Alternative forms of ownership and control in the global south

This Special Issue of the International Review of Applied Economics is focused on what sort of corporate forms should be promoted in the global south to promote economic, environmental and social sustainability. It was commissioned in association with the Southern Centre for Inequality Studies at the University of the Witwatersrand, Johannesburg, who are undertaking a research project on this topic. Perhaps for that reason, many of the papers received relate to South Africa, although we do believe that the lessons from these have wider significance for the global south.

Since the global financial crisis of 2007–2008, we have witnessed an intensification of policy debate – and grass roots mobilisation – around the role of the modern corporation in society, and specifically around different forms of enterprise ownership, and the accountability of these organisations to their various stakeholders. The question ‘who are corporations accountable to?’is thus often at the centre of these debates and actions. Christine Berry (2020) argues that:

The first shared idea at the heart of these new approaches is democratic ownership. In different ways, they seek to reinvent the socialist principle of common ownership of the means of production. This is not about returning to a top-down state socialist model, although state ownership does play a role. Nor is it simply about bottom-up worker ownership models such as co-operatives, though they also have their place.

The new economic democracy asks how we can build a pluralist ecosystem of democratic ownership, with assets owned by different publics at different scales. This includes public, community, co-operative and commons ownership models, at national, municipal and local community level.

Increased inequality of earnings and wealth has been part of this narrative. Efforts to check rising inequalities have often been conducted through what might be termed ‘secondary’ or ‘outsider’ mechanisms – counter-organisation, mobilization, regulation and protection – as well as the more traditional forms of trade union organisation:

Organised labour was until the 1980s, the main humanising force within capitalism, far exceeding philanthropy and religion in its material achievements … [But] the aim of neo-liberal policy in the early 1980s was to inflict a slump so hard it would destroy the bargaining power of trade unions, the culture that incubated them, the values of solidarity they spread, the socialist ideals they nurtured and the workplaces they organized in. (Paul 2019, 42)

Trade union power has been weakened over the past 30 years or so as corporations have often become more complex, more globalised in both their operations and governance, and more IT driven in an alienating way. Alongside the corporate executives are investment bankers, hedge fund managers, auditors, tax advisors and consultants who have pulled away from the rest of society into a clubby, culturally-connected, poorly regulated mega-wealthy bubble.

This rise of inequality has been analysed in a large literature. Particularly noteworthy was the evidence reported by Piketty (2014), detailing the shifts over time occurring in countries across the world, with income and wealth becoming more concentrated in the already best-off one percent, and even more strikingly in the hands of the most wealthy top 0.1%. An obvious question is why this would have been permitted to occur, including in countries where the governments responsible were elected and re-elected by those largely losing out. This points to an important point, that the inequality is not just in income and wealth, but also power. And that these are correlated: those with corporate and other power tend to be those who are also the better off in terms of incomes and wealth. Indeed, there is causality behind the correlation, in that the wealthy tend to fund the campaigns of those politicians who then deliver the policies that reward those same individuals.

These relations betweenincome, wealth, and power also operate at the level of the firm – and hence are central to the issues being analysed in this Special Issue. Incomes are generally set by firms and corporations, in the workplace. The blame for the currently unacceptable levels of inequality across the world today largely therefore lies there. Income inequality can cause wealth inequality, but the driver is usually the other way round: those who own the companies, set the pay. Likewise regarding power: wealth buys power, and companies therefore have power, as do those who own them.

So, who owns these companies, and why does ownership reside where it does? It is important to appreciate that before the legal arrangement for corporate owners to enjoy ‘limited liability’, entrepreneurs risked losing everything if their venture (or gamble) failed: the introduction of ‘limited liability’gave them protection from having to repay their debts. This is clearly costly – potentially disastrously so – for those who thereby do not get paid the monies owned to them. So why was this corporate form introduced? It was to encourage the formation of such companies because – and only because – it was believed that such companies would serve some corporate purpose.

