Investors need to shoulder social responsibilities
Glenwood Springs, CO Colorado
Perhaps the best analysis of our economy is William Greider’s 2003 book, “The Soul of Capitalism.” It is a lively, easy-to-read book that anyone will find informative. Here I can only highlight some key points.
Greider explores why American capitalism generates not just great material abundance but also terrible social and financial inequality and devastating ecological destruction.
He discusses the fact that the stock market has become a poor vehicle for distributing capital to productive enterprises in general, and to small and medium businesses in particular. In fact, the latter get no Wall Street capital.
The large multinational corporations that do use Wall Street have recently created no new jobs in America. In fact in the five years before the latest financial crash, the Fortune 500 companies reduced their employment of American citizens by 4 percent. At the same time, small and medium companies, despite being starved for capital, created 20 percent more American jobs. (And paid their taxes.)
Small and medium companies have to rely largely on local banks for capital, but local banks have declined greatly in number in recent decades. So one of Greider’s main points is that our economy would be much better if we found a way to direct more capital into small and medium businesses and less into large multinational corporations.
He also points out that small and medium businesses are much more rooted in their communities and thus inclined to respect social values.
Which brings him to another dysfunctional feature of capitalism today, the total disconnect between stockholders and corporate management. This results in a lack of responsibility on the part of corporate management, which thinks of little but boosting their company’s stock price in the short term so top executives can cash out their stock options most profitably.
Greider thinks that a change of attitude on the part of the institutional investors, who own half of all corporate shares and 21 percent of all varieties of financial assets, might be a big part of the solution here. So far they have been passive investors, seeking only to maximize returns in the markets with no regard to social and environmental consequences.
But Greider points out that most of these institutional investors, particularly pension funds, have fiduciary responsibilities to the workers whose savings they are managing. And those fiduciary responsibilities need to include regard for social and environmental consequences as well as the longer term welfare of the economy.
For example, my husband and I receive pension benefits from Colorado’s Public Employee Retirement Association.
It does us no good if they maximize returns in the short term while investing money in corporations that create no jobs so we end up supporting grown children.
It does us no good if they invest in big banks that crash the economy, destroying the gains that were made so our pensions are in danger.
It does us no good if the crashed economy causes state and municipal budget shortfalls so severe our grandchildren’s’ education is badly compromised.
It does us no good if we have to approach death knowing our grandchildren will live in a horribly polluted world full of civil unrest.
I could go on and on, but you get the point. Institutional investors have a fiduciary responsibility to become active investors who pressure corporations to not engage in behavior that damages the long-term health and wealth of their beneficiaries.
At the same time, these institutional investors need to seek out and invest in the small and medium businesses that create American jobs.
Another fundamental remedy for our economic ills that Greider proposes is simple in concept but will take much effort to execute. In his words, “people must figure out how to own their own work.”
We need a lot more employee-owned businesses, corporations, partnerships and co-ops. And we need more worker participation in corporate management.
– “What Do We Really Want?” appears on the second and fourth Thursdays of the month. Mary Boland is a retired teacher and journalist, a proud grandmother and a longtime resident of Carbondale. Follow her on twitter @grannyboland.
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