Article 43


Friday, July 21, 2017

Change - Theories E and O

image: banker eating businessman

The problem with the homo economicus theory is that the purely rational, purely selfish person is a functional psychopath. If Economic Man cares nothing for ethics or others’ welfare, he will lie, cheat, steal, even murder, whenever it serves his material interests.
- How Investing Turns Nice people Into Sociopaths

There are many forms of change. It originates from two theories: 

Theory “E”, usually top management mandated economic or profit maximization - where large groups of employees are laid-off, squads of Indians and third party nationals are ushered in or used in their country, and generally only works in the immediate short-term - Thousands of Harvard MBA’s can’t be wrong about this, or, Theory “O”, organizational capability building - means learning employees, building quality, capability, and organizational loyalty and commitment. Sometimes followed by Theory “E” actions. It works a lot better than Theory “E” for the long term.

We Americans should think more about how the Japanese came to beat us in many instances: They listen and learn. They say, “Americans are good teachers but not good listeners.” As you mentioned, change isn’t necessary good. Take genetic coding, that is a situation where employees or management (never leaders) keep the same mindset for years and nothing changes. Everything stays the same. That is why diversity is needed, not why these corporations are all rushing to other countries. They aren’t fooling me and you. It’s not cultural diversity, it is knowledge diversity that is necessary for real good change. The other kind is in the name of exploitation. All the golf companies (Spalding, Wilson, McGregor, etc.) slept for years and years until Eli Callaway came along and blew them away with those better (more innovative) Big Bertha Clubs. That spawned other new companies: Taylor, Ping, etc. I guess I got long winded. I apologize, but I am committed to American IT professionals. It is a sore issue with me. Outsourcing doesn’t do anything long term. It only a short term patch (not even a fix). If we are to get to the future, real change must take place. I’ll vote for Theory “O” followed by a small bit of Theory “E”. Never Theory “E” first.

- Anonymous 2005


The Dumbest Business Idea Ever. The Myth of Maximizing Shareholder Value
The dominant business philosophy debunked

By Lynn Stout
European and Financial Review
May 2013

By the end of the 20th century, a broad consensus had emerged in the Anglo-American business world that corporations should be governed according to the philosophy often called shareholder primacy. Shareholder primacy theory taught that corporations were owned by their shareholders; that directors and executives should do what the company’s owners/shareholders wanted them to do; and that what shareholders generally wanted managers to do was to maximize “shareholder value,” measured by share price.

Today this consensus is crumbling. As just one example, in the past year no fewer than three prominent New York Times columnists have published articles questioning shareholder value thinking.[1] Shareholder primacy theory is suffering a crisis of confidence. This is happening in large part because it is becoming clear that shareholder value thinking doesn’t seem to work, even for most shareholders.

Consider the example of the United States. The IDEA that corporations should be managed to maximize shareholder value has led over the past two decades to dramatic shifts in U.S. corporate law and practice. EXECUTIVE COMPENSATION rules, governance practices, and federal securities laws, have all been reformed to give shareholders more influence over boards and to make managers more attentive to share price.[2] The results are disappointing at best. Shareholders are suffering their worst investment returns since the Great Depression;[3] the population of publicly-listed companies has declined by 40%;[4] and the life expectancy of Fortune 500 firms has plunged from 75 years in the early 20th century to only 15 years today.[5]

Correlation does not prove causation, of course. But in my book The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public,[6] I explore the logical connections between the rise of shareholder value thinking and subsequent declines in investor returns, numbers of public companies, and corporate life expectancy. I also show that shareholder primacy is an abstract economic theory that lacks support from history, law, or the empirical evidence. In fact, the idea of a single shareholder value is intellectually incoherent. No wonder the shift to shareholder value thinking doesnt seem to be turning out well - especially for shareholders.

Debunking the Shareholder Value Myth: History

Although many contemporary business experts take shareholder primacy as a given, the rise of shareholder primacy as dominant business philosophy is a relatively recent phenomenon. For most of the twentieth century, large public companies followed a philosophy called managerial capitalism. Boards of directors in managerial companies operated largely as self-selecting and autonomous decision-making bodies, with dispersed shareholders playing a passive role. Whats more, directors viewed themselves not as shareholders’ servants, but as trustees for great institutions that should serve not only shareholders but other corporate stakeholders as well, including customers, creditors, employees, and the community. Equity investors were treated as an important corporate constituency, but not the only constituency that mattered. Nor was share price assumed to be the best proxy for corporate performance.[7]

Go back further, to the very beginnings of business corporations, and we see even greater deviations from shareholder primacy. Many corporations formed in the late eighteenth and early nineteenth centuries were created specifically to develop large commercial ventures like roads, canals, railroads, and banks. Investors in these early corporations were usually also customers. They structured their companies to make sure the business would provide good service at a reasonable price not to maximize investment returns.[8]

So where did the idea that corporations exist only to maximize shareholder value come from? Originally, it seems, from free-market economists. In 1970, Nobel Prize winner Milton Friedman published a famous essay in the New York Times arguing that the only proper goal of business was to maximize profits for the company’s owners, whom Friedman assumed (incorrectly, we shall see) to be the company’s shareholders.[9] Even more influential was a 1976 article by Michael Jensen and William Meckling titled the “Theory of the Firm."[10] This article, still the most frequently cited in the business literature,11 repeated Friedman’s mistake by assuming that shareholders owned corporations and were corporations residual claimants. From this assumption, Jensen and Meckling argued that a key problem in corporations was getting wayward directors and executives to focus on maximizing the wealth of the corporations’ shareholders.

