However, in the ten years that Macquarie Group Limited owned Thames Water, it didn’t invest any of its own money in the business, which was sold off when in debt, with prices to customers subsequently raised. Sharon Graham, the General Secretary of Unite, is in favour of renationalisation, saying that water privatisation has led to poorly run services while shareholders have taken £72billion. As illustrated by Howard, though, being state-owned doesn’t mean that industries will be adequately resourced, or effectively managed either.

The impetus to maximise shareholder value has also led to ‘wasteful’ exercises such as American vehicle manufacturers buying steel from China rather than from more expensive local producers. This led to a decline in the American steel industry, which President Trump has said he’ll address by imposing tariffs on metal imports (presumably leading to ‘creative destruction’ elsewhere). Another example of Trump contributing to a change in what methods are seen as enhancing shareholder value is his dislike of ‘wokeness’ enabling companies such as Meta, Amazon, Walmart and McDonald’s to ditch their ‘diversity, equity and inclusion’ programmes.

The Prophets of Profit is timely in being broadcast during a shift back to the directions preferred by Friedman and his followers, especially in the USA. Much of episode four is an interview with Paul Polman, who took the opposing stance when he was Chief Executive of Unilever during the 2010s. Investing in staff and green programmes didn’t prevent Unilever’s returns to shareholders quadrupling in value during the decade Polman was in post. Maximising shareholder value was still the priority, though. This doesn’t really change, even if the most profitable approaches to achieve it alter over the years. The resurgence of Friedman-esque policies is a reminder that supposedly responsible business practices such as safeguards, regulation and workers’ rights can be lost as soon as they stop being compatible with the interests of the capitalist class.

Mike Foster

State capitalism (2025)

Book Review from the March 2025 issue of the Socialist Standard

The Spectre of State Capitalism. By Ilias Alami and Adam D. Dixon. Oxford University Press. 2024.

At one time the concept of ‘state capitalism’ was used only by socialists, to describe the state acting as a capitalist by investing capital, employing wage labour, and producing for the market. As far back as April 1910 the Socialist Standard carried an article entitled ‘Evolution and State Capitalism’ which explained that nationalisation was not socialism. From the 1920s we applied the concept to the economic system in the USSR. Other articles followed in the 1930s and 40s. The concept was also applied to other countries where, in the absence of a strong enough capitalist class, the government set up state enterprises to introduce and develop capitalism.

Today China is routinely described by politicians and the media as ‘state capitalist’. There is even a branch of academia devoted to ‘state capitalist studies’ of which Alami and Dixon’s book is both a product and a description. A large part of their book is taken up with questions of methodology and definitions for specialists in the subject, which makes it rather heavy-going for the general public.

Their conclusion is that the term should be applied only to particular state bodies, such as state-owned enterprises (SOEs), sovereign welfare funds, and state-funded development banks where the state is an actual owner, and not simply to any state intervention in the capitalist economy. They distinguish between an old state capitalism of nationalised industries, often natural monopolies, and a new state capitalism of ‘state-capital hybrids’ which are consciously structured and behave exactly like private capitalist corporations or investment funds, seeking to maximise profits, paying dividends, engaging in financial wheeling and dealing, and even taking over other businesses.

The authors come up with some perhaps surprising facts:

‘Their [SOEs] share among the world’s 2,000 largest firms doubled to 20 per cent over the last two decades. Over the same period, the assets controlled by SOEs grew from about $13 trillion in 2000 to $45 trillion (equivalent to half of global GDP) (IMF). Many SOEs are in top rankings such as the Fortune Global 500. According to the OECD, half of the top ten non-financial firms as measured by revenue are SOEs. In 2021, they made up 132 of the world’s 500 largest companies—up from thirty-two just two decades ago. UNCTAD estimates that there are at least 1,500 state-owned multinational enterprises, which are SOEs that control assets or other entities in countries other than its home country. In other words, many SOEs now compete on the world market, and perform as efficiently as private capitalist firms in some sectors.’

Alami and Dixon see the ‘new state capitalism’ of ‘state-capital hybrids’ as a new stage in the evolution of capitalism, after ‘neoliberalism’. This is certainly an increasing feature of contemporary capitalism but whether it represents a new era is another matter. In any event the advocates of ‘free market’ capitalism are back on the defensive. Even those who accept capitalism as we know it in the West are alarmed at Chinese-style state capitalism. Alami and Dixon quote the President of the European Commission complaining about ‘distortions created by China’s state capitalist system’ and Blinken, the late US Secretary of State, insisting on the need for protection ‘from the aggressive state capitalism of modern autocracies’.

Apologists for the West portray the conflict with China as one between ‘liberal capitalism’ and ‘state capitalism’. A case for this can be made out but it was that even under Mao when the apologists were calling China ‘communist’. At least they are now being honest.

In the final chapter Alami and Dixon come out as some sort of leftists, citing Marx. They see a potential ‘progressive’ side to their new state capitalism as, by further blurring the distinction between the economic and the political realms, it opens up the possibility of achieving ‘non-reformist reforms’. This, despite their conceding that (by ‘valorise’ they mean create surplus value):

‘State-owned capital is still subjected to the imperatives of self-valorization. The state can partially or temporarily suspend these imperatives (for instance, by accepting a lower-than-average rate of profit, or by institutionalizing other social and political goals alongside profit maximization), but if it does so over the long term, the risk is that the capital becomes devalued. State-owned capital must therefore continue to valorize not to be destroyed, and with it, the social wealth that it represents.’

