Interested in Studying Law? 

Need help with your law studies?

 

See our interview with President Rosalyn Higgins of the International Court of Justice

 

The Rise of Corporate and Political Populism

 

by Brian Risman, Publisher and Founder, The Law Journal UK and Consultant in International Law

 

The current world-wide recession, which many have called ‘The Great Recession’ as a play on the economic great depression of the 1930s, has precipitated a massive change in the social, economic and political landscape of nations around the world. Upheavals in the economy -- and Parliament -- are underway. The challenges facing Obama and other world leaders are among the most severe in a generation.

 

The world is changing.

 

Corporate shareholders, who used to placidly accept the statements and decisions of the management at annual meetings, have become increasingly proactive and aggressive in their interests.

 

The assertiveness of shareholders is not something new. Back in the 19th century, shareholders frequently were also the managers of the corporations. However, that changed when highly skilled technical management of projects such as transportation infrastructures and assembly-line manufacturing developed in the 20th century. Company law started to reflect active managements, and shareholders were reduced to passive or no involvement in day-to-day management. However, company law in the UK still retained the right of the shareholders, by simple majority, to replace the directors of the company.

 

Little action occurred in shareholder’s rights, however, until institutional investors such as pension funds started to invest in company shares. These institutional investors, with their astute managers, made their presence known at company general meetings.

 

Now, that assertiveness has spread to the individual small shareholders. It should be remembered that in the UK, unlike in the US, investment in shares by individuals – bringing about widely-held shareholding in companies – did not occur until the late 1960s and early 1970s. Yet even with this short history, individual shareholders, seeing with the economic meltdown that their holdings have dropped sharply in value, have reacted aggressively. For example, at one recent oil company annual meeting, the shareholders rejected the executive pay package. At one time shareholders, gaining from capitalism, defended companies. No longer, it seems.

 

The corporate shareholder rebellion has political implications. Many of the corporations have received ‘bailout’ funds from governments. While many of these corporations viewed these injections of government funds as windfalls, they failed to anticipate the political implications of these bailouts.

 

It brought into serious question the quality of management in these firms.

 

When firms of several hundred years existence are suddenly on the edge of destruction – whether due to insolvency or a lack of liquidity – people start asking who is running these firms. Firms that survived the Great Depression are on the edge of ruin in the far less severe Great Recession. It made no sense – until evidence grew of gross mismanagement. How could well educated, well trained management cadres take solid firms into quicksand? The answer was clear – hubris and extreme arrogance. Any modicum of sensible planning went out the window. Lessons learned over centuries were ignored.

 

The result is that people have been ruined. And, faith in the ‘system’ has been likewise been ruined.

 

There was always the assumption that people would achieve their financial goals if they played by the rules. Then, because those whom they trusted violated these assumptions, trust – and money – is gone. Bad decision making by investors could not be blamed by the arrogant management and financial elite – even great institutional pension funds suffered massive losses.

 

When the trust is gone, what then?

 

What happens is that any faith or trust in the system disappears.

 

We see that loss of faith now in the UK, with the scandal involving Members of Parliament. Misuse of expense money is hardly a new occurrence. However, this recent exposure of misuse of public expense money has set off a firestorm. There is total rage in the land at all parties and all MPs, including ones not involved in the scandal. This rage has more to do with the lack – and loss – of faith in the political and corporate leadership, starting with the economic meltdown last autumn.

 

We have lost our money – and now you MPs treat your behaviour lightly and our reaction with distain.

 

Where now?

 

The House of Commons has surrendered its independence on its finances – a major constitutional event in the UK political system. People are asking, what do we need them for if they do not – cannot – and will not – protect us the people, and cannot be trusted to keep appropriate expenses?

 

On the corporate side, people see no reason to support giving companies freedom to act as they wish. The assumption of allowing companies to operate freely is that they would increase the wealth of all – lifting all boats, if you will.

 

Instead, these corporate gurus have sunk the entire fleet.

 

I heard a proponent of free-enterprise say that he wants to ‘see failures…I want to see people sick to their guts in the street’. That is promoting successful capitalism for everyone? I do not think so. Now, I understand that a failed company needs to be reorganised or go through a form of insolvency. However, what is being advocated by laissez-faire capitalists is a complete, bloody collapse of the system. I understand their motive – they want to buy good assets for nothing, and profit accordingly. They do not, however, consider the collateral damage of their actions. We all want to avoid so-called ‘moral hazard’ where businesses are encouraged to take risks knowing the government would bail them out. But neither do we want a complete destruction of society.

