Nightcap

  1. The century of Chinese corporatism Reza Hasmath, American Affairs
  2. The wealth and size of nations Donald Wittman, JCR
  3. The fertility of city-states Bryan Caplan, EconLog
  4. The WTO: irrelevant and unnecessary Ryan McMaken, Mises Wire

Afternoon Tea: “Shareholder Activism at the Dutch East India Company 1622-1625”

This paper explores the reason for the absence of control rights of shareholders in the Dutch East India Company (VOC) and the background of the conflict between shareholders and directors that arose in 1622/1623 when the VOC Charter of 1602 was extended.

The VOC was the result of a merger between several companies that had been trading in the East Indies between 1594 and 1602. The legal structure of most of these “pre-companies” which were incorporated for a single voyage to the East Indies, prevented shareholders from having actual influence. In most of these companies, the shareholders invested their money, not in the company itself, but via one of the individual directors. The relationship between a shareholder and most of the precompanies was therefore indirect, which impeded the exercise of control rights. Furthermore, shareholders may not really have been interested in their control rights given the high returns and the expectations of the newly opened trade route.

When these pre-companies were merged into the VOC in 1602, nothing changed with respect to the absence of shareholder control rights. The VOC, however, was established for a longer period and had to meet other more long-term challenges than those faced by the pre- companies. The failure to adapt the control structure to suit the different circumstances may have been a source of the conflicts that arose between the directors and shareholders between 1602 and 1623.

In 1622, upon extension of the 1602 Charter, a significant conflict erupted between the shareholders and directors. The so called dissenting participants complained about the numerous conflicts of interests that had been arising between the various directors and the VOC. They accused the directors of abuse of power, short-selling and self-enrichment. They argued that shareholder approval was required for the VOC to turn to the capital market to borrow funds. They also demanded that large investors be entitled to vote on the appointment of new directors. As the dissenting participants supported their arguments by referring to the English East India Company, the corporate governance of the EIC is briefly described.

Publishing their complaints in pamphlets, the shareholders mobilized public opinion and attempted to convince merchants not to invest in the Dutch West India Company, which was being incorporated at the same time. They exerted pressure on the government to ensure that more rights were granted to the shareholders when the VOC Charter was extended. To a limited extent, the activism of the “dissenting participants” was successful. The 1623 Charter granted certain rights to large investors, including the right to nominate new candidates for appointment as director. The 1623 Charter further regulated insider trading by the directors and encouraged the directors to pay a yearly dividend to the shareholders. In addition, a committee of nine shareholders was entrusted with the supervision of the VOC directors. This corporate body was known as the “Lords Nine” (Heren IX).

This is from Matthijs de Jongh, a judge in the Netherlands. Here is the link.

Riding Coach Through Atlas Shrugged. Chapter 1: The Calendar Hung Itself.

50th Anniversary Edition pages 11-20*

*Note: The actual chapter ends on page 33 but I am splitting these up based on POV changes for easier digestibility.

Chapter Summary: White-collar worker Eddie Willars runs into a peculiar homeless man, reflects on a decaying city, and attempts to convince his boss of an urgent matter in Colorado.

My initial impressions are all pretty positive. The opening line: “Who is John Galt?” accomplishes everything an opening should and most importantly sets up a mystery to pique the reader’s interest.

Even with my limited knowledge of small parts of this book I was still immediately hooked by the questions presented on the first page: “Who is John Galt?”, “Why does it [the above question] bother you?”, and without missing a beat (or answering those questions) Rand describes the world that frames these questions quite beautifully with several potent, if a bit obvious, metaphors.

The bum as the faceless masses, intelligent but wearied and cynical without the energy to change their station but able to if inspired. “The face was wind-browned, cut by lines of weariness and cynical resignation; the eyes were intelligent.”

It also seems to be relevant that the bum is our introduction to the character of John Galt. The nameless, faceless masses knowing about the coming change almost instinctively and long before the more comfortable and well off middle class.

The city, in my estimation, represents society as a whole. Once beautiful but now decaying and, like the old tree on the Taggart estate, hollow and rotting from within. “…the shafts of skyscrapers against them were turning brown, like an old painting in oil, the color of a fading masterpiece.” The seed of beauty and triumph is there but it has rotted from within.

Eddie is who really intrigued me though; he reminded me a lot of Tolstoy’s Ivan Ilyich. A middle man in society who knows something is wrong but doesn’t have the skills to do anything about it. While he cannot identify the sinking feeling that permeates every fiber of his being he does have a stable foundation to latch onto.

