Arthur, I am not endorsing everything
written in this article and posted it for debate – the title may be
provocative, but that’s one reasons titles are chosen – to grab attention.
This article was written for and appeared
in the Financial Times. I hope
that any FW feedback would tell me more about if the authors were eggheads
with no clear purpose or whether the FWers who post to this subject thought
the content had merit.
I should have made my intent clear in my
introduction.
Cheers!
Karen
Beyond the
offensive title of Stupid White Men, Michael Moore's racist title for his
book, this seems to be the normal apologist remarks from the Economist.
Same old, same old.
Karen, the
title seems at odds with your usual balanced reportage.
I sub to
Michael Moore's list and also to his pro Nader stance, but with his title I
think he is too quick to become a self hating white man.
Sad.
arthur
-----Original
Message-----
From: Karen
Watters Cole [mailto:[EMAIL PROTECTED]
Sent: Sunday, February 23, 2003 12:33
PM
To:
[EMAIL PROTECTED]
Cc: Cordell, Arthur: ECOM; Brad
McCormick; Brian McAndrew; Harry Pollard; Keith Hudson; Ray
Harrell
Subject: Stupid White
Men
I just could NOT resist. What did you think this would be
about? - Karen
Something for everyone:
Stupid White
Men
By John Micklethwait and Adrian
Wooldridge
Published February 21 2003 21:18 in
The Financial
Times
How much do you trust companies nowadays?
You are probably not as wary as this particular critic. He objects to the very
idea of companies, claiming that they have “proved,
universally, either burdensome or useless, and have either mismanaged or
confined the trade”. The hired guns that run
them will never be able to bring the same “anxious vigilance” to their
companies’ interests as owner-managers. “Negligence and profusion, therefore,
must always prevail.”
The critic is not an anti-globalisation
protester, an Enron pensioner, a Marconi shareholder, or even just another
member of the French government. He is the father of free-market capitalism,
Adam Smith.
Smith, like most 18th century liberals,
thought joint-stock companies were by-words for greed, sleaze and corruption.
In the 1720s, John Law’s Mississippi
Company had managed to ruin the
economy of the world’s most prosperous country, France. In Britain, the South Sea
Company wrought almost as much
damage: the British government was forced to nationalise the company, and the
Chancellor of the Exchequer and several South Sea directors were dispatched to
the Tower of London, though they were eventually let
out.
As for the more successful 18th century
companies, they were hardly wholesome affairs. The Royal
Africa Company, which incidentally counted
that great prophet of liberty, John Locke, among its shareholders, was running
His Majesty’s slave trade, branding humans with the initials RAC. Meanwhile,
Smith’s particular bête noire, the East India
Company, alternated between
demanding government hand-outs and enriching the despoilers of India. Indeed,
so great was the vulgarity of those who hauled back their treasure from the
subcontinent that English society gave them a new name, “nabobs”, or nobs for
short. Even in America, where organisations like the Virginia
Company had helped to build the
country, the company was held in low repute for most of the 18th century.
“They are behind the times”, thundered a governor of Pennsylvania, “they
belong to an age that is past.”
It is worth remembering this litany of
abuse and complaint when you consider the current opprobrium being heaped on
the company. The most vitriolic attacks come from a predictable source. For
the anti-globalisation coalition, companies are the jagged fangs of le capitalisme sauvage, exploiting the
poor world and subjecting us all to an era of Cocacolonisation and
Disneyfication.
Anti-globalisers cite the “statistic” that half the world’s largest 100
economies are now multinationals to maintain that a silent takeover is under
way. Some even think that companies should have to apply for charters from the
government, just as they did in Adam Smith’s day.
These doubts have even found an echo among
many people who would not dream of opposing capitalism per se, let alone
pillaging Starbucks. When the Harvard Business Review includes a confessional
article entitled, “I was greedy too” and the New York Times runs a series on
“dangerous” companies to work for, corporate capitalism is
plainly in trouble.
Companies have become part of the furniture
of our lives. Most of us work for them. They make almost everything we buy.
Most of our savings are tied up in them. Yet now the furniture seems
uncomfortable, broken or downright dangerous. Companies are cutting back jobs
and slashing pensions. Far from proving a reliable source of future wealth,
they seem to be picking the money out of our pockets. Any German foolish
enough to bet her savings on their country’s brave new equity culture in March
2000 could have lost nearly 70 per cent of her money, thanks to the poor
performance of companies. Since then, the London stock market and the Standard
& Poors index have both fallen by almost half from their peaks in 2000 and
1999. In the 1990s, when the Dow floated above 10,000, bullish forecasters
talked about “Dow 36,000”. On Monday, in the first of a Financial Times series
on bear markets, Philip Coggan quoted one technical expert who expected the
current downturn to end below “Dow 1,000”.
