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October 02, 2001 at 08:00 PM
In an era when stock market wealth seemed to grow on trees–and trillions vanished as quickly as falling leaves–it’s an apt time to ask where wealth comes from. Does the stock market “create” wealth, as we are told, or capture wealth that rightfully belongs to others?
This is a question investment advisors should ask. Are stock market gains sustainable, or is the market killing the goose that lays the golden egg? A company refusing to clean up pollution, as GE has in New York’s Hudson River, in effect transfers wealth from the community to shareholders. A company demanding longer hours without pay increases transfers wealth from employees to shareholders. A bank engaging in predatory lending transfers wealth from customers to shareholders.
Wealth transfer is not what capitalism is about. It is about wealth creation. But when stock market demands are too great, companies are forced into illegitimate and unsustainable means. Lawsuits, environmental collapse, employee exhaustion or exodus, legislation–there are many ways such illegitimate gains end. When they end, shareholders can be sorely disappointed with their advisors, if they believed stellar earnings would increase indefinitely.
The time has come to ask a fundamental question: Why are shareholder interests primary? Because they take risk, and provide capital for company use? The truth is, most “invested” dollars go from one speculator to another. Stockholder money reaches corporate coffers only when companies sell new common stock. According to the Federal Reserve, common stock sales represent only one of every $100 trading on exchanges.
We say stockholders fund corporations. In reality, corporations fund the stock market. The stock market is not capitalizing companies but decapitalizing them.
The situation is doubly unsustainable. Shareholder interests are served at the expense of employees, the community, and the environment, yet shareholders contribute nothing to justify this. This mirrors the French aristocracy before the Revolution, when the nobility had dropped its productive functions, yet expected dues and fees to continue. The people begged to differ.
