Timmy elsewhere

At the ASI.

Turns out this Anglo Saxon style of capitalism, with it\’s emphasis on public markets for equities, does have some advantages over Rhineland capitalism after all.

16 thoughts on “Timmy elsewhere”

  1. Okay, this is a weak spot in my understanding, so if anyone can explain it to me…

    This seems to be about going public with a company. I don’t understand what the actual benefit of other people owning most of your company as shareholders is, other than you get a pulse of cash when you sell the shares. After that, you’re having to hand over company profits to people who do nothing but own shares, that is, the only productive thing they did was buy the shares.

    Surely it’s better to never sell off the shares in the first place, if you could fund your enterprise without doing that?

    Or is this about something else and I’ve got the wrong end of the wrong stick?

  2. IanB: some people owning shares also excercise control through using their possibility to vote on key issues and appointing the board thus making the company less dependent on its founders. If you are not sure whether that is a good thing or not then I suggest you take a tour around some Italian industrial districts where it is quite easy to spot the problems with family ownership (especially when you are into several generations).

  3. Isn’t it the consumers’ job to expell poorly managed companies from the marketplace? What special expertise do shareholders (who are not necessarily purchasers of the company’s products) have compared to consumers (who are)?

  4. IanB, yes it should be consumers expelling poorly managed companies from the market place but that doesn’t mean that companies should not try to improve.

    Some shareholders do know more about how to run companies (or who to hire to do so) under certain circumstances than the founders of companies do and even more so than their sons / daughters (who often end up running fully family-owned companies when the founder passes away)

  5. Maybe, but you have this problem of divergent interests. To conjure an example:

    Entrereneur: “I want to supply a niche market of bespoke hand crafted walking sticks”.

    Customers: “I am glad there is this company supplying my demand for bespoke hand crafted walking sticks”.

    Shareholder: “I would get a higher dividend if the company switched to mass market cheap walking sticks. Sack that guy with his bespoke crap.”.

    Perhaps a real example of that is Jobs ousted from Apple, a company which has eventually only prospered by following one man’s unique vision.

    I think the point for me about free markets is diversity. THey work precisly because humans are individuals who do not all have the same goals and who often choose less efficiency to pursue some other goals- like, a dream of making the world’s finest walking sticks. From this perspective, the shareholder influence- as stated in the article’s quote- has a homeogenising and thus possibly damaging effect on the market, in the long run. Because a shareholder probably doesn’t give a shit about fine walking sticks, he just wants the profit. And, contrary to the barbs from those who enjoy the perjorative “neoliberal”, producers are frequently not entirely driven by “the profit motive” but a diverse range of goals, only one of which is profit, or simply continued solvency.

    So an entrepreneur has to commit to undertake a second transformation, standardization, that will make the human capital in the firm, including her own, replaceable, so that outside financiers obtain rights over going-concern surplus.

    Are a diverse capitalist economy, and “standardization” really compatible goals? Translated into easy-speak, the above says, “to raise capital, Mr Bespoke Walking Sticks has to hand over the profits from the future walking sticks and control of the company to the lenders, who can then oust him and replace him with Mr Made In China Cheapo Walking Sticks”.

    As such, we may see entrepreneurs as diversifiers and shareholders as homogenisers, and thus the second transfomration is actually ideologically opposed to the first transformation-

    To achieve the control that will allow her to execute this strategy, she needs to have substantial ownership, and thus financing. But it is hard to raise finance against differentiated assets.

  6. The main difference between Rhineland and Anglo-Saxon capitalism is that Rhineland capitalism involves the employment of capital to produce goods and services people want to buy, whereas Anglo-Saxon capitalism is increasingly about charging huge fees for diversileveraging carry-value option trades via speculative future puts in hypothecated demerger hedges.

  7. IanB, I agree with most of what you say but note that if you need more capital that you don’t have then you either go to the market (anglo-saxonism) or to the banks (rhinelandism). I can assure you that of the two it is banks that are more conservative and thus standardise more

  8. I forgot to mention the hiring of insanely expensive freshly-graduated “management consultants” (how anyone can consult on anything, let alone management with zero real-world experience is beyond me), who think you can get twice the work done in half the time with a third of the staff. But we get that in the Rhineland too.

    Those who can, do, those who can’t become management consultants.

  9. Oh and your example of Apple doesn’t really seem to support the point you were trying to make it being a quoted company with loads of external shareholders

  10. Emil, fair enough. But it’s worth noting when comparing the two that borrowing capital just commits a portion of your future profits (debt repayment) whereas selling shares commits an proportion of your profit income indefinitely, and gives away company sovereignty too.

    I just looked at the GDP/cap figures for the USA, Germany and UK, and they’re all pretty much of a muchness, so it’s hard to see that either option is producing an overall more productive market. The USA is higher than Germany, the UK is lower.

  11. Jobs was ousted, remember, and the result was computers called the Quattro and the Tetris or something. The company only revived when he got back in and was able to implement the “destandardized” vision of little white boxes.

  12. Ah yes but creditors also demand control over certain issues and that they will need to be repaid the full amount no matter what whereas shareholders will share the pain with you if things go bad

    (Btw your example Apple is of course a quoted company so a good example of success of Anglo-saxonism)

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