7. Joint Stock Companies and the Socialist Economy

One of the current fallacies of socialism is that joint stock companies are a preliminary stage of the socialist undertaking. The heads of joint stock companies — it is argued — are not owners of the means of production, and yet the undertakings flourish under their direction. If, in place of the shareholders, society should assume the function of ownership, things would not be altered. The directors would not work worse for society than they would for the shareholders.

This notion that in the joint stock company the entrepreneur-function is solely the shareholder’s, and that all the organs of the company are active only as the shareholders’ employees, pervades also legal theory, and it has been attempted to make it the basis of Company Law. It is responsible for the fact that the business idea, which underlies the creation of the joint stock company, has been falsified, and that up to to-day people have been unable to find for the joint stock company a legal form which would enable it to work without friction, and that the company system everywhere suffers from grave abuses.

In fact there have never and nowhere been prosperous joint stock companies corresponding to the ideal etatistic jurists have created. Success has always been attained only by those companies whose directors have predominant personal interest in the prosperity of the company. The vital force and the effectiveness of the joint stock company lie in a partnership between the company’s real managers — who generally have power to dispose over part, if not the majority of the share-capital — and the other shareholders. Only where these directors have the same interest in the prosperity of the undertaking as every owner, only where their interests coincide with the shareholder’s interests, is the business carried on in the interests of the joint stock company. Where the directors have interests other than those of a part, or of the majority, or of all of the shareholders, business is carried on against the company’s interests. For in all joint stock companies that do not wither in bureaucracy, those who really are in power always manage business in their own interests, whether this coincides with the shareholders’ interests or not. It is an unavoidable presupposition of the prosperity of the companies, that those in power shall receive a large part of the profits of the enterprise and that they shall be primarily affected by the misfortunes of the enterprise. In all flourishing joint stock companies, such men, immaterial of what their legal status is, wield the decisive influence. The type of man to whom joint stock companies owe their success is not the type of general manager who resembles the public official in his ways of thought, himself often an ex-public servant whose most important qualification is good connection with those in political power. It is the manager who is interested himself through his shares, it is the promoter and the founder — these are responsible for prosperity.

Socialist-etatistic theory of course will not admit this. It endeavours to force the joint stock company into a legal form in which it must languish. It refuses to see in those who guide the company anything except officials, for the etatist wants to think of the whole world as inhabited only by officials. It is allied with the organized employees and workers in their resentment-ridden fight against the high sums paid to the management, believing that the profits of the business arise of themselves and are reduced by whatever is paid to the men in charge. Finally, it turns also against the shareholder. The latest German doctrine does not want, ‘in view of the evolution of the concept of fair play’, to let the shareholder’s self-interest decide, but rather ‘the interest and well-being of the enterprise, itself, namely its own economic, legal and sociological value, independent of transient majorities of transient shareholders’. It wants to create for the administration of the companies a position of power, which should make them independent of the will of those who have put up the majority of the share-capital.1

That ‘altruistic motives’ or the like are ever decisive in the administration of successful joint stock companies is a fable. Such attempts to model Company Law after the illusory ideal of etatistic politicians, have not succeeded in making the joint stock company a piece of the illusory ‘functional economy’; they have however damaged the joint stock company form of enterprise.

• 1See the criticism of these theories and movements in Passow, Der Strukturwandel der Aktiengesellschaft im Lichte der Wirtschaftsenquete, Jena 1930, p. 1 et seq.