EconoMonitor

Capitalism Without Owners Has Failed: Where Is True Growth Going to Come From?

Four years into the most serious structural crisis of modern history and it is apparent that there are a number of flaws in both the current national and global economic system that need to be addressed if a number of countries are to resume stable and meaningful economic growth.

It is our contention that one flaw that has received less publicity than it ought surrounds issues of corporate ownership and its contribution to capital formation and economic growth. We believe the issue is especially important in the context of a growth strategy for the UK and for the West in general.

At the beginning of the new millennium Robert Monks and Allen Sykes in a CSFI publication (http://www.csfi.org/ [1] CSFI “Capitalism without owners will fail: A policymaker’s guide to reform”, Nov 2002) outlined the growing “disconnection” between the control of corporations (and other entities) exercised by both management, and its owners.

Importantly their study did not simply re-state the agency problems, but also looked at issues to do with the differing objectives of professional investors as owners of public companies versus the objectives of owners of private companies. The importance of this latter point is vital as they conclude that it is these professional investors who fail to match their interests with those of society as a whole.

Their study’s predictions suggested the creation of a specific set of policy and governance reforms to avoid this failure. In his foreword, Dr. Henry Kaufman warned “Capitalism without owners will fail”.

The policy and governance reforms outlined in their report went disregarded. Indeed in the intervening decade through deregulation the problems multiplied and we are now suffering the consequences of these structural faults: a huge compression of the investment time horizon towards an extreme short term bias. This constitutes a major barrier to capital formation and economic growth. It distorts the value of enterprises, reduces their availability of capital and their ability and opportunity to use it. It also ignites permanent instability through a vicious spiral, with higher volatility, uncertainty, new “asset bubbles” resulting, inter-alia, in sustained high levels of commodities and food prices. This creates a preference by investors for “safe” assets such as gold that in reality are both risky and unproductive. ‘Operation Twist’ launched by the FED and the recently announced QE by the Bank of England, claim exactly to soften this malicious time horizon distortion and goes into the right direction. Yet, our contention is that it should be accompanied by a proper set of systemic policy and governance actions: ‘Operation Direct Growth: The New Avenue to Redevelop the Real Economy’ http://www.economonitor.com/blog/2009/11/operation-direct-growth-the-new-avenue-to-redevelop-the-real-economy/

Whilst the reforms proposed by Monks and Sykes, re-regulation of capitalism on a global scale, are arduous to be implemented at the same time, this does not stop any one country from tackling the problem, by developing policies that encourage SME companies to grow. This neatly avoids all of the arguments over level playing fields that are so dominating the re-regulation of global banking.

Moreover, it is relatively easy to carry out research into just what policy changes in the UK we might implement and what their effects might be as most of the policy instruments necessary to support the growth in the number of private companies as well as the growth within such companies are under the control of the national government.

By contrasting German and UK SMEs we can discover why German SME companies are on average much larger and characterized by their focus on technology and long term investment; we also believe that new financial arrangements such as the development of a direct capital flow between investors and SME companies should be created: Systemic Economics: New Dawn to the Future: http://www.economonitor.com/blog/2011/03/systemic-economics-new-dawn-to-the-future/

Since governments seem unable to develop a growth strategy, lately, from the very wealthy came an unusual appeal to be willing to contribute more to the costs of the recovery by paying more of their fair share (Warren Buffet http://www.ft.com/cms/s/0/0ee8f794-c75f-11e0-9cac-00144feabdc0.html#axzz1YgAfrX9H, French L’Oreal heiress Liliane Bettencourt, Christophe de Margerie, of Total and of the Tattinger family, and then Ferrari’s Chief, Luca Cordero di Montezemolo). Yet, in the best interest of everyone, what is really required is fixing our economies lack of growth. This is an appeal, not to encourage the rich to contribute more, but to contribute in a better way by directing more of their wealth into SME companies, the benefits of enhanced economic growth would then be for all.


A more extended version of this article will be available on the Center for the Study of Financial Innovation web site, on the Global Policy Institute and the Long Finance Journals.

Brandon Davies is a Board Director of Gatehouse Bank plc: Brandon.Davies@gatehousebank.com

Carlo Resta is a Senior Research Fellow at the Global Policy Institute: Carlo.Resta@Oraculum.eu

24 Responses to “Capitalism Without Owners Has Failed: Where Is True Growth Going to Come From?”

weathervaneNovember 10th, 2011 at 10:13 am

Do you mind if I quote a few of your articles as long as I provide credit and sources back to your weblog? My website is in the very same area of interest as yours and my users would truly benefit from some of the information you present here. Please let me know if this okay with you. Many thanks!

forex 2010November 12th, 2011 at 12:12 pm

Although this subject can be extremely touchy for most men and women, my opinion is that there has to be a center or typical floor that we all can uncover. I do enjoy that youve additional relevant and intelligent commentary appropriate right here though. Thank you!

weathervanesNovember 14th, 2011 at 7:15 pm

Hi there are using WordPress for your blog platform? I’m new to the blog world but I’m trying to get started and set up my own. Do you need any html coding expertise to make your own blog? Any help would be really appreciated!

دردشة عراقيةNovember 14th, 2011 at 9:22 pm

My partner and i want to claim which found this blog very usefull, the idea helped myself understand this issue accessible tremendously. I’d really like to know plainly may well create reports for your blog.

Android AppsNovember 16th, 2011 at 2:19 am

Wonderful goods from you, man. EconoMonitor : EconoMonitor » Capitalism Without Owners Has Failed: Where Is True Growth Going to Come From? I’ve understand your stuff previous to and you’re just extremely excellent. I really like what you’ve acquired here, really like what you’re stating and the way in which you say it. You make it enjoyable and you still take care of to keep it smart. I can not wait to read far more from you. This is really a wonderful EconoMonitor : EconoMonitor » Capitalism Without Owners Has Failed: Where Is True Growth Going to Come From? informations.

