Taking Stock

Back in the boom days of the very near past, there was much talk of how stock ownership in the United States had been democratizedwith a stock in every pot. There is no doubt that in the 1990’s, many families, like my own, were suddenly mindful of the market, having sunk savings for college or retirement into mutual funds. But this was, and remains, a thin democratization at best.

As Marjorie Kelly reports in this eye-opening book, the wealthiest 1 percent of households in America own about half of all stock. Likewise, she notesand not as an offhand comparisonthat in the medieval era, roughly the same portion of the population (presumably in Europe) held about the same share of wealth, above bare subsistence.

Kelly’s central provocation is to name this class an aristocracy, and to do so as more than an exercise in name-calling (which it usually is). She has a good grip on the notion of an aristocracy, the fundamental right of which was to income detached from productivity in the feudal past. What does this have to do with today’s wealth holders?

The biggest eye-opener is Kelly’s contention that stockholders today contribute little to a corporation, since most investments go into the speculative stock market, not to funding the enterprise (more on that to come). Yet stockholders alone are given the standing of ownersa sort of legal fiction, in the author’s view. This means the corporation exists to maximize their interests above all. The oddity of it all is veiled by the incantation of a single magical word: ownership, Kelly writes with emphasis on that last word. Because we say stockholders own corporations, they are permitted to contribute very little, and take quite a lot.

This general idea that capital does not pull its weight is nothing novel. It was carried to an extreme in Karl Marx’s labor theory of value, which holds that workers, not owners, are the true source of all value. But Kelly is no socialist. She writes in part as a small-business owner who publishes Business Ethics, a national publication based in Minneapolis. She clings to the tenets of supply and demand, competition, profit and self-interest, but sees the primacy of stockholders as detachable from this capitalist creed.

As a student of Catholic social teaching, I am attuned to the idea that the property rights of stockholders, and everyone else, are not absolute. But until reading The Divine Right of Capital, I never really entertained the thought that stockholders are not even the rightful owners of corporations, in the exclusive sense. This is Kelly’s seditious claim, which she stakes partly on the observation that most investment dollars (her skeptical quotes) don’t go to corporations but to other speculators. As she relates, in most cases buying a share of stock is like buying a 1997 Ford Escortyour money goes not to Ford but to the previous owner of the car. Invested dollars do reach corporations when new common stock is sold, but such equity exchanges amounted to a measly 1 percent of the market in 1999.

For what she counts as peanuts, stockholders are bestowed with fathomless privilege in our economy. In corporate legal theory, they are the corporation, whose officers are said to have a fiduciary obligation to maximize return to shareholders. Meanwhile, employees, who generate a mounting share of the wealth in a knowledge-based economy, are deemed outsiders. The aim is to pay shareholders as much as possible and employees as little as possible. (Shareholders who lost their shirts in the Enron fiasco would beg to differ, but these were mostly small employee-stockholders.)

The name Kelly gives to this arrangement is wealth discrimination, which she judges a violation of the Constitution’s equal-protection clause. Stockholder primacy discriminates against all other stakeholders, including communities and especially employees who are denied their rightful share of ownership or control of business enterprises.

After counting the ways of shareholder sovereignty, Kelly spends the second half of her book spelling out principles of economic democracy. These include her precept, Corporate wealth belongs to those who create it, and community wealth belongs to all, and her contention that corporations are semipublic governments and thus beholden to the public good. As for proposals, she offers hints, not plans, echoing words of Thomas Paine. One thought is to make stockholding more like other forms of ownership, such as patents and copyrights, which are often limited in time. This would solve the problem of eternal ownership by absentee shareholders. Another thought is to put some teeth into so-called stakeholder statutes passed by 32 states, encouraging corporate boards to weigh the interests of all stakeholders, not just shareholders.

Others with expertise in corporate law and governance will have their say about the soundness of Kelly’s argument that stockholder ownership is a legal fiction. There also remains the question of how her proposals to dilute shareholder power might affect capital formation, which oddly she ignores.

In the spirit of detaching shareholder primacy from other market principles, I suggest that Kelly’s whole critique can be usefully unhinged from her philosophical biases, which are a pastiche of postmodern and secular Enlightenment ideas. Kelly has the impression that corporate capitalism is in this fix because of an excessive regard for traditional values. She fingers the ancient story of a great chain of being, which pictures the nobility (read stockholders) as closest to God. She also mocks the property-based worldview that conceived of God as the Great Property Owner.

Could these old notions really have much to do with the increasing insistence on maximizing profit, or the resurgence of unadulterated free-market ideology? Has the anything-goes New Economy been suddenly hexed by traditional wisdom? I wish it were so. We could use more hierarchy, not less, in our view of universal reality, more of a sense that some values, like profit and self-interest, are lower than others in the great chain of being. Such was the case made prophetically a generation ago by the late British (Catholic) economist E. F. Schumacher.

Postmodern affectation aside, Kelly delivers a provocative plea for a dialogue on ownership and the nature of the corporation, in the bracing tradition of her pamphleteer-hero, Paine. She deserves a lively, if not uncritical, hearing.

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