Credit default

Back in 2009, Justin Fox, then of Time magazine, published a book called The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. I interviewed him about it on my radio show in June of that year. It’s a pretty good book, but at the time, I thought it bore an uncanny resemblance to some of the arguments I made in my book Wall Street, published by Verso in 1997. (Verso let it go out of print, so it’s now available for free download at that link.) With the publication of the book, Fox went on to become editorial director of the Harvard Business Review (HBR).

My feeling of uncanny resemblance has just gotten a strong booster dose with the publication of an article that Fox co-wrote with Harvard business prof Jay Lorsch, “What Good Are Shareholders?” In Wall Street, I argued (among other things)

shareholders provide little or no money to the companies whose stock they own, and rarely have
in fact, since the early 1980s, the flow of cash has mostly gone in the reverse direction, from companies to shareholders
stock prices are often noisy and even systematically wrong, so therefore provide no good evidence on how well managers are running firms
shareholders’ interests are very narrowly selfish, usually at odds with workers, communities, and the broader society
so, basically, who needs them?

Curiously, the Fox/Lorsch article makes a very similar argument—one, I might add, that I haven’t really seen anywhere else. My version was explicitly radical; though it engaged deeply with the mainstream financial literature, it was also larded with quotes from Marx. Theirs is not. It makes a more modest case for bringing other “stakeholders” into the corporate governance game: “boards, customers, employees, lenders, regulators, nonprofit groups.” My conclusion was somewhat different:

In other words, the modern corporation shows that production can be organized on a large scale over time and space, bringing together thousands of workers in pheonomenally productive cooperation. But these institutions are nonetheless run by and for a small group of owners and managers whose social role is peripheral or even harmful to the institution’s proper running. This contradiction, in Marx’s words, constitutes “the latent abolition of capital ownership contained within it….”

But these days, even asking the question, “What good are shareholders?” is pretty subversive stuff.

In any case, I was paid a pittance for writing Wall Street. I enjoy neither the fame nor the compensation of Harvard swells. It would be nice even to get a prominent credit for having developed an original argument, even if its full form is too radical for an august establishment organ like the HBR. To his credit, Fox acknowledges the pedigree: