From Peter Radford If you were to ask me what the greatest intellectual error of the past fifty years has been I wouldn’t hesitate. Shareholder value. It’s an easy response. Yes, it reflects my own curious interest in the fundamentals of business and its intersection with economics, but it is also emblematic of so much more. Derived as it is from the wrong turn in economics and politics in the middle of the last century it carries with it so many of the ill founded ideas that have brought us all to where we are now: bedeviled once more by the social question. How is it that the wealthiest nation the earth has ever witnessed is so ill equipped to ensure a secure life for its citizens? All its citizens. The history of the concept we know as shareholder value is well rehearsed. There
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from Peter Radford
If you were to ask me what the greatest intellectual error of the past fifty years has been I wouldn’t hesitate. Shareholder value. It’s an easy response. Yes, it reflects my own curious interest in the fundamentals of business and its intersection with economics, but it is also emblematic of so much more.
Derived as it is from the wrong turn in economics and politics in the middle of the last century it carries with it so many of the ill founded ideas that have brought us all to where we are now: bedeviled once more by the social question.
How is it that the wealthiest nation the earth has ever witnessed is so ill equipped to ensure a secure life for its citizens? All its citizens.
The history of the concept we know as shareholder value is well rehearsed. There is no need to delve into its precise origins. Like many pieces of technology it is an amalgam of ideas brought together eventually in one broad and encompassing whole. Most of us have read the infamous newspaper article in which Milton Friedman gave his intellectual backing to the notion that the only goal of business management was to tend to the welfare of shareholders. I think, from our vantage point many decades later, this appears to be uncontroversial. We have been bent to accept something as a social goal which, in reality, only serves a few. Generations of business school students have been taught the mantra. They have taken on board the simplicity of the aim: shareholders are what matters, they need to be pandered to and nurtured. Everything else is secondary.
In the murky waters of markets as conceived by the like of Friedman this is sufficient. All those other constituencies we might think of as important to business: customers, workers, suppliers and so on, all benefit from the singleminded focus on shareholders. The mysteries of the market make sure all those groups get their due share. Market discipline, that vague and imprecise concept, is the veil behind which the free market zealots hide whenever asked to explain how this beneficence occurs.
It is the height of naivety. It is the epitome of avoidance.
Shareholder value, of course, is extreme market economics written into management technology. Its beauty is its simplicity. It allows management to become as naive as the economists who preach free market doctrines. More to the point it allows management to avoid responsibility for the social question.
Here we are, a few decades along, and living through a moment of great consequence. Technology is back on the agenda. Whose interest does it serve? What is its purpose? How are we to deal with the social upheaval it appears to be bringing in its wake?
The naive economist will respond that in the longer run all will be well. After all that’s what happened before. During the horrible early years of industrialization it was almost impossible to imagine that all the workers whose lives were being cut short by the conditions that motivated Engels and Marx to provide us with their critique could ever be better off. They never were. Nor were those in the subsequent generation. It took at least three generations for adoption of technology to manifest itself in broadly shared rising prosperity. But, eventually, the miracle occurred. Economics hang their hat on it happening again. What makes them so sure?
So disruptive was the change being experienced back at the origins of industrialization that the social question rose to prominence in intellectual and political circles. What to do with the urban masses? How to integrate them into society? How to provide for them? What were the political ramifications of this new “working class”? Was revolution inevitable? Was 1800s liberalism doomed?
The question was eventually answered. Modern democracy emerged to temper the more violent edges of capitalist industrialization. Workers gained a voice in the shaping of their own futures. The urge for revolution as mostly reduced to periodic industrial unrest. The disruption was allowed to continue because it was contained. The state and administration in the private sector held a common goal: the social question was pushed into the background.
A significant factor in allowing the quiescence of the mid twentieth century to lull us into believing the social question was a historic rather than contemporary fact was the turn in technology. It became seen and accepted as augmenting rather than replacing the worker. Productivity rose. So did wages. The two, we were taught subsequently go hand in hand. The two were inexorably tied together. As technology drove productivity higher it opened space for wages to grow in step with it. The later stages of the industrial era saw the less skilled able to participate in the bounty that had previously been reserved for the more skilled. The middle class arose from this technological shift to augmentation rather than replacement. The Keynesian vision of shorter workweeks and a broader leisure class appeared within reach.
As Tony Judt taught us we must never imagine that society is homogenous. The rich simply do not want the same things as the poor. It is an illusion to imagine the two groups are aligned along the same trajectory or have the same objectives. And this simple observation is at the heart of the wrong turn in the middle of the 1900s. The rich wanted more, the poor became their target.
The steady elimination of social considerations from decision making throughout all aspects of business and politics — all in the name of efficiency — steadily undermined the quiet. Shareholder value was up front and center in this change. The next wave of technologies unleashed on society became less worker augmenting and more worker replacing. Already under pressure from those cheaper labor pools that were now being exploited to provide more profit for shareholders, workers found that the infamous rounds of disruption so ballyhooed in Silicon Valley were increasingly designed to cut costs, and they were the primary cost to be cut.
All of a sudden we were flung back into those early years of industrialization when machines were a threat rather than an aid. And it seems to be getting worse. The modern workplace is being thoroughly revamped so as to extract more profit for shareholders. Words such as “precarity” and “fiscal insecurity” have become common in our discussion of the result. The less skilled are being pushed downwards and not drawn upwards. Broad swathes of our citizenry are unable to aspire to the same level of prosperity that their parents attained.
Something has gone wrong.
Technology sits at the heart of the problem. Once again we ask: what is the purpose of the machine? Have we not learned? How many generations will suffer this time before the wealth is spread once more?
The pursuit of profit is a very narrow basis on which to sit a broad vision of society. It cramps us all. Its limitation destroys the conception of a worthwhile life encompassing much of what makes us human. Yet it is the dominant motivation for much of what now passes for innovation. Our complacency during the brief moment of calm when we all benefitted from the technological conveyor belt led us to forget to question the purpose and movement of progress. It all seemed so easy. William Beveridge was adamant that we do not cast the social question in the language of problems. That would represent a reduction of our humanity into a technocratic space ill fitted for the expansive imagining necessary to answer the broader question: under what condition can we all co-exist harmoniously?
In his book 2010 Tony Judt used an Oliver Goldsmith quote as the starting point for his discussion of the social question. In the decade subsequently we have failed to take up the challenge. I am not even sure we have the correct language to tackle the problem. As an aside, where, for my economist friends, is the “equilibrium” in upheaval? Disruption is disequilibrium writ large. Why is that not the dominant language of economics? Why are we theorizing something that is not immediately relevant? The language and metaphors of change would appear more urgent and useful.
Before we lose another generation surely we need upend the status quo; we need the language to describe our problem let alone concieve its solution.
And to borrow one last time from Judt: De Tocqueville, he reminded us, said this:
“I cannot help fearing that men may reach a point where they look on every new theory as a danger, every innovation as a toilsome trouble, every social advance as a first step toward revolution, and that they may absolutely refuse to move at all”
Oh, that Goldsmith quote Judt uses is:
“Ill fares the land, to hastening ills a prey, Where wealth accumulates, and men decay”
Where wealth accumulates, and men decay.
The social question is back.