Cambridge Journal of Regions, Economy and Society 2012, 5, 307–324
doi:10.1093/cjres/rss015
Ownership, control and economic outcomes
Jonathan Michiea and Linda Lobaob
Department for Continuing Education and Kellogg College, University of Oxford,
OX2 6PN, UK, [email protected]
b
Department of Rural Sociology, Sociology and Geography, The Ohio State University,
Columbus, Ohio 43210, USA, [email protected]
a
Received on May 22, 2012; accepted on August 1, 2012
Ownership is central to how the economic system operates. Yet the topic is widely neglected.
This is particularly surprising given the 2007–2008 credit crunch, which created in 2009 the
first global recession since the 1930s. Ownership played a crucial role, from the drive for
‘shareholder value’, through to the mortgages for home ownership used to create new financial instruments. The resulting bad debts were taken on by governments seeking to prevent
a collapse of the global and national monetary systems. This transformed the banking crisis
into a sovereign debt crisis. Whether a new era of global economic prosperity can be found
depends on whether the importance of ownership is recognised, with policies for diversifying ownership forms to create systemic resilience.
Keywords: ownership; globalisation; distribution of income; co-operatives; mutuals
JEL classifications: E02, F23, G34, R14
Introduction
Capitalism and ownership are historically and
theoretically intertwined. Ownership stands at
the crux of social science’s conceptualisations of
class and political economic theorising about the
nature of capitalism. In class analysis, ownership
was traditionally taken to mean ownership and
control over the means of production, a position
which separated bourgeoisie from proletariat,
as it did feudal landowners and peasants, and
slave-owners and slaves. This classical Marxist
position undergirded the development of social
sciences, providing a common framework for how
scholars have theorised on the one hand capitalism as an economic system, and on the other hand
class as both a social and economic category.
This classical view of ownership has broadened historically as capitalism itself has evolved:
to a greater consideration of consumption
assets such as housing; to the relative importance of control over factors of production and
not just ownership; and to different organisational forms of ownership including forms of
corporate control and governance, and joint
public–private-sector entities.1 As the manner
by which people, corporations and governments
relate to property evolves, patterns of class formation across societies are thereby transformed.
This brings us to the present period and to
two pathways by which changes in ownership
are altering capitalism as a system. On the one
hand, we have the continuing path towards the
concentration and centralisation of capital in the
form of global corporations, and we see new forms
of interaction and networking between such
corporations—individual ‘capitals’—across global
space (Vitali et al., 2011).
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Michie and Lobao
On the other hand, we have the continued dispossession of citizens at large—and certain class
segments in particular, generally those on the
lower rungs of nations’ stratification systems—
from the assets they formally had ownership of,
or at least access to (Araghi and Karides, 2012;
Wallerstein, 2012). The academic analysis of this
continued dispossession has been most fully
articulated by Harvey (2005). With the collapse of
‘Fordism’ and the advent, rise and dominance of
neoliberalism, capital looks to new ways of accumulating the assets that generate further expansion. In the past, producing material goods and
trading them—if necessary internationally—may
have sufficed to maintain capitalist expansion,
although of course there always was a degree of
service provision, and of export of capital.2
But from the last decades of the twentieth century, accumulation has been increasingly through
dispossessing owners of assets. Rather than necessarily generating growth, this redistributes wealth
in favour of corporations, and towards the already
wealthy and politically powerful elites within
countries and globally. Examples of dispossession occur through: privatisation of formally public assets, including utilities;3 commodification of
goods and services that were previously within the
public domain, again including utilities; deregulating corporate behaviour with negative externalities for people, places, and the environment; and
events that characterised the Great Recession
of the post-2007–2008 period, namely financial
speculation, unregulated credit expansion, predatory lending and housing foreclosures. These processes increasingly used strategies that included
depriving the public of assets, causing immense
damage to livelihoods, material well-being, and
culture across societies. This aspect of corporate
behaviour could be characterised as rent-seeking,
with corporations seeking to use their economic
strength to extract a larger share of the existing wealth rather than generating new wealth.
Stiglitz (2012) has identified such rent-seeking as
representing a major problem with the current
phase of global capitalist development which has
both resulted from and contributed to the huge
308
increase in inequality of wealth and income both
within and across countries.
Much of the research pertaining to ownership
in contemporary capitalism is aspatial. How these
shifts in ownership outlined above play out both
within and beyond the nation-state, impacting
upon the global economic and political system,
are not well-studied either at the regional level
within nations or at the global level of the changing nature of what has come to be termed as ‘globalisation’. This special issue includes analyses of
these territorial manifestations of ownership.
Ownership: to make or buy?
One question that companies face is whether
components should be bought-in or made
in-house. This applies not just for material
components, but also R&D, and other inputs
to the productive process. The answer of course
will depend on the specific time and place, and
will tend to be a matter of degree. Producing
in-house allows maintaining ownership of the
process. But buying-in may make commercial
sense, and is one of the benefits that ownership
delivers, delivering the ability to contract-out
aspects of the process whilst retaining at least
a degree of control. These questions operate
on a global scale, often including the issue of
whether to establish a subsidiary overseas, or
whether instead to buy up an existing company
already operating in the territory of interest,
or whether to contract with companies in that
country, or to pursue a fourth option, of an
international joint venture. In this case, the
question is not whether ownership matters or
does not matter, but rather how the control that
ownership allows is best pursued, whether by
production in-house or by contracting-out.
The issue of ownership and control is analysed
by Murphy and McDonough (2012) in the case
of the US car manufacturers that use Mexican
supply lines. They find that US companies are
able to make profitable use of Mexican suppliers via the exploitation of the locational advantages of operating in Mexico, and in particular
the ‘Maquiladoros’ that allow for federal tax and
Ownership, control and economic outcomes
other advantages. On the other hand, companies
seek not only to exploit existing spatial advantages, but to also create new divisions among
the labour force and advantages for maximising
profit. Direct ownership is required or at least
useful in pursuing these strategies. Thus, one
reason why a US parent company establishes
a directly owned operation in Mexico rather
than contracting with subsidiaries, is to have
more direct operational control, specifically to
be able to create divisions between the workforces within the same company that the management can then exploit to their advantage.
