Hi Managers: Low Marx for Professor Lippit?

Undoubtedly, capitalism’s ability to renew and re-invent itself should be celebrated by all business owners but we shouldn’t be complacent about the threats to the very system itself that exist today.
The concerns of Karl Marx, which Prof Lippit all too complacently dismisses, centre on the power imbalance between the suppliers of capital and the suppliers of labour. Marx believed that this mutual exchange was built around an injustice embedded at the very heart of capitalism – that when workers and business owners trade with each other in labour markets, the superior resources of the capitalist enable him to prolong or endure negotiations until the worker is forced to take the capitalist's terms or else starve. In extreme instances, the mass of employees have on occasion been pushed so close to the brink that they have repudiated the capitalist system. It was widely feared that last century’s socio-economic experiments in the Comecon area and in China would pose a military threat to the existence of the free-market. However these communist experiments invariably ended badly, handing the initiative back to the capitalist model.
However an increasing number of economic commentators have recently echoed Marx’ view that the biggest dangers to capitalism may lie within the system rather than in Soviet military threats of a bygone age. Economic guru Nouriel Roubini recently opined that “Karl Marx said it right. At some point capitalism can destroy itself because you cannot keep on shifting income from labour to capital.”
At MBMG we have no political viewpoints – Marxist or otherwise – but we do recognise that the most successful businesses that we invest in or advise not only incentivise key employees with participation in either profits or ownership but also widen the definition of key employees to include anyone who can, by their own actions, influence the performance of the business.
When the rules were changed so that players not interfering with play could no longer be judged offside, Brian Clough, the late, great Nottingham Forest and Derby County manager (not forgetting Leeds, Brighton or Hartlepools), once commented woe betide any footballer in his team ever judged not to be interfering with play, because there’s no point being on the pitch unless you’re doing precisely that. Maybe employers need to take the same view, realising that every employee has the opportunity to influence the performance of a business. The most innovative managers are often those who find ways of recognising, measuring and rewarding this as widely as possible.
This approach has wider applications. Dynamics that improve the bottom line of a business can also impact on the economic performance of a region. The lack of any motivation for citizens to overachieve is often a major factor in the economic underdevelopment of totalitarian states. Similar asymmetry explains the continual underperformance of disincentivised state-owned enterprises relative to private enterprise.
It’s alarming, therefore, that income within the free-market system has become increasingly unevenly distributed. Over the last four decades, around 10 per cent of GDP has been re-distributed away from employees to shareholders. In many cases, employees have subsidised spending patterns by relying on credit. This has created the current record levels of consumer indebtedness in many economies. Economically disenfranchised, heavily indebted employees will inevitably spend and consume less. Consequently economic activity will slow down and ultimately contract, leading to widespread business failures.
I wonder how many of the WEF delegates who visited Bangkok last week will realise that widespread employee engagement in business profits or equity might not just be the key to better bottom line results but also might be necessary to ward off Karl Marx’ predicted collapse of the free-markets.

Paul Gambles is managing partner and chief investment officer of MBMG Group. Follow his articles every first Wednesday of the month.