Jensen and Mecklings’ approach was eagerly embraced by a rising generation of scholars eager to bring the “science of economics” to the messy business of corporate law and practice. Shareholder primacy theory led many to conclude that managerialism must be inefficient and outmoded, and that corporations needed to be “reformed” from the outside. (There is great irony here: free-market economist Friedrich Hayak would have warned against such academic attempts at economic central planning.)12Shareholder primacy rhetoric also appealed to powerful interest groups. These included activist corporate raiders; institutional investors; and eventually, CEOs whose pay was tied to stock price performance. As a result, shareholder primacy rose from arcane academic theory in the 1970s to dominant business practice today.[13]

Debunking the Shareholder Value Myth: Law

Yet it is important to note that shareholder primacy theory was first advanced by economists, not lawyers. This may explain why the idea that corporations should be managed to maximize shareholder value is based on factually mistaken claims about the law.

Consider first Friedman’s erroneous belief that shareholders “own” corporations. Although laymen sometimes have difficulty understanding the point, corporations are legal entities that own themselves, just as human entities own themselves. What shareholders own are shares, a type of contact between the shareholder and the legal entity that gives shareholders limited legal rights. In this regard, shareholders stand on equal footing with the corporations bondholders, suppliers, and employees, all of whom also enter contracts with the firm that give them limited legal rights.[14]

A more sophisticated but equally mistaken claim is the residual claimants argument. According to this argument, shareholders are legally entitled to all corporate profits after the fixed contractual claims of creditors, employees, suppliers, etc., have been paid. If true, this would imply that maximizing the value of the shareholdersҒ residual interest in the company is the same thing as maximizing the value of the company itself, which usually benefits society. But the residual claimants argument is also legally erroneous. Shareholders are residual claimants only when failed companies are being liquidated in bankruptcy. The law applies different rules to healthy companies, where the legal entity is its own residual claimant, meaning the entity is entitled to keep its profits and to use them as its board of directors sees fit. The board may choose to distribute some profits as dividends to shareholders. But it can also choose instead to raise employee salaries; invest in marketing or research and development; or make charitable contributions.[15]

Which leads to the third legal error underlying shareholder primacy: the common but misleading claim that directors and executives are shareholders
“agents.” At law, a fundamental characteristic of any principal/agent relationship is the principal’s right to control the agents behavior. But shareholders lack the legal authority to control directors or executives. Traditionally, shareholders’ governance rights in public companies are limited and indirect, including primarily their right to vote on who sits on the board, and their right to bring lawsuits for breach of fiduciary duty. As a practical matter, neither gives shareholders much leverage. Even today it remains very difficult for dispersed shareholders in a public corporation to remove an incumbent board.[16] And shareholders are only likely to recover damages from directors in lawsuits involving breach of the duty of loyalty, meaning the directors were essentially stealing from the firm. Provided directors dont use their corporate powers to enrich themselves, a key legal doctrine called the “business judgment rule” otherwise protects them from liability.[17]

The business judgment rule ensures that, contrary to popular belief, the managers of public companies have no enforceable legal duty to maximize shareholder value.18 Certainly they can choose to maximize profits; but they can also choose to pursue any other objective that is not unlawful, including taking care of employees and suppliers, pleasing customers, benefiting the community and the broader society, and preserving and protecting the corporate entity itself. Shareholder primacy is a managerial choice - not a legal requirement.

Debunking the Shareholder Value Myth: Evidence

Which leads to the question of the empirical evidence. As noted above, the law does not require corporate managers to maximize shareholder value. But this certainly is something managers can opt to do. And certain corporate governance strategies putting more independent directors on boards, tying executive pay to share price, removing “staggered” board structures that make it harder to oust sitting directors - are widely recognized as effective means to make managers embrace raising share price as their primary objective. If shareholder primacy theory is correct, corporations that adopt such strategies should do better and produce higher investor returns than corporations that don’t. Does the evidence confirm this?

Surprisingly, the answer to this question is “no.” Researchers have spent decades and produced scores of studies seeking to prove that shareholder primacy generates superior business results. Yet there is a notable lack of replicated studies finding this.[19] For example, one survey looked at more than a dozen studies of supposedly shareholder-hostile companies that used dual-class share structures to disenfranchise public investors. Some studies found dual-class structures had no effect on corporate performance; some found a mild negative effect; and some studies found a positive effect (in one case, a strongly positive effect), exactly the OPPOSITE of what shareholder primacy theory predicts.[20]

But more important, studies that examine whether supposedly shareholder value-maximizing strategies improve the performance of an individual company for a year or two are looking in the wrong place and at the wrong time period. Individual shareholders may perhaps care only about their own investing returns in the near future. But policymakers and governance experts should care about public equity returns to investors as a class, over longer periods. As already noted, if we look at returns to public equity investors as a class, over time, the shift to shareholder primacy as a business philosophy has been accompanied by dismal results.

Why? The answer may lie in recognizing that shareholder value-increasing strategies that are profitable for one shareholder in one period of time can be bad news for shareholders collectively over a longer period of time. The dynamic is much the same as that presented by fishing with dynamite. In the short term, the fisherman who switches from using baited lines to using dynamite sees an increase in the size of his catch. But when many fishermen in the village begin using dynamite, after an initial increase, the collective catch may diminish steadily. Shareholders may experience the same regrettable result when they push managers to “maximize shareholder value.”

