The transition from traditional managerial capitalism to financial capitalism
The paradigm shift in the US business model and economic system in the post-1980 period
Today, we will discuss a paradigm shift in the US business model and
economic system in the post-1980 period.
Questions
1. Considering low payouts to shareholders in the pre-1980 period, how
could shareholders successfully discipline managerial classes?
2. What direction of changes has taken place since the 1980s in terms
of time-horizon, use of profits, and labor relation?
3. Who makes ad who takes from the real economy?
4. Is the current economic model based on financialization sustainable?
If not, how can sustainable prosperity be restored?
Summary: Managerial Capitalism (Chandler pp. 9-11)
(Managers vs. Shareholders)
Corporate Managers (growth-oriented class interests)
a. have best information about the firm than other groups
b. are in favor of continuation of the enterprise and long-run growth than short-term
profits. They wanted to increase their personal power within the firm along with its
growth.
c. are reluctant to distribute profits to shareholders in the form of dividends. Instead,
they want to reinvest profits in capital goods and employment
Corporate Shareholders (short-term profit orientation)
a. are largely in lack of experience and knowledge about the firm
b. are in favor of short-term profits, easily sell out of position in firms
c. want larger payouts, claiming that they are the owner of the firm, but largely failed
in disciplining managers
Summary of Managerial Capitalism:
Professional Managers vs. Workers
a. Manager: continuation of the enterprise and long-term growth of the firm. Managers
aim to increase the market share of the firm → promotes job creations
, → Workers: Job stability & larger employment
b. Salaried managers had a close contact with non-manager workers and wanted
to avoid conflicts with workers (regarding wages, social insurance, and employment)
→ The outcome was the shared prosperity and class compromise
Managerial Capitalism to financial Capitalism (post-1980)
Q1. What was shareholders’ strategy in changing managers’ class
interests? How could shareholders successfully discipline managerial
classes?
Q2. What direction of changes has taken place since the 1980s in terms of
time-horizon, use of profits, and labor relation?
Intellectual Idea to discipline managers
Agency Theory: Aligning the interest of managers
The agency problem from moral hazard
Principals (like shareholders or owners)
vs
Agents (like managers or employees)
- How to solve the problems that arise when agents act in their own interest rather than
the principals’ best interest.
- The need for incentivizing agents to align their actions with the principals’ goals
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