June 28, 2011
In his June 20 opinion piece in Project Syndicate, “How capitalist is America?,” Harvard Law School Professor Mark Roe '75 looks into the question of ‘how capitalist’ the United States is, and explores the idea of U.S. capitalism not only within a global context, but within a corporate one, as well. The article is the latest in a monthly series for the publication, titled The Rules of the Game. Roe co-authors the series with Luigi Zingales, professor at the University of Chicago Graduate School of Business.
According to Roe, “ … America’s capitalism becomes more ambiguous” when assessed from a business standpoint: “Consider the extent to which capital—that is, shareholders—rules in large businesses: if a conflict arises between capital’s goals and those of managers, who wins?”
An expert on corporate law, finance, and bankruptcy and reorganization, Roe was appointed David Berg professor of law in 2001. In 2002, Roe became a fellow with the European Corporate Governance Institute (ECGI), a non-profit organization whose primary role is to undertake, commission and disseminate research on corporate governance. Roe has written several books, including the casebook “Corporate Reorganization and Bankruptcy: Legal and Financial Materials” (Thomson Reuters/Foundation Press 3d ed. 2011) and “Corporate Governance: Political and Legal Perspectives” (Edward Elgar Publishing 2005). He is also the author of the article "The Derivatives Players' Payment Priorities as Financial Crisis Accelerator," which is slated for publication in the Stanford Law Review in 2011.
How capitalist is America?
By Mark Roe
If capitalism’s border is with socialism, we know why the world properly sees the United States as strongly capitalist. State ownership is low, and is viewed as aberrational when it occurs (such as the government takeovers of General Motors and Chrysler in recent years, from which officials are rushing to exit). The government intervenes in the economy less than in most advanced nations, and major social programs like universal health care are not as deeply embedded in the US as elsewhere.
But these are not the only dimensions to consider in judging how capitalist the US really is. Consider the extent to which capital – that is, shareholders – rules in large businesses: if a conflict arises between capital’s goals and those of managers, who wins?
Looked at in this way, America’s capitalism becomes more ambiguous. American law gives more authority to managers and corporate directors than to shareholders. If shareholders want to tell directors what to do – say, borrow more money and expand the business, or close off the money-losing factory – well, they just can’t. The law is clear: the corporation’s board of directors, not its shareholders, runs the business. … Read the full article or listen to a podcast at Project-Syndicate.org »