There Is No Single Shareholder Value

To understand why shareholder primacy can be compared to fishing with dynamite, it is useful to start by recognizing an awkward reality: there is no single ԓshareholder value. Shareholder primacy looks at the world from the perspective of a Platonic shareholder who only cares about one companyԒs share price, at one moment in time. Yet no such Platonic entity exists.

“Shareholders” actually are human beings who happen to own shares, and human beings have different interests and different values. Some shareholders plan to hold long-term, to save for retirement; others are speculators, eager to reap a quick profit and sell. Some shareholders want companies to make long-term commitments that earn the loyalty of customers, employees and suppliers; others may want to profit from opportunistically exploiting stakeholders commitments. Some investors are undiversified (think of the hedge fund manager whose human and financial capital are both tied up in the fate of one or two securities). Most are diversified, and worry about the performance of multiple companies as well as their own health, employment prospects, and tax burdens. Finally, some shareholders may not care if their companies earn profits by breaking the law, hurting employees and consumers, or damaging the environment. But others are ғprosocial, willing to sacrifice at least some investment returns to ensure the companies they invest in contribute to, rather than harming, society.

It is these divisions between shareholders’ interests that allow some shareholders to profit by pushing companies to adopt strategies that harm other shareholders. The divisions make it possible for shareholders to invest with “dynamite,” as it were.

Investing With Dynamite

As an example, consider the conflict between short-term and long-term investors. It was once believed (at least by academic economists) that the market price of a company’s stock perfectly captured the best estimate of its long-term value. Today this idea of a perfectly “efficient” stock market has been discredited, and it is widely recognized that some business strategies can raise share price temporarily while possibly harming the company’s long-term prospects. Examples include cutting expenses for marketing or research and development; siphoning off cash that might otherwise be invested for the future through massive dividends or share repurchase plans; taking on risky leverage; and selling off all or part of the company. Hedge funds and other activist investors are famous for pushing boards to adopt such strategies. (Consider Carl Icahns recent efforts to get Transocean to pay out dividends rather than reducing its debt.)[21] This is profitable for the activists, who typically sell immediately after the share price rises. But over time, this kind of activism diminishes the size and health of the overall population of public companies, leaving investors as a class with fewer good investing options.

A similar dynamic exists when it comes to how companies treat stakeholders like employees and customers. Shareholders as a class want companies to be able to treat their stakeholders well, because this encourages employee and customer loyalty (specific investment).[22] Yet individual shareholders can profit from pushing boards to exploit committed stakeholders - say, by threatening to outsource jobs unless employees agree to lower wages, or refusing to support products customers have come to rely on unless they buy expensive new products as well. In the long run, such corporate opportunism makes it difficult for companies to attract employee and customer loyalty in the first place. Some investors profit, but again, the size of the total investing “catch” declines.

Conflicts of interest between diversified and undiversified shareholders raise similar problems. For several years, BP paid large dividends and kept its share price high by cutting safety corners to keep expenses down. Undiversified investors who owned only BP common stock benefited, especially those lucky enough to sell before the Deepwater Horizon disaster. But when tragedy finally struck, the BP oil spill damaged not only of the price of BP shares, but also BP bonds, other oil companies operating in the Gulf, and the Gulf tourism and fishing industries. Diversified investors with interests in these other ventures would have preferred that BP focused a bit less on maximizing shareholder value. Similarly, consider the irony of a pension fund portfolio manager whose job is to invest on behalf of employees pushing companies to raise share prices by firing employees. This harms not only investors who are also employees, but all investors, as rising unemployment hurts consumer demand and eventually corporate profits.

Finally, consider the differing interests of asocial investors who do not care if companies earn profits from illegal or socially harmful behaviors, and prosocial investors who don֒t want the companies they invest in to harm others or violate the law. The first group wants managers to unlock shareholder valueӔ at any cost, without regard to any damage done to other people or to the environment. The second group does not. Asocial investing one might even call it sociopathic investing23 ֖ may not harm corporate profits in the long run. Thus it presents a different problem from other shareholder value strategies, discussed above, that reduce long-run investing returns. But it presents ethical, moral, and economic efficiency problems of its own.

Which Shareholders and Whose Values?

Closer inspection thus reveals the idea of a single “shareholder value” to be a fiction. Different shareholders have different values. Many, and probably most, have concerns far beyond what happens to the share price of a single company in the next year or two.

Some shareholder primacy advocates might nevertheless argue that we need to embrace share price as the sole corporate objective, because if we judge corporate performance more subjectively or use more than one criterion, managers become unaccountable. This argument has at least two flaws. First, we routinely judge the success of endeavors by multiple, often subjective, criteria. (Even eating lunch in a restaurant requires balancing cost against taste against calories against nutrition.) Second, the philosophy of maximize “shareholder value” asks managers to focus only on the share price of their own company, in the relatively near term. In other words, it resolves conflicts among shareholders by privileging the small subset of shareholders who are most shortsighted, opportunistic, undiversified, and indifferent to ethics or others welfare - the lowest common human (perhaps subhuman) denominator. This seems a high price to pay for the convenience of having a single metric against which to measure managerial performance.