“When he was asked what he wanted to do [in life], he answered at once, “whatever is right”…”twenty two years ago. He had kept that statement unchallenged ever since; the other questions had faded in his mind…[B]ut he still thought it self evident that one had to do what was right; he had never learned how people could want to do otherwise.”

As a natural-rights libertarian I believe that there are absolute moral and ethical truths and Eddie’s commitment to a similar personal philosophy deepened my ability to relate to the character. It also stands in stark contrast to more modern interpretations of ethics such as “rule utilitarianism” which will always decay to subjective act-utilitarianism.

“David Lyons argued that collapse occurs because for any given rule, in the case where breaking the rule produces more utility, the rule can be sophisticated by the addition of a sub-rule that handles cases like the exception. This process holds for all cases of exceptions, and so the ‘rules’ will have as many ‘sub-rules’ as there are exceptional cases, which, in the end, makes an agent seek out whatever outcome produces the maximum utility.”

In short, any attempt to prevent the “ends justify the means” outcome of utilitarian ethics, without some sort of higher moral authority, inevitably fails and the system is reduced to one of pure utilitarianism. I was actually under the impression that Rand was a bit of a utilitarian herself so I will be interested to see if this commitment to the universal “right” turns out to be a character flaw in Eddie or whether it remains an ideal to be upheld.

Eddie’s confrontation with James Taggart was also quite inspiring. A man who knows he is stepping out of line but is willing to do so for the sake of his personal convictions is an ideal that many of us could due to imitate. I will save my examination of James until the next installment but the important thing I took from this interaction between James and Eddie was how uncomfortable James grew when Eddie looked into his eyes.

“What Taggart disliked about Eddie Willars was this habit of looking straight into people’s eyes. Eddie’s eyes were blue, wide and questioning; he had blond hair and a square face, unremarkable except for that look of scrupulous attentiveness and open, puzzled wonder.”

If, as I suspect, Eddie is the everyman (or reader avatar) in this story and James is an (the?) antagonist then what I am supposed to take from this is that the villains in this world, and in ours, cannot stand up to scrutiny. They are filled with uneasiness when we examine their actions and question their motivations. If Eddie is an ideal, then his attentiveness is an ideal as well.

Eddie’s relationship with the Taggarts as a whole is something I hope is explored more. It is obvious he admires and respects Dagny since they grew up together and the fact that he still has some sort of respect for James leads me to believe that the latter wasn’t always so insufferable. What made Eddie so devoted to this family? Was it simply their entrepreneurial spirit or was there something more?

I had a few small criticisms but I am going to have to wait to see how they play out. As I mentioned briefly at the start of this entry Rand’s metaphors were really straight forward which isn’t bad in and of itself but simply something I am taking note of and will look for as the chapters go by.

I cringed a bit when Eddie admitted that he was simply a serf pledged to the Taggart lands. The whole feudalism angle is one that I am going to keep an eye on since one of the most common attacks on libertarianism is that it would descend into a neo-feudal corporatist society.

Of course I may be taking the line a bit too seriously since Eddie was simply trying to get James to agree to his requests to support the Rio Norte line. In fact it could very well turn out to be a rebuke of that attack once all is said and done.

Finally I have no idea what the giant calendar is supposed to represent or foreshadow. Perhaps it is simply a literal translation of the city’s days being numbered which would both be very clever and kind of groan-worthy at the same time. Hopefully Eddie shows up again soon to let us know but I have a sneaking suspicion that our protagonist isn’t Mr. Willars despite my initial preoccupation with his character.

Check in next time for first impressions of Dagny, a word of support for monopolies, and our first real look at James Taggart. I wish this was a George R.R. Martin novel so maybe he would be dead before the book was over. Hey, I never said I would be impartial.

Part 2

Around the Web

  1. Reading Tocqueville in Qatar and at Georgetown
  2. Colonialism and Anti-Colonialism: Blame Nationalism for Both
  3. The Issue of Selective Prosecution
  4. Eric Prince: Out of Blackwater and into China; The WSJ‘s weekend interview with the founder of Blackwater is particularly good. If you hit a paywall, just copy and paste the title and enter it into your Google search bar. Click on the first link and voila.
  5. A short history of economic anthropology (grab a cup of coffee first)
  6. The market may be colorblind, but politics isn’t: Race, class and economic opportunity

Around the Web

  1. What the Arab papers are saying about Korea.
  2. Ron Paul launches the Institute for Peace and Prosperity.
  3. How did Obama  respond to his gun control defeat?
  4. Blaming Capitalism for Corporatism.