1. Corporate ownership and purpose

Stiglitz (2019)reminds us that in the US, Milton Friedman was influential not only in spreading the doctrine of shareholder primacy, but also in getting it written into US legislation, having long argued that ‘there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits’(Friedman 1962). One response to the argument that companies must be responsible to their owners is to change the owners. If we want companies to pay proper attention to their employees, then by all means, let them have a collective ownership stake, so executives and senior managers are bound to consult with them as appropriate, as owners. If we want business to be responsive to customers, perhaps the customers should be owners – either outright, as in a consumer co-operative, or having a portion of the company owned by the customers. And so on.¹

Hence the idea pursued in this Special Issue, of promoting new and diverse forms of business enterprise built around wider stakeholder or member-owned models such as worker, consumer, or producer co-operatives; mutual and benefit societies; employee-owned and other co-owned entities involving varying but significant worker participation in key decision-making; and others still lacking specific descriptors. There are intrinsic benefits to mutual ownership, most notably a commitment to the long-term health of the organisation

There is also a benefit to the economy – and society – in having a good degree of corporate diversity. Different corporate ownership forms createsa healthy variety of incentives, policies, practices and behaviours. These make the economyas a whole more resilient. Since the mutual sector is usually small, promoting corporate diversity means promoting mutuals, to bring that about.

Some movement in support of stakeholder capitalism is already discernible, though how deep, widespread and sustainable it is remains to be seen. In August 2019 a statement by the CEOs of leading U.S. corporate appeared to endorse the shift away from shareholder wealth maximization: ‘the statement endorsing stakeholder capitalism, signed earlier this month by virtually all the members of the US Business Roundtable, has caused quite a stir. After all, these are the CEOs of America’s most powerful corporations, telling Americans and the world that business is about more than the bottom line. That is quite an about-face. Or is it?’ (Stiglitz 2019).

This Special Issue aimsto promote the analysis and discussion around alternative forms of ownership – to use a short-cut description for a complex set of organizational forms, structures and connections.Amongst the aims of this Special Issue is to work towards a better understanding of the impact of the dominant corporate form on inequalities of power, income and wealth.

2. Varieties of capitalism and the global south

This links to the long-running question of what a progressive pro-poor variety of capitalism – that aims to reduce inequality, promote economic development, and strengthen social infrastructure – might look like, and what it would have to offer for the global south. In South Africa, such debates over the decades have focussed on history and sociology, with surprisingly little substantive to say about economics and economic policy. The ANC’s failure throughout its history deliberatively to engage economic theory or policy did not help to move the debate forward. Yet in broad economic terms one could or can speak – in thinking about the middle economics ground – of post-Keynesianism, structuralism, a developmental state, or more descriptively, as Alec Erwin once proposed, ‘growth through redistribution’. A mixed economy, perhaps, as the ANC has suggested from time to time, without filling it with any policy content of substance. The ANC’s invocation of the term ‘mixed economy’ – which we trace to a Lusaka workshop addressed by SOAS economist Laurence Harris around 1982 – resided contradictorily alongside the dominant South African Communist Party led narrative of ‘no middle road’,as propounded in Joe Slovo’s famous article in the Slovo (1976) volume. Harris makes the following powerful argument in his prescient but neglected 1993 article in the Review of African Political Economy:

As Slovo’sNo Middle Road exemplifies, the reform of capitalism was considered impossible; to the Leninist rejection of reform was added the specific view that since South African capitalism was inseparable from apartheid, liberation was inconceivable without the overthrow of capitalism. That blunt dichotomy [Harris maintains] was not conducive to discussions of how a liberated South Africa would set about transforming society, for the revolutionary capture of state power was associated, by default, with a conception that centralised control of the state would confer the ability to control economic and social change (Harris 1993, 92).

