In 1932 Adolf A. Berle, a professor of business law, and Gardner C. Means, a business economist, wrote a prescient book: The Modern Corporation and Private Property. About two thirds of American industry no longer had dominant individual owners like Rockefeller or Carnegie or Ford, entitled by right of ownership to whatever the firm earned. With wide share ownership, salaried directors had come to exercise most of the owners’ powers including the power to hire and fire each other and determine each others’ pay.
In whose interest might the directors use their new independence? Berle and Means saw three broad alternatives. Directors might continue to manage for the owners’ benefit, i.e. for the shareholders. They might manage for their own benefit ‘as a corporate oligarchy ? with the probability of an era of corporate plundering.’? But Berle and Means dared to think it ‘conceivable – indeed it seems almost essential if the corporate system is to survive – that the control of the great corporations should develop into a purely neutral technocracy, balancing a variety of claims by various groups in the community and assigning to each a proportion of the income stream on the basis of public policy rather than private cupidity.’? It’s since been called the triple bottom line: fair shares should go to firms’ owners, their workers, and their local or national communities.
The directors’ new independence made corporate law more important than ever:
The state seeks in some respects to regulate the corporation, while the corporation, steadily becoming more powerful, makes every effort to avoid such regulation. The historic choice between a plundering oligarchy and a productive and sociable private sector may depend on which of them wins.
President Roosevelt soon afterwards got a young Harvard professor, Jim Landis, to draft and Congress to enact a radical reform of US corporate law. Through World War II he had another young professor, J. K. Galbraith, design and manage the price control that gave the US five years of zero inflation. Marshall Aid then contributed generously to Europe’s post-war economic reconstruction. Berle and Means were not idle dreamers:? democratic government can indeed have strong effect on the purposes and performance of the capitalist economy.
Fifty years, twenty or thirty of them under neoliberal government, have since seen rising executive plunder. It would be good to respond to it as intelligently and with as wholesome purpose and effect as Berle and Means and Roosevelt and Landis and Galbraith did to their challenges. That’s beyond this short paper. Two samples will have to do: What role must our values play in policy-making to address the scale of Australian inequalities, or about our corporate leaders’ pay?
It’s not as simple as finding the facts, understanding the causes at work, and only then consulting our values to judge what policies would be best. Not many of the facts or causal analyses themselves can be value-free. Each Australian’s income is a fact, and most are on record. But if you compare the after-tax incomes of the richest and the poorest Australian, or the averages of the richest and poorest ten per cent, or their averages adjusted by the value of the free public services they receive, the facts will yield different scales of inequality. Measured over time, they may also disagree whether the inequality is rising or falling. Simplest of all, if the richest citizen’s income increases by a thousand dollars and the poorest increases by ten dollars, most of the standard measures will find the two more equal than they were. To prefer percentage differences to quantum differences as measures of economic inequality (and fairness or justice?) is understandable for some purposes, but wickedly helpful to winners.
Policy-making has more familiar uncertainties. What effects would be most valuable? Which lines of action seem likeliest to achieve those effects? Which promise least harm ? and to the most or least deserving victims ? if they should fail? Between cautious reforms and bolder but riskier ones, how should we decide which to try for? And how do we compare better with worse outcomes ? by the volume of change for better and worse, or by its likely distribution of benefits and costs to more and less deserving groups?? Values have to join with hard facts and estimates of probability in all those practical tasks. And the valuations are rarely as simple as for greater or less equality, or more or less executive plunder. They may depend on difficult, often disputable understanding of the complicated forces at work, as well as on good intentions.
Executive plunder is simpler. Independent workers can set prices for their products or services, and take their market chances. But employees are not empowered by law to fix their own pay. Only politicians and corporate executives can do that, and public opinion puts some electoral restraint on the politicians. When we presently restore the industrial award system after some bitter experience of inequity and disruption without it, might we extend its authority to our MPs’ and corporate directors’ pay, and empower the Commission to fix maximum as well as minimum rates for them?
That suggestion will be strongly opposed, not only by the directors or for self-interested reasons. Won’t the best of our executives, critical contributors to our prosperity and growth, exit to the United States and wherever else they can earn the market rate for their vital services? Won’t their poorer successors â”€ in both meanings of poorer â”€ surely leave the rest of us poorer too, as the productivity and competitive edge and full employment of our industries decline?
I think opposite effects might be just as likely if we paid our business leaders much as we pay our most productive inventors and researchers, Prime Ministers and Chief Justices and land and sea and air commanders in war. There’s no space here for that subject (but business freedoms and values are the subject of a fascinating argument between two business leaders and Milton Friedman which the South Australian parliament library has just reprinted). Some firms most attentive to the triple bottom line have been among the world’s most competitive. Does it or doesn’t it matter (consult your values) whether their care for workers’ and consumers’ and community interests was driven by natural generosity, or by social duty, or by material self-interest?
I’m biased, having watched two salaried chief executives get about a billion dollars worth (at 2005 values) of houses built by competitive private enterprise for inventive purposes of economic growth and industrial peace, paying their way from their rents and sales. They earned high salaries but no bonuses, as did the public servant who conceived the project and the State Premiers who empowered it. Plenty of able private as well as public executives have attended to the triple bottom line without self-interested outsiders manipulating their pay to bias their judgment of priorities. And if they deserve higher pay, let it be salaried rather than made to depend on short-term effects of their management (and of the many other internal and external forces at work for which they are not responsible.)