We’re not all in it together: the rise of bloated capitalism

Following David Cameron’s speech on moral capitalism last week, Julian Parrott, partner at Ethical Futures, writes how not everyone is in the same boat of austerity. ”Capitalism”, he says, “has grown to bloated excess”.

Fine words and some valid comments and ideas [from Prime Minister David Cameron] but I have yet to see anything that really does bring about a democratisation of capital. This should be an ethical and socially responsible investment opportunity. Sadly I’m not sure that it’s being grasped.

I’m all for the development of cooperatives, where genuine opportunity lies for the business, but in the case of some of the mooted developments; it seems to be a back door route to deconstruction of national welfare services. It is not clear to me that the structure and management skill is there to build fully functioning large scale cooperatives.

The Conservative history of popularising democratically owned capitalism is a myth. Margaret Thatcher did not create a share and property owning democracy. She appealed to the base instincts of a financially and economically ill-educated public. She presided over the biggest ‘fire sale’ in British history – selling badly needed social housing at up to 70% discount of value and turning over ludicrously mispriced shares of public utilities to a public who saw it as an opportunity to make a quick buck.

This round was closely followed by the ‘bribing’ of account holders to facilitate the conversion of building societies into banks – a step that took away a 100 years of local community connections and heralded an age that would ultimately end in the financial crisis of 2008.

These shares almost immediately ended up in the hands of major institutions, and as a result, we end up in a nation where the bulk of our utilities are owned by foreign businesses and banking became a casino for the ultra-rich – funded by the common man.

Very little actual engagement in business conduct was ever achieved by this spread of share ownership – nor was there ever an efficient mechanism to connect shareholders together to hold management to account.

The bulk of capital invested in major companies is held by the financial institutions; whilst ethical and socially responsible investment is doing something to influence business activity – even these funds have failed to tackle issues of corporate excess.

Management of funds and major FTSE businesses is a cosy cabal of people with vested interests in short term returns and a bonus culture. Investment managers get bonuses for bench mark performance. They often achieve this by investing in big businesses that focus on short turn returns to maintain share price value. Both parties are complicit in the process and validation of remuneration is supported by non–executives who often sit on each other’s committees.

Management of mega cap businesses is not an entrepreneurial process – it’s the ‘captain of the ship role’; you need to be able to plot a course and steer the business there. We are not dealing with people who have eureka moments and hence may be deemed to be worth the rewards that accrue to genuinely game changing and talented individuals.

Rather, we have allowed an accountancy oriented corporate elite to grow up, who pursue share price growth by acquisition and the slashing of costs of the running of the business for their own self-aggrandisement; constantly inflating each other’s worth well in excess of the value that the business brings to society.

We need the investment management of pension, investment and institutional funds to be far more critical and to actively engage in not only the environmental and ethical dilemmas but in fundamental corporate governance.

If we live in an age where the Conservatives want to encourage greater share ownership – especially amongst staff – then the focus of the business is not solely on profit maximisation.

The objective of the business must be to provide a sustainable business model for continuity of the business, but also to give a fair standard of living and reward to those who contribute to it. That does not means driving down wages whilst execs get bonuses, or slashing staff pensions whilst senior managers salt away millions, or moaning about ‘red tape’ that is there to protect the rights and safety of workers.

Moreover, not only do the individual staff benefit from positive policies, but society does too, because we will have better rewarded employees who are more highly motivated to work and protected to a greater extent in the event or sickness and old age by their employers, and hence less reliant on the welfare of the state.

Instead, we currently have a capitalism that has grown to bloated excess on the opportunity of 30 years of compliant governments to externalise billions of pounds of costs that they should have borne and now the nation is on its financial knees having bailed out the banking industry.

We – the ordinary people – are having those self-same welfare lifelines withdrawn by a government of wealthy elite under the banner of ‘we are all in it together’ austerity.

David Cameron called for a more responsible economy in his speech last week. You can help realise this by choosing to invest sustainably.

Get in touch with your financial adviser or fill in our online form and we’ll connect you to a specialist ethical one.