From Stakeholder to Shareholder

The Paradigm shift that is devastating, and will ultimately destroy, the U.S. middle class      (admittedly a simplified explanation of a complicated issue)

An economy based on the stakeholder model is beneficial to a society as a whole.  The shareholder version benefits a few, while excluding the majority.

Stakeholders of a business include the owner, workers, the community in which a business is located, the directors on the board and shareholders.  All of these and more have a stake in the success or failure of that business.  A broader view would include the workers’ families, schools, fire and police, quality of life in a community and much more.  In the stakeholder model, all participate to varying degrees and all receive some reward.  Should the business fail, the remaining value is distributed as equitably as possible.

In opposition to the stakeholder, is the shareholder.  Shareholders are first, foremost and primarily the focus of a business.  If a business prospers, the shareholders prosper.  Workers and communities see little upward movement in their quality of life.  If a business goes bankrupt, shareholders are at the front of the line to grab up what value remains.  Once shareholders are made whole, what remains can be divided among creditors, workers and retirees.  In most cases, little remains after the shareholders feast on the carcass.

Prior to the mid to late 1970s, the U.S. economy was stakeholder based.  After WWII and up to the 70s, as the economy prospered, the wealth was more or less evenly distributed.  As profits and productivity rose, so did worker’s wages and benefits.  During this period, the U.S. middle class was envied worldwide.  A single wage earner could support a family comfortably.  CEOs were paid tens of times more than the average worker.  Communities also benefited: roads and bridges were maintained; schools, police and firefighters were adequately funded; money spent locally created more businesses and jobs.

After the 70s, the U.S. was intentionally shifted to the shareholder model.  Most of the change was accomplished secretly.  With a series of changes in bankruptcy laws and in regulations governing business, shareholders were given primary status.  Previously in a bankruptcy, shareholders were at the end of the line.  After retirees and workers were provided for, and creditors reimbursed (as much as remaining value allowed) then shareholders might be paid something.  And this makes sense.  Investors are warned repeatedly that any investment is a gamble; no investment is guaranteed.  By switching to a shareholder economy, those who work faithfully are punished, while those who are in essence, gambling, cut to the front of the line and grab up everything for themselves.

There is no moral imperative or Constitutional law guaranteeing primary status to shareholders and investors.  Laws, rules and regulations were intentionally changed to make it so.  Those same laws, rules and regulations can be changed back.  When stakeholders are restored to the position that benefits an economy and society, the middle class will recover.  CEOs will not be paid 300 – 400 times more than an average worker.  Retiree contracts will be honored, communities will recover and the U.S. will again enjoy shared prosperity.  Under stakeholder standards, shareholders and investors will still make profits on their investments.  Shareholders prospered during the age of the U.S. middle class.   Investors just won’t make profits at the expense of everyone else.

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