Android AppsNovember 16th, 2011 at 4:00 am

I like Your Article about EconoMonitor : EconoMonitor » Capitalism Without Owners Has Failed: Where Is True Growth Going to Come From? Perfect just what I was looking for! .

cupola weathervaneNovember 16th, 2011 at 1:51 pm

Hmm it seems like your website ate my first comment (it was super long) so I guess I’ll just sum it up what I wrote and say, I’m thoroughly enjoying your blog. I as well am an aspiring blog blogger but I’m still new to the whole thing. Do you have any helpful hints for first-time blog writers? I’d genuinely appreciate it.

herbal remediesNovember 17th, 2011 at 1:14 pm

herbal remedies Great blog here! Also your site loads up fast! What host are you using? Can I get your affiliate link to your host? I wish my web site loaded up as quickly as yours lol…

Great blog here! Also your site loads up fast! What host are you using? Can I get your affiliate link to your host? I wish my web site loaded up as quickly as yours lol…

cupolaNovember 17th, 2011 at 2:51 pm

We absolutely love your blog and find nearly all of your post’s to be what precisely I’m looking for. can you offer guest writers to write content available for you? I wouldn’t mind composing a post or elaborating on most of the subjects you write concerning here. Again, awesome blog!

cupolas and weather vaneNovember 17th, 2011 at 6:46 pm

Hello! I just wanted to ask if you ever have any problems with hackers? My last blog (wordpress) was hacked and I ended up losing several weeks of hard work due to no data backup. Do you have any solutions to prevent hackers?

phone call lookupNovember 18th, 2011 at 1:25 am

phone call lookup Fantastic goods from you, man. I’ve understand your stuff previous to and you are just extremely fantastic. I really like what you’ve acquired here, certainly like what you’re stating and the way in which you say it. You make it …

Fantastic goods from you, man. I’ve understand your stuff previous to and you are just extremely fantastic. I really like what you’ve acquired here, certainly like what you’re stating and the way in which you say it. You make it enjoyable and you st…

whale weathervanesNovember 18th, 2011 at 5:08 pm

Howdy! I could have sworn I’ve been to this website before but after checking through some of the post I realized it’s new to me. Anyhow, I’m definitely glad I found it and I’ll be bookmarking and checking back often!

invest liberty reserveNovember 18th, 2011 at 6:41 pm

invest liberty reserve Undeniably believe that which you said. Your favorite justification appeared to be on the web the simplest thing to be aware of. I say to you, I certainly get irked while people consider worries that they just do not know about…

Undeniably believe that which you said. Your favorite justification appeared to be on the web the simplest thing to be aware of. I say to you, I certainly get irked while people consider worries that they just do not know about. You managed to hit the …

cupolas and weather vaneNovember 18th, 2011 at 7:53 pm

Hello I am so grateful I found your website, I really found you by mistake, while I was browsing on Bing for something else, Regardless I am here now and would just like to say thanks for a fantastic post and a all round exciting blog (I also love the theme/design), I don’t have time to browse it all at the minute but I have book-marked it and also added in your RSS feeds, so when I have time I will be back to read a great deal more, Please do keep up the superb work.

reverse phone call lookupNovember 18th, 2011 at 11:19 pm

reverse phone call lookup I am extremely impressed with your writing skills and also with the layout on your weblog. Is this a paid theme or did you modify it yourself? Anyway keep up the excellent quality writing, it is rare to see a nice blog like …

I am extremely impressed with your writing skills and also with the layout on your weblog. Is this a paid theme or did you modify it yourself? Anyway keep up the excellent quality writing, it is rare to see a nice blog like this one these days.. Best R…

liberty reserveNovember 19th, 2011 at 12:57 am

liberty reserve My brother suggested I might like this website. He was totally right. This post actually made my day. You cann’t imagine just how much time I had spent for this info! Thanks! Best Regards SchaadAndy…

My brother suggested I might like this website. He was totally right. This post actually made my day. You cann’t imagine just how much time I had spent for this info! Thanks! Best Regards SchaadAndy…

pig weathervaneNovember 19th, 2011 at 1:50 am

My developer is trying to convince me to move to .net from PHP. I have always disliked the idea because of the costs. But he’s tryiong none the less. I’ve been using WordPress on a number of websites for about a year and am concerned about switching to another platform. I have heard fantastic things about blogengine.net. Is there a way I can import all my wordpress content into it? Any kind of help would be really appreciated!

ninja jump apkNovember 19th, 2011 at 5:27 am

I like Your Article about EconoMonitor : EconoMonitor » Capitalism Without Owners Has Failed: Where Is True Growth Going to Come From? Perfect just what I was looking for! .

pig weathervanesNovember 20th, 2011 at 12:32 am

Hmm is anyone else having problems with the images on this blog loading? I’m trying to find out if its a problem on my end or if it’s the blog. Any suggestions would be greatly appreciated.

sleep deprivationNovember 21st, 2011 at 8:32 am

Congratulations on having 1 of the most sophisticated blogs Ive come across in some time! Its just extraordinary how substantially you are able to take away from one factor basically because of how visually wonderful it is. Youve put with each and every other a good weblog space excellent graphics, videos, layout. This can be totally a must-see weblog!

Most Read | Featured | Popular

Blogger Spotlight

Dan Steinbock

Dr Dan Steinbock is a recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the major advanced economies (G7) and large emerging economies (BRICS and beyond).

Economics Blog Aggregator

Our favorite economics blogs aggregated.