STOCK MARKET WATCH -- Thursday, 12 January 2012

[Demeter]

12. The Real Crisis in Capitalism By Bill Bonner

http://dailyreckoning.com/the-real-crisis-in-capitalism/

...In 1965, US chief executives received 24 times the wages of the average worker. Over the next 25 years, the ratio went to 70 times. Then, it exploded to the upside, rising to 299 times in 2000 and 325 times today. People look at these figures with the same look of appalling disgust as they once looked at syphilitics. It is ugly, the outward sign of an inner sin, they believe....But it is hardly the heart of capitalism. Nor the liver. Nor the kidneys. Nor any other vital organ. Executive pay is not a benefit to capitalism. It’s not what makes the system works. It’s a cost. A drag. An impediment. It’s only a benefit to a very special segment of the working class, the managers. They are the cadres...the insiders...the controllers. More like plantation overseers and prison wardens than capitalists, their interests are very different from either the working stiffs or the shareholders. They squeeze the former and cheat the latter. They cut costs...deliver profits...and pay a large percentage of them to themselves.

According to John Kay, also writing in the FT, a breach opening between capitalists and managers was observed as early as the 1930s. The capitalists still owned the capital. But the managers controlled it. “Modern titans derive their authority and influence from their position in a hierarchy, not their ownership of capital,” Kay explains. “They have obtained these positions through their skills in organizational politics, in the traditional ways bishops and generals acquire positions in an ecclesiastical or military hierarchy.” They are bureaucrats, in other words...glad handlers...schmoozers...not entrepreneurs or capitalists. And over time, like major domos, regents, and regisseurs, they use their control of the institution for their own benefit.

How do they get away with it? It is a part of the process we call ‘zombification.’ Institutions all tend to shift, over time, from fulfilling some outward-centered purpose — such as making bread or making war — to looking out for themselves. Whether it is a government or a corporation, hustlers, anglers, and idlers figure out how to take advantage of them. These ‘insiders,’ pervert the organization and divert its power and money to themselves.

The club secretary, the company president, the charity director, the dictator and the senator...all look for ways to build their own power and wealth. National economies are undermined. Whole industries are corrupted...