John Kay on Capitalism
John Kay made these comments in a talk at the LSE.
The word capitalism is a misleading term that encourages many misapprehensions. One is that economic power rests with the owners of capital. There was a time when this was true, eg Arkwights Mill existed, and this gave Arkwright real power. However, this is no longer applies. In the modern world, economic power rests with financiers, and people like Jamie Dimon, Ben Bernanke and Steve Jobs. Their power comes from their position in the hierarchy, as it always has, in the church, the courts, and other power structures. Their economic power does not come from the ownership of capital. They derive capital from the power they exercise. They do not gain power and influence for their capital. They gain capital from their place in the authority hierarchy.
Ownership of the means of production does not mean anything anymore. The term ownership is unhelpful. No one owns Apple or JP Morgan in the usual sense of the word. The Apple store in Regent Street is 75% owned by the Queen and 25% by a Norwegian sovereign wealth fund.
Share ownership does not mean anything either. There are four aspects of ownership of shares.
All four roles can be exercised by different entities, and they usually are in the UK. Discussion about ownership of shares obscures our understanding of modern business.
Security markets are thought of as a market for buying and selling capital. This is no longer the case. Modern businesses are able to fund their expansion from the surpluses generated by their activities. (Small and medium business do not have access to capital markets). Modern business is less capital intensive, so successful businesses become capital generative earlier in their life. Capital markets are not a means of getting capital into a business, but a way of getting money out. Most activity is financial engineering and not capital raising.
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