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Corporate Governance, The Firm and Investor Capitalism

Alexander Styhre

The shift from managerial capitalism to investor capitalism, dominated by the finance industry and finance capital accumulation, is jointly caused by a variety of institutional, legal, political, and ideological changes, beginning with the 1970s’ downturn of the global economy. This book traces how the incorporation of businesses within the realm of the state leads to both certain benefits, characteristic of competitive capitalism, and to the emergence of new corporate governance problems emerges. Contrasting economic, legal, and managerial views of corporate governance practices in contemporary capitalism, the author examines how corporate governance has been understood and advocated differently during the New Deal era, the post-World War II economic boom, and the after 1980 in the era of free market advocacy.
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Chapter 2: Managerialism, the problem of principal–agent relations, and free market advocacy

Alexander Styhre


In the mid-nineteenth century to the 1920s periods, the modern day capitalist economic system and many of its institutions were established, including not least the hierarchical, divisionalized corporate form that large American corporations such as General Motors developed. The swift growth of, for example, the American economy in the period brought economic prosperity but also led to the concentration of economic value. The oligarchic tendencies in industry and the strong position of finance industry actors were two of the concerns that politicians and policy-makers sought to handle through the means of legislation. The liberal lawyer Louis D. Brandeis published a volume in 1914 wherein he discussed the role of what he referred to as ‘the money trust’, the influence of finance institutions that imperilled ‘industrial and political liberty’ (Brandeis, 1914 [1967]: 43). In his critique of the finance institutions, Brandeis had no desire to sugarcoat the pill:

The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else’s goose. The investment bankers and their associates now enjoy that privilege. They control the people through the people’s own money. If the bankers’ power were commensurate only with their wealth, they would have relatively little influence on American business … The power and the growth of power of our financial oligarchs comes from wielding the savings and quick capital of others … The fetters which bind the people are forged from the...

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