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Capitalism is for Stockholders. Socialism is for Stakeholders.
If you are impacted by a company, you should have a say in how it is run.
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One of the primary goals of Socialism is to shift control of companies from those who own them, to those who are impacted by them. In other words, Socialism seeks stakeholder control while Capitalism seeks stockholder control. These terms are similar at a glance but are materially quite different.
A stockholder (or shareholder) is self-explanatory: A person or entity that owns a share of a company. They can own the entire company, or they can own a single share of a publicly traded company. This ownership, whether complete or fractional, gives them entitlement to the profits created by the company and possibly voting power to determine the company's direction.
Conversely, a stakeholder is someone who has an interest in or is impacted by the company’s operations. This includes everyone from the CEO, to the ground-level workers, to anyone else whose life is changed, altered, or even influenced by the existence and production of the corporation. And this interest doesn’t have to be financial. Stakeholders can be tangentially impacted, such as having to live next to a factory that produces a terrible smell.
As seen in the chart below, stockholders are stakeholders, but stakeholders are not always stockholders.
Here’s a fictitious example of the division between stockholders and stakeholders, and how Capitalism and Socialism would shift power between them.
The Po Lute Tire Company
After years of working for Goodyear, Mr. Po Lute decides to start his own tire business. He finds 10 investors all willing to fund his enterprise. With their investment, plus his own, Mr. Po Lute builds a factory on the outskirts of a working-class neighborhood called “Labor Town.” 50 members of Labor Town become employees of the Po Lute Tire Company.
Because the Po Lute Tire Company is a Capitalist entity, the stockholders — Mr. Po Lute and the 10 investors — are in charge. They decide key company decisions and collect its profits. The stakeholders, which include the workers, their families, and those that live in proximity to and are thereby affected by the Po Lute Tire Company’s operations, hold no power. If they want to change something about the company, such as shortening working hours or ceasing the use of toxic chemicals, they cannot. They can only do as told by the stockholders.
The model of stockholder control (Capitalism) holds significant flaws, as the workers who depend on the factory for their existence, and the Labor Town residents who are harmed by the factory’s chemical use, have no recourse to protect themselves. The solution would be to shift the Po Lute Tire Co. from stockholder control to stakeholder control.
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Were Po Lute Tire Co. to become Socialist, the stakeholders would be in charge. That means everyone impacted by the Po Lute Tire Company’s operations would have a democratic say in its direction, and many would reap its profits.
There are multiple ways to achieve this stakeholder control. The workers could unionize and establish a power-sharing agreement between them and the owners, ensuring the workers have a say in the operations. Or, the factory could be turned into a worker cooperative, where workers themselves are the owners. They could then run the company democratically by electing the board, which would appoint officers, executives, and managers. In the case there are a significant number of stakeholders who are not workers, the factory could become a public entity, owned and operated by a local, state, or federal government. This would be the optimal form of management for situations in which the company affects people far beyond its immediate proximity, such as industries that have a significant impact on global emission rates, as that would make every human a stakeholder.
Each one of these stakeholder models is far more intricate and exhaustive than can be covered in this quick synopsis of stakeholders vs. stockholders. The important takeaway from this reading is the distinction between the two methods of control, and how transitioning to Socialist models of operation would empower everyone impacted by industrial operations, leading to a more equal and fruitful society.
Below are some previous writings explaining how stakeholder methods of control could manifest. I’ll be covering more details in the future, so don’t forget to subscribe.
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If you’d like to learn more about how companies could operate under stakeholders’ control, here’s an example of how to run a company as a public entity and an intro to worker cooperatives.