The Divine Right of Capital
A re-examination of the corporate idea

Review by Arthur Edwards

‘The long habit of not thinking a thing wrong gives it the superficial appearance of being right’ Thomas Paine, author of The Rights of Man

Marjorie Kelly is a writer on corporate social responsibility and co-founder of ‘Business Ethics’ magazine. Having believed for many years that ‘voluntary change by progressive business people would transform capitalism’ she now proposes that only a systemic change in our institutional arrangements can really be effective. The term ‘Divine Right’ is normally used to refer to a king’s self-presumed entitlement to absolute rule. Kelly suggests that corporate power can be viewed in the same light and forcefully challenges the idea that only the interests of capital should determine how economic life is organised.

Over the past 5 years, there has been a plethora of books casting a critical eye over the corporate world, most of them have been worthy, but this one really has some bite. One thing that particularly singles out Marjorie Kelly from the crowd of corporate critics is that she is neither a socialist nor a revisionist, she wants a development of capitalism not a cancellation of it, which means embracing a vision of capitalism ‘not as a system for capital, but a system of capital’. This is reminiscent of what Christopher Houghton Budd has described as the distinction between ‘capitalism’ (as we currently practise it) and a ‘capital economy’ (as we have still to work it out), ‘the former is a social order, the latter a mode of economy’ (Prelude in Economics, p.60)

The idea of a feudal aristocracy who no longer serve a valid function is taken as the central metaphor of the book, with multitudinous parallels being drawn between the modern corporate investor and the out-moded feudal lord. It is around this notion that the structure of the argument is organized. Once again this is really only offered as a tool to give the reader’s imagination access to the organising myth of our society, that property rights reign supreme. This myth is misplaced in the corporate context, but its endurance helps sustain our continuing acceptance of the status quo.

Six chapters are devoted to illustrating parallel symptoms of the age of feudal aristocracy and the corporate age (economic aristocracy); and a further six to suggesting case by case how each symptom might be treated (economic democracy). I propose taking each of these six phenomena that Kelly describes in turn.

1.WORLDVIEW
Feudal society was to a great extent characterised by a view of the world which regarded an individual primarily according to their title . To be a lord was to be a master but to be a commoner was barely to be a legal person. The eyes of society were the eyes of the aristocracy. Kelly suggests that something similar takes place when we come to consider the way that corporate accounts are written, neither the interest of the community nor the interest of the employees figure on the balance sheet (much as commoners didn’t figure in the feudal parliament).

The way that financial statements are organised reflects a worldview seen only through the eyes of the stockholder. An income statement shows that:

Profit=Revenue-Costs
or Capital Gains=Revenue-costs[material costs+fixed costs+employee income]

Profit being profit to the shareholder and cost being what the employee takes home + other costs. This equation could of course be written to give a different emphasis, for example:

Employee Income=Revenue–costs[capital costs+other costs]

This equation would skew our vision in a different way; one might then desire to maximise employee income by screwing down capital costs. As it is ‘the lens of the financial statement forces managers to see, and to behave in certain ways , regardless of their personal beliefs’. ‘Financial statements are nothing more than a construct, but they exact a toll in flesh and blood’.

2.PRIVILEGE
‘stockholders toil not, neither do they spin’

Rather as mediaeval peasants gradually began to ask what gave feudal lords a title to the common wealth from one generation to the next, employees might now ask what is it that shareholders contribute to wealth creation. ‘they manage not, neither do they accept liability’ according to Marjorie Kelly.

Company stocks offer income free from labour: the historic justification for this situation is that people who buy stocks are ‘investing’ in wealth creation, but in what sense is this now true? When you buy shares the money does not go to the company it goes to the person you bought the shares from- ‘stockmarkets are only psychologically connected to real capital gathering- shareholder liquidity is the real benefit’. Even new stock issues amount to only 1% of trading and on top of that you have to figure in shares that the companies buy back from investors: with this taken into account, the picture that emerges is that far from investing in wealth creation ‘investors’ are actually extracting capital from productive capacity (in 15 of the last 20 years)

3.PROPERTY
A pernicious fiction underlying the consensual corporate reality is that stockholders own corporations (of course this is saying more than that they contribute capital from which they expect a return). The implications of this are that:

1) corporations are objects that can be owned
2) stockholders have sole ownership
3) they can do as they please with their property.

This of course raises the question of whether they also own the employees, for a company is more than just its bricks and mortar, computers and desks. Fundamentally a company is its employees (look at the word company) so if it is valued at £100 million, and the tangible assets are found to be just £30 million, to whom does the extra £70 million (ie the value of the employees) belong? Surely the mediaeval arrangement whereby one group of people (lords) can own another (serfs) should no longer hold true.

4.GOVERNANCE
If it is possible for one person sit on the board of 14 companies and also hold a full time job then just how much governing can they be doing. It is a myth that boards govern corporations and one way in which boards are not governing is that they are ‘not establishing the purpose of corporations’. They are only attending to their fiduciary duty believing that the purpose of business is to maximise return for shareholders, as if this were an immutable law. In fact it is purely a fiction of common law and therefore subject to revision by statutes. However, the legal reality at present is that the fiduciary duty of the board is ‘to protect the interests of the monied class- and this is the only moral value the corporation fully recognises’.