There may be a better alternative: replace corporate maximizing with corporate satisficing.

The Satisficing Alternative

Milton Friedman and other late twentieth-century academic economists were obsessed with optimizing: picking a single objective, then figuring out how to maximize it. This preference for analyzing problems from an optimizing perspective may reflect a taste for reductionism. It may also reflect a taste for mathematics. (Although math can help you figure out how to maximize a single variable, it is much less useful for telling you how to pick and choose among several.)

But optimization is rarely the best strategy for either organisms or institutions. For example, if biology favored optimizing a single objective, humans would not need to drag around the weight of an extra kidney. And if people made decisions by optimizing, we would not find ourselves debating between taste, calories, and nutrition in choosing what to eat for lunch. Similarly, Nobel Prize winning economist Herman Simon argued more than a half-century ago that corporations need not try to optimize a single objective. Rather, firms can pursue several objectives, and try to do decently well (or at least sufficiently well) at each rather than maximizing only one. Simon called this satisficing,Ӕ a word that combines satisfyӔ with suffice.Ӕ24

Satisficing has many advantages as a corporate decision-making strategy. Most obviously, it does not try to resolve conflicts among different shareholders by maximizing only the interests of the small subset who are most short-term, opportunistic, undiversified, and asocial. It allows managers instead to try to decently (but not perfectly) serve the interests of many different shareholders including long-term shareholders; shareholders who want the company to be able to keep commitments to customers and employees; diversified shareholders who want to avoid damaging their other interests as investors, employees, and consumers; and prosocial shareholders who want the company to earn profits in a socially and environmentally responsible fashion.

When managers are allowed to satisfice, they can retain earnings to invest in safety procedures, marketing, and research and development that contribute to future growth. They can eschew leverage that threatens the firm֒s stability. They can keep commitments that build customer and employee loyalty. They can protect their shareholders interests as employees, taxpayers and consumers by declining to outsource jobs, lobby for tax loopholes, or produce dangerous products. Finally, they can respect the desires of their prosocial shareholders by trying to run the firm in a socially and environmentally responsible fashion.

Of course, if managers donҒt also earn profits, they wont be able to do these things for long. But the satisficing approach recognizes that while earning profits is necessary for the firmҒs long-term survival, it is not the only corporate objective. Once profitability is achieved, the firm can focus on satisfying other goals, including future growth, controlling risk, and taking care of its investors, employees, customers, even society. Our recent experience with the disappointing results of shareholder primacy suggest this approach may be better not only for shareholders, but for the rest of us as well.


1. Jesse Eisinger, Challenging The Long-Held Belief in “Shareholder Value,” New York Times (June 27, 2012); Joe Nocera, “Down With Shareholder Value,” New York Times (August 10, 2012); Andrew Ross Sorkin, “Shareholder Democracy Can Mask Abuses,” New York Times(February 25, 2013).

2. Edward A. Rock, Adapting to the “New Shareholder-Centric Reality,” University of Pennsylvania Law Review (forthcoming 2013).

3. Lynn A. Stout, “Toxic Side Effects of Shareholder Primacy,” University Pennsylvania Law Review (forthcoming 2013).

4. The Economist, “The Endangered Public Company,” (May 19, 2012), available HERE.

5. Steven Denning, “Why Did IBM Survive?,” (July 10, 2011), available HERE.

6. Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public (2012).

7. Gerald F. Davis, Managed by the Markets: How Finance Reshaped America 59-101 (2009)

8. Henry Hansmann and Mariana Pargendler, “The Evolution of Shareholder Voting Rights: Separation of Ownership and Consumption” (February 15, 2013), available at HERE.

9. Milton Friedman, “The Social Responsibility of Business is to Increase Its Profits,” New York Times Magazine 32 (September 13, 1970).

10. Michael C. Jensen and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure,” 3 Journal of Financial Economics 305 (1976).

11. Roger Martin, Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL 11 (2011).

12. Hayak, The Fatal Conceit: The Errors of Socialism (1991).

13. Rock, supra note 2 and Stout, supra note 3.

14. Stout, supra note 6, at 37-38.

15. Stout, supra note 6, at 38-41.

16. Bebchuk, “The Myth of the Shareholder Franchise,” 93 Virginia Law Review 675 (2005).

17. Stout, supra note 6, at 42-44.

18. The only context in which courts require directors to maximize shareholder value is when the directors of a public company determine to sell the company to a private owner, in essence deciding to force public shareholders out of the firm. At this point shareholders are uniquely vulnerable to exploitation, and perhaps need the legal protection of the so-called Revlon doctrine. However, directors have no obligation to sell a company to a private bidder, even at a premium price.  In other words, as long as a public company wants to stay public, directors have no legal obligation to maximize either profits or share value.

19. About the only empirical finding that has been reliably replicated is that when governance changes cause directors to sell a company, the buyer pays a premium over market price. This increases the wealth of shareholders in target companies. Unfortunately, it also often depresses the stock prices of bidding companies by an equal or greater amount, suggesting that mergers and acquisitions do not increase the wealth of shareholders as a class.  One study has concluded that the net result for all shareholders of all mergers and acquisitions done between 1980 and 2001 was to reduce aggregate market value by $78 billion. See Stout, supra note 6, at 88-89.

20. Valentin Dimitriv and Prem C. Jain, “Recapitalization of One Class of Stock into Dual-Class: Growth and Long-Run Stock Returns,” 12 Journal of Corporate Finance 342 (2006).