The stakes were high at the time Slovo penned ‘No Middle Road’ in 1976 – and in the decade that followed. The South African struggle was prominent in debates worldwide about the future of capitalism – as epitomized for example by Harry Magdoff and Paul Sweezy’s famous editorial in the Monthly Review of April 1986, arguing that a ‘victory for counter-revolution – the stabilization of capitalist relations in South Africa even in somewhat altered form would be a stunning defeat for the world revolution’ (cited in Saul 2005, 27). Most observers would agree that capitalist relations have indeed stabilized in post-apartheid South Africa. But in how altered a form?

When Slovo returned to these questions in the context of the early 1990 s negotiations, he emerged with a totally different argument, one in which (he argued) a socialist – or even any radical reconstruction – had to be postponed to an unspecified future. There was now, he insisted, ‘no alternative’ to some compromised power-sharing arrangement in which economic structures and power – and the levers of state economic policy – would have to remain largely and uninterruptedly in the old hands, so as to ensure some degree of stability.Mandela and the ANC leadership bought enthusiastically and somewhat dogmatically into this view. So, from ‘No middle road’ to ‘No alternative’ in a flash of historical time.²

Padayachee first raised these and related matters in a special issue of the journal Transformation in 2013,guest editing a collection of essays by noted scholars (including Eddie Webster, Ben Fine, Keith Hart, Patrick Bond, Bill Freund and others), around the question of what variety of capitalism has historically characterized South Africa, whether any of these forms persisted into the post-apartheid era, and with what implications for the country, including for addressing inequality. The key issue around which those essays were constructed was the question of whether South Africa in the transition from apartheid had or could ditch the shareholder wealth maximization model built historically around its ‘Minerals Energy Complex’, in favour of something more democratic, more redistributive in nature and more socially just for a wider range of stakeholders in our new society in the making.

3. Towards a new economics for the global south

At a broader level, our aim with this Special Issue is, in the field of economic policy, that progressive economists of all stripes in South Africa and across the global south today have to begin the urgent task of populating and thickening the substantive policy space beyond the neo-liberal project that has passed its sell-by date. Heterodox economic ideas (especially post-Keynesianism) need to be strongly re-introduced into these policy and academic domains. The renowned Cambridge economist Bob Rowthorn has recently observed that:

since the initial anti-Keynesian counter-revolution 40 years ago, Keynesian economics has made something of a comeback. It would be an exaggeration to say that ‘we are all Keynesians now’, but surveys indicate that many leading economists in the USA and the UK have Keynesian sympathies.(Rowthorn 2020)

In this context, we need to re-imagine what in today’s world the ‘big ideas’ would be for the sort of ‘good society’the ANC and progressives across the global south once proudly stood for – as articulated in African Claims (1943), the Freedom Charter (1955), the MERG Report (1993) and the RDP Base Document (1994).Most importantly, we need to open up debates around economic policy to wider constituencies. Over 30 years ago the post-Keynesian scholar Hyman Minsky wrote that:

Economic issues must become a serious public matter and the subject of debate if new directions are to be undertaken. Meaningful reforms cannot be put over by an advisory and administrative elite that is itself the architect of the existing situation. (Minsky 1986, 321).

But that tragically is what unfolded in South Africa in the 1990 s.In contrast, the experience in economic policy-making that unfolded in Ethiopia under the leadership of the past two Prime Ministers – and the role played bylocal and international academic economists in that process – is instructive, and well captured in a forthcoming book entitled African Economic Development, co-authored by Cramer, Sender, and Oqubay (2020).

We would concur with Wolfgang Streeck, who argues that the task ahead of us is to develop a new sort of political economy:

“a socio-economics that would again make the economic subservient to the social rather than vice-versa, first as a theoretical and then hopefully, as a political project” (Streeck 2017, 251).

This is needed to bring about a new model of economic and social development, for the global south and internationally. It does indeed, as Streek argues, require a change at the level of theory, and at the level of political policies and outcomes. This would need to be at global, national and local levels. And it would need to involve new institutional arrangements, including regarding corporate ownership and governance, with a greater degree of corporate diversity, and with a positive corporate purpose driving the behaviour of firms.

