Thinking Managers

Robert Heller of looks at the false assumptions and illusions that have tested the very principles of free market capitalism.

Testing Capitalism

The ongoing controversy over bankers’ pay has proved too important to be ignored - and the Obama-Volcker reforms, marking the end of organised greed for the time being, must attract treatment from every interested party. The most uninterested were the robber barons themselves, claiming to be victims of circumstance. You see, whatever these guilty folk fixed as a true and fair amount of pay, it was de facto true and fair. But no more.

The aim of the proposed Volcker reforms is to destroy this self-centred fantasy once and for all. The same song still rings out over the issue of executive pay. We ‘reward’ these people with unbelievable sums of cash, not because of the good things they do or their success, but to prevent them exporting their brilliance to other institutions; or, worse still, other countries.

The bankers boast, quite rightly, of having global businesses, which means that the talents are spread widely. But the truth is, only a few master the globe, and none truly deserve the masterly millions. However, the bonus payment structure has run deep inside the many thousands who work, some doubtless overpaid and under-skilled, in those towering, shiny office blocks.

It turns out the bank offices provide another rich example of colossal percentage takes - the architects have become super-rich on the fees paid out by the customers. The more the latter are persuaded to spend, the more riches flood in, to the glorification of both the builder and the tenant. No doubt the ability to employ an ace architect is part of the bank brand. However, what if the entire global brand is overpriced?

The illusion of real assets is created by the manipulation of paper wealth. Resisting all attacks and riding over all its disasters, the money machine has shown incredible durability, embodied in names that have been associated with economic and political power for hundreds of years - Morgan, Goldman Sachs, Rothschild, Rockefeller, and so on, now joined by hedge funds, private equity firms and plenty of other lesser latter-day giants.

The hordes of lesser leaders have grown at an increasing rate, fed by the success of genuine innovators, the designers and makers who have the ability to supply a newer and better product or service. The business pioneers accumulate transferable wealth as they expand. But because they are not financiers, they employ others to solve the real problem of taking care of the money they cannot spend. That’s when the financial idea companies get to work, making new baskets for the golden eggs - looking after other people’s money and extracting a king’s ransom as they seek to make the paper wealth grow.

Capitalism has been tested beyond its limits by inherently risky and completely false assumptions. It turns out that globalisation was a trap and a delusion. It looked like a dead cert for the world economy but it became a nightmare. So the reforms could be the beginning of a new and true reality - but watch out because those robber barons might ride again one day.

About the author
Robert Heller is one of the world’s best selling authors on business management.

  Robert Heller