Marjorie Kelly goes on to suggest that the world of corporate governance is a kind of closed society in which the real issues ( such as why employees have no vote or they should be paid as little as possible) are taboo. More is revealed in the negative space around the boards gestures than by anything that they actually say or do.

5.LIBERTY
If one word captures the spirit of the American dream then perhaps it is ‘liberty’.
Of course what stands behind these 7 letters is by no means clear cut.

Kelly examines the notion of who the liberty is for….

In American law a company is conceived as a nexus of freely chosen contracts, and is therefore protected by the constitution which forbids any state from passing laws that could be construed as impairing obligation of contracts. By this sleight of hand in corporate law employees generally have no due process, no right to privacy, no protection against unreasonable search and seizure, no say in governance, no free speech, no jury to hear their case..etc. Democratic freedoms stop at the company door. The rights of the stockholders however are ironclad.

In a word, ‘liberty’ means liberty of property not of labour

6.SOVEREIGNTY
Louis xiv famously claimed his divine right to do as he pleased by declaring ‘l’etat, c’est moi’. At the time it was an acceptable assumption, but with time perceptions change. Perhaps it is now time to look at our assumption that corporations are their stockholders. Clearly a small owner-run business might be justified in saying this but surely in a billion dollar corporation it is not valid to substitute the word firm for entrepreneur.

Kelly uses the term ‘economic sovereignty’; she demonstrates that this sovereignty (rather than being based on some sort of power sharing) belongs entirely to wealth, moreover she points out that this wealth concentration is intensifying year on year with corporate profits growing at 10%; this is compared to US GDP 3% growth (1991-1999). To illustrate the implication of this she asks ‘if one groups’ slice of the pie is growing 3 times as fast as the pie itself….’ Who is eating the pie? Furthermore, corporate income tax revenues have fallen from 25% of the total in the 1960’s to 9% today and corporate subsidies and sweeteners constitute a growing drain on the public purse. Corporations are giving less and taking more.

ECONOMIC DEMOCRACY
The second part of the book is entitled ‘Economic Democracy’ and suggests approaches (some tried and tested, others merely conceived) whereby the six previously outlined tenets that sustain the ‘economic aristocracy’ might be challenged. In doing this she aims to cover many angles: making case studies of initiatives which have proved successful, suggesting points where a chink in the capitalist armour might be exploited, describing how the present law could be made use of (and how it should be changed), promoting education about corporate history, giving us a compass (not a map) of where we might be going, provoking our capacity to think differently about the situation we are in, above all declaring that what is needed is ‘not a blueprint but the fire in the belly to get us moving’.

Most useful, in my opinion, is the term ‘vernacular’ which Kelly introduces from architecture to describe a building that is just built without planning, rather than a building that is actually designed. We live in an age of ‘vernacular corporations’ dreamily built on conventional assumptions that we would never countenance if we were really awake and actually thought about how corporations should be designed.

Kelly suggests that the way forward lies in asking the basic questions and discovering what the fundamental concepts are. Generating public discussions (for example by rebellious acts) is seen by her as a key factor that will bring these ‘new’ ideas within the public grasp, and it is in their simplest form that they can be most powerfully conveyed. For example:

1)Corporations must not harm the public good.
2)Employees are part of the corporation
3)Wealth belongs to those who create it
4)Community wealth belongs to all

Everyone can have something to say about such principles without any need for the debate to be shrouded in the ‘mumbo jumbo of economics and financial analysis’ or ‘buried under obscure judicial decisions’

There are substantial points that I would take issue with. Perhaps first among these is the term ‘economic democracy’ which is the title of the second part of the book. Although Kelly uses the term ‘Economic Democracy’ and seems to imply that this is the goal, she does not spell out exactly how it should be understood .

In conclusion, this book deserves a second read, and once you have read it again you will probably want to mention it to your friends. What makes it work is a combination of various factors:

Clarity of thought shines through every page of this book and finds expression in a balanced, straightforward and elegant voice.
The metaphor, comparing the privilege of the modern stockholder to the position of the decadent feudal baron, upon which the overall argument of the book (that capital wields inappropriate power) is hung, works. Although I took this as little more than an emotive and rather elaborate conceit at first, it did gradually dawn on me just how apt this image was.
The book’s narrative style allows Kelly to illustrate her argument with stories (her own and other peoples) which invariably serve to clarify the matter rather than just to personalise it.
‘Ideas are the foundations of the social order. If we are to build a new order we must build on the base of new ideas’. Kelly is not afraid to challenge deep-rooted assumptions nor to declare that the imagination is the decisive weapon in the battle for new ideas.We are living in a time whose idea has come.

The Divine Right of Capital Marjorie Kelly, pub. Berrett-Koehler 2001 ISBN: 1576751252