Alternatives to Corporations

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Here is a respectable study for serious historians and students of political economy.

Compare the Order of Knights Templar, the John Lewis Partnership and the Mondragon Cooperatives as alternative economic models to Investor-owned corporate Capitalism.

The disadvantages of investor owned corporations as the main organising principle of human economic activity are increasingly obvious in the early 21st century. Their owners and managers are insulated from the people among whom they operate, as employees, governments and as consumers and citizens. The produce of their activities increasingly go to pay for a small group of super-rich, while the employees and consumers receive less and less - and society as a whole fails to receive the taxes that sustain common life. (Their advocates will deny these effects, but who is it that builds these modern palaces, and inhabits these "yachts" as big as Channel Ferries?)

At the end of feudalism, king Henry the seventh observed that the feudal lords who had been largely responsible for the Wars of the Roses he had brought to an end in 1485 were "overmighty subjects". That is, the Dukes who had kept those wars going, largely for their own benefit, had grown to overshadow the Crown itself (the state, as we put it nowadays). King Henry tackled that problem by taking away their right to raise private armies - the essence of feudalism.

In the modern era some of the conventional corporations also have more power than even the most powerful of governments. Elected governments may, for example receive advice from scientists that urgent action needs to be taken to change energy production to avoid both lack of energy in the foreseeable future and serious climate change. Some of these Overmighty Corporations apparently regard sensible policies like investment in solar-derived energy to be not in their interest and use their influence to prevent action being taken. Whose interests are favored here?

Students might investigate what is known about the economic practices of the Templars and Cistercians - a radical innovation within feudal society.

Feudalism arose as a development from the late Roman slave economy, via the invasion of nomadic but armed Germanic tribes. In the absence of a state organisation to protect trade routes economic activity declined to local production, or the autarky of very small units - the Manors or Domains. The Templars were one of the means by which those manors and domains were connected up. Their produce went not to the immediate lords but to the organisation to pay for the war in the east. They were the only organisation to operate throughout western Europe (other than the Papacy itself).

Is it true that the rise of the Templars was an important innovation towards restoring the physical movement of goods, and the renewal of banking service? Because people respected the religious reputation of the members of the Order of Templars they were willing to entrust them with money to be sent distances. For example if a merchant in Flanders wanted to pay another in Italy he could give the money to his local Templar agency (Commanderie) who would instruct their local agent in Italy to pay it. Thus they were the medieval equivalent of modern electronic payment systems. Possibly this system was imitated from the Hawala systems still in use in the Middle East (the author used them in Saudi Arabia to transfer money). The Templars operated in the area of Palestine where they may well have seen Hawala in operation.

This raises the question of whether modern business has lost the ethics that might have been found in the Templar and Cistercian industries. In the City of London the honour code used to be "My word is my bond". This seems no longer to be the case since the "reforms" of the City under Margaret Thatcher.

What is the origin of the Joint Stock Company with limited liability? Mainly it is modelled on the East India Company - an organisation not noted for ethical behavior.

How did this organisation operate? It had a Board of Directors, the investors who had put up the money. It had employees who were paid salaries but could be dismissed. The social structure was a development from feudalism in that some had great power over their lives while others had very little (and the investors were often the descendants of the same landowners who had operated feudalism). This is the relation that has carried over into all modern companies.

Shareholder-owned corporations are usually advised by people who tell them that the only purpose of the corporation is to increase the wealth of the shareholders. What was the purpose of the Cistercian and Templar economic activities?

What are the real origins of the modern way of conducting economic activities? And could we do them in any other way? E.F.Schumacher considered this question and suggested reasons why conventional businesses, both state owned corporations and shareholder corporations are not in the interest of ordinary people.

There are some alternative business structures which in a time of recession seem to be surviving better than the conventional businesses. These are the various kinds of cooperative and mutual business.

If we study the origins of our economic system, we may wonder whether the existing dominant western system is really fit for purpose - or rather, whose purpose it is fitted for. Feudalism wasn't an accident. It was operated in the interest of those who owned the land and weapons and commanded the peasants. The descendants of the owners of the land passed on their habits in the 16th and 17th centuries to the owners of businesses. Thus although the people who did the work were no longer serfs as such, they still did not have much influence, other than by means of riot, or eventually trade unions, which the owners today really hate.

 A recent example
In Britain some Quaker familes - Rowntree, Cadbury, Fry founded a new industry in Britain - making chocolate. The owners tried to behave in a religious and benevolent way towards their employees and pioneered good housing, holidays with pay, health care and many other aspects of what ought to be good modern practice. But they neglected Common Ownership and the companies were all swallowed up by the conventional capitalist system and bought by foreign companies who did not recognise ethical limits to capitalism. Most recently Cadbury was bought by Kraft industries from the US. Despite promises, its British operations were transferred to cheaper countries, mainly to avoid tax but also to pay lower wages. This of course illustrates their contempt for the political and social communities in which they operate. They do not feel any obligation to pay for the governments of the people and seek to avoid paying as much as possible.

Another Quaker entrepreneur chose a different path and Scott Bader is owned by an employee trust.

Tax avoidance by Joint Stock Companies - Adam Smith warned against it. In 2009 Barclays Bank, a British Corporation based mainly in Britain (founded originally by Quakers), had worldwide profits of £11,600 million but somehow managed to pay in Corporation tax only.£113 million, despite the Corporation tax being at a rate of 28%.

The defenders of this system deny they are responsible but constantly threaten to move their headquarters to another - lower taxing - country.

They also claim, falsely, that the only alternative to remote shareholder ownership is state ownership (though, that too is not as bad as they have chosen to paint it. I for one would like to see British Rail return, and the state owned electric and gas services when the user was treated as a citizen rather than a mark to be cheated and exploited).

The defenders also claim that as the big shareholders are pension funds (as well as Russian Oligarchs) that the beneficiaries of the funds also represent democracy. Is this claim genuine? Only by distorting the meaning of "democracy". The Partners of John Lewis have real influence over the policies of the business, expressed in representative bodies. This ownership by pension funds of conventional business indicates that the way we pay retirement benefits to people also needs changes, as in reality the beneficiaries have no influence at all over the investment policies, or the policies of the businesses invested in.

Interesting Reading

Race Mathews - Jobs of our own description of Mondragon and others

Jobs of Our Own: Building a Stake-Holder Society

Richard Williams - The cooperative movement

The Cooperative Movement: Globalization from Below

John Keay - History of the Honourable East India Company
essential reading for the details of how the Company came to rule India and become the model for the modern corporation

Deborah Cadbury - Chocolate Wars

Chocolate Wars: From Cadbury to Kraft: 200 years of Sweet Success and Bitter Rivalry

E F Schumacher - Small is Beautiful - economics as though people matter

Die Rückkehr zum menschlichen Maß. Small is beautiful. Alternativen für Wirtschaft und Technik

Joe Bageant - Deer Hunting with Jesus

Deer Hunting with Jesus: Guns, Votes, Debt and Delusion in Redneck America

Barbara Ehrenreich - Nickel and Dimed in America

Nickel and Dimed: On (Not) Getting by in America

Joon Chang - 23 Things they don't tell you about Capitalism

23 Things They Don't Tell You About Capitalism

Jeff Madrick - Age of Greed
The triumph of finance and the decline of America

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present

Review New York Review of books

Last revised 25/06/11


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