This workforce balkanisation further extends
to balkanisation along community lines, where
populations in different nations are played-off
against each other. Murphy and McDonough
(2012) in fact see these issues around ownership
and control as representing a distinct feature of
contemporary capitalism, building from Social
Structures of Accumulation theory to do so.
So, ownership matters, and its benefits can
be exploited in different ways. It can be used
to contract with overseas suppliers, in some
cases in order to take advantage of differences
between the home country and the overseas
labour market. It can also be used to extend
ownership overseas, and in this case there may
be additional opportunities to create further
divisions and differences that the company
can also exploit to its advantage. Whether the
ownership of domestic firms by overseas interests is a positive or negative development for
the domestic firms is of course impossible to
say in the abstract, as it will depend on various counterfactuals, including what would have
happened to the domestic firm in the absence
of being taken over by a foreign firm, and specifically, would it have continued as a successful
domestic firm, or would it have performed less
well under continued domestic ownership.
Ownership and place
The importance and relevance of place on the
one hand, for localities, regions and countries,
and of ownership on the other, varies according to the type of asset being considered. The
ownership of land is of course place-specific,
but the geographical placement and nationality
of the owner may vary drastically. This separation became dramatic in the case of home ownership in the build-up to the 2007–2008 global
credit crunch; the owners of the mortgages or
loans—who ultimately had a call on the ownership of the homes and land that represented the
security for such loans—became increasingly
likely to be financial institutions globally who
had been sold new financial instruments made
up of a selection of sliced and diced assets, some
of which were the loans on such houses.4
Foreign ownership
Ownership of companies has always been less
geographically specific, both because of firms
operating overseas from their original home
base and because of cross-border mergers and
acquisitions. Table 1 and Figure 1 illustrate the
dramatic growth in such cross-border merger
and acquisition activity over the last years of
the twentieth century, falling back after the ‘dot
com’ bubble burst, and then re-igniting in the
boom years leading up to the 2007–2008 global
credit crunch, which proved to be unsustainable.
However, the latest data suggest a ‘return to
business as usual’ as far as such cross-border
mergers and acquisitions go, with increased
activity despite the still sluggish recovery from
the 2009 global recession.
Despite such cross-border ownership and
operations, many firms retain strong local,
regional and national links and identities. The
degree to which this is the case varies from
country to country. Thus, most Chinese companies, for example, will be owned by Chinese individuals or institutions. British companies are far
more likely to be owned by overseas individuals
or institutions. The business analyst and commentator John Kay has been commissioned by
the Secretary of State for Business, Innovation
and Skills, Vince Cable, to conduct a review into
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Michie and Lobao
Table 1. Value of cross-border Mergers and Acquisitions, 1990–2011.
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
US$
99
21
48
44
92
113
143
181
406
631
905
429
248
183
227
462
625
1023
707
250
339
538
(billions)
Source: UNCTAD cross-border M&A database (www.unctad.org/fdistatistics).
Note: 2011 figure extrapolated from data of January–May.
Figure 1. Value of cross-border Mergers & Acquisitions globally, 1990–2011 ($bn).
Source: UNCTAD cross-border M&A database (www.unctad.org/fdistatistics).
Note: 2011 figure extrapolated from the data of January–May.
‘UK Equity Markets and Long Term Decision
Making’. In his interim report, Kay (2012) notes
that 50 years ago, most shares in the UK were
owned by private individuals, but that this had
given way by the 1990s to much more institutional ownership, followed in turn by the past
20 years of increased foreign ownership.
Table 2 and Figure 2 illustrate the resultant
current ownership of the top 100 companies listed
on the London Stock Exchange (FTSE 100)—as
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can be seen, ownership by individuals has fallen
to less than 10%, with ownership in the hands of
overseas interests having risen to over 40%.
Whether an increase in foreign ownership
matters has been the subject both of academic
research and policy debate over the years.
Wallace et al. (2012) note this debate in the
case of the USA. Empirically, they find that
foreign direct investment in fact has regionally
varied effects and is more beneficial in reducing
Ownership, control and economic outcomes
Table 2. Ownership of FTSE 100 companies.
Rest of the world
Insurance companies & pension funds
Individuals
Other financial institutions
Other
42.7
13.8
 9.7
15.7
18.0
earnings inequality in the US south versus the
north. The political consensus in the UK has
tended to be that such ownership no longer
matters, or that even if it does matter, globalisation has made it no longer possible to do much
about the issue. During the recent global recession, however, there was some concern that
many overseas owners of firms in the UK were
prioritising the interests of the home country
or the ownership parent, at the expense of the
operations of the firm within the UK. In the
case of the financial services sector, the concern
was that banks that were owned by overseas
interests seemed to be more likely to agree to
provide loans to companies based in their own
country than to companies based in Britain.
This is argued to have been materially important by Hutton and Lee (2012) who cite Alastair
Darling who was the UK’s Chancellor of the
Exchequer during the 2007–2008 credit crunch
and 2009 global recession who in his account of
the crisis, argued that French banks had:
… a willingness to act pour la France when
the call came. The problem in the UK was
that the big banks may have their brass plates
here in London, but their souls, if banks have
such things, and certainly their shareholders,
were elsewhere. (Darling, 2011, cited in
Hutton and Lee, 2012.)
Figure 2. Ownership of FTSE 100 companies.
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Michie and Lobao
This situation meant, argue Hutton and
Lee, that the interests of the major banks
were no longer so closely aligned with those
of the UK:
In the old days, the big banks saw themselves as
British banks, albeit with huge operations overseas. Essentially, they were British and could be
persuaded to do things that might be said to be
in the national interest. But now they were not
going to help me with a small rotten bank. How
ironic that twelve months later they would view
the British government in a very different light,
when they came to us cap in hand. (Darling,
2011, cited in Hutton and Lee, 2012.)
