Edward Hadas

Nothing stimulates anti-capitalist feelings like large sums of money changing hands in the hope of huge profits. A recent example: the prospect that Facebook could be worth some $100 billion to its shareholders. The website’s users might prefer less advertising and a lower valuation. But no one asked them. This inspired my Reuters colleague Paul Smalera to suggest that Facebook go co-op. Smalera won’t get his way, but he’s right to wonder whether the hunt for shareholder profits makes the world a better place.

In modern economies, most companies are supposed to be run for the benefit of the providers of equity capital, the shareholders, considered co-owners. Cooperatives and mutuals are owned by and supposed to be run for different groups: customers (the Cooperative Wholesale Society in the UK and American credit unions), suppliers (Sunkist citrus growers in the United States) or workers (the Mondragon group of companies in Spain and the UK retailer John Lewis).

The original thinking behind almost all these organisation was idealistic, even utopian: greedy capitalists had polluted the economy. Their exclusion would help promote the best aspects of human nature.

The idealism has not borne rich fruit. Co-ops and mutually owned enterprises (another name for this type of organisation) do not play a big role in the industrial economy. In the United States, the 100 largest employee-owned companies now account for only 0.5 percent of all workers, according to data from the National Center for Employee Ownership. Mutuality is doing less badly elsewhere – the largest dairy in India is a cooperative – but around the world, the movement’s boosters are losing their power.

The idealism and the lack of success are related. Cooperatives were designed without much thought about what would happen when managers and workers lose their initial energy and enthusiasm. Outside oversight was scanty. The founders promoted corporate cultures which became more complacent than collaborative. Managers were weak, and companies stagnated.

Capitalism is the name people give to the way the modern economy is arranged. Now that Communism has been discredited as an economic system, there seems to be no real alternative. But the word is misleading.

A capitalist analysis of any economic issue starts with capital, both physical capital – factories and land – and financial – shares and bonds. It is associated with free and competitive markets for goods and labour.  And capitalism has come to designate a system where private property is the norm, with any exception needing some sort of justification. Capitalist analysis usually treats governments and unions as economic interlopers, and ignores the broader society.

That perspective is too narrow. Capital and markets are only two parts of the complex modern economic system. People don’t only matter because they bring their labour to the owners of capital – as in the original, 19th century definition of capitalism. And governments over the years have become regulators and keepers of the monetary order. Moreover, the economy is so closely integrated with modern society that no clear border separates the two. Social forces – such as the thirst for technological innovation, the work ethic and other moral values – play a fundamental part and influence the workings of the purely “capitalist” system.