Vince Cable says:
The governance at the top of our leading banks has been lamentably weak...shareholders have to get a stronger grip on weak boards and out-of-control executives.
But there is a reason why shareholders do not have a powerful grip on companies, and will not even if legislation permits them greater control. It lies in the problem of collective action. For any individual shareholder, the costs of overseeing day-to-day corporate behaviour are considerable in terms of time and hassle, whilt the benefits of better governance are diffused across all shareholders, and indeed the general public.Each individual shareholder thus has an incentive to free-ride on others' efforts at oversight, with the result that shareholders collectively don't exercise effective control and company AGMs are disproportionately attended by the lunatic fringe.
This should, of course, be well known. So why doesn't Cable seem to know it?
His error is not an individual idiosyncrasy. As I've pointed out, a consistent theme of this government - from encouraging panic-buying to its attitude to welfare reform - is a failure to realize see that individually rational behaviour can be collectively self-defeating.
This is puzzling. Traditionally, it has been thought that one of the prime purposes of politics is to solve problems of collective action: to supply public goods that a free market would (might?) under-supply; to rectify market failure; to provide a legal framework which helps ensure that the pursuit of individual interest doesn't clash too horribly with the social interest.You'd expect, therefore, politicians to be especially alive to the problems of collective action - because it is such problems that (should) give them a reason for existing. And yet Cable's comment here suggests that he is as blind to this issue as the Tories.
Why? I can think of two possibilities.
First, the decision to enter politics is not taken as a result of an intellectual interest in social science, but rather as an emotional urge - something people feel they have to do, without really knowing why. Gordon Brown is a good example here. He became consumed by a desire to become PM, and yet when he achieve that office he hadn't a clue what to do with it.
Secondly, it could be that our politics has become dominated by a bastardized version of free market thinking which denies the possibility of a conflict between individual and collective interests - unless, of course, those individuals are workers or benefit claimants. This ideology is so ubiquitous that even intelligent men such as Cable are blinded by it.
* In fairness to Cable, his call for tighter regulation and alternative business models for banks suggests he is groping towards a recognition of this problem. But he doesn't seem to see the fundamental conflict between private ownership and the collective interest as clearly as he should.