And Hutton and Lee go on to cite Aiyar’s
(2011) research for the Bank of England which
reports that during the financial crisis, foreign
owned banks reduced their lending further and
more rapidly than domestic ones.
In the case of non-financial firms, the concern
is often that when corporations are downsizing,
Research and Development activity is likely
to be retrenched back to the home base rather
than remain in overseas subsidiaries, and overseas capacity in general may be more likely to
be cut before domestic capacity. Thus:
Ford, fighting for its life, was quick to decide
in 2008–2009 that preserving operations in
Detroit and the US was more important than
hanging on to Jaguar Land Rover [in the UK].
In the same way, Renault shut its Belgian factory in the late 1990s, rather than close one
in France. Peugeot, which had taken over the
old Rootes-Chrysler operation in Ryton near
Coventry, closed its British plant in 2006 with
the loss of 2,300 jobs, shifting production of
the same Peugeot 206 model to a plant north
of Paris. (Brummer, 2012, 82)
The importance of ownership in terms of the
location and culture of the owners having an
impact is argued by the distinguished engineer
and industrialist Sir Alan Rudge:
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Why does ownership matter? As those who
have experienced corporate life will readily
recognise, the key issues linked to ownership
are those of basic control. Ownership inevitably affects strategy; investment; taxes and
where they are paid; employment; procurement; group synergies; R&D; stock exchange
listing; diversification and location of operations; choice of products and markets and
prospects for senior management. The location and culture of controllers of the business
are important and will, over time, and in various circumstances, have a fundamental impact
on the future of the business. (Sir Alan Rudge,
cited in Brummer, 2012, 109–110.)
Such matters are usually reported and
discussed in terms of national economic
interest, but the same issues pertain to regional
economic and social interests, and even to
localities. Thus, if a village’s sole shop becomes
part of a national or international chain then the
decision as to whether to keep it in operation
will be made with external considerations in
mind; the importance of short-term financial
considerations will likely play a greater role,
as against the long term interests of the local
population than would be the case had the
shop remained locally owned. The same factors
are likely at play to varying degrees with other
local companies or organisations, such as the
pub, post office or football club. Indeed, this is
why we are witnessing, in the UK, the growth
in community-owned pubs, the Coalition
Government’s proposal to convert the Post
Office into a member-owned mutual, and the
growth of supporter-ownership of football clubs.
Supporter ownership of football clubs
The case of supporter-ownership of football clubs—or of the companies that own the
clubs—is instructive at a number of levels, first
in illustrating the fact that different companies
can and do have a different relationship to the
Ownership, control and economic outcomes
profit motive within the economy; and second
because of the importance of place.
The ‘corporate purpose’ of a football club has
generally—across time and place—included
social, cultural and sporting factors. Indeed,
the profit motive has generally played no
part within the original corporate purpose.
Of course, like any organisation—charity,
profit-making or other—revenues are required
to cover costs, but that is an altogether different
matter. Interestingly, the importance of this was
recognised in Britain long before the growth of
the welfare state, in an era when it might have
been expected that profit making would have
been an unquestioned ‘given’ for any company.
In the early days of the development of capitalism in Britain, following the industrial revolution, the Football Association (FA) recognised
that football clubs could be run as for-profit
enterprises for the benefit of their shareholders.
Instead of welcoming this as a way of introducing market discipline, and rewarding those who
had taken the original financial risk, the FA
took the opposite view, namely that it would be
wrong for football clubs to be owned and run
for such profit-seeking purposes. The FA therefore introduced Rule 34 to prevent shareholders
from extracting anything other than fairly modest returns from football clubs. It was not until
the Thatcher era that the FA allowed this rule to
be circumscribed, allowing ‘holding companies’
to float on the stock exchange, thus unlocking
the value that had been build up by supporters
over generations, and delivering financial fortunes to those who happened to own the clubs
at the time, who were thus able to cash in.
This process, and the economic, political
and social issues around it, have been analysed
in detail, as reported for example in Michie
(2000). Here it is worth noting two factors
which address issues touched on above and
throughout this Special Issue. First, the move to
financialise the football sector—or ‘market’—in
the UK provoked resistance amongst supporters who sought not only to challenge this process, but who were prepared to use ownership
itself as part of this process. Supporters created
‘supporter trusts’ to take ownership stakes in
football clubs, with amongst other aims, electing supporters to the Board of Directors to seek
to ensure that the Board made decisions in the
long term interests of the Club, rather than the
short-term financial interests of the shareholders. The second factor relates to whether such
moves towards ‘mutual’ or ‘co-operative’ ownership represent a utopian harking back to the
past, or even to the ideal of the past that perhaps never really pertained in practice. Thus, for
example, when Manchester United was bought
by the American millionaire Malcolm Glazer,
a group of supporters established a rival club,
FC United of Manchester, as a member-owned
club. But despite being promoted in each of
their first three seasons, FC United plays seven
leagues below Manchester United within the
vast ‘pyramid’ of leagues run under the auspices of the FA. On the other hand, one of the
world’s leading football teams is generally recognised to be Barcelona, and that too is a wholly
member-owned club. So member ownership is
most definitely consistent with excellence and
with success within the current global era.
Housing
The case of housing is also instructive in relation
to ownership, and likewise the importance of
place is unavoidable. Ownership of housing in
most countries has been mixed, with private
(individual) ownership, corporate ownership,
state ownership—at both local and national
levels—and various forms of mutual ownership,
through housing associations and other such
arrangements.
Fraser et al. (2012) analyse the manner by
which public housing in the USA has operated
historically, and how policies have sought to
open up the sector for private ownership and
profit. This has been combined with pubic policies that used the remaining public sector housing in the interests of private sector employers,
by making participation in the labour market
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a conditions for receiving rental accommodation. Here Fraser et al. (2012) stress the systematic nature by which ownership issues are built
into the operation of contemporary capitalism.