Last week, Reinhard Mohn, the patriarch of
the family that owns Bertelsmann, echoed Smith by criticising the vanity and
greed of the managers at the German media giant and saying they often made
decisions against the company’s interests. Many of the
erstwhile gods of corporate
capitalism are now seen as villains –
the sort of people who order $2,000 shower curtains with your money (as the
head of Tyco did), or hide their companies’ liabilities (as Enron’s managers
did).
Above all, many who have worked most of
their lives in companies have suddenly discovered that they are curiously
impersonal things. When companies such as Cable & Wireless or AOL Time
Warner have crumbled, shareholders and workers have been able to take out some
of their frustrations on the managers, but not the company
itself.
What is going on? Seen from
a broad historical perspective, two things stand out. The first is that the
current wave of anger against companies is completely normal – even a healthy
thing. The second is that the company’s gainsayers – particularly the
anti-global crew – are wrong: the company has been an institution that has
changed the world enormously for the better. Indeed, it has been the secret of
the west’s success.
Looking back, corporate history has
followed a set cycle of reckless and sometimes criminal expansion of corporate
powers during bull markets, followed by reform during bear markets. No one
should downplay corporate abuses. But what matters most of all are the sort of
reforms that governments impose during the periods of
recrimination.
The outstanding example of a bad response
to corporate crisis was Britain’s Bubble Act of
1720. With new companies being
created at pell-mell speed in the coffee shops around Exchange Alley,
political allies of the South Sea Company, worried that these young rivals
would suck away capital necessary for their patron, pushed through a stern law
making incorporation a much trickier process. The Bubble Act did little to
save the South Sea Company. But for a century it made it extremely difficult
to set up joint-stock firms in Britain, something keenly felt by the pioneers
of the industrial revolution.
More positively, the conception of the
Companies Acts of the mid-19th century, which launched the modern joint-stock
company, was intended as a reform. A small band of English politicians,
including William Gladstone and Robert Lowe, pushed through laws making it
possible for people to set up limited liability firms without having to go
through the rigmarole of persuading parliament to give them permission. The
effect was revolutionary, particularly once other countries copied Britain.
These various “Ltds” “Incs” “SAs” “AGs”
and so on drew in capital
from around the globe, ushering in a stream of inventions that created the
modern world. The “little Republics”, as Lowe dubbed them, soon acquired a
life of their own, unsettling the state that had spawned them. It was not long
before the new joint-stock companies began going bust in spectacular numbers –
and another backlash began.
In America the link between bull-market
abuse and bear-market reform was particularly
pronounced.
To begin with, companies such as Standard Oil were seen as American triumphs,
bringing cheaper products to a continent-sized nation. But gradually their
sins were revealed - which in John D. Rockefeller's case, according to the
journalist, Ira Tarbell, included the Enronesque combination of "fraud,
deceit, special privilege, gross illegality, bribery coercion, corruption,
intimidation or outright terror". The howls against the robber barons led to
antitrust laws, notably the Sherman Act.
Yet
far from weakening American capitalism, antitrust laws strengthened it. They
also paved the way for a quiet revolution in corporate life. From being the
vehicles for individual robber barons, companies became the home of
professional managers: Company Man was born.
When
the roaring 20s came to their disastrous end, some of the blame was heaped on
individual entrepreneurs such as the energy tycoon Samuel Insul, whose pyramid
scheme of companies (at one point he held 65 chairmanships, 85 directorships
and 11 presidencies) crashed to earth in 1929. But most of the fury of the
1930s Depression was directed at the faceless types who ran companies in the
name of their shareholders and seemed answerable to no one. For the first
time, the New York Stock Exchange demanded proper accounts for listed
companies. Roosevelt created the Securities & Exchange Commission and
other regulatory organisations to keep managers in
check.
Now,
once again, companies have over-reached themselves. Once
again, the public is furious,
not least because it has lost a lot of money. And once
again, reforms are being put into place that will probably strengthen
companies rather than weaken them.
After all, there is nothing particularly "corporate" about executives selling
their shares before the ship goes down or outside directors rubberstamping the
chairman's grossly inflated pay packet.
For
many opponents of the company, this is hardly reassuring. Why should these
soulless organisations that run our lives be encouraged? The answer is because
companies have proved themselves the most efficient creators of prosperity and
progress yet known to humanity. Joint-stock companies allow investors to
spread their risk by purchasing small and easily marketable shares in several
enterprises, and they provide a way of imposing effective management
structures on large organisations. Of course, companies can ossify and go
bust, but the fact that investors can simply put their money elsewhere is a
powerful rejuvenator.
Go
back to the mid-19th
century,
and you can see how companies pushed power down to entrepreneurs and
investors. Rather than being trapped in government monopolies, like the East
India Company, or family partnerships, like Dickens's doomed Dombey & Son,
capital
began to search for the most efficient enterprises. These companies ushered in
the first great age of globalisation,
luring millions off the land, changing the way people ate, worked and
played.
Naturally,
this revolution was not without its drawbacks. The
same organisations that provided farmers in the American mid-west with the
first cheap ovens and soaps also despoiled the Belgian Congo and brutally
suppressed trade unions.
