De-Lurking on the Net

January 21, 2012

Reforming Capitalism and protest by Groups

Should  occupy Wallstreet and London Stock Exchange by Groups continue? Can some good come out from these type of movements ?  I wonder how long they can hold on protesting from one site to the next. This protest started with  good tempo and appeared well meant but then it could not connect with the general public or even with the socialist sympathisers within the general public. This fringe movement has already petered out but could it have become more relevant which it once appeared at the start. Usually, a leaderless movement is bound to fade pretty soon when the goals are obscure and the connection with the public is not firmly set. So, here it can not be compared with leaderless movements of Arab Spring. These protesters should have just focussed on core objective to smoothen the capitalism’s  rough edges  rather than inviting supporters from all anti-govt movements from climate control, homelessness to globalisation.  A reform in capital structure could have been one of the objective of the protest group. Majority shareholders (institutions as pension, investment and unit trust funds) in most companies do not participate actively and scrutinize the pay structure and rewards like bonus  of the board . Thus the board and CEO like Fred Goodwin (ex RBS) get away with their risk taking behaviour without  sharing any information even with its own shareholders.   The other week, the John Lewis department stores was lauded by Nick Clegg, Deputy PM in UK for the model shareholding where all employees are shareholders and called partners. But the model also caused concern for the investment flow into that type of companies where rewards do not come into play straight away and it takes a long time for invested capital to work. It means some companies will still continue to need private investment funds or venture capital . It leads to conclude that there are two issues – one having passive investors unwilling to intervene and participate and one where capitalism by its share structure only builds a few rich capitalists in public.  Imagine, if  all the employees were shareholders in most companies. There will be less inequality in public as all those who work will be owners of something somewhere which may mean less room for socialism to grow. The risk taking by institutions as banks will continue due to passive shareholding and little regulation – local or global. The protestor groups do not want globalisation because they think it harms the underdeveloped economies. However, global regulation of world organisations as banks is needed when multinational companies such as banks and big corporate companies  operate in so many counties.  So the counter need of setting up global watchdogs is there and not any  less need as the protests against global meets such as G20, IMF and World Bank often breaks out to eliminate globalisation. London can not bring new regulation to control perks and bonuses as it fears  the trade from London will move elsewhere to New York, Frankfurt, Tokyo, Singapore etc. Gordon Brown had once proposed global regulation around late 2008 when Lehmann Bros disappeared from stock market. IMF and World Bank’s mandate does not cover this need of regulation. So, how to make capitalism more acceptable and answerable. Timothy Geithner  from US also called for global regulation in 2009  at G20 Meeting in London. Should such a thing not take place  which can force less risk taking on the part of banks and other financial institutions. This along with shareholding reforms are needed.  A  new classes of shares – active and passive shares could be created to help keep a check on the behaviour of the boards. Pension Funds etc who invest in major companies could choose to become passive shareholders with the same shareholding rewards and losses as for any shareholder but having no right to vote in AGMs if they elected to become passive shareholder when they invested into the company. This way only few will be active shareholders and those will definitely have their voices not drowned by the passive but absent shareholders like funds. Also, a reform is needed to issue more percentage of share capital to employees so that the type of behaviour by the employees as of John Lewis can also be emulated in most companies. So, the Wallstreet movement would have connected more with public if they had focussed merely on smoothening out the rough edges of capitalism like shareholding reform and global regulation as the capitalism is not going to disappear anytime soon.


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