Economic democracy: one shareholder, one vote?

26 Feb

I’ve recently finished reading Wilf Wilde’s book Crossing the River of Fire: Mark’s Gospel and Global Capitalism, a book which – as the subtitle suggests – combines Christian theology with socialist politics/economics.

For a very brief summary of the theological perspective, see this post on my Tumblr. What I wanted to look at in this post is Wilde’s one practical proposal (in this book, at least) for reforming capitalism in Britain: changing the voting structures of existing capitalist corporations to a “one person, one vote” system, similar to that for parliamentary elections. (Though the more precise description that Wilde uses is “one beneficial owner, one vote”.)

As Wilde writes:

The proposal on capital may not sound much of a reform but it is designed to attack and subvert the legitimacy of capital and capitalist thinking. To fully implement it would destroy the concepts lying behind capital’s power over us.

He argues that, until the 1880s, the concept of using one person, one vote to elect MPs “appeared silly”:

Surely those with more property – with a greater stake in society – should have more say. …

Most of the working class and all women were still disenfranchised in Britain until 1918. So, what appears an obvious principle to us now was revolutionary until 1918…

By contrast, capitalist corporations are still run on principles pre-dating the 1832 Reform Act: the more you own, the more of a say you have.

Under Wilde’s proposals, investors in companies would still be able to buy greater or smaller stakes in companies, and thus enjoy greater or smaller gains or losses in their investments. What they would not be able to buy is greater power over those companies: any individual could buy a single share in that company and get the same voting power in it.

The only reasons for buying more than one share would be financial: to get a greater return. So pension funds (who invest primarily for a financial return rather than for control) would be affected less than someone like Rupert Murdoch.

In effect, this would turn every corporation into a mutual. We would still have a market economy (which has a number of beneficial features), but control of the surplus accumulation within that economy would no longer be concentrated in the hands of a few large corporations – or, for that matter, of “a board with a lord”, as happened under nationalisation. Rather:

the mutual corporation would … re-create a new social and democratic control form within civil society.

It’s hard to see how this could be implemented – as Wilde admits, it would go beyond “the limits of existing politics” – but the real question I’d like to pose to those reading this post is how workable it would be. What do you see as the potential pitfalls and problems with this as a concept?

A couple of thoughts I’ve had. First, there would clearly need to be similar safeguards for shareholder voting as apply to voting in parliamentary and local elections – to avoid institutional shareholders simply hoovering up individual’s votes as a block.

Second, Wilde’s proposal seems focused on the largest corporations (FTSE 100 level) where shares are more likely to be owned as an investment than as a means of direct control. But in smaller companies, the control afforded by different sizes of shareholding is often at least as important as the financial value of those shares. Smaller companies could find it hard to secure investment if investors were no longer assured of using their voting power as shareholders to protect their investment.

That said, however, this is still an intriguing proposal for economic democracy – and perhaps Wilde is right in saying that it only seems alien and dangerous to us in the same way (and for the same reasons) that political democracy seemed alien and dangerous in the days of male-landowner suffrage.

So, what do other people think of this?

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6 Responses to “Economic democracy: one shareholder, one vote?”

  1. Josh S 26 February 2011 at 4:31 pm #

    There are several immediate and obvious problems:

    1. Combining Christian theology with economics is like combining Christian theology with biology. You end up with the economic equivalent of Answers in Genesis at worse and Uncommon Descent at best.

    2. It’s intrinsically nonsensical for everyone to be an equal partner in the ownership of a company without taking on equal risk. The size of the company is irrelevant–larger stakeholders have larger risk whether we’re talking General Electric or a small construction corporation with 1500 shares. The political analogy breaks down because landholders are not majority owners of the government; the idea of democratic government is that it represents the people. The idea of the corporation is that it is the joint property of the shareholders. The board is not, strictly speaking, a representative government. Rather, it administers the shareholders’ property on behalf of them, thus he who has more property has more say over what the administrators do than he who has less.

    What he is proposing is equivalent to this: Suppose you and I hired a mutual friend to manage our money. I give him a thousand dollars. You give him nine thousand dollars. The condition is that the law says I have an equal say over how he manages the entire $10K as you do. Is that fair? Do you think such arrangements would even emerge in the first place under such a condition?

    3. Market-based capitalist economies are simply not characterized by a “few large corporations.” The are a highly heterogeneous mix of corporations of all sizes, individually owned businesses, and partnerships.

