Does Investor Democracy Conflict with Political Democracy?
The idea for this post hit me the other day while hearing some news about Iran invading Iraq’s oilfields which consequently made oil rise. Having recently allocated some of my father’s retirement money into energy stocks, I got excited by this news – which is all other respects is not “good” news.
This made me think. If for a split second someone like me who is loosely tied to this investment in energy could psychologically put aside ethics and common sense and root solely on greed, what about those with a larger investment in such resources and companies or, even worse, the means to manipulate the value of their own investment?
Greed is a powerful emotion and what many attribute to conspiracy is simply the fallibility of man. Money makes people do stupid, sometimes evil things.
Luckily, the United States is a capitalist democracy. Sure there is a powerful elite, a “capital class” but it is kept in check by the majority of people, the “labor class”, as well as market forces themselves. This system works well unless the interests of labor somehow become aligned with the interests of capital, or what I like to call the “capitalization of labor”. The greed of labor usually checks the greed of capital, but when labor’s interests are aligned with capital, capital can hijack the market and become too powerful.
While most who know me know that I am a huge supporter of the individual investor and for technology that empowers him, one must question whether democracy in investments eats away at the capitalist democracy that we have built. Does the large percentage of the Average American’s net worth tied up in relatively meaningless amount of voting shares of American corporations devalue his right to vote?
Think about it. If people didn’t have 401K’s and the ability to check them daily, would the plummeting stock market back in October 2008 really have swayed them to take such quick and drastic action in the bailouts? Probably not. The unemployment rate was only 8% or so at that time, but the percentage of people holding equities was MUCH higher.
Would people be so apathetic about the corporatism run amok in our government if they weren’t long those same securities in their retirement accounts? Probably not.
Freedom of the masses to invest does not necessarily bring with it political freedom – in fact it may bring the opposite. We are so quick to look at the economic benefits (and indeed there are many) we overlook some of the possible negative political costs of such an innovation.
The solution to this is not simple, and won’t come from the government but from the general public realizing that the most valuable voting shares they own are not in their 401K.