Friday, 3 June 2011

The dangerous rise of managerial capitalism

In yesterday’s post we argued for limits on the rise of corporate wealth in the managerial capitalist sector. Concentration of wealth comes together with concentration of assets which necessarily reduces the scope for competitive market transactions.

Since then we collected the following data which gives us an overview of the size of the sector in a selected number of countries, as measured by the percentage of assets controlled by the largest one percent of all companies.

The data used excludes insurance, securities and banking firms because the assets held by these are mostly cash or securities issued by non-financial corporate. It probably over-estimates the size of the managerial sector because it is based only on listed public companies and the listing in individual countries may differ. This is partly offset by the fact that the number of management-controlled firms is usually more than just the top 1%.

Nevertheless the figures are sufficiently expressive to show that the virus of managerial capitalism is more widespread than we had thought. Even in countries closer to a system of market capitalism, such as Hong Kong and Singapore the top 1% of firms controls more than 22% of total assets.

Also interesting is the fact that among the countries where the problem is more serious we have three different regimes of capitalism. The most problematic situation occurs in the Mediterranean countries (Greece, Slovenia, Italy, Spain and Portugal) with a regime of state capitalism inherited from dictatorial regimes. Surprisingly this group is followed by the UK, a country traditionally identified with the so-called Anglo-Saxon liberalism. Next, comes China a country with a non-democratic regime of socialist state capitalism.

When we take together the shares of total assets (32%) and the share of regulated industries in the USA (25%, in defense, energy, utilities and telecoms) it turns out that here the threat of managerial capitalism is not as serious as we had anticipated. This seems to contradict other factors pointing in such direction, namely the obscene rise in CEO pay which now is over 300 times that of the average worker. So we may take this result with some reserve before we investigate further the impact that the size of the market has in these indicators.

Finally, another surprising case is Germany. We often identify the German style of capitalism as very socially-responsive, but it turns out that it is closer to market capitalism than we could imagine.

In conclusion, we may say that the danger posed by managerial capitalism is a global phenomenon. Moreover, its strong presence in regulated industries demands that we understand better the triangle between government – financiers – and managerial-controlled corporate. Only then can we understand how they constrain the move towards dominant market capitalism.

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