The Travails of Capitalism - Mervyn King Raps on Banks' Knuckles

What happens when business is driven by shares? Some may not find it strange at all that businesses exist for the sole purpose of making sure their shareholders reap the returns and remain a gratified lot. Profit Maximisation and Shareholder Value Maximisation - are they not the Mantras that are supposed to keep businesses going?

Historically, Capitalism has shown the way forward, with shareholder value maximisation being adhered to with utmost earnestness. However, while shares have made millionaires out of the erstwhile working classes, what we have seen through the Great Depression and the economic recessions is the speed at which the flow could be reversed and how the mighty structures could collapse to rubble. The financial meltdown had its last laugh in the latest episode of businesses' tryst with their destinies; but the spirit of Capitalism would never say die! The phoenix has risen, again, from its ashes, aiming to reach new heights.

The problem, however, is with the basics. Shareholders are interested in returns - and businesses driven by shareholder orientation tend to have two types of goals - short-term and the long-term. And it is this dilemma that exerts enormous pressure on the Human Resources. When consumers are neglected in the pursuit of profits, one can imagine what the status of the "employee" would be, in business that is pressed for short-term success.

As if to reinforce the importance of remembering the basics, without being carried away by fancies to glorify the shareholder, Mervyn King, the Governor of the Bank of England, has warned that banks have not learned their lessons right, and that the crisis has not yet led to regulations being put in place to make sure the recession doesn't raise its ugly head again. Do other industries treat their consumers better than the banking sector does? Is banking more prone to opportunistic behaviour with a short-term orientation? Well, the Governor has given more than just a hint at the state of affairs in the industry. It is up to the watch dogs, and the players themselves, to decide where they stand, and where their competitive advantages lie - with the shareholders with short-term orientation, or with consumers and their human resources, with a long-term strategy. After all, all that the economy can do, is to teach a few lessons - it's the businesses and the regulators that have to learn their parts.