Public housing funds are increasingly diverted
to private sector investors and to programmes
that regulate the poor by shaping their behaviour based on their need for housing support.
Housing also of course played a key role in
the 2007–2008 credit crunch, with mortgages
(home loans) being used as collateral, diced and
sliced with other assets to create new financial
instruments that were sold on—largely by US
and UK financial institutions—globally. With
all such ‘Ponzi’ schemes, all was well whilst the
markets rose, but once conditions turned and
the true value—or lack of it—of such assets
became apparent, financial institutions were
found to be insolvent. Governments across the
globe stepped in to bail out the banks, but this
just transformed the banking crisis into a sovereign debt crisis, hitting European Union countries particularly badly.
In the UK, all governments during the
‘Golden Age of Capitalism’ were committed
to public provision of rented flats and houses.5
Under the Thatcher governments of the 1980s
this gave way to the ‘right to buy’ policies that
sought to transfer public housing stock into
individual private hands. The proportion of
housing that was privately owned rose. In addition, up until the 1980s, home loans had been
made predominantly by member-owned mutuals (‘building societies’). But following legislative changes, it became easier for the existing
members to cash in the value that had been built
up over previous generations. The members of
many of the largest such building societies did
just this, in the process converting mutuals into
private banks. One of these demutualised building societies, Northern Rock, became notorious
by reinventing the bank-run, a process which
had been thought to have become a thing of the
past due to the development of banking regulation. The pictures of Northern Rock customers queuing overnight to withdraw their money
314
were reproduced across the world. Of course,
as in any such bank-run, if enough customers
demand their money back, the institution goes
bankrupt—and so it was with Northern Rock.
Of the mutual (customer owned) building societies that demutualised, not a single one has
survived as an independent financial institution. This process damaged both the corporate
diversity of the sector and the regional and
local dispersion of financial institutions, since
the building societies had traditionally been
based in a specific region, with all areas of the
country covered by ‘their’ local building society,
whereas the banks that bought them up tended
to be multinational corporations:
The deregulation of the financial system
broke down the traditional barriers between
the building societies and the banks and
opened the doors to overseas ownership of
previously independent, regionally based
institutions. In the process mutually owned
societies, like Bristol & West, became
the anonymous subsidiaries of large
foreign-owned financial conglomerates with
no particular national or regional loyalties.
(Brummer, 2012, 27)6
The Coalition Agreement to which the
UK Government is committed is pledged
to promote a more corporately diverse
financial services sector, including through
promoting mutuals. This was a seemingly easy
commitment to honour, as the government
held Northern Rock in state ownership, and
it would have been a simple matter to have
transferred it back into the mutual sector in
which it had operated successfully for years,
prior to its ill-fated operation as a private bank.
Indeed, the Coalition Government’s agents UK
Financial Investments were briefed as to how
to carry out this remutualisation. Bizarrely, the
Coalition Government instead sold Northern
Rock at a below market-value price to Richard
Branson, to have another go at being a private
bank, with no convincing explanation as to why
Ownership, control and economic outcomes
the Coalition Agreement pledge of promoting
greater corporate diversity of the financial
services sector through supporting mutuals had
been broken.
In addition to the mutual ownership of building societies—and the Co-operative Bank,
which also provides home loans—there has
been an innovative development of mutual
ownership of the actual housing stock in the
UK, with the transfer of the public housing
stock in Rochdale—home of the original founders of the co-operative movement in the north
of England, near Manchester, the ‘Rochdale
Pioneers’—having been transferred to a
multi-stakeholder mutual, with both employees
and tenants sharing ownership and control (as
detailed in Mills and Swarbrick, 2011).
Ownership and control of public
utilities
Alongside housing, the public utilities—water,
gas, electricity and sewerage services—have
traditionally been subject to a high degree of
public interest, regulation and ownership. In
most European countries these utilities have
been in public ownership, whereas in the
USA they have been subject to public regulation. With the global move from the 1980s
towards privatisation and deregulation, public
regulation was weakened in the USA, while
in European countries the industries were in
many cases privatised, with the perhaps ironic
result of requiring an increase in the degree of
public regulation over private companies. At
the same time, ‘quasi-markets’ were introduced
within the public health and education sectors
to seek to reproduce elements of market discipline. We say ‘ironic’, as the idea that public
regulation is required to bring markets into
being and to ensure that they then operate as
markets is in contrast to the Hayekian notion
of the market as a ‘spontaneous order’ (see
Hayek, 1973, especially 50–51). But as Coase
(1988, 9) observed, ‘for anything approaching
perfect competition to exist, an intricate system
of rules and regulations would normally be
needed’.7
Amongst European counties, privatisation
went furthest in the UK. Most of the other
major European economies—France, German,
Italy, Spain and of course the Scandanavian
countries—kept more of their industries
within public ownership. Indeed, in the case of
France this has had the ironic outcome of the
UK public utilities having passed from public
to private hands as a result of privatisation,
only to find themselves back in public hands
when purchased by French companies that
are still nationalised. So for example London
Electricity was sold to France’s EDF in 1998 for
£1.9 billion, with British Energy (the nation’s
largest electricity generator) sold to EDF in
2009 for £12.5 billion8.
