Corporate capitalism at the edge
 The global financial crisis puts a question mark upon the corporate system's health. The corporations were born in the wild capitalism times around the year 1900, when the capital aggregation in the New World was based on the change of power proportion between Europe and USA, especially in the economic sense. In that moment, the corporations were private or cvasi-private entities, controlled by a few persons which also ensured the company's management. The market position, a monopolistic one, ensured large amount of capital in the companies' activities, and the capital market business had exclusively the role to ensure financing (through launching shares primary offers) or to avoid the lack of transparency.
Meanwhile, the companies have evolved into what they have become meaning multinational entities with incompatible shareholders, run by manager groups whose personal interests are often antecede the owners' interests. The market's control over these corporations was dissolved more and more in time, so that the owners can only rarely influence the administrative councils' decisions and the information they benefit of are carefully filtered by the management, sometimes even sustained by the audit companies. In this context, the capital market's reaction to the unwanted events in their activities is late, but brutal, generating a strong psychological effect volatility. So, the entire corporative world, including the banks and also firms from various domains, strongly felt the initial shock of the crisis, which was exacerbated because of the investors' incertitude and distrust in their financial capacity.
The aim is that, through the state's intervention into these companies' operations and ownership, the corporations situation to recover and investors to calm down (the depositors too, in the banks' case), but there are no guarantees for the management process improvement. That is why the market has no positive reactions towards the government's interference into the economy, accepting them only for a short period of time. For the economic climate betterment it is necessary to reform the corporative capitalist system through "breaking" the big companies and giving the owners the real control over their activities (a trend started in the '80's, but abandoned because of the globalization). A fact is for certain: we are living through interesting changes and the future capitalism will probably look more as the one that was theoretically described by Adam SMITH over 200 years ago.
Dragos CABAT
Published on 27.11.2008
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