21. “Will Kennedy and David Weth, Transocean Restores Dividend After Investor Icahn Pressure,” Bloomberg News, March 4, 2013, available HERE.

22. Margaret M. Blair and Lynn A. Stout, “A Team Production Theory of Corporate Law,” 85 Virginia Law Review 247 (1999).

23. Lynn Stout, “How Investing Turns Nice People Into Sociopaths,” The (April 4, 2012), available HERE.

24. Herbert A. Simon, Administrative Behavior: A Study of Decision-Making in Administrative Organization (1947).



Why the Pursuit of Shareholder Value Kills Innovation
Is innovation against the interests of the shareholder-owned firm?

By Chris Dillow
Stumbling and Mumbling
January 21, 2017

“Shareholder value,” SAID Jack Welch, “is the DUMBEST idea in the world.” I was reminded of this by Tim Worstall’s reply to Liam Byrne’s demand to reject once and for all the tired and increasingly flawed orthodoxy of shareholder value. Tim SAYS:

Increasing income, and/or wealth, is driven by technological advances that lead to greater productivity. And only societies which have had some at least modicum of that shareholder capitalism have ever had that trickle-down which drives the desired result.

This, however, overlooks an important fact that shareholder-owned firms (in the sense of ones listed on stock markets) are often not a source of technological advances. Bart Hobijn and Boyan Jovanovic have pointed out that most of the innovations associated with the IT revolution came from companies that DIDN’T EXIST (pdf) in the 70s. The stock market-listed firm is often not so much a generator of innovations as the exploiter of innovations that come from other institutional forms not just private companies but the STATE (LOCAL COPY) or just men tinkering in garages.

This fact seems to have become more pronounced in recent years. David Audretsch and colleagues show that innovative activity has come increasingly from new firms rather than listed ones. And Kathleen Kahle and Rene Stulz show that listed COMPANIES today are older, less profitable and more cash-rich than those of years ago. They SAY:

Firms’ total payouts to shareholders as a percent of net income are at record levels, suggesting that firms either lack opportunities to invest or have poor incentives to invest.

There are, of course, many possible reasons for this lack of investment. One might be that outside shareholders are so short-termist that they discourage firms from investing (though personally I DOUBT this). Alternatively, they might be too ill-informed to distinguish between good and bad projects and so often err on the side of caution.

A third possibility is that both investors and bosses have wised up to a fact pointed out by William Nordhaus - that innovation yields only scant profits because these get competed away*. It might be that Schumpeter was right: innovations tend to come from over-optimism and excessive animal spirits and that the listed firm, in replacing buccaneering entrepreneurs with rationalist bureaucrats, thus diminishes innovation.

From this perspective innovation is against the interests of the shareholder-owned firm, as it threatens their market position: the creative destruction of which Schumpeter wrote is by definition bad for incumbents. It’s no accident that the most successful stock market investor, Warren Buffett, looks not for innovative firms but ONES that have economic ”MOATS” - some kind of monopoly power that allows them to fight off potential competition.

Tim might therefore be taking too optimistic a view of shareholder capitalism: shareholder value might now be a restraint upon technological advances more than a facilitator of them**.

I don’t say this merely to criticise Tim, but to highlight a mistake made by many of capitalism’s cheerleaders - that they fail to see that the threat to a healthy economy comes not so much from lefties with silly ideas (or perhaps even from presidents with THEM) but from capitalism itself. For many reasons of which the pursuit of shareholder value is only one - capitalism has lost some dynamism. In underplaying this, capitalism’s supporters are making the MISTAKE of which Thomas Paine accused Edmond Burke: they are pitying the plumage but forgetting the dying bird.

* Apple is a counter-example here: Steve Jobs genius was not so much in fundamental innovations as in the ability to create products so beautiful that they had brand loyalty and hence monopoly power.

** The strongest counter-argument here might be that the prospect of floating on the stock market (often at an inflated price) incentivises innovation by unquoted firms.


Posted by Elvis on 07/21/17 •
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Monday, July 03, 2017

The Awakening Part 12

image: depressions

Mass Murder is Capitalist Misery - Economy Meets Psychology

By Harriet Fraad
Democracy at Work
July 1, 2017

Economic conditions, social conditions and personal mental health are as intimately connected as Siamese twins. There is clear evidence of their interpenetrating connection. Unmistakable signs point to the fact that the mass of US citizens are economically, socially, and psychologically in bad shape. I will briefly look at each area: economic conditions, social conditions and emotional conditions, and how they relate to each other. I will also look at how those factors play out in the everyday lives of Americans.

The new word for the proletariat in America is the ”PRECARIAT."

IN THEIR ECONOMIC LIVES and in their personal and family lives Americans live on the brink of disaster. A majority, 63% of Americans do not have $500 TO COVER A LIFE EMERGENCY.

Almost of us cannot cover an emergency that costs $400. If we break a tooth or get picked up for a misdemeanor crime like stealing a pair of sneakers, we cannot cover the bail cost and could end up in jail. The minimum recommended to cover emergency expenses is at least 3 months of living expenses to cover losing a job, having a divorce, getting sick, things like that. Most Americans are nowhere near such security. In fact, most Americans are ONE PAYCHECK AWAY from the street.

Now let’s look briefly at social conditions.

