Ownership Milan Zelený
“I am the good shepherd. The good shepherd lays down his life for the sheep. He who is a hireling and not a shepherd, whose own the sheep are not, sees the wolf coming and leaves the sheep and flees; and the wolf snatches them and scatters them. He flees because he is a hireling and cares nothing for the sheep. I am the good shepherd; I know my own and my own know me, as the Father knows me and I know the Father; and I lay down my life for the sheep.” (John 10:11–15)
Ownership is one of the most important categories in the economic and social life of civilizations. We read in the Bible that the “hireling … whose own the sheep are not, sees the wolf coming and leaves the sheep and flees … because he is a hireling and cares nothing for the sheep.” It cannot be expected of a hireling, an employee, or a casual laborer who does not own the sheep or the vineyard in which he works that he will behave like an owner who in defense of his property could risk even his life. Moreover, in some cultures, the hireling not only flees but often carries off one unfortunate lamb under his coat … No one has ever caught the owner of the sheep breaking into his own sheepfold under the cover of darkness, stealing his own sheep.
A hired laborer has a completely different relationship toward property than an owner. People behave differently in houses that belong to them than they do in public places such as hotels or offices. We remember what happens when everything belongs to everyone, or when everyone lets their goats browse on the common; neither the goats nor the common survive. Why is it that Roma caravans are clean, decorated, and well-equipped, whereas council high-rise flats for the Roma are in a desolate state? The measure of individual responsibility is derived from the measure of ownership.
The owner of an enterprise is the one who invests financial capital in it and thereby acquires the right to the profit. The owner can also carry out the directorial and supervisory functions (for which he or she collects a salary). The owner can hire and employ managers for the supervisory and directorial functions of the enterprise, and they will provide their services for their salary. The workers and employees provide their services, effort, and knowledge for wages. Managers realize the strategic intentions of their owners, carry out tactical decision-making, and coordinate (and even hire) workers. Workers (or employees) realize the tactical aims and follow the operative instructions of the management.
Owners work for their profit, managers for their salary, and workers for their wages.
When a large number of owners hold a growing number of shares, that situation brings forth an increasing number of problems and difficulties. It is clear that a large atomization and dispersion of “owners” cannot carry out the directorial and control functions (management) effectively, nor the owner’s function (governance)—both types of responsibilities must be delegated to specialized hired (paid) groups: a division and separation of the functions of ownership and control emerges.
The more owners there are (the more fragmented the ownership function), the greater the need to separate the ownership function from the directorial functions. The hired laborers and the paid management must be offered higher salaries and bonuses in order to accept responsibility for directorial and strategic functions, and later even for some of the functions of ownership. Yet, they do not have to accept the responsibility linked with the true ownership itself. Atomized shareholders are always weaker as owners and in time they do not influence even the salaries of the managers (which the directors determine themselves), their behavior, or their ethical standards. An elite group of hired directors pay themselves salaries and bonuses with little regard for the consequences. The shareholders have only one instrument: to vote and to pay contractual severance (known in Czech as the “golden parachute”).
Public shareholding ownership means that a co-owner in the firm can be anyone who purchases some shares; a controlling owner is the one who gains a majority bundle of shares. A joint-stock enterprise thus loses control over who actually owns it and more and more jurisdiction passes to the hired groups of directors and managers. The relation toward the enterprise thus changes in many directions: having a large number of shareholders tends to lead toward a weakening of the ownership functions and emphasizing a short-term horizon of interests. Such large publicly owned companies are not actually owned by anyone, and their behavior begins to resemble that of a state (socialist) enterprise. This was shown quite graphically by the economic crisis of 2008–2010.
The nature of the separation of the types of ownership from the modes of control is the basis for various sociopolitical forms and systems. The relationship of ownership to control and the deciding about resources leads to divergent measures of responsibility for the use of resources. We submit the following table of socioeconomic formations:
We have classified ownership and control into state, public, and private, thus making the identification of all possible types of socioeconomic systems.
Socialism is characterized by state ownership and state control: ownership is anonymous (everything belongs to everyone) and control is carried out by state bureaucrats (that is, by the party and the government) or their hired lackeys. Who looks after the sheep? Who stays with a sick cow overnight? The answer is: no one. Czechoslovakia under the communists had the highest measure of nationalization in Eastern Europe. Private ownership of the means of production essentially did not exist, so everyone proceeded to steal from everyone else. The measure of such a deeply rooted collective attitude toward ownership was best expressed by Václav Klaus when he implemented public ownership through what was known as coupon privatization: “We’ve been saying for 40 years that it belongs to all of us; now we’re going to issue ourselves papers saying so.”