Which is precisely why supposed non-reformist reforms can no more lastingly overcome the economic laws of capitalism than can common-or-garden reforms.

Adam Buick

Thoughts on money (2025)

From the March 2025 issue of the Socialist Standard

Money has been around for thousands of years but only in capitalism, which overcame prior feudal and slave relationships, has it come to dominate all human and natural life.

Money exists in the modern world as a means of rationing the wealth available to most people while allowing it to exist in hyper-abundance for the few. On a planet with finite resources, approaching minimalism in our ownership of possessions may be a treasured ideal, however the rationing imposed by money on the majority does not derive from such idealism or concern. The very focus of the minority making money is to monopolise as much of the wealth as possible from the majority, and to exploit the natural world far beyond not just what is sufficient to meet our needs, but beyond the carrying capacity of the planet. The money system works hard to convince working people that it promotes freedom, liberty, and incentive, but this ideology is always the exact mirror image of the truth. It is the thinking of the rich, its liberty to exploit the majority and the planet with impunity, with minimal legal obstructions. But for those whose meaning in life is to provide that leisure class with a life of indolence and obscene indulgence, life is the very opposite of liberty, and can best be described as a modern form of subservience and oppression.

History illustrates powerfully the impressive creativity, imagination, reasoning, and persistence of the human species. It is therefore a great insult to the human race that most of it must spend its life with the primary objective of sustaining the elite’s extravagant lifestyles. The rich will hire this ingenuity, problem-solving and perseverance for its own ends, but these are wasted, when they could have served humanity as a whole. Money is without doubt a form of power. Today, money’s empire greatly rivals those of the kings of Versailles. It has found its way into all corners of the earth, leaving no stone untouched.

Money has also destroyed the family, sending adult offspring far from their original homes to find jobs, and financial worries fuel the mental ill health of both workers and the instability of their marriages. Once in place, the market system’s wheels just turn, blindly, irrespective of the damage they do in grinding up human lives and relationships, regardless of the dying planet they spin upon. Money, representing the commodity in which the value of all others is reflected, possesses no human values. We have surrendered and entrusted our entire lives and our living world to an institution that is the least responsible, the least flexible, the least stable.

Because the accumulation of money is an impersonal motive for production, it leaves a mountain of waste in its trail. Companies attempt to seduce demand by tempting people into oftentimes useless objects through vast expenditures of resources in advertising. Buildings, equipment, land, and professions require a massive infrastructure of insurance, which as with advertising firms, globally taking up millions of workers, energy, equipment, office and parking space, all for a completely unproductive cause. The same is true for professions devoted to buying and selling stock, to opening doors or sitting at reception desks, to assisting administrators, and such entire professions as lawyers, lobbyists, ticket sellers, marketers, and the military. These agencies, departments and professions, listed in Bullshit Jobs (2018) by anthropologist David Graeber, but also by socialists for over a century, illustrate the unnecessary complexity of a system based on money, one marked by an eye-boggling degree of waste of human lives and precious energy and resources.

Money also brings out the worst sides of human beings. By offering temptation, since it has the power to satisfy needs and wants, it invites built-in corruption in companies and governments everywhere, requiring vast policing resources to monitor and arrest a minority of offenders. Drug-dealing and theft are themselves primary examples of how a money system can trigger leeches at best, and potential murderers at worst, depriving society of even the best minds and bodies of a generation who turn into addicts, career criminals, and prison inmates.

Most people, even economists, cannot even imagine a world without money. Professionals whose specialty is the monetary system insist that incentive, entrepreneurship, and meeting a seemingly endless rainbow of needs, requires a monetary system. However, psychology knows otherwise. Our needs and wants are not infinite and, if anything, are artificially enhanced by the monetary system.

The complexity of the money system boggles the imagination. Right now, every individual and family in the tall building in which I live must spend time shopping for items that could easily be shared among a few hundred people. We all go out to shop because a money society has destroyed our collective natures and lifestyles (which were quite evident even in late feudalism, in which humans enjoyed, on average, rich relationships with extended family and other town residents). We must all do our food shopping even though in one go we could procure sufficient ingredients to cook a meal for a room of several dozen residents or neighbours. We look at any city street and see a long line of unused cars.

A human world consisting of billions of citizens should probably encourage a minimalist home, especially if the well-studied factors that most determine our happiness and meaning are such psychological variables as freedom, work, health, relationships, solitude, creativity, feeling part of the community. Without doubt hobbies require resources and possessions (musical instruments, books, screwdrivers) but it is not clear what little we could get by with if most items were shared and our lives could return to the collective form which is our archaic nature.

Our economists are failing us if in the face of today’s problems, including a dying world, they are not devoting their science (if it is one at all) to devising improved economic systems in which humans and the living world might thrive.

The money system has its obvious problems for those of us who must work in the Western world for an employer, but the system did not evolve similarly throughout the world. The institution of money is even more brutal in countries which still have theocracies, military juntas, one-party governments, or autocracies. Wars over resources or the competing ideologies and sense of entitlement of power-hungry rulers, starvation, extreme poverty, cartels, and environmental despoliation, are the symptoms of a monetary institution that fails because it is not based on meeting needs, although its ideology insists it does. It is time for economists to devise outlines of possible non-monetary systems that might better meet our needs. Until such a time, it is down to ordinary citizens such as ourselves to keep promoting such a vision. It may be hard to imagine such a future at this time; we may even at times feel crazy doing so. But our world is so rife with insecurities that alternatives are desperately needed.

Dr. Who