Stakeholding & Its Critics (Choice in Welfare , No 36)

Capitalism is the only game in town, according to Will Hutton, but we can choose between different varieties. Hutton attributes the blame for Britain's poor performance to the pursuit of short-term profits for investors, instead of long-term policies which take into account the needs not only of shareholders but of suppliers, workers, trade unions and banks as well. Hutton blames the Conservative government's 'single-minded pursuit of free-market economic doctrines' for making the situation worse and leading to a fragmented society. Instead, he recommends stakeholder theory, embodied in a range of reforms to discourage short-term profit-seeking and to change the structures of corporate governance. Hutton's critics take stakeholder theory to task on a number of points. Tim Congdon shows that, far from demanding exceptionally high short-term returns on capital, UK investors accept the lowest rate of return of all the large OECD countries.^ However, in terms of output per unit of capital invested, the UK has out-performed all other G7 countries since 1979. David Green argues that Hutton's analysis of failures in the welfare state is misguided since, far from rigorously pursuing market principles, the Conservative government has continued the paternalist/corporatist approach to welfare which characterises socialism. Stanley Kalms puts the retailer's view of 'stakeholding', which he says would leave shoppers worse off. Martin Ricketts shows how competitive markets offer a choice of institutional types, including co-ops, mutual organisations, partnerships, profit-sharing firms and joint stock corporations. If 'stakeholding' is considered beneficial by businesses there is nothing to stop it developing. Elaine Sternberg argues that stakeholder theory would, in practice, be unworkable.^ It would reduce corporate governance to a complicated procedure of balancing the competing claims of various 'stakeholders', ruling out the pursuit of any specific objective, commercial or otherwise. In keeping with the symposium format which has made previous publications in this series so useful for teaching purposes, Hutton is given the chance to respond to his critics. Stakeholding and its Critics thus presents a valuable cross-section of the debate on this important and topical issue.