4. Overview of the papers in this special issue

Black Economic Empowerment (BEE) represents arguably, and not without controversy, post-apartheid South Africa’s most significant policy intervention aimed at affecting the ownership and power structure of the economy. AndriesBezuidenhout, Christine Bischoff and John Mashayaexplore how the privatisation of South Africa’s state-owned steel monopoly ISCOR led to the creation of two new (empowerment) firms, a mining corporation called Kumba Iron Ore, owned by Anglo American, and a steel processing corporation, owned by the Indian multi-national ArcelorMittal. They focus in the main on understanding emerging ownership structures and regulatory challenges resulting from this privatization in the context of black economic empowerment (BEE). Apart from issues linked directly to ‘State Capture’, the paper examines an employee share ownership scheme at Kumba, shows how this scheme related to different notions of BEE and assesses the outcomes of a strike that broke out there in 2011. They argue, at least in the case of the privatisation of ISCOR, that competing approaches to BEE remain an imperfect approach to ownership diversity.

Seeraj Mahomed examines the evolution of one of South Africa’s most powerful and internationalised corporations, a conglomerate which at its peak in the early 1980 s controlled close to 60% of the market capitalisation on the local securities exchange. The Anglo American Corporation (AAC) founded in 1917 was undoubtedly the largest, most powerful South African corporation during the twentieth century. The holding company, sitting at the apex of a group of powerful entities spanning the full spectrum of mining, industrial and financial services sectors (the well known ‘pyramid’ model) left a distinctive mark in Southern Africa’s capitalist development, both good and bad. From the Copperbelt in Zambia to the Free State Gold Mines in Welkom, AAC left behind both a massive productive footprint as well as a trail of ecological destruction, stranded assets and ghost towns as it exited to pursue opportunities that opened up globally after the advent of democracy in 1994. The article focuses on the offshore listing and restructuring of Anglo in the post-apartheid period, its further internationalization and its shift into finance.

The paper by Jonathan Klaaren assesses the potential for alternative corporate forms in Africa such as benefit corporations, with a special focus on South Africa. Both corporate and non-corporate structures that combine profit and public welfare objectives, he argues, fall within the broader set of organisations which represent alternatives to the traditional form of the corporation. There are he maintains several reasons to be sceptical of an uncritical diffusion of the benefit corporation form to South Africa. It may be too early to conclude that there is no potential for this legal form to assist in economic transformation in South African and African jurisdictions, for the simple reason that it hasn’t yet fully been tried.

Using data from Self Help Groups in West Bengal and small tea growers in Assam, India, Debdulal Saha convincingly demonstrates the strengths and challenges of the self-help model. He examines how the Self Help Group (SHG) model mobilizes small tea growers by promoting sustainable tea cultivation within the framework of the Social Solidarity Economy (SSE). He also studies the way in which these producers organised themselves economically and politically – and suggests that the workers’ co-operative model could be a viable alternative and sustainable model to improve living conditions of workers in West Bengal.

Excessive directors’ remuneration is often cited as one of the drivers of the massive income inequality prevalent in South Africa in the post-apartheid era. Tesfaye Lemma and his colleagues MthokozisiMlilo and TendaiGwatidzo use South African evidence to examine board remuneration and directors’ ownership – and analyse the links from this to corporate performance. They draw insights from agency and board power theories to establish whether board remuneration, directors’ shareholding, and the interaction between the two variables are associated with a firm’s financial performance. In a result that may surprise those intent on reining in directors’ remuneration and shareholding options as one way of reducing income inequality they find that firms that provide higher incentives to their board of directors tend to have higher financial performance, and thus, could employ directors’ remuneration as a governance tool to induce board effectiveness. However, they warn that their results should only be extrapolated to other settings with some degree of circumspection.