But consider the alternative. Civilisations that once outstripped the west yet
failed to develop private-sector companies - notably China and the Islamic
world - fell further and further behind. It
cannot be just coincidence that Asia's most conspicuous economic success is
also the country that most obviously embraced companies -
Japan.
Today, the number of private-sector companies that a country boasts - America
has nearly 5.5m
corporations, North Korea, as far as we call tell, none - is a better guide to
its status than the number of battleships it can muster. It is also not a bad
guide to its political freedom.
In
one way, the virtue of the company stands on this basis alone. The great
companies of their day have usually discovered the secret of bringing
life-changing products to millions of people. Henry Ford may have been a
dictatorial boss, but he made cars affordable for the great middle classes
(and paid his workers $5 a day, far more than comparable employers at the
time).
However,
it is still worth demolishing two myths that are now widely propagated about
companies: that they are more
powerful
than ever before, and that thanks to global competition, they are becoming
less
socially responsible.
The
idea of all-powerful companies sits oddly with the fact that so many of them
seem to be crashing to earth. For instance, companies may well account for
51
of the world's 100 biggest economies
if you compare their sales with the GDP of countries, as the
anti-globalisation crowd are wont to do. But GDP is a measure of value added,
not sales. Using a measure for value added for companies, only 37
multinationals appeared in the 100 biggest economies in the world in 2000; and
only two of them scraped into the top 50 (Wal-Mart in 44th place, and Exxon in
48th). Wal-Mart was barely a quarter of the size of a fairly small European
country, such as Belgium, though it is bigger than
Peru.
Far
from gaining economic clout, the biggest multinationals have been losing
it.
Over the past 20 years, the world's biggest 50 firms have grown more slowly
than the world economy as a whole. In most countries the average size of
companies is going down not up. This should surprise nobody, because
globalisation
tends to help small companies rather than big ones,
making it easier for small companies to reach their markets, purchase
technology and raise capital.
And
how reasonable is it to compare companies with states, when wealth is not the
same as power? In 2000 Wal-Mart might have been richer than Peru, but set
beside the government of even that often shambolic country, it looked pretty
feeble. Wal-Mart had no powers of coercion: it could not tax, raise armies or
imprison people. In each of the countries where it operated, it had to bow to
local governments.
Hence
a new complaint: this competition is bringing out companies' fiendish side.
It
is this that supposedly drives the Enron executive to cheat or the Nike
purchase manager to seek out the cheapest
factory.
There
is something in this notion, but far less than critics of companies claim.
If
competition has increased dramatically, so has scrutiny.
Companies are far more strictly policed now that they were in the past - both
by the state and by NGOs. Companies have been at their most barbaric when they
have been beyond prying eyes (take a look, for instance, at the Casement
report into the abuses of Belgian concessionaire companies in the Congo 100
year ago ) or more often when they have been placed under the direct control
of the state (think of IG Farben and the Nazis). Now most of the incentives
for companies are for them to behave well. Multinationals pay higher wages in
developing countries than local firms because they want to get the best people
and avoid consumer boycotts.
To
remain successful, companies have always had to retain some form of social
franchise. In the days of Adam Smith, it meant returning to parliament to
renew their charter. Just as companies have changed society, society has
changed companies, forcing them to accept unions and decent working hours and
laying down rules about the basic aspects of their business, including whom
they can hire and fire.
Indeed,
look back through the history of a company, and in general it is the story of
an organisation that gets ever more worthy - and ever more boring.
Modern
businesspeople try to deny this by writing books that imply that their
business has seldom been more macho (Only
the Paranoid Survive and so on). But the first companies took risks
with their lives as well as their fortunes.
Send a fleet to the Spice Islands at the beginning of the 17th century, and
you might be lucky if a third of the men came back alive. The East India
Company was founded at a time when competitive advantage meant blowing your
opponents out of the water, where marketing meant supplying an English rose
for the Sultan's harem (a London merchant of "honorable parentage" selflessly
offered his daughter) and when supply-chain management meant ensuring that
your distributors did not put your head on a
stick.
The
company may have left those dashing days behind it. But in so doing it has
also rid itself of many of the criticisms that Smith directed at it - and in
general has made the world a considerably better place. In
the end the company is a liberal creation:
it provides choice and opportunity. Rather than being embarrassed about what
J.B. Priestley dismissed as "the shoddy, greedy, profit-grabbing, joint-stock
company industrial system", we should celebrate its manifold achievements.
Look at the institutions that man has placed his trust in to build a better
world - the monarchy, the church, the commune, political parties. Have any of
them done as much good with as little praise as the joint-stock
company?
John Micklethwait and Adrian Wooldridge,
who work for The Economist, are the co-authors of The Company: A Short History
of a Revolutionary Idea, which will be published in March by The Modern
Library in the US and in September by Weidenfeld & Nicolson in Britain.
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1045511034607&p=1012571727092
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