id: e8782ef2-6901-11ee-a55f-9fa600dded78
Transforming Society, Finance is a Double-Edged Sword - Huxiu.com#
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Highlights#
The control of companies is increasingly concentrated in the hands of a few management teams, while ownership is increasingly dispersed among numerous stockholders who have no rights. The result of these two trends is that a small class of professional managers controls the majority of the country's economic resources. ⤴️ ^372a065f
The inherent class contradictions of capitalism have not disappeared, but have been transferred to the internal structure of companies - the top management has become the ruling class, while the workers have become the new proletariat. Moreover, since the ownership of the means of production has become meaningless, all conflicts revolve around the actual control of companies. ⤴️ ^d3fb010f
The inherent class contradictions of capitalism have not disappeared, but have been transferred to the internal structure of companies - the top management has become the ruling class, while the workers have become the new proletariat. Moreover, since the ownership of the means of production has become meaningless, all conflicts revolve around the actual control of companies. ⤴️ ^5bf0fb6c
This touches on the essence of the modern capitalist system, where companies have become the means of production and the control of companies has become the dividing point of the new class.
Transforming Society, Finance is a Double-Edged Sword#
This article introduces the book "Market Dominance: How Finance Transforms Society" by American sociologist and management expert Gerard Davis, exploring the extensive impact of finance on society. The article points out that the financial market shapes the entire process of American society and analyzes the pros and cons of financial transformation on society. At the same time, the article also mentions the negative effects of finance, such as the transfer and shifting of financial risks that may lead to social unrest.
• The financial market shapes the entire process of American society.
• The pros and cons of financial transformation on society.
• The transfer and shifting of financial risks that may lead to social unrest.
During the era of managerial capitalism, the "corporate system" exhibited two distinct trends: the control of companies increasingly concentrated in the hands of a few management teams, while ownership increasingly dispersed among numerous stockholders who have no rights. The result of these two trends is that a small class of professional managers controls the majority of the country's economic resources.
For a long time, finance has had a broad and profound impact on society. The book "Market Dominance: How Finance Transforms Society" by American sociologist and management expert Gerard Davis provides a complete, clear, and objective introduction and discussion of the mechanisms, effects, experiences, and lessons of finance transforming American society. These insights can inspire and serve as a warning for readers from other countries to examine the impact of finance on their own societies.
"Market Dominance: How Finance Transforms Society" by Gerard Davis, translated by Yang Jianmei and Lou Yu, Zhejiang University Press, August 2022
Chapter 1
Davis has conducted serious research on the topic of "financial transformation of society" and has made pioneering work from scratch. Most of these professional and pioneering achievements are reflected in Davis's book "Market Dominance: How Finance Transforms Society". The book's concept of "society" encompasses economic development, corporate management, human thought, and national governance. When the lively and unrestrained nature of finance collides with the broad "society," it is bound to spark brilliant ideas.
Davis keenly captures these precious ideas, and his core viewpoint is that the financial market shapes the entire process of the United States' transition from an industrial society to a post-industrial society. For most of the 20th century, large corporations, with their unique power, shaped the entire social organization of the United States. Before the global economic crisis, the financial market had a profound impact on American society. Davis summarizes the form of finance's impact on society with a concise statement:
"20th-century American society was built around large corporations, especially manufacturers and their behavior. Now, American society is more constructed by financial architecture, and finance mentioned here not only refers to major banks on Wall Street but also includes the operating models of financial institutions."
In the book, Davis provides a comprehensive record and explanation of the series of transformations in American society during the 20th century. For example, he details the three major stages of American corporate development, including:
- The era of financial capitalism at the turn of the 19th and 20th centuries;
- The era of managerial capitalism from the 1920s to the 1980s;
- The era of shareholder capitalism that began with the wave of mergers and acquisitions in the 1980s and continued to the present, including the early stages of deindustrialization.
Furthermore, the book points out that investment ideas have become the main criteria for judging a person's social status in the "investment portfolio society." Personal qualities and abilities are referred to as "human capital," while housing, family, and community are referred to as "social capital." People often compare their profits in the financial market with each other.
The book also quotes the words of Adolf A. Berle and Gardiner C. Means in their co-authored book "The Modern Corporation and Private Property," stating that during the era of managerial capitalism, the "corporate system" exhibited two distinct trends: one is the centripetal control of companies, which is increasingly concentrated in the hands of a few management teams; the other is the centrifugal ownership of companies, which is increasingly dispersed among numerous stockholders who have no rights. The result of these two trends is that a small class of professional managers controls the majority of the country's economic resources. This is what is known as "managerialism." In this system, the management class has become a new aristocracy.
"The Modern Corporation and Private Property" by Adolf A. Berle and Gardiner C. Means, translated by Gan Huaming, Luo Ruirui, and Cai Ruhai, Commercial Press, August 2005
Moreover, the nation in the post-industrial era is becoming more like a shareholder-oriented company. Davis believes that it is a good idea to govern a country using the management and shareholder-oriented approach of a company. Those who govern the country may pay attention to the reactions of the financial market as an important form of investigation, just like company managers. Since the financial market is closely related to the interests of well-informed market participants, it can reflect their overall opinions. After all, "you can deceive voters, but you cannot fool the financial market."
What needs to be supplemented by Davis is that if finance only serves speculation and risk transfer and shifting through "passing the buck," it will bring greater risks to society and may lead to social unrest. The most typical example of this phenomenon is the subprime mortgage crisis in the United States in 2007.
