Financial Motorcycle Helmets

Michael should be back in a couple of days, so it is time to start winding up. Which gets back to the my July 9 post. There, I identified my two key questions: “Is it possible to come up with accountings that investors can understand? If not, what to do?” Since then, we have been exploring the first question. Draw your own conclusion. We now turn to the second question: what to do if we cannot fix the current regime.

Karen’s comment on my post yesterday suggested that we should get rid of the public corporation, as it no longer serves a public purpose worthy of holding funds from the public: “I really wonder if it’s time to *rethink* this legal fiction and concept of these entities that are now no longer “Citizens” of any particular country…but Global Actors with allegiance to only their Corporate Profit maximization and those of their CEO and management at the expense of even their sponsors (shareholders).” To this point is the movie The Corporation, which certainly is worth viewing. I am not an expert on corporations. But, in the abstract, Karen’s comment has a lot to recommend it. Unfortunately, the public corporation plays a central role in postmodern capitalism. Removing that role would make a radical change in the play. So, less radical solutions are worth thinking about.

More after clicking.

A still-radical, but less radical than Karen’s, solution is to get the little guy out of the way of the train: Individuals with a net worth below a certain level (and without an MBA or a PhD in economics) would not be allowed to buy stock by themselves. (The Brad DeLong post linked to in my post of July 17 suggests that an MBA may not be much help:)) Purchases with the help of a regulated investment advisor would be allowed, as would owning approved diversified mutual funds.

Which raises a classic American question: Should we interfere with folks’ freedom in order to protect them from themselves? We make people wear motorcycle helmets in some states. (This also reduces public health expenditures, of course. Saving folk from getting hosed in the market may be good for society at large, but not as good as keeping people from brain damage in a motorcycle accident.) I think so, but I recognize that reasonable people might disagree.

Which highlights my favorite aspect of the entire accounting mess: what it says about privatizing Social Security. Think about the absurdity of having tax dollars managed by individuals based on the current accounting rules. As Karen’s comment catches, this turns the idea of the public corporation on its head.

Tomorrow: An even less radical solution that business may find even more offensive.

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One Response to Financial Motorcycle Helmets

  1. Karen says:

    I’m not suggesting getting RID of them…but changing their legal-fiction status to recognize the changes of their place in the world and the global economy.

    There was an article in the NY Time Mag (some time shortly after 9-11) as a discussion about the failure of Islam as a religion to prosper economically owing to is refusal to allow for partnership and corporation type systems under their laws. Thus, if a group formed a partnership to create a company…if one partner died, that immediately dissolved the partnership. It could not survive, and not be passed on to the remaining partners or the heirs. (I wish I had a citation to this article…but it was long before I blogged – sorry). This was, in the writer’s view, one of the main reasons Islam failed to grow societally into the types of larger societal structures and business successes of the modern world. Why it has trouble today on a capitalist-competative basis…and remains basically functional for the small tribalistic groups tha make up so many of the Muslim societies around the world.

    So – I’m not looking to destroy corporations or partnerships- or get rid of them…merely re-think the legal basis and structure of their *fit* into the world which would address these concerns of how they are no longer fictional “Good Citizens” under the law.

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