December 9, 2005
Excerpts: The Battle For The Soul of Capitalism - Part V
A Pathological Mutation
The system worked. Or at least it did work. And then, late in the twentieth century, something went wrong. The system changed; one more aberration in the long course of capitalism. While each of its earlier failures was followed by safeguards put in place as defenses against future abuses, none of them contemplated the next step of scandal that perhaps almost inevitably would follow. What went wrong this time, as William Pfaff described it, was “a pathological mutation in capitalism.” The classic system— owners’ capitalism—had been based on a dedication to serving the interests of the corporation’s owners in maximizing the return on their capital investment. But a new system developed—managers' capitalism—in which, Pfaff wrote, “the corporation came to be run to profit its managers, in complicity if not conspiracy with accountants and the managers of other corporations.” Why did it happen? “Because the markets had so diffused corporate ownership that no responsible owner exists. This is morally unacceptable, but also a corruption of capitalism itself.”
The age of managers’ capitalism has had dire consequences for our notion of some sort of fairness in American society, and is a major cause of the increase in the gap between America’s rich and poor, between haves and have-nots. In the mid-1970s, for example, the wealthiest 1 percent of Americans owned about 18 percent ofthe nation’s financial wealth. By the close of the twentieth century, the share owned by the top 1 percent had soared to 40percent, the highest share in the nation’s history, with the possible exception of the estimated 45 percent share reached around the turn of the previous century, the age of the Robber Barons—John D. Rockefeller, E. H. Harriman, Jay Gould, et al. Such concentration, most citizens would agree, is antithetical to the long-term stability of our society. Of course these inequalities won’t be easily remedied by a return to owner’s capitalism, for the issues are deeper and more complex than that. But I caution that a society that tolerates such differences in income and wealth is a society that faces long-term disruption.
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