It is well known that this housing mortgage crisis in the United States not only impacted the economy but also evolved into a global financial crisis. Davis laments in the book, "The financial revolution has successfully turned the most ordinary product, housing mortgages, into a fantastic financial instrument, but its risks far exceed the understanding of the smartest financiers on Wall Street and endanger the overall economic development of the United States." Here, the negative side of finance, the other edge of this double-edged sword, disrupts the stable development of society.
In fact, Davis has already provided a specific introduction to the complex operations and serious consequences of financial risk transfer in Chapter 4 of the book, "From Banks to Markets: How Securitization Ended the 'Good Life'." It can almost be concluded that the causes of these "complex operations" and "serious consequences" are speculation for profit and risk transfer and shifting that do not create wealth. However, he ultimately did not summarize, refine, and explicitly state this cause, which is a pity.
This is a major shortcoming: without explicitly stating this cause, Davis's related research can only be limited to the enumeration and narration of a large amount of historical material, and it cannot smoothly explore the trajectory of future financial transformation of society from the perspective of observation and analysis based on this cause. It should be pointed out that this shortcoming is a foundation and direction for continuing research and ultimately making up for this shortcoming itself.
Chapter 2
Regarding the consequences of financial transformation on society and the future development trajectory, there is not much discussion in academia and little knowledge in the industry, and it is not the focus of the book "Market Dominance." However, Davis makes concise and logical judgments and predictions on this matter in several parts of the book, which are of reference value for readers who are concerned about and studying the direction of "financial transformation of society."
For example, Ralph Dahrendorf, a sociologist, believes that the phenomenon described by Berle and Means of the separation of ownership and control during the era of managerial capitalism means the end of capitalist society and the emergence of "post-capitalism." According to the definition based on the requirement of "the combination of private ownership and control," American companies during the era of managerial capitalism were managed by the management team and not controlled by the owners, so the United States was not truly capitalist.
Dahrendorf's viewpoint is dogmatic, mechanistic, and seemingly plausible, but it is misleading to many people. However, Davis can look at this issue from its essence rather than its appearance. He believes that the inherent class contradictions of capitalism have not disappeared, but have been transferred to the internal structure of companies - the top management has become the ruling class, while the workers have become the new proletariat. Moreover, since the ownership of the means of production has become meaningless, all conflicts revolve around the actual control of companies.
The valuable and progressive aspect of Davis's viewpoint is that he recognizes and points out that "the inherent class contradictions of capitalism have not disappeared." However, Davis's judgment that "the ownership of the means of production has become meaningless" is too absolute. The phenomenon observed by him and Dahrendorf, where ownership is weakened, is mainly due to the inability to supervise the top management team after the dispersion of corporate equity.
This can only indicate that concentrated equity has more influence than dispersed and unorganized equity, and it cannot lead to an absolute judgment that "the ownership of the means of production has become meaningless." If this statement is changed to "the influence of dispersed ownership has weakened," it would be more objective and accurate. This is not playing with words but a rigorous and comprehensive analysis, judgment, and expression.
Furthermore, even with dispersed equity, it is still possible to have significant influence. For example, if the dispersed equity of shareholders is coordinated and unified in some form, and they speak with one voice, then these dispersed equities can have the effect of concentrated exercise of rights. In the United States, if stockholders who hold shares in a company suffer significant losses due to operational errors or management scandals within the company, they may organize collective lawsuits against the company for compensation. This shows that dispersed ownership with the ability to have a concentrated impact still has a certain influence and significance.
Although "Market Dominance" was written by Davis during the 2008 financial crisis, it is reflective, critical, and forward-looking, pointing out the dual nature of finance's impact on social development and its deep involvement and powerful transformative influence on today's society. The recent high-profile bankruptcy of Silicon Valley Bank once again confirms this point.
It is undeniable that Silicon Valley Bank made contributions to the development of many technology startups, and the development of these tech companies has promoted social progress. Of course, Silicon Valley Bank also profited from it, highlighting the positive side of finance.
But finance can bring both success and failure! The direct cause of the bankruptcy of Silicon Valley Bank is similar to the direct cause of the subprime mortgage crisis in 2008, both of which involve the crisis faced by banks or the financial system when liquidity tightens and depositors start to withdraw their funds. On the one hand, Silicon Valley Bank's liquidity risk was formed due to the mismatch between short-term debt and long-term investment.
On the other hand, the Federal Reserve catalyzed this liquidity risk into reality by continuously raising interest rates. Since finance has already penetrated into people's daily production and life, the damage caused by the bankruptcy of Silicon Valley Bank is highly likely to be rapidly and widely spread to various countries and regions around the world.
However, due to the lessons learned from the subprime mortgage crisis in 2008, the response speed of the US regulatory authorities in this rescue was fast. The Federal Deposit Insurance Corporation promptly took over Silicon Valley Bank, minimizing the damage caused by the bankruptcy of Silicon Valley Bank.
In summary, the subprime mortgage crisis in the United States in 2008, the recent bankruptcy of Silicon Valley Bank, and other events have deep-rooted causes in the long-term accumulation of risks in the US financial system. These risks may be due to the lack of financial regulation, the risky and contradictory financial policies of the Federal Reserve, and so on... It can be said that the bankruptcy and rescue of Silicon Valley Bank indirectly illustrates the practical and undeniable reference and value of the book "Market Dominance" for the social development of the United States, and even other countries, today and in the future.