Tuesday, September 17, 2013

Even Business Schools are Realizing that Finance-Driven Capitalism is Unsustainable

Frank Pasquale

When leading business school professors start sounding like the Monthly Review or Occupy, you know our economy is entering a danger zone. HBS Professor Clayton Christensen recently complained that the “finance mechanism hijacks capital and recycles it unto itself,” draining money away from the types of innovations that lead to increased employment. Colin Mayer, the former dean of Oxford's business school, is even more alarmed:
As the banks have demonstrated, putting shareholders (including shareholder-managers) in a position to extract rents at the expense of everyone else, and incentivising them to do so, has unsurprisingly ensured that they have gone at it with relish. This time the headline victims have been creditors; next in line are employee careers, pensions and, increasingly, living wages. On present form, future generations, other species and eventually the whole planet will go the same way. In short, the company has become a danger to the health and wealth of the planet.
[T]he theme of last month’s annual conference of the august US Academy of Management was “capitalism in crisis”, and it echoed Mayer’s concerns. “The public corporation in the US is now unnecessary for production, unsuited for stable employment and the provision of social welfare services, and incapable of securing reliable long-term return on investment,” said one professor. One conference session asked whether so-called “benefit corporations”, a new corporate form with social as well as shareholder goals, could mark a move towards a more inclusive capitalism.
It's good to see the business academy returning to its critical roots.

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