Control of modern economies passes from owners to the managers who run them, whether the system calls itself capitalist or socialist.
James Burnham argued it in The Managerial Revolution (1941), building on Berle and Means's 1932 finding that ownership and control of large American corporations had separated. He predicted that a managerial class would replace capitalists everywhere. Orwell criticised the book in 1946 for predicting, at each moment, that whichever power was then winning would win outright.
In practice
- A company's founders own a majority of the shares and find that its strategy is set by executives they cannot easily replace.
- A university's governing board approves budgets drawn up entirely by its administrators.
- Possible explanations
- One explanation is complexity: large organisations need professional managers whose knowledge owners lack. Another is dispersed ownership, which leaves no single owner able to exercise control.
- In its favour
- The separation of ownership and control is well documented, and the growth of managerial and administrative staff in firms, universities and governments is measurable.
- Against it
- Several of Burnham's specific predictions failed, including an Axis victory and the end of capitalism. Owners regained leverage through activist investors and executive pay tied to share prices.
- Standing
- The separation of ownership and control is accepted; the broader prediction is disputed. Compare the principal-agent problem.
- Subject
- Organizations & Bureaucracy
- Essay
- Why organisations learn, harden and decline