 

The goal of short-term profit would backfire in social upheaval.

 

Democracy is in danger, and so is capitalism. Abuses have put long-standing freedoms under outside regulation. And, no one trusts that the outside regulation in either case will be worth anything in the end. Yet no regulation of abuse and arrogance is beyond consideration.

 

There is a basic assumption that needs to be made. Many commentators have stated that ‘freedom is not free’. But, freedom is not free from abuse. In the future, we have to assume that abuses of trust will occur. How then, do we keep the good aspects of democracy and capitalism – that allow people to prosper – but equally prevent the abuses that destroy people’s finances, rights, and dreams?

 

The first step is to acknowledge that ideologies of any type do not work. In the 1990s, we saw the failure of Marxism. Now, we see the failure of laissez-faire capitalism. Interestingly, the laissez-faire capitalists quote Milton Friedman to justify the freedom of capitalist endeavours. Yet in Friedman’s ‘Capitalism and Freedom’, he clearly states that a certain amount of regulation of capitalism is required for the survival of the system.

 

Maybe that is the answer. Instead of assuming the good, we need to assume the bad. Abuse, arrogance, hubris – and we should plan to control and deal with these behaviours in the social, economic, and political systems. That does not mean we create a socialist blanket smothering all innovativeness and growth – far from the case. No socialist country has succeeded compared to capitalist countries. That is a reality. Rather, protections need to be in place to deal with failures.

 

Many laissez-faire capitalists look to prevent any social regulatory actions. Yet they do not see that such actions can help, not hurt, the survival of capitalism. For example, US proponents of laissez-faire capitalism condemn national public medicine. Yet the private US health care system has had two negative effects.

 

First, US private health care is a larger percentage of national gross domestic product (GDP) compared to countries with a national public medicine system. The result is that US companies are uncompetitive compared to those in other advanced countries.  That is not good for US capitalism.

 

Second, the fact that 47 million Americans lack any health care – and far more have inadequate care – creates an economic crisis in a downturn. If you are laid off in a country with national public medicine, you and your family still have that health safety net. But in the US, you and your family lose health care. That, as you can imagine, is a nightmare in a country which promotes the American ‘dream’ for all. US supporters of private health care are correct that extremely advanced health care is available in a private health system – but only for the few who can pay. The vast majority end up with much poorer health care than in national public medicine systems. I worked in the United States for years, and saw the difference between the private and public health care systems. To be competitive in the world, countries with private health care systems need to reduce its portion of GDP by moving to public health medicine systems.

 

What needs to occur to re-create – or simply create – trust in the social, economic and political system, is to look to the common good while maintaining the capability of people to grow and prosper. This will generate a much more positive result than the failed no-regulation, no-protection approach of laissez-faire capitalism.

 

Lessons were learned in the Great Depression. Let us equally learn lessons from the Great Recession. 

 

 

Your thoughts? 

 

 

Book Review:

Football 'Hooliganism': Policing and the War on the 'English Disease' by Dr. Clifford Stott and Dr. Geoff Pearson - Pennant Books

The Forensic Logician by Geoffrey Tøye - Starborn Books

Other Current Articles:

Darfur and the Sudanese President: Options in International Law - Ramya Nagesh - UK

Criminalising the Classroom is NOT the Answer - by The Honourable Marvin Zuker - Canada

Universal Rights, European Realities? - by Dr. Martyn Bond - UK

The Abuse Excuse -- One Size Fits All? - by James Castagnera - United States

Domestic Violence and the Problems of Poor Policing - by Karen Clark-Stapleton - UK

Freedoms of the Air - Changing the Patterns of International Trade and Commerce - by Aaron M. Daniels - Canada

Foreign Investment in the Russian Federation - Denis Biryukov - Russia

Frequently Requested Articles:

A Written Constitution? - Brian Risman, Publisher The Law Journal UK

Bullying, School Violence and Youth Crime - by The Honourable Marvin Zuker - Canada

 

For previous Articles, please click to visit our Archive.