It was the 1930s and changes were coming in Capitalism. Till then, most companies were run by their owners but a large number of investors began a new trend of pooling resources together and hiring experts to manage their companies. Managing companies on behalf of multiple owners created a situation that has come to be known as the “principal agent” problem.
One of the problems of shared ownership was to decide who actually supervises management to secure performance and accountability. As no one had principal responsibility it was easy to become less active and pass the buck to others when it came to monitor managers. Such reasoning incentivized in some instances the abuse of manages who paid themselves excessively and wasted money in all kinds of perks.
Some of these managers could easily get into very risky deals to make their companies look good and part of the problem of our recent economic woes can be attributed to such fragmented system of supervision. Now, the problem has many solutions, the principal being that shareholders can take their money away and invest it in other companies that perform well and have sensible management. They have the freedom to reject the deal and options to enter in better ones.
The ‘Occupy Wall Street’ crowd thinks that most of our present problems come from the concentration of power in the hands of wayward companies presenting the principal agent problem. However, they seem to ignore the major problem of principal agent in the welfare state.
You cannot stop paying taxes nor can you decide to withdraw from certain programs such as Social Security. Taxpayers are required to allow the confiscation of their resources under the threat of force and varied kinds of punishment. Corporations are not democracies in a meaningful way, if I do not like the company I can take my money elsewhere and what others decide to do is not affecting me any longer. But if I vote against a politician he might still win and his decisions continue to affect me.
Furthermore, the task of removing a politician takes considerable effort by many actors who might not necessarily have my needs in mind. After all that effort, the given politician may be removed but the problem concerning me may remain, as there are intractable bureaucracies that remain and other politicians influencing legislation over whom I have no power. My one vote drowns in a sea of opinions while my one decision to remove my property from a corporation has all the power I really need.
A voter cannot simply exit his belonging to the state nor can affect in meaningful ways the horrendous abuse of power of people who seem completely unaccountable. My relationship to programs paid by government remains for me by paying taxes I cannot stop paying. If a welfare program is mired with abuse, it may remain that way for long and I cannot refuse to pay for it. If I have no children, I must still pay for the education of others and if I already pay private education for my children, I still must pay for the education of others.
Moreover, government has such power that it influences the behavior of the very corporations ‘Occupy’ hates. It regulates them and benefits those companies government chooses to benefit. I may own stocks in BB&T (they did not receive bailouts) but I still must support its competition when government bails out other banks. In other words, I must go against my own interest on behalf of some fuzzy understanding of the ‘common good’ imposed on me by politicians!
Having such power of confiscation and police and the resources to lure corporations into alliances of mutual benefit, I would think government would be the major “corporation” being challenged by the ‘Occupy’ movement. But no, what we hear is mostly about giving government even greater power to oversee the private sector. God help us…