In our social connections, we Americans are not doing much better. We cannot necessarily TURN TO A FRIEND in an emotional emergency, no less turn to them to BORROW MONEY. Families also can no longer necessarily help. They too live on the brink. Americans are increasingly ISOLATED . According to Robert Putnam’s book Bowling Alone (2009), there are fewer Americans connected to any group at all from PTAs to blood drives to political organizations than were in bowling leagues alone in 1970. Unfortunately, social and personal isolation is now worse.

The economic and social anchor cables which tied American personal life to a secure foundation are now frayed to breaking.

Personal life is fraying as well.

Americans fastest growing new life style is LIVING ALONE. If they marry the fastest growth is in couples without children. Most children will grow up without their two biological parents. Fully 42% of US kids are born to unmarried mothers. Family connection was American’s most basic institution for close personal connection. Families cannot hold together. If American single mothers and their children had the social supports that all other wealthy industrialized nations give their citizens, this would not be the disaster from which US mothers and children suffer. However US single mothers and their children are the most poverty stricken, deprived Americans. Poverty does not predict happiness now or in the future.

What happened?

In brief-In the 1970s, highly sophisticated multi-national communications systems allowed US corporations to outsource highly paid, often unionized jobs to poor nations with no protections or feeble protections for both workers and the environment. Corporations outsourced millions of jobs to China, India, Pakistan other nations. US companies thus reaped huge profits. For example, Chinese workers making Ivanka Trump’s apparel earn about 44 cents a day. Apparel makers in Pakistan earn just about $2.00 a day.

By the mid 1970s, American capitalists had the whole world to exploit. They no longer had to pay American white men 2 bonuses, one for being white and another for being male in what was then a scarce, racist, sexist labor market.

Without the well-paying family waged jobs that used to be available to white men, the structure of US middle class life began to fracture. Minorities and women were never given the wages that could support a middle-class family life. Once white men’s wages froze, millions of women entered the workforce alongside of their minority sisters. Even with 2 incomes wages were too low to make it into the formerly possible American dream of a better life for each generation. Women who worked outside the home were no longer willing nor able to do the full second shift of caring for men, home and children alone. They were no longer willing, and economically could not afford to be the full-time home based personal servants that white men were accustomed to. Home life splintered. These are the results of corporate capitalist outsourcing, computerizing, mechanizing and robotizing to make more money. The mass of the American people NOW SUFFER lower paid jobs, with worse job conditions.

With the huge profits US corporations made, they bought our media and our politicians. Those servants of the wealthy disguised the roots of American middle class collapse. In 1970, we were the most egalitarian nation in the Western industrialized world. Now we are the least egalitarian nation in the Western industrialized world. That powerfully effects our emotional and mental health.

According to meticulously researched reports on the fruits of economic inequality (See: Wilkensen and Pickett, Stuckler and Basu as well as the World Health Organizations report by their Mental Health Foundation) inequality is terrible for mental health.

There are 9 scourges of inequality. They are:

The erosion level of trust between people.

Lack of trust leads to disconnection from others and the breakdown of social bonds.

The increase in certifiable mental illness including addictions which are a form of mental problems

Eating disorders and obesity

Lower life expectancy

Homicides including mass murders, a dramatic form of murder


Imprisonment rates and

The loss of social mobility.

The US leads the Western developed world in all of these areas. We are in trouble. I will look at 3 areas which present dramatic new developments in America.

One is mental illness and addiction. Another is homicides. A third is lack of trust. Each presents a uniquely American development.

Mental illness

One in five Americans is taking at least 1 psych drug. We are only 5% of the world population but we use 66% of the world’s psych drugs. There are at least three reasons why. One is that people’s hopes of economic and personal stability and happiness are dashed and they are lost and understandably sad. A second is that instead of reaching out to join with others and share collective hopes and work to realize them, we have become depoliticized and isolated A third is capitalist marketing of psych drugs. We are the only Western industrial nation that allows direct to consumer drug advertising. We also lead the world in the kind of market driven health care that rewards doctors with money for prescribing brand name drugs.

Another way that people look for a refuge for their misery is with self-prescribing, also known as addiction. At this time America is in the throes of a serious problem with heroin and opiates. Drug overdose is now the leading cause of accidental death in the US. There are even more opiate and opioid deaths than deaths from car accidents. Who is using and dying now? Drug addiction used to be an epidemic disproportionately effecting African Americans in the inner city. Now the epidemic is white. It effects just those people most devastated by the loss of the American dream, suburban people who are, or used to be in the middle class and rural whites whose local communities are taken over by corporations and agribusinesses. Typical addicts are the young man who planned to inherit his parents Mom and Pop diner which is now McDonalds, Pizza Hut, Friendly’s, etc. - the couple who planned to take over their parents shoe or clothing store or grocery which are all now huge Walmarts. The blue collar rural workers, painters, roofers etc. whose livelihoods are stolen by corporate capitalist conglomerates running huge businesses. The middle aged white man who planned to retire and was fired because his capitalist boss outsourced his factory. The workers in the US Rust Belt who counted on decently paid jobs at factories like GM. Another part of the scourge of US addiction is the huge and highly profitable pharmaceutical industry. Most heroin users begin with prescriptions for pain killers opioids which are aggressively marketed to doctors. Prescribing rates for pain killers have doubled in spite of the addiction warnings. There are enough prescriptions for opiates to give every American his/her own bottle of pills. Fully 48,000 American women have died of pain reliever overdoses.

