The current financial melt-down has drawn the inevitable criticism of capitalism.
Yet capitalism, per se, is not at fault.
Over the last 150 years or so, the relationship of the organisation to its owners has evolved. From a time where owners ran their own businesses, we have seen the emergence of the ‘proxied’ corporation where directors and managers operate the corporation on behalf of the owners.
The cause of the recent economic and corporate collapses has been the inappropriate use of shareholder funds and assets by managers and directors to not only pursue their subjective and often ill-founded perception of the corporations needs and destiny, but to also use those funds to reward themselves out of all proportion to the economic benefit created for the corporation’s owners. Furthermore, both directors and managers have exposed the corporation to risk that they individually and personally do not bear, but rather a risk that is born by the shareholder/owner.
If there is any good to come out of the current economic fiasco, it will be the recognition that the large corporation has been hijacked by management and it is time that it be returned to its owners. Directors and managers are servants of the owners and must deliver that which those owners need to justify their economic investment. A failure by investors, government and regulators to take this opportunity to repair the failed relationship between the provider of capital and the worker will inevitably see this fiasco repeated.