In a Commentary piece, Eddie Webster surveys a broad sweep of recent literature – from books to corporate reports and financial journals – which points to the emergence of a business model amongst the global IT giants such as Apple and Amazon, which has some similarities with the ‘robber-baron’ capitalism of the late 19^th Century. This model, he argues, appears to suggest a shift away from a more inclusive and participatory corporate sector – such as that discussed in some other papers in this special issue – towards one that evades corporate governance codes, laws and policies (like anti-trust, and competition policy). Control and power is now concentrated in ‘a small, mathematically proficient elite dominating decision-making and policy by owning and controlling the “algorithm”’ in ways that generate even greater (income and wealth) inequalities. This includes the ‘gig economy’, within which Webster also points to the possibility of gig workers utilising the new technology – and social media – to help them organise and mobilise. So as ever, these developments might take different paths, and which will be taken will depend on the actions of the various players, and the outcomes of the inevitable conflicts.

In a closing essay, Jonathan Michie reviews the recent [2019] book by Vishnu Padayachee and Robbie van Niekerk entitled Shadow of Liberation: Contestation and Compromise in the Economic and Social Policy of the African National Congress, 1943–1996. Padayachee and van Niekerk pose the question as to why the ANC failed to tackle the horrendous economic inequalities of apartheid, which it had been the widespread assumption across the political spectrum for decades was their historic mission. Their argument is broadly that there was no conspiracy or sell out, but rather a failure of political will, with a major contributory factor being that the ANC in opposition had never done any serious work on the economy and economic policy – on what they would need to do, and how. Michie puts this in the historic context of a similar failure of progressives globally in the 1990 s and the following decade up to the 2007–2008 global financial crisis. The forces of free market globalisation, privatisation, deregulation – in short, of capitalism unleased – were so strong as to appear irresistible, including to Nelson Mandela and his ANC Government. What was not appreciated sufficiently was the opportunity which that ANC Government actually did have to pursue the sort of progressive agenda that had been generally expected – and accepted – that any ANC Government would. The old regime had collapsed, and there were no credible alternatives to the ANC Government. This is what was so tragic at the missed opportunity, since these historic watersheds – where huge shifts in political trajectories can be made – come along only rarely. The collapse of apartheid was one such opportunity. And it was not taken.

A generation – 25 years – later, though, another such historic rupture has emerged. Fuelled by the 2007–2008 global financial crisis, and the consequent international recession of 2009 – the first since the 1930 s – and the failure of governments internationally to impose a new system of international financial regulation, so that the global economy remains susceptible to the same sorts of crises; the unsustainable increase of inequality in income and wealth; the climate crisis; and now not only Covid-19 but the likelihood that we will face an increased danger of further such pandemics all add up to the sort of world historic moment that has rarely occurred other than following the two world wars and the Great Depression.

This is not a question of whether to have ‘globalisation’ or not – it is about what form of globalisation, of which historically there have been many. There was a high degree of globalisation in the lead up to World War One. A quite different form of globalisation was crafted to deliver the ‘golden age of capitalism’ following World War Two. A new, more appropriate form of globalisation for the coming era would focus on positive social outcomes, as well as economic. Quality of life rather than ‘growth of measured Gross National Product’ needs to be the aim. The previous model of infinite growth on a finite planet needs to move on to a commitment to socially and environmentally sustainable development. ‘Fair Trade’, not just free trade. And the ‘fair trade’ movement is not just about establishing proper pricing; it also aims to organise farmers into producer co-operatives, to give them power in negotiating in the future with the major multinational buyers. So, the need for corporate diversity, and to promote mutuals to deliver this, is vital for this purpose too – of establishing a new and appropriate form of globalisation for the coming era.³

The question across the world, is will this opportunity be taken, or squandered. In the case of South Africa, it would surely be unthinkable to squander two such opportunities to overcome the apartheid legacy. Surely now the proposals which should have been adopted in 1994 – advocated by the ANC’s own Macro Economic Research Group (MERG) – will now be progressed, albeit updated to deal also with the need to tackle the climate crisis and the risks from global pandemics.