Since these pills are expensive many switch from their prescribed pain pills that got them hooked, over to heroin which is cheaper.

Americans are suffering. Advertising giants and a corrupt market driven healthcare system converts their suffering into profits. Pills do not solve problems. They can effect brain chemistry, but so does psychotherapy and social connection. Therapy and social connection do not leave people comfortably numb. They do not usurp the brain’s powers to self soothe and solve problems. They do make a profit. Here again capitalism shows its bloody hand.


A second area of the cost of inequality and mental health breakdown which I will briefly consider is homicide. Here again we are the leaders among all of the western industrialized nations. Part of the DELUGE OF US VIOLENCE is from our uniquely unchecked gun sales. Americans are 20 times more likely to die from gun homicide than the people of any other OECD nation.

The marketing agents for big gun corporations had the smart idea of marketing guns as emblems of manhood and proof of 2nd amendment rights at a point when male gender provider roles are challenged by low wages and basic rights are challenged by corporate dominion over America. Manhood and rights assertions are certainly smarter advertisements than “Buy guns. Make us rich.” The NRA lobby allows the daily slaughter.

Mass murder is a uniquely frequent American specialty. It involves killing several people who are strangers. It does not count the many men who kill their families, girlfriends, etc. The US had 30 mass killings in the last month I studied Sept. 2017, In that month no other wealthy industrialized nation had any mass killings, NONE. The killers were all American men who were either disappointed in love or fired from work, or both. Gun violence was their way to reclaim their manhood in a blaze of murderous glory. Gun manufacturers are the richer for it. These murders began under Reagan in the 1980s when inequality had its presidential champion and corporations were boosted over the rest of us through lower taxes and anti-union drives. They are a symptom of American inequality and corporate capitalist domination.

Lack of trust

A third area of American mental health tragedy and capitalist inequality is lack of trust. Any collective action requires trust. One area where Americans have lost trust is trust in government. A good way to explore this is to look at the minimum participation wealthy nations offer, voting. Among the wealthy nations, the US has the lowest number of eligible voters turning out for presidential elections. In our last presidential election, The US had 55% a little more than half of eligible voters believe enough to trust that their participation in our government counted to cast their vote. In contrast, in Belgium, 87 % voted. In Denmark, Sweden and Norway, 80% voted. In other wealthy nations like France, Germany, Sweden, over 70% voted. The US is the only one of these nations that allows private and corporate donations in elections.

Almost half of Americans may perceive that their government is bought and they no longer have a voice. They have given up the little influence left to them. That was clearly illustrated during the Bernie Sanders campaign when a majority of millennials mobilized to vote for Bernie with whom they felt they would be empowered. Fully 175,000 volunteers turned out in the first week of BernieӒs campaign. For that moment, their trust that they counted allowed them to be active. When he was betrayed by the established Democrats, half of them didnt bother to vote.

People lost the trust that they made a difference.

Americans became disconnected when corporate America took over in the 1970s. Robert Putnam in his book, Bowling Alone showed us that there were more Americans in bowling leagues alone in 1970 than there were in all organizations in America in 2009. People need to trust their collective power and they need to trust their own agency to join any group. Too many Americans have lost their trust.

One aspect of our lost trust is trust in ourselves, and in our own judgement. Our trust may be eroded in part because because we are barraged by lies. Advertising is everywhere promising benefits of beauty and happiness it does not deliver. Beer adds show you connecting to handsome young people and making romantic connections which beer cannot bring. The Coca Cola promising good social times rots your teeth and does not connect you. The medications showing relief from stress do not mention that you can become dangerously addicted. The cars show you as the power in the metaphorical driver’s seat but you are not. Adds lie. They erode our trust.

We have lot our trust in even the closest relationships. The fastest growing kind of US household is people living alone (See: Eric Klinenberg’s Going Solo: The Extraordinary Rise and Surprising Appeal of Living Alone).

For the first time in US history the majority of US women are single by choice. They do not trust that they can be safe and thrive in marriage. More Americans now remain unmarried. Half of them marry and then divorce. They cannot accomplish a co- respective, sustaining connection. Of those who do marry, the fastest growing kind of couple is those without children. People cannot trust that they can provide for themselves no less children, in their precarious lives in capitalist America.

There is an even more damaging lack of trust which is closely related to mental illness. Americans have lost trust in themselves to make the kinds of work and love and politics that are hopeful and positive. Capitalist advertising thrives on shaming us about our looks, our smells, our personal adequacy. Do you feel X, buy Y, and then Y does not deliver. Magazines and most television presents touched up faces and bodies of people with bouncy surface personalities and trivial problems, not those from which Americans seriously suffer. I am convinced that one reason Lena Dunhams TV HBO series, “Girls,” was so popular is that the women presented were neither beautiful nor necessarily thin, nor free of mental problems. “Girls” presented a relief from goals we cannot achieve and standards we cannot meet.

Self-confidence is eroded for the at least 80% of us for whom the possibilities of basic economically stable and fulfilling careers, marriages and relationships are precarious and difficult. People become afraid to even try. They lack trust across the board.

What can we do in the light of American economic, social and personal pain? How can we restore basic trust in ourselves, each other and our power to shape the future?

