The feudal system had at its heart the notion of property responsibilities – which sat alongside property rights. So as a landowner, my responsibility to you as my serf was to provide you with land to farm, to allow you to take what you needed to support your family and to provide you with protection. In return, I had the right to your surplus production and to your attendance in my armed force.
As the industrial revolution altered the nature of ‘property’ and so of ‘property ownership’ – giving rise to capitalism – these property responsibilities were gradually eroded and the property rights were extended. Latterly, capital has evolved into a series of technical instruments and investment products. It has become increasingly disconnected from what it physically owns.
The consequence of this, as we are now seeing, is a crisis in responsibility. Short-selling – the practice of borrowing someone’s share in an enterprise, selling it on the expectation of a fall in value, then buying it back at the lower value and so returning it to its original owner for a small rental fee, while trousering the difference between what you sold it for and what you bought it back for – is thoroughly irresponsible. How could it be that we have a system where we profit from destruction?
But it’s not just about short selling. This is just a product of the system, a symptom. The cause is the system itself, the system that rewards disconnected ownership, a system where property rights are dominant and the notion of property responsibilities has been lost.
All of the key contentious debates in our sector are a consequence of the failure of modern capitalism to attach any meaningful responsibilities to capital ownership. Farming practices, nutrition, treatment of suppliers, GM, advertising to kids, predatory pricing and so on are all fundamentally stewardship points. Supermarket management must deliver superior returns to a group of shareholders who take no responsibility for the consequences of what they are demanding their management do.
Managers are prevented from taking the stewardship approach demanded by their critics, not because they are bad people but because the system forbids it – otherwise, the capital would migrate to less ‘transparent’ sectors that lack the vociferous body of critics contributing to our industry. Sadly, we must now brace ourselves for government intervention in markets. This, of course, will prove as flawed as it always does, and the Law of Unintended Consequences will still apply.
The true solution, and one that management everywhere should be lobbying hard for, is for capital to be reconnected with its ownership responsibilities – as defined by the stakeholder group. Government must recognise its own inability to represent these stakeholders – being itself too disconnected and ‘big’.
Alter the architecture of the system, not the regulations. Involve those who will benefit from ownership responsibilities being discharged. Address the cause, not the symptoms.
James Perry is managing director of Cook.