    • John H 26 February 2011 at 6:40 pm #

      Josh: but landholders were (in effect) majority owners of government. To say “the idea of democratic government is that it represents the people” and that consequently it cannot be extended to corporations is begging the question. It used to be perfectly obvious that those with a greater stake in their country (through greater ownership of land) should have a greater say in the running of it – it is now perfectly obvious that those with a greater stake in a company should have a greater say in the running of it – it is not perfectly obvious what the difference is between the two.

      Though as for the board being “not, strictly speaking, a representative government” but rather “it administers the shareholders’ property on behalf of them”: I’m reminded of Marx’s comment that “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie”…

  2. Philip Walker 26 February 2011 at 7:21 pm #

    It’s an interesting proposal (albeit not one, even as a small shareholder, which I would have the remotest notion of supporting). But to clear one thing up, it would not be the return of the mutuals. Mutuals do not have listed stock and cannot have listed stock. The most junior creditors of a building society (typically) have no membership rights, while the members are not, in fact, the most junior creditors.

    However, I think that the proposal would exacerbate some problems.

    For instance, the pension fund problem. A FTSE-100 company is to a pension fund as a small company is to a family investor. Pension funds don’t use their voting rights as effectively as I would like, but they still need them to protect their (often sizeable) investments just as investors in small companies do.

    Moreover, this would make mergers practically impossible. While the M&A gravy train can seem a little excessive at times, I think a policy which makes them so difficult as to be impossible is going rather too far.

    Further question of practicality: if you want to remove small companies from this regime, how do you tell which companies ought, and which ought not, to be included?

  3. Rick Ritchie 1 March 2011 at 6:48 pm #

    It sounds like the upshot will be that everybody will have a little say in almost everything and a real say in almost nothing. That doesn’t lead to people feeling more significant. My electoral decisions seem a lot less significant to me than my buying decisions. When I know I’m one out of a hundred million voters, I know my choice has little impact on the outcome. But when I’m a buyer, I can decide and get what I want. I prefer the latter types of arrangements, even when the scope is much smaller. And who’s to say a poor person wouldn’t rather have the opportunity to have 16 shares in one corporation they care about rather than a leveled one share in 16 corporations?

  4. Philip Walker 7 March 2011 at 12:07 pm #

    Read this and thought of this post.

    First, would the distribution of shares to millions and millions of people let them off the leash, give them free rein to do more or less what they like – because if the shares became so widely held in such small quantities, it would be immensely difficult to put together any kind of alliance of investors to pressurise the directors to behave in a particular way?

    Peston does also suggest that the effect could be the opposite, although the mechanism is very unclear: ‘social networks and bulletin boards’ won’t concentrate directors’ minds half as effectively as the prospect of the sack.

  5. Jamie 23 May 2011 at 2:29 am #

    Just saw this article. Interesting idea but it seems impossible to implement. That doesn’t mean however that economic democracy can not/should not be pursued. Other ideas i favour include encouraging co-ops,mutuals and social enterprise and trying to get levels of these businesses close to or above 50% of all business eventually. Not an easy task i grant you but achievable using tax breaks and other incentives. Also using pensions funds and personal investment/savings to to set up public banks to invest in infrastructure, public services and helping to set up co-ops, social enterprise etc. These could run at national, local and international level and be controlled in a variety of ways: nationalisation, trade union control, ran as true co-ops, social enterprise. These two core reform agendas would increase democracy within the workplace, the economy and your local area. I think the key to economic democracy is not to be too rigid in what you want to achieve and realise it’s a process. It isn’t like politics where there’s one parliament where all the decisions are made. What’s maybe more realistic is increasing levels of employee ownership/control within companies whilst encouraging publily owned banks. Not all companies should turn into full co-ops/mutuals etc but employee ownership of some percentage (say 30%) and above should be encouraged. A lot of businesses might run best at say 70% employee owned and 30% private for investment. This also helps address concerns raised about control. If the employees are in control and you’re investing for short to medium term gains (as a private share holder,hedge fund etc) you agree to or negotiate their business strategy. This private investment could also bring skills ,probably at business management level, which might not be present in the employee owned business So while the model give for “pure” economic democracy is interesting i think it’s hard to implement and maybe going through some of the reforms set out above would be a needed transitional phase to make pure economic democracy politically possible. I also think better models of pure economic democracy exsist although i prefer what i’ve set out here as it maintains the positives of markets (easy flow of capital, business skills, efficency) and democratically controlled businesses (lowers income ratios, a true stake in your workplace which increases company turnover, more socially/environmentally aware, influence for market reform)

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