Business, Politics and Grassroots

We don’t teach kids about financial democracy

An article in the Economist says that activist investors are good for a public company. In making the case, it frames publicly traded companies as organs of democracy:

AS INVENTIONS go, the public company is one of capitalism’s greatest. Initial public offerings promote innovation, by providing an exit route for entrepreneurs; being listed makes a firm open to scrutiny; and ordinary people have a chance to invest in capitalism’s wealth-creating machines.  …Activist hedge funds take small stakes in firms and act like political campaigners, trying to win other shareholders’ support for their demands: representation on companies’ boards, cost-cutting, spin-offs and returning cash to shareholders.

These are good points, specifically the idea that average people have access to big business. Naturally, the problem is that any stock purchase is a gamble, and that the “ordinary people” referenced above might not understand the risk and would lose savings.

Our answer to that, culturally, has been to dissuade investment. We surrender the world of high finance to the images of Patrick Bateman and Gordon Gekko because they make convenient movie characters, while our schools do little to teach people how to build an investment portfolio over time.

When politicians express concern about America’s widening wealth gap, the answers always seem to be income-based: Proposals tend to include increasing the minimum wage or raising tax earners who make more than $250,000 per year. These are placebo solutions. Wealth isn’t about earnings, but savings and investment. Since lower-income earners have fewer opportunities to do that (with less money to save and invest), wouldn’t the smart policy solution be to help them maximize those opportunities?

Part of that is learning how publicly traded companies work, and understanding the shareholder’s rights and privileges. Civics classes teach us that we each have a vote and a right to speak out about our government – and that if we have some sort of beef, we can organize and change things with enough time and effort. Similar lessons about publicly traded companies are, unfortunately rare.

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