The Modi Administration Needs to Stop Shareholder First Policy to Save India from Disaster

Dr. Susmit Kumar, Ph.D.

As discussed in this article, the Modi administration needs to stop the shareholder first policy, the prime accused in the impending collapse of the US economy, to save the Indian economy from disaster. As discussed in my several papers, the US economy is surviving for the last three decades mainly by printing its currency, which happens to be the global currency, to fund its twin deficits – trade deficit and budget deficits. Once China would replace the US dollar with its own currency as the global currency, the US economy would be in a great depression for decades (please read my paper: Part IV – Fraudulent US Market-Driven Economy and RBI’s Functional Autonomy). The shareholder first policy is responsible for the transfer of a massive amount of money to the ultra-rich from all others (please see Chart 5 in the same paper).

Let us first discuss some examples:

(1) China getting hold of the entire South China Sea:
Chinese claims in the South China Sea are delineated in part by the nine-dash line. It was originally an “eleven-dashed-line,” first indicated by the Kuomintang government of the Republic of China in 1947, for its claims to the South China Sea. The Communist Party of China took over mainland China and formed the People’s Republic of China in 1949 the line was adopted and revised to nine dashes/dots, as endorsed by Zhou Enlai. The legacy of the nine-dash line is viewed by some PRC government officials, and by the PRC military, as providing historical support for their claims to the South China Sea (Territorial disputes in the South China Sea, Wikipedia).

The Nine-Dash Line—at various times also referred to as the “10-dash line” and the “11-dash line”—refers to the undefined, vaguely located, demarcation line used initially by the Republic of China (1912–1949) and subsequently the governments of the Republic of China (ROC / Taiwan) and the People’s Republic of China (PRC), for their claims of the major part of the South China Sea (Nine-Dash Line, Wikipedia).

On 12 July 2016, an arbitration tribunal constituted under Annex VII to the 1982 United Nations Convention on Law of the Sea ruled that China has no legal basis to claim “historic rights” within its nine-dash line in a case brought by the Philippines. The tribunal judged that there was no evidence that China had historically exercised exclusive control over the waters or resources within the Nine-Dash Line. The ruling was rejected by both Taiwan and China.

Despite having no historical rights over the entire South China Sea, China has been able to get control of nearly entire South China Sea by building artificial islands (China’s Sea Control Is a Done Deal, ‘Short of War With the U.S.’, New York Times)

(2) Nearly the entire catchment area of Brahmaputra river lies in China whereas India and Bangladesh get all the water. Now China has been building dams in the catchment area of this river to divert the flow to its massive desert. As the economies of several Northeastern Indian states and Bangladesh are dependent on this river, it is certain that India and Bangladesh would take China to an international tribunal to force China to share the water.

The situation with the utilization of the water of the Brahmaputra river bears similarity to the change in the modus operandi of sharing of a firm’s profit since, say, the 1970s. These days rather than saving its money to grow the business or increasing the employee’s wages, companies return whatever money it has made as profits to its owners, or shareholders. A company can do this in two ways: by paying dividends or by buying back its stock. What is less well-known, however, is that a relatively small group of large U.S. blue chips — companies including Coca-Cola, McDonalds and IBM — has substantially increased the amount of cash it has returned to shareholders. In 2007, before the financial crisis, U.S. companies returned $673 billion in cash to shareholders, which represented 90 percent of aggregate corporate earnings. That’s a mind-boggling amount of money. About three-quarters of this amount is attributable to a small set of very large companies, which increasingly dominate the distribution of earnings and payouts.[i]

To “maximize” a company’s share price has no foundation in history or in law. Nor is there any empirical evidence that it makes the economy or the society better off. What began in the 1970s and ’80s as a useful corrective to self-satisfied managerial mediocrity has become a corrupting, self-interested dogma peddled by finance professors, money managers and over-compensated corporate executives. One can argue that much of what Americans perceive to be wrong with the economy these days — the slow growth and rising inequality; the recurring scandals; the wild swings from boom to bust; the inadequate investment in R&D, worker training and public goods — has its roots in this ideology.[ii]

The change can be seen in statements from IBM’s leaders over the years. Thomas J. Watson Jr., son of the company’s founder, IBM’s president and CEO, published a seminal text in 1963 called “A Business and Its Beliefs: The Ideas that Helped Build IBM.” In it, he wrote that IBM’s philosophy could be contained in three beliefs: One, the most important, was respect for the individual employee; the second, a commitment to customer service; and third, achieving excellence. He wrote that balancing profits between the well-being of employees and the nation’s interest is a necessary duty for companies. Watson took pride in the fact that his father avoided layoffs, even through the Great Depression. “We acknowledge our obligation as a business institution to help improve the quality of the society we are part of,” read the text of IBM’s corporate values. Under Watson’s watch, IBM introduced groundbreaking computers that shot his father’s company to the top of the technology world. On the other hand in 2013 the then chief executive Virginia Rometty had pledged to follow a plan called the “2015 Road Map” in which the primary goal is to dramatically raise the company’s earnings-per-share figure, a metric favored by Wall Street. [iii]

Similar was the perspective of Owen Young, who was CEO of GE almost straight through from 1922 to 1945: “Stockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer.” On the other hand Jack Welch, CEO from 1981 to 2001, believed in “the shareholder as king—the residual claimant, entitled to the [whole] pot of earnings.” [iv]

Since the World War II and till early 1970s, all the stakeholders (customers, employees, suppliers, shareholders and community) were nearly treated equally by the CEOs. With boards heavily stacked with insiders and salaries and cash bonuses the sole source of executive compensation, there was no linkage between changes in stock price and changes in executive pay. In 1970, for example, stock-based compensation represented less than 1% of CEO remuneration.[v]

Please click here to download 16 page Chapter 15 “Shareholder First – Reason for US Economic Disaster”, in pdf, from the book India Is a Country, Not a Company: How Anglo-US ‘Imported’ Economists Misled & Mismanaged Indian Economy, Susmit Kumar, Munshiram Manoharlal Publishers Pvt. Ltd., New Delhi, 2018, pp 69-84. The chapter has a lot of data and discussion on this topic.


[i] “Corporate America Is Enriching Shareholders at the Expense of the Economy,” Douglas Skinner, July 15, 2014,,
[ii] “How the cult of shareholder value wrecked American business,” Steven Pearlstein, The Washington Post, September 9, 2013.
[iii] “Maximizing shareholder value: The goal that changed corporate America,” Jia Lynn Yang, The Washington Post, August 26, 2013.
[iv] “Frenzied Financialization,” Michael Konczal, Washington Monthly, November/December 2014.
[v] “Maximizing Shareholder Value May Have Gone Too Far,” Peter Atwater, Time, June 3, 2016.

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