By the 1990s, the World Bank was promoting
the role of the private sector in the provision
of water. But within 15 years, the shortcomings
of such privatisation had become apparent.
de Gouvello and Scott (2012, 88) point to ‘the
failure of numerous international contracts
at the beginning of the 2000s … and the
growing service provision gap for water and
sanitation’ having led to this approach—
promoted by international organisations such
as the World Bank—becoming ‘seriously
questioned (Bakker, 2010), including by many
of the promoters themselves (Marin, 2009).’9
de Gouvello et al. (2012) analyse how the
privatisation and deregulation promoted
by the World Bank and other international
agencies led within 15 years to a turn away
from such policies in Argentina towards greater
public sector involvement and regionally
based solutions. Similarly, Valdovinos (2012)
analyses the 2010 remunicipalisation of the
Paris water services, identifying a new political
vision amongst local authorities concerning
their own role as key actors in water services
management. Scott and Raschid-Sally (2012)
analyse the commodification of water in a
number of countries. The case of Chile is
interesting, since after the US-backed military
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Michie and Lobao
overthrow of the Allende government in
1973, the ‘Chicago Boys’ were able to put
their free-market ideas into practice, and this
included enshrining economic rights within the
constitution, but in the case of water resources,
Prieto and Bauer (2012) argue that it is a fiction
to imagine the ideology can be removed from
such processes, since the way in which markets
actually operate in practice will depend on a
myriad of institutional detail; and in fact an
Environmental Impact Assessment System
has been approved as a specific restriction on
economic rights, enabling public interests to be
protected (see Guiloff, 2012).
In the case of the USA, Pollin (2012) argues
for greater public involvement and investment
in the provision of utilities, including clean
energy. His paper confronts the long-standing
issue of whether public investments in the
areas of transportation, energy and water management ‘divert scarce resources that would
otherwise be available to private investors’,
or whether such public investments ‘create a
nurturing environment that encourages more
spending by private investors’. Pollin concludes
from a review of the available evidence that ‘a
large-scale commitment to public investment
projects that are well-designed and implemented do indeed provide a crucial foundation
supporting the healthy long-term growth of
private investment. Public investment can also
serve as the leading edge in building a clean
energy infrastructure throughout the USA.’
Prechel (2012) analyses the way that deregulation of the US electricity market had adverse
consequences for the public. Deregulation
created opportunities for power producers
to search for the highest price on the grid to
sell energy, which results in energy loss during
transmission and which can overload the grid,
increasing the potential for energy blackouts.
The deregulated market also created opportunities for financialisation10 strategies, that is,
seeking profits through financial transactions,
with Enron leading the way in terms of the proportion of profits generated from trading energy
316
derivatives rather than producing energy (see
also Prechel, 2003).11 Indeed, because these
deregulatory policies enabled companies such
as Enron to consolidate their market shares,
profit from financialisation, and increase energy
prices, Prechel (2012) refers to the process as
reregulation rather than deregulation. That is,
the end result was simply a different configuration of companies, government and markets,
and an increase in resources devoted to political
lobbying in order to bring the regulatory regime
in line with the short-term financial interests
of the firms that in many cases had seen their
power increased as a result of the supposed
deregulation.
Water management in the USA is decentralised, usually to local governments, with only a
limited role played by the federal government.
Megdal (2012) analyses the case of Arizona,
concluding that the public sector will continue to dominate water provision, but that the
importance of the private sector might increase
in times of limited availability of public-sector
capital.
The World Bank (2010) documents the
ease or otherwise with which countries allow
domestic companies to be taken over by
foreign companies. They find that utilities such
as electricity and transportation have more
restrictions placed on foreign ownership, along
with the media sector, as compared to industries
such as manufacturing:
In some sectors – such as banking, insurance
and media – laws often limit the share of foreign equity ownership allowed in enterprises.
In others – such as transportation and electricity – state-owned monopolies preclude
both foreign and domestic private firms from
engaging in the sectors. (World Bank, 2010, 8)
The World Bank (2010) surveys the degree
of openness to such inward investment in a
publication that is blatantly biased in favour of
the free movement of capital and the freedom
of multinational firms to buy into domestic
Ownership, control and economic outcomes
firms, free of regulatory obstacles. The publication therefore has the embarrassing ‘apparent
paradox of East Asia and the Pacific’ to explain
away, as follows: ‘The fact that foreign direct
investment (FDI) has played a crucial role in
supporting economic growth in parts of East
Asia and the Pacific over the past 40 years is
well known. Yet, in this report the average foreign equity ownership index for economies
in East Asia is lower than in all other regions.
Should one then infer that the relationship
between overall openness to foreign equity
ownership and actual FDI inflow is tenuous?
The answer is no.’ (World Bank, 2010, Box 3.4.)
The report then attempts to explain this paradox away, admitting that actual FDI inflows
are determined by a range of factors, including the growth prospects of an economy. In
other words, despite having restrictions on FDI,
that investment is attracted by the prospects
of growth. What the World Bank cannot bring
themselves to admit is that those prospects of
growth have been underpinned in most of these
economies by active industrial and regional
policies, including the use of public ownership.
Ownership, control and the
distribution of income
Ownership delivers control—most obviously
with corporate ownership delivering control
in terms of economic and industrial processes,
with the corporate owner having direct control
over the labour process. But economic ownership also delivers political control. This is
analysed by Prechel (2012) in terms of corporations mobilising politically to advance their
economic agendas—and in this case to weaken
environmental policy. Indeed, after state structures are created to enforce public policy, they
provide the socio-political legitimacy for corporations to further advance their economic
interests (Prechel, 2012). The systematic nature
by which ownership operates under capitalism
is again stressed. Oligopoly reflects not only
economic power within industries but allows
political power and the ability to shape key
public policies.
Wealth and the ownership of property and
assets are of course, unequally distributed
within countries and globally. The control that
ownership delivers includes control over the
production process and the labour process,
and this, together with income derived from
the ownership of assets (in the form of profits,
interest payments, dividends, capital gains from
increased share prices, and rent) determines
the distribution of income, and thus the degree
of inequality of income. The distribution of
income, as measured by the Gini coefficient,
is highest internationally in Brazil and South
Africa, with the Scandanavian countries
generally exhibiting the lowest degree of
income inequality. The degree of inequality in
both wealth (ownership) and income increased
hugely during the three decades leading to the
2007–2008 global credit crunch—as analysed
for example by Glyn (2006). Despite the
resulting credit crunch and global recession,
those responsible have attempted to maintain
‘business as usual’, with no serious attempts
to redress the problems of inequality. Stiglitz
(2012) attributes the huge wealth at the top
of the distribution mainly to ‘rent-seeking’
activities such as exploiting monopoly power,
executives extracting excessive shares of
company earnings, and financiers diverting
wealth by exploiting the poor through predatory
lending and abusive credit card practices.12
Wallace et al. (2012) find that earnings inequality within the USA has been impacted by
both the changing patterns in the ownership
of capital and the processes of globalisation,
with both combining to increase the degree of
earnings inequality, but with the actual impact
varying across geographical regions within the
country, and with this in turn being determined
in part by labour market transformations. As
articulated in several of the articles cited above,
capital ownership allows systematic influence
over people, places and the path of capitalism. It
affects labour market outcomes, and the labour
317
Michie and Lobao
process, and it contributes to the creation of
inequality both domestically and globally.
