Owning Up to Our Responsibilities

I want to make this very plain and simple.

We are responsible for what is happening in the world today.

There is no one else we can point the finger at or pin the blame on. It is ultimately we who must face reality or pay the price.

Why do I say this and what do I mean by this? Well basically it is to do with our social system and our business and economics which have now become so complex and global that it is perhaps difficult to fathom the interconnections. Pretty much all of us in the richer countries of the world are part of the global system. Only if you are a child or someone who has severed all connections with the system out of choice or due to circumstances beyond your control, i.e. becoming financially insolvent and homeless, are you not included in the social and economic systems I will shortly refer to. And this is perhaps why it is the young people who are not yet embroiled in the complex web of connections who are getting frustrated with us for not realising that we are the cause AND the solution to the problems we are seeing around us.

Society has changed a lot in the last couple of centuries. One of the biggest developments has been the rapid increase in capitalism which has expanded massively on a global scale. Whatever your politics, that is whether you are in favour of or against capitalism, it is something which we all participate in whether we are aware of it or not. A cornerstone of the capitalist social structure is the company. This is an organisation developed to utilise its resources and people to make money, which it can then reinvest if it wishes into more resources (premises or equipment, etc.) and more people (employees) to increase its money making capabilities even further. Companies can be formed to pursue virtually any objective within the law and they are only legally required to stick to the objective stated in the articles of association which is a binding document to whom all who form the company by association must ascribe to. This also defines its governance and the way in which ownership is held by the associated members. In a simple company ownership may be divided equally by all the people in the association. Quite a few clubs and societies operate this way. Things can get more complicated when the company ownership is defined by share ownership where each share gives a predefined proportion of ownership and these may be bought or sold by individuals who may own one or more shares. This is the most common model of company ownership and the one that is the basis for most of the incredibly large global corporations we think of when we think of global capitalism. Really though they are no different from the simpler forms of company or association and are just a bunch of people getting together to fulfill some aim which is usually to do something to make money.

The development in recent years which has really taken this sort of thing to a whole new level of complexity is that it has become possible for companies themselves, as legal entities, to own shares in other companies. So now all the people which once were represented by the association are now able to become part-owners en masse of other associations, and this is perfectly legal and acceptable. As long as there is nothing fundamentally at odds with the original articles of association, which often stipulate that the company can act to own property or other such investments, then it is possible. The financial industry took advantage of this potential and created companies solely for the purpose of holding securities (another term for company shares) which themselves had share based ownership. Thus the first unit trusts were developed and promoted as ways of hedging, which is another way of saying not putting all your eggs in one basket, against losses made by owning shares in companies which ended up not doing so well and making a loss or going bankrupt therefore losing all the money invested. The idea was that it minimised risk. You were literally hedging your bets when you put your hard earned cash on the line hoping to make some back in return.

The system seemed to work reasonably well, attracted a lot of investment and grew considerably. “If something works, don’t break it” is an oft quoted saying. Financial institutions saw a good profit on their investments and the businesses, whether in manufacturing, retail or whatever industry, could rely on steady investment to keep their enterprises going. The issues started when the companies which were doing so well financially started to think it was a good idea to start behaving like financial institutions and began diversifying into the investment area themselves. Quite a few even set up investment divisions, with companies like Tesco setting up their own banks. Having a company based pension scheme was in a way like a business turning some of its resources to financial investment. The financial institutions that already offered pensions continued to do so and even some professional bodies like teachers’ unions began to hold huge investments through their members’ pension schemes. The various established churches and other charities were also heavily involved in making investments with more and more resources from many different organisations all contributing to the build up of the system. Many of these latter contributors would never even consider themselves capitalists, they only wanted to do something with their money which provided a relatively risk-free modest return that was better than putting it under the mattress figuratively speaking.

As the financial system became increasingly interconnected by frequent inter-ownership that was made possible by company creation the unexpected result was that volatility crept into the system. This massive interconnectivity meant that small fluctuations in share value could become rapidly amplified through the system of share trading and this unintended consequence could also be exploited by traders who made money on the commission, or margin (that is the difference between the price offered to buy or sell shares), that changed on a minute by minute basis and by trying to anticipate the movements it could leave traders at the end of a day with either a small fortune or a massive debt on their hands. This encouraged risk taking which was little more than gambling on the markets and is known as spread betting.

I digress somewhat from my original point but I think I have painted a reasonable picture of how the system grew from one of relatively simple and predictable economic measures of cause and effect to a mass of hugely complex and interconnected financial entities. And where do we fit into all of this? Well the situation is that now, even without being a wealthy financier, we are all part-owners in this financial socio-economic web which is shaping our world in so many ways. It is now the law that employers have to provide a pension for their employees. Think about that. By law your employer must set up and contribute, that is invest on your behalf, to a pension and deduct your own contributions from your pay. This, it is believed, will ensure that all people with wages will be able to retire eventually with a pension. What this does, in fact, is make it compulsory for everyone earning a wage to participate in and therefore bolster the increasingly unfit for purpose socio-economic system, with no actual guarantee of ever having a return on the investment as all investments are susceptible to loss as well as gain. In some ways it feels a bit to me like the way the government enacted laws making it compulsory to attend church, thereby ensuring the churches coffers were filled by the congregation’s donations. The church no longer has such great powers to lobby for a law like this today but corporations do and they have carved out a nice little earner for the financial institutions which we helped to bail out not so long ago.

It is important to remember though that as investors, whether by putting money into pensions or through share based tax-free ISA savings accounts or investments in Unit Trusts, and pretty much all of us do at least one of these things without thinking too much about it, we are actually part-owners of the companies involved in the system. We may only own a tiny proportion of each of the companies involved as individuals but our contribution is still there and the ownership by the populace is a large proportion when counted together. It is just that we don’t realise we have the rights that come with ownership such as the ability to influence the governance of companies through attendance at Annual General Meetings and voting rights. You will probably realise you have these rights if you own shares directly but not if your shares have been diluted through layers upon layers of companies formed only for the purpose of holding shares. We now have to take ownership. We have been reaping the benefits for years but without actually taking ownership which means taking responsibility. Whether we realise it or not and whether we like it or not we are all capitalists, with the exception of those people I mentioned earlier i.e. children and those who have slipped through the cracks and therefore no longer have any real connection to the system probably to their detriment like the homeless and destitute. Are we going to start actually taking some responsibility now as the children are clamouring for us to do?

In the past communism, socialism and the anarchist movement tried and continues to make attempts to counter the capitalist socio-economic system. Anti-capitalist and environmental groups who see the destruction that corporate bodies are capable of and want to stop them have been active in recent years. Their efforts so far have only been successful in creating a raised awareness of the consequences of unchecked greed through the media but not in actually dismantling the system which is their stated aim. I think that it is likely that as the system becomes more and more complex and interconnected the volatility I mentioned earlier could lead to its self-destruction through its own internal instability. This is very similar to the potential that anthropogenic climate change has of reaching a tipping point where feedback loops begin a cascade of effects leading to widespread climate disruptions that are beyond the ability for us to intervene. We have already seen situations in the global economy where this nearly became a reality such as the banking crisis of 2008.

So what can we do? I’ve already said a few times that we all have to take responsibility now and although I may urge you to do this I cannot make you. That is your choice alone. But I can tell you what I intend to do. I will take responsibility for the role I play in society and I will live my most authentic life. And I will also continue to learn as much as possible in order to see through the confusion.

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