Around the Web

1. Stanford’s online encyclopedia of philosophy has a new entry on ‘markets’.

2. Why the Swedes are moving to Norway.

3. John Stossel explains why Washington DC is the richest area in the US:

Lobbyists and taxpayer-funded special privilege won’t go away unless big government does.

4. BRICS planning to build their own development bank. Does this signal the end of the West’s 400-year period of dominance? No. If anything, this is a triumph of the ideal of the West and especially its thinkers’ critiques of central economic planning.

5. The Sectarian Social Democratic Ideal. A very, very good critique of social democracy.

Cutting the Three Lifelines in Full Daylight; Boy Rape from Unexpected Quarters

I would never have thought that one can become bored with emergencies. It sounds like a contradiction in terms. Yet, here I am. I am bored with the procession of disasters that hit us every other day as a result of Obama administration actions or pronouncements. Also, I am not man enough to pay as much attention as I did a year ago. I have indignation fatigue. I should be energized by the thought of the unfairness of the crushing burden the Obama spending is placing on young people. I don’t feel it much because the young voted overwhelmingly from Obama and it seems they are the most obdurate about waking up from the dream. The ungenerous thought that they made their bed and they should lie in it dominates my reactions.

About indignation fatigue: The powers may have planned it that way. If a boxer gets punched fifty times in three minutes, he does not feel the pain as clearly as when the blows come every thirty seconds. Be it as it may, the new dispensation forces me to be more selective in what I expose myself to. Also, in what I write and what I talk about on the radio (“Facts Matter” KSCO radio Santa Cruz, Sundays 11am to 1pm, available on-line in real time.)

The recipes for sabotaging a modern, advanced capitalist economy such as this one are similar to the formulas to control it. I say, “such as this one” because I think that what I am saying below would apply equally to Germany, or to Japan, or to Finland. It would be the same play-book. This short essay is not about American exceptionalism, a political and a moral concept. It’s about the nuts and bolts of the only economic system that has brought prosperity to huge numbers, capitalism. Continue reading

National-Socialist Management Practices; No Obama Derangement Syndrome

[Editor’s note: this essay first appeared on Dr. Delacroix’s blog, Facts Matter, on July 18 2009]

Quick update on health care on 7/20/09:

I have said before on this blog that there is something wrong with the way we deliver health care in America. It costs us twice more per capita than it costs Europeans and we die younger. That is true in spite of the fact that liberals lie a lot on the subject of health, especially, regarding the number of “uninsured.” The Republican Party missed that boat entirely and we are paying the price for it now.

The President’s insistence that bills must be passed before the August recess has only one explanation: He wants to avoid debate like the plague. Think it through. If our health care system is as bad as he says, it has been so for a long time and we can probably stand it for an additional three months, or six months , or a year. Decisiveness is not everything. (See below.)

After all, the President wants to dispose for the long run of 1/6th of our economy. Given the considerable slowdown in economic growth his other policies guarantee, given the aging of the population, it will soon be 1/5, or 20 % of the economy. There is nothing else like it. For comparison, national defense never took more than 5% since the Korean War.

Aside from anything I may believe about the influence of government on  effectiveness in health delivery, I am interested in the political consequences of the President’s plans, of all his plans. With health, he will make sure the government controls the economy to an unprecedented level. He is turning the US into a corporatist state. That’s another word for “fascist,” without the violent overtones. Continue reading

The Corporate State and High Liberalism: A Love Story

I have been following the symposium on “free markets and fairness” over at Bleeding Heart Libertarians with some interest. One of the things that has always bothered me about the Left’s despicable tactics concerning liberty is its demagoguery concerning markets. As a former Marxist who has hung out with the right people in the right places, I can assure you that the Left is not so much concerned with the plight of the poor as it is with the plight of the rich.

Once I began to grasp the basic insights of economists (thanks to Ron Paul’s 2008 Presidential campaign) it became increasingly apparent that less regulations and less restrictions are needed in this world in order to help the poor. What I have not understood about my friends on the Left is why they obstinately refuse to acknowledge the facts concerning how markets and the State work. As Deirdre McCloskey has recently pointed out, the narrative of high liberalism is factually mistaken, but this in itself is not enough to convince the True Believers that control over others needs to be abolished.

Two things stand out to me whenever I argue with Leftists: 1) the thin veneer of helping the poor is often used to cover up the base desire for control over others; the high liberal is an authoritarian through-and-through and 2) the Leftist is often unaware of this authoritarianism until you either scratch or cleave him.

Consider the following example. Continue reading