The role of ownership in the changing division of wealth and income within the industrialised economies plays out largely through
the labour market and labour process arenas,
alongside the impact of the free market form
of globalisation that has dominated the past
era, as analysed by Wallace et al. (2012). In
developing economies the role of land ownership is also crucial, and thus the role that the
state plays in either maintaining or redistributing land ownership rights is crucial. Braun
and McLees (2012) analyse such processes in
Lesotho, where the state has supported private development of the tourist industry at the
expense of indigenous land rights. They find
that while the state’s desire to promote tourism for economic development is understandable, the process created increased inequality.
This outcome, they argue, was not an inevitable
outcome of such processes but rather was due
to these policies having been pursued within
the prevailing neoliberal context, which led to
a privileging of foreign—that is, overseas—private interests.
The Ownership Commission
The profound public policy issues raised
by shifting patterns of ownership led to a
‘Commission on Ownership’ being established
in the UK in early 2010. Its goal was to analyse the relevance of ownership for economic
and social outcomes. The Commission was welcomed by the then Labour Government at the
time of its launch, and similarly applauded by
the Coalition Government that later took office
in May 2010. Indeed, the Coalition Agreement
included a commitment to promoting corporate diversity within the financial services sector (HM Government, 2010). Its intention to
promote employee-ownership, along with the
mutual ownership and delivery of public services also implied profound changes in ownership.13 And the Final Report of the Commission
318
in the Spring of 2012 was launched by, alongside the Commission’s Chair Will Hutton, the
Secretary of State for Business, Innovation and
Skills, Vince Cable.
The Ownership Commission’s focus was the
UK. Although peculiarities of the UK economy
exist, the conditions examined apply to some
degree in most other countries. The Commission
also conducted fact-finding missions to the USA
and Singapore, and consulted widely, including
internationally, in order to place their analysis
within the context of global ownership trends.
The international variety of corporate ownership patterns is described by Claessens and
Yurtoglu (2012, 13–14) as follows:
… worldwide, except for the United States
and to some degree the United Kingdom,
insider-controlled or closely held firms
are the norm (La Porta et al., 1998). These
firms can be family-owned or controlled by
financial institutions. Families such as the
Peugeots in France, the Quandts in Germany,
and the Agnellis in Italy hold large blocks of
shares in even the largest firms and effectively
control them (Barca and Becht, 2001; Faccio
and Lang, 2002). In other countries, such
as Japan and to some extent Germany,
financial institutions control large parts of
the corporate sector (La Porta et al., 1998;
Claessens et al., 2000; Faccio and Lang, 2002).
Even in the United States, family-owned
firms are not uncommon (Holderness, 2009;
Anderson et al., 2009), with some statistics
suggesting that family businesses constitute
90 percent of all businesses in the United
States and generate 64 percent of the
country’s GDP. One peculiarity of the UK economy
is the relative dominance of the large,
shareholder-owned Public Limited Company
ownership form. Concomitantly, there is
a weaker public sector, less family ownership, and a smaller co-operative, mutual and
employee-owned share of the economy than is
Ownership, control and economic outcomes
to be found in other countries. This peculiarity
has been exacerbated over the past 30 years of
privatisation of formerly state-owned companies including utilities, and demutualisation of
formerly customer-owned building societies.
A second peculiarity of the UK economy
is the short-termism of management decision
making and corporate behaviour. This has been
a long-standing problem for the UK economy.
If anything, it has been made worse by the
aforementioned processes of privatisation
and demutualisation, in part simply because
the sector of the economy where this damaging short-termism is prevalent has become a
more dominant part of the national economy.
But also the problem is exacerbated because
such processes have been accompanied by a
‘shareholder value’ corporate culture in which
short-term financial results and share price
movements hold increased importance as
against the long-term health and prosperity of
companies and communities.14
The Ownership Commission made a number of recommendations to tackle this second
peculiarity—of the long-standing problem of
short-termism within British industry—including first, doing away with the quarterly financial
reporting that tends to drive decision-making
towards these short-term financial figures at
the expense of longer-term considerations,
and second, making it more possible for directors of a company to reject a hostile takeover
bid that they believe would be against the
long-term interests of the company as a whole,
as opposed to the short-term financial interests of the external shareholders (Ownership
Commission, 2012).
The other peculiarity, of the lack of corporate diversity, and the dominance by the
shareholder-owned public limited company
corporate form, also needs to be tackled, and
the Ownership Commission made a number
of recommendations that could achieve this
objective. It concluded that greater corporate
diversity was indeed necessary and needed to
be promoted. And several detailed reforms
were proposed that would help to bring about
this necessary result, including making it easier
for mutuals to raise investment funds in order
to expand the scale of their operations, and providing a ‘lock in’ so that public sector assets that
are transferred to mutuals would remain in use
for the public benefit rather than being utilised
for private profit.
At the global scale too the importance
of ownership was aptly emphasised by the
United Nations having designated 2012 as the
‘Year of the Co-operative’. The International
Co-operative Alliance members have ambitious plans for the co-operative and mutual
sector to become the fastest-growing sector
of the global economy by 2020.15 Certainly,
co-operative and mutual ownership appears
likely to play an increasingly important role
globally over the coming years.
Conclusion
Despite the orthodox consensus to the contrary,
ownership does matter. It matters to those who
own the world’s productive assets and other
wealth, and it matters to those who do not.
