On Cohesive Capitalism
Earlier this year, Ben Verwaayen, chief executive of French telecom company Alcatel-Lucent, championed the new concept of ‘cohesive capitalism’. The idea that Verwaayen put forward is that we need a capitalism that really brings together various stakeholders rather than just focusing on the singular shareholder value. Verwaayen’s statement at the World Economic Forum seems to have been reasonably sympathetically received, but fundamentally nothing has come out of it, and I think that’s the critical point. The question is, can we have something called cohesive capitalism, which is basically shareholder value capitalism with more people cooperating? I think experience shows that the answer is no.
Shareholder capitalism, in mature markets, is essentially trying to ensure for a gain of sorts, either through performance (which means profits, sales, costs management) or capital (which means the sale of assets at a price better than you expected). How can that as a philosophy really bring about a cohesion across stakeholders when basically the essence is to make money fairly quickly? I think Verwaayen’s on the right lines, but he’s not gone far enough. And the issue here is one of how you socialize capitalism and still bring stakeholder concerns into the equation, but guarantee that those concerns are listened to. What you really have to do is draw on the 1930s economists, both in the United States and in the UK (Keynes in particular) who talked about government intervention on big projects. You’d have a structural change; what you need for socialized capitalism is to identify (on a five to fifty year planning basis) what is needed in this society, have a partnership between the major funding sources (such as pension funds and government), and have a guaranteed return through government that these long-term projects are actually going to provide for society and also for the investors.
That structure now does away with bonuses; it does away with excessive remuneration returns. It introduces fair pay for a good day’s work with a small bonus at the end of a period. So we’re going back to structured remuneration policy based on long-term investment plans for the sake of a stakeholder return. In this socialized capital structure, you don’t depend on cooperation, what you have is a financial structure that demands partnership–partnership between government, partnership between business, partnership between business, government and investors, and those three with trade unions, the representatives of the workforce. On that basis we could have cohesive capitalism, with a structural change. Verwaayen’s recommendation that we have a cohesive capitalism system simply based on cooperation hasn’t worked in the past, and certainly in today’s mature markets that provide very narrow margins I can’t see how it will work. So no wonder it didn’t go down well at Davos — Davos is essentially the meeting point of the world’s largest capital owners, who still search for the best they can do with their investment capacity over a short-term basis.
