US law recognizes two legal stakeholders of a business: holders of debt, and holders of equity

If I were king, and could change one thing about American economic policy, that would be it. I would change the fact that US law only recognizes people who hold debt and people who hold equity as stakeholders in the company. ("Debt" means you hold the business's bonds; "equity" means you hold the business's stocks or their equivalent if they're not publicly traded.)

When I talk about this with Americans, even fairly liberal ones, that just seems obvious to us. "Well, sure, it's the shareholders' company, and the bondholders' money that paid for it." But it's not remotely the only way that the laws can be set up.

In Germany, for instance, the company's labor force is a recognized legal stakeholder in the company. In India (post-Bhopal), the community where the business does operations is a recognized legal stakeholder. In South Korea, the supply chain has legal rights as a stakeholder. In Japan, the company's competitors do (before you say that's crazy, Ford lobbied Congress for the GM/Chrysler bailout despite not needing a bailout itself -- basically it's like each industry has a trade association with a voice on each individual company's board).

There's a fairly American idea that "the purpose of a business is to make a profit", but it's very silly when you think about it for even a minute. If every business's goal were simply to make a profit, every business would be a hedge fund (at which point there could be no hedge funds, ironically). Businesses are complex enterprises with a variety of purposes. I had a kitemaking business for a while, and my goal was twofold: first, to provide fun and active outdoor entertainment for children, second, to keep alive traditional kite designs in light of modern understandings of aerodynamics. Now, actually doing that required making a profit or at least breaking even (which, in the event, I turned out to be worse at doing than I was at making kites), but that was not why I did it (if my goal was making money I would have gone to law school).

At the risk of anecdote: I was in Calcutta for Christmas visiting my mother-in-law and she got me a handmade guitar as my Christmas present. (And, at the risk of guitar-bragging, I will post a picture)



Man, that axe plays really, really well. It cost about $100 at the current exchange rate. (Guitarists: yes, that is a maple neck on an acoustic -- I have no idea why so few luthiers do that; it sounds amazing.)

Anyways, the luthier (let this be the vocab lesson for the day) is the son of a sitar maker whose father did commissions for Shankar, including the first ever hansa beeda (it's roughly a mandolin-sized portable sitar, and I want one). He runs a co-operative with the other businesses in his neighborhood (see above the Indian inclusion of nearby people as stakeholders). This would be impossible in America, but it works pretty well in West Bengal. Now, West Bengal was explicitly communist until just a few years ago (and they're still in the coalition), but it's an example of what you can do when you look past the debt/equity obsession.

So, for instance, if the guitarmaker were to go bankrupt in India, the courts would grant the neighbors in his co-op some say about how to restructure his business (and, think about it, they all suffer if they go from having a popular guitar store to having a boarded up storefront next to them). If he were in Germany and went bankrupt, his workers would get some say. If he went bankrupt in South Korea, the timber supplier who supplies his wood (the most amazing rosewood and Himalayan maple, incidentally) would have some say. In Japan, the other musical instrument makers would have some say.

If he were in the US, and he went bankrupt, the only people who would have any say would be the shareholders and the people to whom he owed money. That is a real shame, because it's a disincentive to start a business. This guy had a dream of making guitars, and he (and many, many others -- Calcutta has a huge craft musical instrument industry) are able to do that because the law in India recognizes that the work a business does is more important than the money it makes.

So, if I could change one thing about the US's economic policy, one thing that I think is really at the basis of all our other problems, that would be it.