Fascism is also distinguished by public (share-holding) ownership but the control remains in the hand of the state through state holding companies, which purchase or limit the shares of the public enterprise. In public stock corporation, anyone (mainly the state) can buy the shares and become an “owner.” The small shareholders have no ownership rights as their shares become insignificant (a case in point is the Czech energy company ČEZ and its commandos). Such an enterprise is directed by whatever sort of group acquires what is known as the controlling interest. The system of state holdings grew especially in Italy under the Mussolini regime. There are still systems where the state meaningfully shares in the control of the joint stock companies with the help of rotating political (party) appointments of bureaucrats to the supervisory boards.
National Socialism (Nazism) is the last of the systems vertically controlled by the state. The enterprises remain private; not everyone can buy into the ownership on the public stock exchange. The shares (or portions) are in the hands of private persons, usually of families, managers, and employees. The firm must protect itself against the loss of control against financially powerful groups of “raiders” who buy and “plunder” publicly shared systems. However, the state can, as in Germany under Hitler, force private enterprises to carry out required activities by a diktat, especially for the needs of wartime or crisis production. That happened to firms like Krupp, or the private firm Baťa CSR, into which the Germans planted a Reich overseer. (During 1945–1948 they were called national overseers; they were planted in private enterprises of Beneš’s Czechoslovakia, preparing private properties for upcoming nationalization.)
Soviet “perestroika” flowered in the USSR under Gorbachev in an effort to save socialism. State ownership began to be “leased” to the control of the public and of public enterprises, and thus to the people with controlling interests (that is, to communist nomenklatura, organized crime, the mafia, etc.). When you make the goat the gardener, it will eat through your cabbage and vanish. That is a simple form of logic. The Soviet enterprises were pillaged (not “tunneled,” or asset stripped—that came later and in another country), the flock of sheep scattered, the vineyards cut down. Beloved “Gorby” also forbade the drinking of vodka, so the Russians sipped perfumes. The result was the accumulation of wealth in the hands of the future oligarchs; their bags of money became useful during Yeltsin’s “privatization”—that is, the making public of enterprises with the help of freely available shares. (The expression privatization really means “making private” and not “making public” as happened in Russia and in Eastern Europe.)
Yugoslav participation preceded perestroika in Tito’s Yugoslavia. The ownership was left to the state, but control was put in the hands of the employees and management. These unionized hirelings were said to behave, think, and make decisions “like” true owners. Ownership is not the same thing as this “as-if ownership.” Yugoslav employees owned nothing. On the basis of their short-term “grab what you can as fast as you can,” they discontinued investments. Inviting the wolves to watch over the sheep? The real owner limits consumption so that he can invest, but the “as-if owners” cut investment so that they could consume. So, this “experiment” also crashed.
There remains only the diagonal. Along the diagonal in the table, the ownership and the control functions are not separated: the first diagonal form is socialism (state-state), followed by systems of public stock ownership and share control (share-share), and finally private ownership and private control (portion-portion). The difference between a share and a portion is that shares are publicly available on the stock exchange and anyone can be an owner; a portion remains in private hands of selected owners.
Public capitalism of public companies is the second diagonal form. Democracy here is not one man = one voice, but one share = one voice. If someone holds a controlling interest, then he decides for everyone else. If equal shares are held, or even atomized among millions of “owners” then it is tempting to “tunnel out” or embezzle the funds of such companies, as happened in the Czech Republic in the 1990s. A public stock company must hire professional management. These salaried men can be dismissed at any time, so protective and expensive agreements are demanded. They decide de facto and later on even de jure.
Private capitalism of private companies is identified by the fact that shares in the enterprise are not publicly available, owner relationships are stabilized, and the management and employee owners permanently share the capitalization of their portions. The people who make the decisions are at the same time owners. It is not possible to “buy in” from the outside. Owners of the enterprise work, and when they stop working they stop being owners (they have to sell their portions within the enterprise for internal contractual prices). The firm Baťa, in its time one of the most successful firms in the world, was an example of a private enterprise in Czechoslovakia. The shares in Baťa were private portions and were never traded on the stock exchange.
From the table, anyone can identify the essence of the socioeconomic system in which they happen to live. During the transformation in Czechoslovakia, the mass public offering of the state holdings was called “privatization” even tough there was no “going private” about it. Real privatization happens when a publicly owned enterprise buys up its own shares so that, according to performance and merit, it can allocate them to its employees and managers as portions, and an enterprise becomes private in this way. A private enterprise cannot be traded and used for speculation on the stock exchange. Such a transformation of state enterprises into private enterprises is desirable, but the transformation of state enterprises into public enterprises, especially by the Maoist “allotment” of state-issued coupons, leads only to tunneling, speculation, and crisis. According to the table, the correct road leads along the diagonal; in the direction toward the preferred economic system of employee copartnership where private ownership is not separated from private control. This form, growing from the roots of the Moravian system of Tomáš and Jan Baťa, was known to Czechs and Slovaks in the 1920s and 1930s from their own experience. But of course, they quickly forgot, and after 1989 definitively sold out their Czech-owned enterprises to foreigners and lost a chance of creating their own elite of national capitalists.