Ownership delivers control. The ownership and
control of companies has a crucial impact upon
the places where these companies are owned
and operated, employing staff and undertaking
productive activities. The economic growth
of nations depends crucially on the decisions
made by the companies that are owned by the
citizens of those nations.
Of course, many companies operate outside
the nation where their owners reside, producing and selling internationally. But two points
need to be made. First, all this has been true
across historical periods, and yet ownership
has proved to be an important factor throughout, influencing not only relative economic
growth rates and prosperity, but also the drive
towards war and other outcomes. Second, this
process of ‘globalisation’ describes a huge array
of quite different international arrangements.
We had the pre-World War One globalisation
319
Michie and Lobao
of the British Empire, the gold standard tied
to the pound sterling, and the ‘scramble for
Africa’. We had the inter-war globalisation, with
the Wall Street Crash and Great Depression,
and with the New Deal and other reactions to
and consequences of it, including arguably the
rise of Nazi Germany and the Second World
War. We had the Golden Age of Capitalism’s
‘Bretton Woods’ era of globalisation (on which,
see Marglin and Schor, 1990). And then we had
almost 30 years of what the late Andrew Glyn
termed ‘Capitalism Unleashed’ (Glyn, 2006),
before the global credit crunch of 2007–2008.16
At the time of writing (June 2012), after
4 years of recession and stagnation, many industrialised countries had still not recovered their
2008 levels of national income and production,
with many, indeed, still in recession. At the end
of 2011, the economies of both Portugal and
Spain were still more than 3% lower than they
had been at their 2008 peak, the UK’s national
income was still 4% lower, Italy’s 4.5% lower,
and Greece’s more than 13% lower. For the
economies of Europe, this is possibly the weakest recovery ever from a major recession, with
economies generally having recovered from the
1929 Wall Street Crash within 4 years, by 1933—
albeit with a subsequent return to fiscal orthodoxy provoking a further downturn in 1937.
The era of globalisation from the 1980s was
one that prioritised the interests of private
ownership of productive assets. It was fuelled
by privatisation, demutualisation and deregulation. It was always a false dichotomy to suggest that the critics of such globalisation were
opposed to international economic activities—
it was not globalisation per se that was being
contested, but rather the particular laissez faire,
neoliberal form that was being promoted. This
is not just being wise after the event. As noted
above, Andrew Glyn had warned of this on the
very eve both of his own death and of the global
collapse of what proved to have been a massive
Ponzi scheme—literally in the case of Bernie
Madoff, and figuratively in the case of the UK
and USA ‘greed is good’ variant of capitalism.17
320
Along similar lines it was noted in 1999 that
‘the fact that the economy is becoming increasingly internationalised does not dictate the
form that this process is taking. The free market, laissez faire agenda is one being pursued
by those who benefit from such a deregulated,
winner-take-all environment. It is not the only
choice. And for the majority of the world’s
population, it is an inappropriate one.’ (Michie,
1999, 6).
The key questions are first, whether the
dominant form of corporate ownership in the UK
and USA contributed to the 2007–2008 global
credit crunch and the subsequent international
recession; and second, whether future changes to
ownership might be able to contribute towards
creating a new era of more sustainable economic
growth and development over the coming years
and decades? Following 30 years of ‘capitalism
unleashed’, and the resulting years of global
recession and stagnation, can capitalism be
put back onto the sort of leash that proved so
successful during the ‘golden age of capitalism’?
That settlement was of course the most
successful historically for capitalism itself, with
not a single year of global recession over those
three decades. The form of corporate ownership
certainly played a role within that settlement,
alongside regulation and the creation of
appropriate institutional arrangements. Public
ownership of utilities and other strategically
important sectors was used extensively in
almost all successful economies, other than the
USA where ideological opposition to public
ownership was stronger.18 The USA did though
make widespread use of public spending through
defence and NASA, its space programme, and
introduced extensive regulation of the utilities
and other sectors. Indeed, Pollin (2012) details
the evidence of the US government having
been instrumental in many of the country’s key
industrial developments, from jet aviation to
bioengineering.
In the UK, the ‘commanding heights’ of
the economy were taken into public ownership—all the basic utilities such as water, gas,
Ownership, control and economic outcomes
and electricity, along with coal, the railways,
and the National Health Service amongst
others. This was under the post-War Labour
Government of 1945–1951. But the subsequent
three Conservative administrations of 1951–
1964 kept all these major industries within public ownership, with only steel being returned to
private ownership.
Similarly in the other industrialised countries, the utilities and other key productive
infrastructure was taken into public ownership.
In several of them, most notably France and
Sweden, this included at times the banking sector in order to channel credit to domestic firms
and into those sectors that had been identified
as being the most important growth areas for
future development.19
Today, many of the most successful economies still make substantial use of public ownership, despite the last three decades of ‘capitalism
unleashed’ and free market globalisation. Major
examples are China,India and Brazil—with Brazil
overtaking the UK as the world’s sixth-largest
economy in 2012. But even in Germany, for
example, only around a third of its financial services industry is in private hands, with around a
third being in public hands, including through
the use of local and regional public ownership,
and with the following third having various
forms of mutual—customer-owned—corporate
structures.
Nations that maintain the delusion that ownership does not matter are likely to miss a key
element of what other, more successful, economies have identified as constituting an important part of creating a new, more sustainable
era of economic development over the next
phase of global capitalist development. For a
successful, modernised and sustainable productive infrastructure, public ownership is likely to
deliver beyond what the private sector would
manage on its own. And mutual ownership, by
involving the customers, employees and local
community can add an important dimension
of loyalty, commitment and long-term decision
making.
A new long swing of successful economic
growth and development globally will of course
require a number of supporting conditions to
be met. Global institutions are needed that will
promote long term decision making aimed at
enhancing economic and social welfare, rather
than encouraging short-term decision making aimed at promoting financial gain. The
latter ‘shareholder value’ agenda is ultimately
self-defeating.20 Alongside such global institutions, and active policies such as promoting a
global Green New Deal, a fundamental transformation in the approach to ownership could
prove immensely beneficial. This would involve
a three-fold change in attitudes and policies.
