Coming from the opposite direction, however, was “shareholder capitalism,” which was based on the theory that workers were largely interchangeable and expendable and that companies should be managed solely to maximize short-term profits and share prices for owners and investors. In many ways, shareholder capitalism was an effort to overcome the self-interested complacency of managerial capitalism that, in the view of many, had allowed the American economy to fall behind Germany, Japan and the other Asian “tigers.”
The driving force behind shareholder capitalism came not from Wall Street’s traditional investors but from upstart financiers known as “corporate raiders” who were the first to use a new financing mechanism, the “junk bond,” to launch hostile takeovers of under-performing public companies.
Although corporate executives decried the trend, the threat of having their companies bought out from under them led to a fundamental shift in corporate management in which the interests of customers and employees have been subordinated to the interests of shareholders. To reinforce this new orientation, top executives were loaded up with stock and stock options that would better align their own economic fortunes with those of other shareholders.
From there, it was only a short hop and a skip to capitalism’s newest incarnation, “financial capitalism,” where the focus has shifted from running companies to simply buying and selling them for profit. More and more of the country’s capital and talent was diverted toward trading and financial engineering, with more and more of the economy’s profits and the nation’s income captured by a relatively small number of investment bankers and the managers of hedge funds and private-equity funds.
What should be obvious from all this is that our notions about American capitalism – what it is and what it ought to be—are constantly changing.
Given that he made his fortune in private equity, it is not surprising that what Mitt Romney now offers the country is a mix of shareholder and financial capitalism. Romney rejects the managerial capitalism of his auto executive father, considers all forms of state capitalism to be illegitimate and dismisses worker capitalism as naïve and unsustainable. And while he is not the robber baron capitalist the Obama campaign would have you believe, neither is he the entrepreneurial capitalist he pretends to be. For Romney, it is not the desire to create great products or enduring employment that really animates the entrepreneurial spirit, but the prospect of making a big score by going public or selling out to Bain Capital. In Romney capitalism, it is the financier who ultimately makes the successful entrepreneur, not the other way around.
Obama, too, would like to wrap himself in the flag of entrepreneurial capitalism, but not in the dislocation it sometimes causes or the “anything goes” regulatory and tax regime that entrepreneurs crave. Ultimately, the president is drawn to the equality and stability of managerial capitalism, perhaps with a swirl of worker capitalism and the occasional sprinkle of state capitalism mixed in. He views shareholder capitalism as morally cramped and financial capitalism as both economically and socially destructive.
We would all surely welcome an intelligent presidential debate on what kind of capitalism we want to have. Only please spare us the self-serving nonsense about who created or destroyed how many jobs. In almost any form of capitalism, running the government is not the same as running the economy, and neither is like running Bain Capital.