In writing this book, I have been repeatedly struck by the frequency with which discussion is clouded, not illuminated, by the imposition of false binaries where no clear-cut distinction actually exists. Just as there is no usefully sharp distinction between heap and not heap, between dry and wet, so there is no sharp distinction between market and hierarchy, between public and private sectors, between profit and not-for-profit organisations, even – and critically – no sharp distinction between capital and labour. The concept of ownership is often complicated, and the ‘badges of ownership’ may be divided among several agents so that the ‘owner’ is hard to identify. Binaries are the natural currency of both lawyers and economists because, for different but related reasons, both law and mathematics demand precision.

The Unaccountability Machine— Dan Davies

Part 1: The Nature of the Crisis

1.Something’s Up

““Capitalism is disappearing, but Socialism is not replacing it. What is now arising is a new kind of planned, centralised society which will be neither capitalist nor, in any accepted sense of the word, democratic. The rulers of this new society will be the people who effectively control the means of production: that is, business executives, technicians, bureaucrats and soldiers.”

George Orwell, ‘James Burnham and the Managerial Revolution’,1946

The Friedman doctrine forestalls this cacophony of complexity by substituting an abstract ‘representative shareholder’. Rather than thinking about actual human beings working in association, we’re invited to replace them with a black box that only cares about profits, the pretend that we can enter into the same sorts of relationships with that black box as we could with the individuals.

This is what makes the Friedman doctrine, as far as I can see, a lie; it’s an exhortation to executives to reverse the truth. They are meant to ignore the reality of the company and act as if they are directly employed by human beings, but then ignore the reality of human beings, and act as if they are employed by a theoretical construct.

It’s an attractive lie, though, thanks to the combination of the accountability sink with the shift in perspective. The great anxiety of the managerial class was that they were losing their individuality as corporations became more complex, but that they were still subject to criticism. The Friedman doctrine invited them to disassociate themselves from their roles; to attribute all the bad consequences and all the frustrating lack of independence to a separate work-self, which was under an obligation to a simple principle.

This had a frightful effect on public sector management. The coordination function was impaired; the difficulty of ‘joined-up government’ and making policy for problems that crossed the boundaries of different agencies was repeatedly remarked on. And the operational delivery functions started to suffer severe cognitive loss, too. A company that sells goods and services for profit can never completely sever the connection which takes information from its customers; the people who buy the thing have the ability to refuse to do so. In many cases, people who interact with the state don’t even have the ability to transmit that single bit of information because they can’t shop elsewhere; they can complain if they like, but they interact with the sermon representative, the paradigmatic accountability sink.

Things got worse over a long period of time, but this was initially hard to notice. Recall that in Jerome Levy’s high-level view of the economy, the investing class has two purposes — providing insurance against the business cycle to the working class, and providing them with consumer goods. While the first of these services had been abandoned, this was not immediately obvious — the business cycle itself had been temporarily calmed down. And although many of the purchases were funded by debt, the second still seemed to be functioning. Over the course of a few decades, the risk transfer was completed.

There are a number of models, most of them ignored for decades, in which the corporate sector provides a stabilising function, insuring the working class against fluctuations in the business cycle, rather than expecting them to soak up the volatility.

The intriguing thing is that Simon and Galbraith didn’t write polemics to the effect that this was how corporations should behave — they just described what was in front of them at the time. Before Milton Friedman’s essay, lots of people assumed that this was just naturally the way things would tend. Without the Friedman fiction by, without very great re-engineering of the systems of corporate finance, the industrial economy might have just gone on and developed into a technostructure.

Maybe they were right? It would certainly be good if they were, because that might indicate a much easier path to defuse the immediate source of crisis. If the problem with the modern corporation is the result of the capitalist counter-revolution against the managerial class, we just need to change the terms of the battle.