Firstly, the benefits of corporate diversity need
to be recognised and such diversity promoted.
This would create greater systemic resilience.
Alongside private and shareholder ownership of
companies would go public ownership, operating
at local, regional and national level—and indeed
at an international level where appropriate.
Secondly, the shareholder owned ‘Public
Limited Company’ needs to be reinvented.
Here there would be a return to the importance
of pursuing a positive corporate purpose in
return for the privilege of enjoying limited
liability.21
And thirdly, co-operative and mutual ownership should be promoted globally. As noted
above, the United Nations designated 2012 as
the ‘Year of the Co-operative’ in recognition
of the beneficial economic and social role that
this corporate form can play. The International
Co-operative Alliance aims to build on this
UN platform by making the co-operative and
mutual sector of the global economy the fastest
growing sector of the global economy by 2020.
The Fair Trade movement is a good example
of the importance of—and potential benefits
from—the mutual model, aiming as it does to
promote producer co-operatives so that the
ability to receive a fair price is rooted in the producers’ new-found market power. Such mutualism enables producers and consumers to pursue
such solutions within the USA, UK and other
321
Michie and Lobao
industrialised economies, not just in developing countries. The world’s largest producer of
cranberry juice, Ocean Spray, for example, is a
successful producers’ mutual in the USA. And
as referred to above, consumers in the UK
have recently re-invented mutuality to apply
to their football clubs (such as FC United, the
supporter-owned breakaway from Manchester
United following the leveraged buy-out of
Manchester United PLC by the Glazers), their
homes (at Rochdale), and a whole range of
other economic activities, producing long-term
decision making that will have economic and
social advantages over the ‘greed is good’ mentality of shareholder value that dominated up to
the 2007–2008 global credit crunch.
Ownership alone is not enough—control and
how it is exercised are also important. The articles in this CJRES issue also denote importantly
that the influence of ownership can be amplified
or diluted by regional processes. But ownership
intrinsically does matter. It needs to be taken
more seriously in academic research and policy discussion, with concomitant governmental
action being taken nationally and globally.
Acknowledgment
We are grateful to Dr Ramesh Sangaralingam
and Sandra Gee for research assistance, and to
anonymous referees of this Journal for helpful
suggestions.
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Endnotes
For an analysis of different experiences of collaborative governance for public-private ventures, see
Donahue and Zeckhauser (2011).
1
2
The requirement to expand overseas to secure
markets was for Luxemburg (1913) the driving force
behind imperialism, while for Hilferding (1910) and
Lenin (1917) the root cause of imperialism lay in the
export of capital which they saw as the natural result
of capitalism’s tendency to accumulate.
On which see, for example, Brummer (2012).
3
For an analysis of these ‘other specialist lenders’ in
the UK, see Hall (2004). 4
On the ‘Golden Age of Capitalism’, see Marglin
and Schor (1990) and the discussion below.
5
For an excellent analysis and discussion of the
regional imbalances in the UK economy, most especially in the financial services sector, see Gardiner
et al. (2012).
6
7
These processes of public regulation over private
firms, and the way in which markets actually operate,
are analysed in detail by the various papers in the
Cambridge Journal of Economics special issue on
‘Contracts and Competition’ (Volume 21, Number 2,
March 1997), and in particular by the introductory
article (Deakin and Michie, 1997) on which this paragraph draws. 8
EDF was founded in 1946 through the nationalisation of a large number of private energy companies.
There was a partial flotation of shares in 2005, but it
remains majority state-owned.
9
Issues of public and private ownership of water provision are analysed in detail by the various papers in
the March 2012 issue of Water International (Volume
37, Number 2).
telecoms group Worldcom were instances of financial mismanagement on an epic scale, but although
reform followed with the passage of America’s
Sarbanes-Oxley Act, which sought to clamp down on
faulty accounting, loopholes remained.’ (Brummer,
2012, 47).
12
For an excellent analysis of inequality across and
within countries, see Wilkinson and Pickett (2009).
On the theory and practice of employee ownership, see Erdal (2011); on the state of the mutual
sector in the UK, see Oxford Centre for Mutual and
Employee-owned Business (2011); and for a report
on the global co-operative movement, see Global
300 – www.global300.coop 13
14
The term ‘shareholder value’ as an objective was
coined by Jack Welch, who following the 2007–2008
credit crunch referred to it as the ‘dumbest idea in
the world’.
15
See www.ica.coop.
Andrew Glyn died tragically from a brain tumour
in December 2007; his 2006 book had analysed the
shortcomings of the global free market era that he
termed ‘capitalism unleashed’. 16
17
Bernie Madoff is a former American businessman
and non-executive chairman of the NASDAQ stock
market, who admitted operating a Ponzi scheme that
is considered to be the largest financial fraud in US
history. In March 2009, Madoff pleaded guilty to
defrauding thousands of investors of billions of dollars, estimated by the court at $18bn. He is currently
serving a 150-year jail term.
18
Some of the UK’s utilities are now largely in foreign hands, which to date has been deemed to be
an acceptable state of affairs by Government, but
there has been speculation that the Russian company Gazprom, in which the state holds a controlling
stake, might bid for Centrica, the parent company
of British Gas; whether the UK government would
be so sanguine at the prospect of its energy market
being controlled by the Russian government remains
to be seen. For an analysis of the role that financialization
played in the creation of the 2007–2008 credit crunch
and subsequent global recession, see Tabb (2012).
19
For a detailed analysis of the French experience,
see Halimi et al. (1994).
‘The collapse of the Houston-based energy firm
Enron in 2001 and the implosion a year later of the
As advocated by the Ownership Commission
(2012), which sets out detailed policies on this issue.
10
11
324
As argued for example by Kay (2010).
20
21