Another article from the Socialist Standard archives exploring the world of capitalist financial institutions.
Did you get your British Gas shares ? What's that, you didn't bother? Well, neither did most other workers who had the chance, and no one knows how many of those who did buy the shares will hold on to them. It was estimated that on the day after the sale, around one tenth of the shares had already changed hands as small-time buyers sold out to the big institutions like insurance companies and pension funds. This is what happened with British Telecom shares. When they were first sold in 1984 the number of individual shareholders was 2.3 million. By May 1986 the number was down to 1.6 million, a drop of over 30%, and this figure is certain to fall still further as time passes.
Nevertheless, interest in the stock market is a lot higher than ever it was before. Until recently most people only ever saw the stock market quotations in the newspapers if they accidentally turned over two pages at once, but the saturation coverage by the media of the government's privatisation programme has changed all that. Also, the fear of unemployment has ensured that many employees of quoted companies follow the share price of those companies as a guide to their job prospects.
However, the workings of the stock market remain a mystery to the vast majority of people and this helps preserve the silly notion that financiers, stockbrokers and the like who do understand it are brainier than the rest of us. Actually, it's not nearly as difficult as it seems . One of the main reasons why someone not involved in finance finds it baffling is the frequent use of several different words to describe one item. For example, government "stock" , which pays a fixed rate of interest, is also called "gilts" (gilt-edged) or "consols" (consolidated) while "securities" is simply the all-embracing name for stocks and shares of all kinds.
Different types of shares have different rights and rewards. The "ordinary" shares are the ones which actually own the company. Holders of these have full voting rights and receive a variable dividend depending on the company's profits, if any, and what the directors decide to pay out. These shares are also referred to (more confusion) as "equities". "Preference" shares usually have no vote but entitle holders to a fixed dividend ahead of the ordinary shareholders assuming there is something to pay out. "Debentures" are loans made to companies by investors who receive fixed-interest whether the company makes a profit or not.
Until October 1986 members of the London Stock Exchange had to be British-born. And although they would angrily denounce "who does what" disputes in factories, shipyards, etc. they had their own restrictive practice. This meant that only those who were brokers could buy and sell securities for the public and they made their money by charging clients a fixed commission. "Jobbers", on the other hand, bought and sold on their own account but could only deal with the public through the brokers and made a living from the difference between the prices at which they bought and sold. So brokers couldn't act as jobbers and vice-versa. Since October membership of the Exchange is open to other nationals and the difference between brokers and jobbers is abolished along with fixed commissions. Now the price on deals is negotiable
All of these changes, known as "de-regulation", are the result of the "Big Bang" we have all heard so much about. The idea is to make the London Stock Exchange more competitive with its main rivals in New York (Wall Street) and Tokyo. After all, if customers can have their business carried out more cheaply in New York or Tokyo then that is where they will make their deals and the new computerised communications technology makes that easy to do. This new technology also means that dealers in London will now transact business in their offices and the Stock Exchange floor will be almost deserted from now on
Any stock market must protect its reputation for honest dealing If investors think that they may be ripped-off then they will take their business elsewhere and this is why the New York and London Stock Exchanges are trying to curb "insider dealing". The most notorious insider is the Wall Street speculator, Ivan Boesky, who for years had apparently anticipated the rise in price of various securities which he bought on a huge scale. Hailed as a genius, Boesky had simply been using confidential information passed to him, for a cut, by people who were professionally engaged in takeover bids which would push up the price of the shares involved.
It is hard to imagine that Wall Street didn't know what Boesky was up to. No one can consistently tell in advance what the market will do. The anarchy of capitalist production sees to that. When every company in every industry is making its plans independently of all the others, and when all of them are subject to forces beyond their control such as decisions taken by foreign governments or even their own, then how can future market trends be forecast with any certainty? The truth is that large-scale insider dealing has been the norm for a long time and will continue in the future whatever steps are taken to eliminate it. So much for the claim frequently made on behalf of the capitalists that their high returns are justified because they are the "risk takers''. Not if they can help it, they're not!
What about the other claim that the capitalists are the "wealth creators" because of their activities in the stock market? The real wealth of society consists of human beings using their physical and mental energies plus the resources of nature to produce the goods and services society needs. This wealth is legally owned by the owners of the enterprises whose workers have produced it. All the workers receive in return for their efforts is a part of the total value produced in the form of their wages and salaries. The remainder, surplus value in the form of dividends and interest, belongs to the owners of the various stocks and shares. These securities are merely legal title to this surplus and it is this title which is being traded when securities are bought and sold. So capitalists create not a scrap of wealth and stock exchanges are only the places where surplus value is divided between them.
Even so, the enormous power of the capitalists makes them seem invincible and many workers, even against their wishes, cannot see how capitalism can ever be toppled. But the power of the capitalists does not lie in the amount of pounds, dollars and francs they own. It lies in the fact that the vast majority of workers still see production for profit as the only possible method of producing and distributing society's wealth. If that idea should weaken due to the growth of socialist consciousness in the world's working class then the power of the capitalists would not look so invincible at all.
We can see today how easily stock markets can tremble when investors get the jitters over, say, the mere rumour of a small increase in interest rates or some other trivial matter. Imagine what those jitters will be like when the socialist movement begins to grow. Who will be willing to invest then? Capitalism depends for its continued existence on working-class support for it. When that support crumbles then so too will the power of the capitalists.
Socialist Standard February 1987