5. Conclusion: new corporate forms for a new international economic order

In the 1970 s and 1980 s, there were hopes for a new international economic order in which the global south could develop in a sustainable way. Those hopes were swept away by the new era of capitalism unleashed from the 1980 s onwards, of global financial deregulation and the ‘Washington Consensus’. That Washington Consensus resulted – through mechanisms discussed in the Padayachee and van Niekerk book referred to above – in the inequalities of the apartheid era being largely preserved despite the collapse of the apartheid regime. The Washington Consensus has palpably failed. It did nothing to prevent the climate crisis. Indeed, its promotion of free market policies stoked the fires. It did nothing to temper the increase in inequality. Indeed, it promoted the free markets that exacerbated those inequalities. And as for the 2007–2008 global financial crisis, it was the Washington Consensus that created the conditions that caused it. That led to a wasted decade of austerity – courtesy of the remnants of the Washington Consensus – which in most countries degraded the public health and crisis response capabilities that were needed to deal with the Covid-19 crisis, being thereby directly culpable for many thousands of deaths (in addition to the annual death toll due to the austerity policies themselves, which in the UK alone were estimated to have been responsible for many thousands of deaths per year).

Things have to change – particularly for the global south. But how?

Action is required at a global level, including the re-imposition of controls on speculative financial movements – which often have no motivation other than to make the owners of the speculative funds financially better off when their bets win. (And when their bets loose, they tend to lobby to be bailed out by taxpayers). But it’s important to recognise that such seemingly ‘global’ measures are generally delivered by national governments. It was Thatcher’s government that started the dismantling of the controls on speculative capital movements which had been put in place by the Bretton Woods agreements of 1944 and which had successfully protected and promoted global capitalism, delivering the Golden Age of Capitalism for thirty years or so after World War Two.⁴

It is also important to recognise that while Thatcher, Reagan, Blair and Clinton were the cheerleaders for ‘capitalism unleashed’,⁵ the drivers were the capitalist companies themselves, always striving to boost profits and further enhance the financial returns to their shareholders. This is what needs to change if the global south is to have a chance of sustainable economic and social development. That means having companies driven by something other than the private owners or shareholders pursuing their own maximum personal financial enrichment. That means, in part, being answerable to a different class of owner – the employees, customers, and local communities. Hence the need for alternative corporate models. If companies could increasingly have ownership stakes held in trust for the interests of employees, customers, and local communities, the incentives for corporate leaders would be to deliver for these owners – prioritising employee engagement, customer service, and community delivery. That is the route to social and environmental sustainability. It would be the corporate driver and basis for a global ‘Green New Deal’, which is what is desperately needed for the next historical era – for the world as a whole, certainly, and very much for the global south within that.⁶

We trust that the work reported in this Special Issue will contribute in some small way to the process of bringing about the change in thinking that will be required to achieve the necessary global shift in trajectory – of the sort that happened for the good after World War Two, and for the worse with capitalism unleashed from the 1980 s. These global shifts have often occurred after 30 or 40 years of a previous era, when the previous settlement appears to have been exhausted. Such a time has arrived, and on an international scale. For a new era of sustainable development, we need not only a shift in the policy agenda, but also a change in the structure of corporate ownership, control, voice, culture, policies and practice. There is no single model. We therefore hope that this Special Issue will contribute to the process that is called for in academic analysis, policy setting, and corporate experimentation to shift the global economy onto a more socially and environmentally sustainable trajectory.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. These various corporate forms are analysed in detail by the various contributors in Michie, Blasi, and Borzaga (2017).

2. Padayachee and van Niekerk (2019) explore these ideas fully in Shadow of Liberation, the subject of Michie’s review article in this issue.

3. These points, about the need for a new form of globalisation, are argued in detail by Michie (2017).

4. ‘The Golden Age of Capitalism’ was the title of a book edited by Marglin and Schor (1991).

5. ‘Capitalism unleashed’ was how Andrew (2006) characterised the era of free market globalisation.

6. On the case for a Green New Deal, see for example Pettifor (2019).