By Tom Powdrill, Project Lead on Broadening Corporate Governance Participation
In PDI’s work we seek to develop innovative and transformative approaches to the distribution of wealth and power. We start from the understanding that concentrated wealth and power creates a range of problems for our societies. In addition to driving inequality it can feed the grievances that populist politics draws upon.
That concentration of wealth and power can also create political risks of its own. This concern has recently returned to prominence. But it isn’t new. Here’s a succinct description of those risks and how they might be addressed.
“Companies that are monopolistic in character or companies that have to exceed a certain size may impart an economic and thus also a political power that can jeopardize freedom in the state. This danger must be eliminated by the passage of appropriate anti-trust laws. Furthermore, these companies must operate under the principle of power-sharing in order to prevent the state, private persons, or groups of people from dominating key branches of the economy, which would be incompatible with the common good.”
This passage resonates when we look at some of the challenges we see today. There is market concentration in a number of sectors and some leading companies seem willing to collaborate with concentrated political power. In some cases this even extends to giving the state an ownership stake.
As the passage above warns, such developments pose a risk to the common good - the public’s interest. So it’s interesting to note that it comes from a program put forward by Germany’s centre-Right Christian Democratic Union (CDU) in 1947. This is known as the Ahlen Programme, named after the German town where it was adopted, and provides an illuminating insight into how a previous generation saw the risks from concentrated wealth and power.
The CDU’s approach was fundamentally shaped by the experience of Nazism, and in particular the risk of the co-option of major companies in the service of authoritarianism. The passage above makes clear that antitrust enforcement is one part of the story, but the CDU was also concerned by the question of ownership. This was directly informed by how power was concentrated during the Nazi era.
“The period following 1933 saw the emergence of powerful industrial conglomerates that functioned as monopolies. Their operations became opaque to the public, and they eluded public control. Even if, with a few exceptions such as Krupp, stock ownership of the major industrial corporations was broadly distributed, the composition of the supervisory and management boards was determined by a relatively small circle of men because the shareholders, though large in number, were represented by a limited number of banks. As a result, those belonging to this narrow circle representing the major banks and large industrial conglomerates wielded far too much economic and political power.”
To tackle concentration, the CDU advocated extending ownership to local authorities, employees and others, but it also favoured a cap.
“[L]egal limits must be placed on the private ownership of stock in these companies so as to prevent the concentration of ownership or voting rights in one hand.”
Looking at the CDU’s concerns from the first half of the 21st Century, the concentration of ownership – and power – is familiar. Stock ownership is increasingly concentrated with a handful of large financial institutions. Whilst ownership and control is notionally dispersed through index funds, for example, effective control is concentrated with a small number of asset managers and allocators. As noted earlier, at the same time countries like the US have seen concentration across market sectors too, so both industry and its ownership are increasingly concentrated centres of power. This is structurally similar to what the CDU saw in the 1930s, despite specific circumstances being different.
Another element of CDU’s proposals to address and prevent the concentration of power in large businesses was its advocacy for worker participation in the governance of firms as a way to enact “power sharing”.
“[T]he employees’ right to codetermination in fundamental questions of economic planning and social organization must be assured. Initially, this must be achieved by granting company employees due representation on the company’s advisory bodies, such as the supervisory board… In large companies with multi-person executive boards, employees who have served the company for many years should be granted participation in the management of the company through appointment to the board of directors… The chairman of the works council, who is elected by the workforce, must be given the opportunity to participate in all decisions that concern the social interests of employees. Furthermore, and in any case, company management must give monthly reports to the works council on the state of the company, and members of the works council must be granted the right to learn details at these meetings.”
In a forthcoming PDI briefing on worker participation in corporate governance we’ll be looking at some of the less well-known traditions of support, including those on the Right of politics such as the CDU.
What the Ahlen programme shows is that the ideas that PDI is developing to enable the adoption of predistributive approaches by businesses, investors, workers and communities have an interesting pedigree. In the immediate aftermath of one of the worst episodes of human history proposals that have a strong family resemblance to our own were advocated by the political mainstream. And this was done with the explicit intent to prevent the re-emergence of a style of politics that we see again today.