A widening debate. "If we asked ourselves what gives dignity to the capitalist (and his company for which he is continually seeking to increase the value), we are obliged to agree that it is not his personal enrichment, which often degenerates into manic obsession. What justifies his capital, is the function of something else: a means of creating goods that are needed in a system from which all can benefit". These sentences are not taken from a critical essay on capitalism but from an article by economist Geminello Alvi published in the daily newspaper (with a large circulation), "Il Corriere della Sera". Here is another quotation, "Enterprise does not only create shareholders, there are other interested parties, such as the employees, the council, the town, the sub contractors, even the pensioners. All should become members of the company board with they have links". This is not the assertion of a trade unionist or left parliamentarian but of John Evans, senior official a the OECD (Organisation for Economic Cooperation and Development), namely the organisation that is often considered as the closest to international finance.
These quotations indicate how reflections are developing in Europe on the role of companies in society, their rights and responsibilities. It is a reflection that has gone beyond the legal and business leaders' circles and is now invading the political arena, parliaments, civil society, as well as the press that is increasingly focusing on it. I am well aware that economists and sociologists are always involved in it and religion too, also in connection with other practical aspects (such as interest rates, condemned by the Islamic doctrine and in the Middle Ages by the Catholic church), in other words questions of principle (the justification for accumulating wealth). But today, reflection has become more widespread and it should be seen as positive when the EU is concretising its "Lisbon Strategy" and instruments for this strategy (competition policy, corporate law, financial markets, patents and innovation, jobs and pensions, etc.), which have to be defined, revised or updated. These instruments and in general, "sustainable development" are at the centre of the European model of society, which in practice is largely determined by the way in which "enterprise government" is applied.
Between Galbraith and Friedman. To my knowledge, the clearest and most succinct overview is provided in the communication of Michel Albert, former Director General at the European Commission and the "Académie des sciences morales et politiques" in Paris. For the historical part, I'll restrict myself to two quotes that summarise what's essential. The first is by John-Kenneth Galbraith at the end of the 1960s: "for 30 years, we have the cumulated proof that demonstrates the transfer of power from the owner to managers within large-scale businesses. The power of shareholders is increasingly weaker… Shareholders' rights concentrate on the cashing in of coupons and in the case of the boards of directors, in most cases, the ratification of decisions taken by the management". Twenty years later in the 1980s, the situation was transformed, notably under the influence of Nobel Prize Winner Milton Friedman, as his quotation proves, "the only social responsibility of a company is to increase its profits, to the greatest advantage of its shareholders". Michel Albert sums up Friedman's idea as the following, "It is not of great importance where the company operates, how its treats its personnel its suppliers or how it behaves with its social and physical environment. All this has no relevance. The only thing that counts is the interests of its shareholders, even if they do not behave as long term owners but as speculators operating on a daily basis".
This concept is not even twenty years old. It was supported in the USA and in Great Britain, with the arrival of Ronald Reagan and Margaret Thatcher in power before it began to partially conquer continental Europe and challenge the "Rhineland model" of the social market economy. I would even add that the leadership of the European Commission has partly suffered from this contagion as the young officials of that era were much keener on studying Milton Friedman than Galbraith. But after having created the poison, the Americans have also diffused their antidote: Michel Albert proves that the reaction to Friedman's concepts began in the USA, whereas in Europe the "Rhineland model" (which was most widely expressed in Germany, with co-management but also throughout the Rhine valley, stretching from Austria to the Netherlands) started to contract everywhere. US pension funds, so widely criticised here, have in actual fact been the first to demand "ethical investments". In first place, Calpers, the famous civil servants' pension fund in California. As Michel Albert explains, this fund, "contributes to sustainable development employing management rules that stabilise investments via the positive influence on the boards of directors and above all by the often active and often innovative participation of socially responsible investment"
Too many managers have betrayed their role. What has provoked the new crisis in capitalism? The answer, everyone knows: the irresponsible behaviour of a significant number of managers and rating agencies, which failed to do their jobs. Geminello Alvi is particularly critical of the stock options, an ideal mechanism, in his opinion, for breeding vice and greed among managers. "How many redundancies, worthless mergers and forced quarterly forecasts have been used for better exercising stock options? And with a consistency that has benefited a small number. Because, as long as the value of their shares is collapsing on the stock markets, most options plans continue to guarantee, according to a recent survey, the heftiest surpluses. This isn't good for the small savers, nor for the employees…Stock options and other machinations have led to speculation. The rich have got richer and companies have lost their dignity".
Michel Albert is hardly more tender. He criticises the "sometimes astronomical remuneration for managers, which can be obtained in the form of share options in very favourable conditions". We know what sometimes used to happen: managers became owners of subsidiaries, that were judiciously chosen and they benefited from the company that they were supposed to manage and subsequently stripped it, to the detriment of the shareholders. To in other cases they sold their shares at artificially high rates and then resigned with capital that was enough for them and their families for the rest of their lives. This was often done with false accounts, and unjustifiably high financial ratings and false forecasts on company perspectives.
Michel Albert still optimistic. This behaviour will never be sufficiently denounced and punished, even if only some managers are responsible. But in the future, Michel Albert's conclusion is relatively optimistic. In his opinion, "a new kind of consumer-citizen and saver-citizen are beginning to emerge: they want to know if the company seeking their custom takes a correct stand on wages and the environment, as well as human rights" in the choice of countries where they do their buying). At the same time, "many European companies are finding that sustainable development, the principles of a culture that they had regretfully abandoned under pressure from their shareholders and above all their financial advisers, is in their interest". Public opinion has contributed to these developments as, "bad management of industrial risks can provoke the wrath of the public, consumer boycotts and the bankruptcy of the company at fault". Michel Albert refers to the initiatives taken in several Member States on the legislative level and that taken by companies themselves, taking into account their social and environmental responsibility and his conclusion is positive, "under pressure from NGOs, the media, customers, personnel and specialised ratings agencies, companies are increasingly obliged to publicly declare, not only their assets, but the means and results of their action in the social and environmental arena. All these changes, which yesterday were unimaginable, are beginning to outline new enterprise models", which give rise to new forms of a social market economy, that in particular, recognise the pre-eminence of industrial culture over financial culture. Geminello Alvi is not guessing on the outcome (he is more sceptical and less confident than Michel Albert) but does not hesitate in affirming that, "the company is a living organism form which all should benefit in a balanced way: workers, consumers even the place where its HQ is based". If "attention to the community" is lacking, the race to accumulate unlimited wealth becomes uncontrolled madness, "a company that seeks to become the richest of the rich and has this as its overriding objective cannot last".
Understand the stakes at play and take part. We should have learnt, in the preceding paragraph why I took part in this reflection, given that I am neither an economist or sociologist but a simple commentator on European affairs. The reason is because the EU is committed, together with its other actors - European institutions (including the Court of Justice), the national authorities, social partners -in the definition (or revision) and gradual application of its economic and social rules. These rules will determine the European model for society and even the role of Europe in the world, as this role will not only depend on the new policies of the "European power", such as the CFSP and ESDP. Parliamentarians, professionals, trade unions and as much as possible, all the citizens will have to understand what is at stake. The texts are often complicated and abstruse and sometime almost incomprehensible to the non specialist (quorum ego) and their repercussions are not always obvious but their main principles should be clear for everyone.
(F.R.)