The Dangers of Stakeholder Capitalism

The Dangers of Stakeholder Capitalism. By Dillon.

Stakeholder Capitalism is the theory that firms should be accountable to their stakeholders instead of their shareholders. Meaning, instead of serving their owners and being accountable to their owners, they should cater to the desires of the nebulous “society.” …

Centralized vs decentralized:

Humans are incredibly good at solving huge problems in a decentralized way, through organic networks of interworking systems. Conversely, we are absolutely terrible at solving even the simplest societal problems when we centralize power. This is because what makes these sorts of problems difficult in the first place is not due to lack of effort or resources, but lack of knowledge.

Decentralized systems are able to quickly experiment and adapt, independently working to solve the same problem using their own unique skillsets.

Centralized systems are rigid and change very slowly, but can force action. They are like a huge ship that turns very slowly and is tough to get started. But once it’s moving, there’s nothing better at transporting tons of goods. …

An example of a very effective centralized system would be Apple under Steve Jobs (effective, not perfect). Steve Jobs was able to organize the efforts of everyone around him and give them a clear vision of what they were shooting for. Thus, he drove the creation of revolutionary products.

Creating great products is a relatively simple problem when stacked up against societal problems like inequality, ocean acidification, and prejudice.

These are far more difficult and require a far different approach. Using a centralized system powerful enough to attempt these problems is always hugely destructive because it cannot course-correct when it makes mistakes — it just keeps plowing forward until society itself shatters.:

It is far easier to concentrate power than to concentrate knowledge. That is why so much social engineering backfires and why so many despots have led their countries into disasters. … — Thomas Sowell

Companies are the wrong tool for fixing society’s problems:

When a company starts trying to cater to society-at-large, as is prescribed by Stakeholder Capitalism, it is doomed to fail.

Trying to do so perverts the incentives that exist in a shareholder-business relationship. Different stakeholders pull the business in all directions … No longer can the business simply do what the owners want, it must do what all of society wants.

The business will be crucified for its inaction and at the same time punished for its actions. Gone are the days where they simply provided value to their customers. Because their bread supplier might be a bigot, the passersby might be insulted by their branding, and the government might think their business is a health risk. …

Stakeholder … a concept beloved of parasites:

If you buy yourself lunch, does the cook, cashier, and the guy sitting next to you deserve to have a bite? After all, they were stakeholders in the experience….

Now, say instead you buy 25% of that business where you had lunch. Stakeholder Capitalism says that your new business should consider the needs of its suppliers, passersby on the street, its creditors, the government, and the society-at-large.

Suddenly the ant is responsible for the whole anthill. It’s difficult enough for businesses to even provide value to their customers, let alone the rest of society.

This is why a business’s only responsibility is to its shareholders. …

Why capitalism worked:

A business brings profit to shareholders by efficiently providing value to its customers. If the business is not efficient, it wastes money and there is less profit. If the business doesn’t serve its customers, the customers stop patronizing the business and there is less profit.

The incentives are neatly aligned so that the more value a business brings to its customers, and the more efficiently it uses the world’s scarce resources, the more successful and profitable the business will be. …

The merger of corporation and the state, wherein the companies have to please the bureaucrats or they find regulatory hurdles make life difficult:

It has become normal for companies to be politically active in the broadest sense. This is what happens when shareholders seek value outside of profit. Today’s shareholders are increasingly seeking social approval, power, and political favors and they’re using the businesses they own as the vehicle to achieve those desires.

Instead of on-brand activism, we’re seeing a new age where corporations at the highest level merge with the political establishment. …

In this new world, politics is business, and corporations are merged with the government. Private corporations have become public-private partnerships that collude with political actors to do things the government is forbidden from doing.

Stakeholder capitalism is another form of rule by centralized bureaucrats:

To attack the ideas of stakeholder capitalism is really to attack the concept of centralized control over society. …

Centralized control of the economy is born of conceit and not understanding how complex society is. It didn’t work for the Soviet Union, and it won’t work for us:

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” — Friedrich Hayek

This is the resounding discovery of the 20th century.

The socialists in the Soviet Union and China claimed that their centralized planning would invigorate society and optimally distribute resources to the noblest causes.

They were wrong.

They pursued great (and terrible) works. Organized the labor under a singular cause and made great leaps in some ways. The problem is that each step forward created far greater damage beneath the surface.

The system came crashing down after enough damage and inefficiencies built-up. People eventually gained the courage to stand up to the corruption, usually long after their homeland was permanently damaged. …

Liberty built the world and central planning destroyed it:

Liberty was a radical concept in Europe during the 1500s and early 1600s when monarchic states assumed total control over the peasants. It took countless bloody conflicts to wrestle that power away from the rulers, but it was worth it. …

The elites have never liked liberty. That’s why the serfs were chained to their fields in medieval Europe. Otherwise, they’d rise up. During the lockdowns of 2020, the chains have returned in a new form. …

First, it’s speech, then it’s self-defense, and it only gets worse from there.

The final frontier of authoritarian control is always the economy. Once you can control the flow and distribution of resources, you have near-absolute control over people.

hat-tip Barry