September 19, 2015

Horse 1986 - Between Corporations and Socialism

With the election of Jeremy Corbyn to the leader of the British Labour Party and his decidedly leftist leanings, cries shot up from all over the land about collectivism and socialism, either there being too much or not enough, with calls for Corbyn and the Labour Party to renationalise industries to fears that Corbyn intends to renationalise industries.

One of the most strident articles which I saw come out against socialism was this piece in the Independent. One line in particular, I found particularly amusing:
Personally I couldn’t disagree more with Corbyn’s economic policies. I am an unrepentant free market fundamentalist with an unapologetic contempt for socialism in all its varieties. 
- Kristian Niemietz, The Independent, 18th Sep 2015.¹

Let's take this on face value and say that Dr Niemietz means exactly as he says; that he has "an unapologetic contempt for socialism in all its varieties". Presumably he opposes all public roads, hospitals, schools, the police, the fire service, the judiciary, public broadcasting, the defence forces, he hates national parks and would prefer that democracy is dismantled and return to a system akin to that before the franchise was extended to normal people and that the government should be run by those who have the most money.²
That's what an unrepentant free market fundamentalist should be in favour of and anything less than an all out plutocracy he has an unapologetic contempt for.

There is a problem though. So called free market fundamentalist have one very big blind spot that they will not admit to. Socialists advocate a collective means of ownership or control over production and economic management. When you think about the free market though, the biggest players in the market place are not individuals but corporations. A corporation by definition is a collective means of ownership or control over production and economic management of something. Even the word corporation is derived the Latin word "corpus", which means a "body". It's exactly the same root where we derive the word "corpse" from, which is also a body albeit a dead one.

The first company to issue stock was the Vereenigde Oost-Indische Compagnie (VOC) or the United East Indian Company (founded 1602) which is usually referred to in English as the Dutch East India Company to distinguish it from the British Empire's own East India Company (founded 1600).
I should point out that following the great wave of bubbles which saw the passing of the British Bubble Act 1720 and which remained in force until 1825, basically saw the end of the first generation of companies and it was until the Joint Stock Companies Act 1844 that the idea the modern corporation arrived.

In context, it was mainly the rise of the railways (particularly in the United States) and the invention of easily produced steel which launched the Industrial Revolution proper and saw business massively outgrow the abilities of a single individual to raise sufficient capital which investments in machinery required.
Truth be told that corporations which now extend beyond national borders, often think themselves beyond the confines of law, even though they may sometimes generate massive negative externalities such as pollution and disregard for labour conditions, they are generally efficient because if they are not, they find themselves suffering a spontaneous massive existence failure.

Adam Smith in his 1776 work "The Wealth of Nations" had something quite scathing to say about companies and corporations and which looks like it could have been written during the height of the Global Finanical Crisis of 2008. One immediately thinks of the recklessness of investment bankers who suddenly cried to the public purse when their plans all exploded in their face and the rank hypocrisy when bailed out, gave bonuses to their own kith:

The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.
- Adam Smith, The Wealth of Nations, 1776

One one hand Dr Niemietz has a contempt for socialism in all its varieties, when socialism is a collectivist means of ownership. One the other hand Dr Niemietz as an unrepentant free market fundamentalist probably also approves of corporations, when the corporation itself is also a collectivist means of ownership.

It's interesting to look at the descriptions applied to corporations throughout the world. They tell a rather pointed story.

In Australia we have two descriptions:
- Pty Ltd - Proprietary Limited
- Ltd - Limited
Proprietary is one of those delightfully archaic word which means "ownership". In this case, the proprietorship and the liability that someone can be held to, is limited to just the shares that a person owns. Note that Proprietary is different to propriety, which is moral rightness; even though they both stem from the same French root from which we get the word "property". Proprietary Limited companies and indeed Limited companies often fail to show any propriety in their business.

In the UK the terms almost seem to be exactly backwards to that of Australia with:
- Ltd - Limited
- plc - Public Limited Company
A Limited company is Australia is one that people in the general public can buy shares in but in the UK, they may not and so the distinction has to be made.

Canada is a little bit more discrete:
- Pte Ltd - Private Limited
- Ltd - Limited
A Private Limited company implies that the shares are not for sale to the general public. This might also imply a shadowy refusal to show responsibility to the general public as well.

In Germany the labels are typically German in that they are functional and straightforward:
- GmbH: Gesellschaft mit beschränkter Haftung - Company with limited Liability
- AG: Aktiengesellschaft - Shares Company

The names that France applies to corporations definitively makes them sound shadowy and secretive:
- S.A.: Société Anonyme - Anonymous Society

In Italy the names for corporations gives them a sort of semi-superhero sort of feel to them:
- S.p.A.: Società per Azioni, - Company for Actions

If you look over those words such as "private", "anonymous" and "limited" in connection with proprietary, I wonder if this has shaped the mentality that corporations often adopt.

The original Clause Four of the Labour Party's constitution read:
To secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange, and the best obtainable system of popular administration and control of each industry or service.
Those words of common, popular, equitable, seem to me to be generally good things for society. I also like the idea that things like roads, hospitals, schools, the police, the fire service, the judiciary, public broadcasting, the defence forces, national parks, electric, water, gas, railways etc are owned by the general public.

I will concede that socialism is nominally less efficient than free markets with the allocation of goods and services in some areas but in other areas it is demonstrably better. One only needs to look at the costs of health care in the US as compared to Britain to notice that, or to look at the price of a railway ticket in Britain as compared to France to notice that same thing.

It was Margaret Thatcher who famously said that "The trouble with Socialism is: sooner or later, you run out of other people's money". The sentiment here is that people in charge of others' money do not exercise as much care with other people's money as they do their own. The thing is though, that private, anonymous corporations tend to act in ways which are not equitable; they also act by being in charge of other people's money.
Socialism which is collectivist, implies that most elusive of terms, a Commonwealth.

²Actually I'm pretty sure that this is the case, given that Dr Niemietz is a member of the Institute of Economic Affairs, which is a free market think tank like our own IPA.

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