There are many things we can do. As connections have withered since 1970, one kind of organization has burgeoned. In every little town across America there is one kind of organization that keeps growing, the 12-step program. We can learn from these programs [5] which range from OA, Overweight Anonymous, to SA, Sex Abuse Anonymous, to GA, Gamblers Anonymous, ACA, Adult Children of Alcoholics and Dysfunctional Families, on and on. They thrive outside of the money economy. They have no authoritarian leaders. Every voice counts.

Why does the 12-step model attract so many? It works, either long-term or temporarily, because everyone has a voice that is heard. It works because people acknowledge that they have a problem that can only be solved with the support of a group. It also works because people find a sponsor that supports them in their struggle. The “spirit” they invoke for is sometimes referred to as God, does not have to be a deity but the open inquisitive spirit of a child reaching out to the world, a biophilic spirit, rather than the necrophilic spirit of rigid unlistening, hierarchical and un accountable authority. Twelve Step programs do not allow for social, political, or economic contributions to personal pain and addiction. That is why so many leave after initially attending. The social, political and economic factors of life are as salient as the personal. Uniting the causes of American’s pain is something the Left must do. However, the twelve steps have a lot to teach us.

We can adapt the 12 step programs to the context of a Left movement. Below, I state each of the 12 steps and a variation that we can use to build a powerful Left that extends across our nation:

1a. We admitted that we were powerless against alcohol - that our lives had become unmanageable.

1b. We understand that one person alone cannot solve the chronic societal and personal problems that are making our lives very difficult to manage.

2a. We came to believe that only a power greater than ourselves could restore us to sanity.

2b. We have come to believe that only a collective, which is a power greater than our individual selves, can move us and our nation forward to a healthier, more democratic place.

3a. We made the decision to turn our will and our lives over to the care of God as we understood him.

3b. We decided to commit time and energy, will and belief in the future to work together for change.

4a. We made a searching and fearless moral inventory of ourselves.

4b. We took a serious and thorough moral measure of ourselves, noting the ways we collude with societal forces in our own exploitation, and noting our embrace of practices and beliefs about ourselves and others that make us vulnerable to being manipulated and exploited. This is an important step. We need to be aware that we are not just victims or victimizers, we are also collaborators. We are not helpless. We can also act-for better or for worse. What we need to do now is unite around basic principles and create programs to achieve goals for the benefit of all.

5a. We admitted to God and to ourselves and to other human beings the nature of our wrongs.

5b. We have admitted to ourselves and out loud to others, the ways we have collaborated in our own victimization and the victimization of others.

6a. We are ready to have God remove all these defects of character.

6b. We are working to move beyond certain dysfunctional behaviors by taking action to better our own and others’ lives. Some members of our collective take support from their religious or spiritual beliefs, as a private matter. Everyone’s contributions enrich our group’s development and efforts to create a broad unified movement.

7a. We humbly ask HIM to remove our shortcomings.

7b. We ask for, and are ready to give, the much-needed support that will help us unlearn collusion and internalize the new knowledge and wisdom that comes to us through our efforts, and which is so necessary for our growth. We also ask for, and will give, support to help us rebound from the disappointments likely to occur among our triumphs.

8a. We will make a list of all persons we have harmed and become willing to make amends to them all.

8b. We are studying to fill the gaps in US history, the better to grasp both the similar and different realities lived by the diverse peoples who have populated our nation from the very beginning. We are studying the systemic arrangements: economic, political, social and psychological; the terrains of class and color, poverty and wealth, privilege and persecution, the marvelous and shameful, the horrible and the beautiful. We do this not just to discover, learn and acquire knowledge for its own sake, but to more inform our thoughts about the dignity of life, creating change and building the future.

9.a We will draw up a list of all persons we have harmed and make amends directly to them wherever possible, except if to do so would injure them or others.

9b. We continue to take a moral measure of ourselves, as individuals and as a nation. When we are wrong, we admit it.

10a. We continued to take personal inventory and when we were wrong promptly admitted it.

10b.We work to promote and to demand from our government-federal state and local- fair and just domestic policies that support Americans efforts to live heathy and productive lives. We also work to promote and demand humane and non-exploitative foreign policies that encourage peaceful relations between nations and the well-being of all humanity and our planet earth.

11a. We seek through prayer and meditation to improve our conscious contact with God as we understand Him, praying only for knowledge of his will for us and the power to carry that out.

11b.We seek- through experience, study, meditation, imagination, discussion, and listening to each other- greater understanding, knowledge and consciousness of the human condition and all life, the better to connect with others in developing a well-functioning, life-affirming, democratic society.

12a. Having had a spiritual awakening as a result of these steps, we try to carry this message to alcoholics, drug abusers, sex abusers and those abused, etc. and to practice these principles in all our affairs.

12b.Having come to realize, by taking these 12 steps, that certain structural characteristics of US society hinder American’s pursuit of happiness; having also realized the ways in which some of our own actions reinforce those hindrance, we have experienced an invigorating, moral, ethical, political, and personal awakening.  Feeling the changes within ourselves, we are motivated to reach out and engage sympathetically and supportively with whomever we can. We ask each other here to do the same. Our collective plans hope and cultivate action. Our collective is powerful. We can and will reap a sustainable future

Of course, there are many WAYS to proceed. We need the courage to trust that we can reach out, connect, form groups that are democratic and try to rescue ourselves and our country from the economic, social and personal pain from which the majority of Americans suffer.


Posted by Elvis on 07/03/17 •
Section Revelations • Section Dying America
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