Democratizing Capitalism Can Be A Trainwreck

Currently, about 62 percent of Americans have money invested in individual stocks, mutual funds, or exchange-traded funds. That compares to about 25 percent when I started investing in 1990.

This is considered part of the democratization of capitalism. This means more people -- not just the wealthy -- can benefit from the mechanisms of capitalism. Some of them will be able to grow generational wealth (or at least plant the seeds for it). A lucky few will grow rich in their lifetime. 

However, this democratization is limited. More people then ever have access to investing, but that does not mean they have gained much (if any) control over the levers of capitalism. Most of these people hand their money to someone who invests on their behalf. These average investors are participating in the system of capitalism, but they are not changing the system. They definitely are not controlling it.

Giving their money to investment managers and corporations to invest may increase the financial wealth of regular Americans, but those controllers of capital have goals that differ from those of regular Americans. In The Master's Tools: How Finance Wrecked Democracy (and a Radical Plan to Rebuild It), Michael McCarthy writes about how corporate capitalism, through lobbyists and campaign contributions, too often dominates how governments allocate resources and regulate day-to-day for Americans.

"The political capacities these levers generate offer distinct ways for the masters of finance to remake formal political institutions in their image" (12).

Corporate America is dedicated only to maximizing profits, whereas regular people have multiple priorities, including their health and safety. McCarthy writes, "We know that finance capitalism underinvests in socially and ecologically needed goods and services" (13).

I tried to think of an example to illustrate this and 2023 train derailment in East Palestine, Ohio, came to mind.

Thirty-eight cars of a freight train came off the tracks in the town. Poisonous chemicals were released, and everyone within a mile of the derailment was evacuated. I wondered how many people impacted by the derailment might own shares in the company that owned the train: Norfolk Southern Corporation. 

Several industrial facilities were located near the crash site: U.S. Stoneware, Ceram Fab, Strohecker Inc. (according to Google Maps). I cannot find retirement plans for their employees on their web sites. However, the derailment impacted the whole town with clouds of chemicals and other disruptions, and I can find information about the retirement plans for teachers at East Palestine High School and East Palestine Elementary School, which are located within 2 miles of the crash site.

Employees there would be members of the Ohio Public Employees Retirement System. Their retirement account investments include ETFs for major stock indexes, such as the S&P 500 and the Russell 1000. Those indexes included Norfolk Southern in 2023. I assume some of the workers at the industrial sites mentioned above also had investments in these indexes and therefore in Norfolk Southern.

While those workers were trusting investment professionals with their money, Norfolk Southern was dissuading government officials and regulatory agencies from strengthening safety regulations. According to The Lever, an online publication: 

Documents show that when current transportation safety rules were first created, a federal agency sided with industry lobbyists and limited regulations governing the transport of hazardous compounds. The decision effectively exempted many trains hauling dangerous materials — including the one in Ohio — from the “high-hazard” classification and its more stringent safety requirements.

Having a secure retirement would be one goal of  workers in East Palestine, but they would have other priorities, such as living in a safe and healthy environment. If Norfolk Southern had asked them about their priorities -- as part owners of the company -- they probably would have said, "We want you to operate safely, especially since you pass through the heart of our town."

However, the people investing on behalf of those East Palestine workers had just one priority, and that was shared by the Norfolk Southern executives: maximize investment returns. 

The workers were part owners of the means of production (the trains and their tracks), but they did not control the means of production, despite living near it. 

The major owners of the means of production rarely live near them. Those things would be a lot safer and cleaner if they existed near mansions and country clubs.

A short video related to this question on the undemocratic nature of American capitalism was posted in March of this year. (Generic Art Dad on Facebook and @genericartdad on Instagram.) In it, he discusses how banks knowingly make loans to private equity firms who will use the money to acquire a company. The investors will then strip the company of assets and leave it holding the loans. The banks do not care if the loans go bad because once the acquired company goes under, they will have sold the loans to others -- including pension funds.

The demise of the acquired companies hurts their workers and the workers who participate in the pension funds that might have purchased the bad debt.

"The people who bear the brunt of this aren't exactly at the table to push back," says Generic Art Dad.

To truly democratize capitalism, workers and regular citizens need a voice on the boards of directors for companies, and their daily priorities would need to be reflected in the decisions of the investments professionals responsible for their money.