Redefining Capitalism

The FT in London has been running a series of articles debating “Capitalism in Crisis”. John Kay looks at what has capitalism meant in the historical sense. In the mid-19th century the system of business ownership was fundamental to the economic perspective. Entrepreneurs like Werner Siemens in Germany, Rockefeller in the US, and Arkwright in the UK built and owned the plant and capital that employed the working class. By the 1930’s companies started to separate ownership and control – shareholders and mangers. Therefore business leaders are not capitalist like those in the mid-19th century. They have acquired their authority and influence from their positionin a hierarchy, not their ownership of capital. These positions have come about through their aptitude in corporate politics, in the traditional ways bishops and generals acquired positions in a ecclesiastical or military hierarchy.

Today modern business is not about ownership of machines and factories or other physical assests. The crucial resources of today’s company is its competitive advantages:
– systems of organisation
– reputation with suppliers and customers
– its capacity for innovation

Capital of a company today is most likely owned by someone else – eg a pension fund, a property company or leasing business – none of whom were linked to the company. Therefore whilst the organisation of the production process and productivity levels means a lot to a company, ownership of them doesn’t mean much.

In using the 19th century term capitalism we are forgeting what it actually stood for. Today it has evolved into something quite different.

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