Disgorge the cash.

This post responds to a request in the TYR open newslist

J.W. Mason’s essay Disgorge the Cash! is a genuinely fascinating exploration of the way the whole apparatus of “shareholder value” functions to force management to, eh, disgorge the cash, and therefore to actually prevent improvement in favour of maximising the extraction of rent. The crucial measurement of this is that corporate borrowing is no longer correlated with capital investment – rather, debt both permits companies to disgorge the cash and forces them to do so.

In a deep sense, its function has been to strip institutions of their substance, whatever they may be. Mason points out that individual shareholders, in general, have no more real control than they did in the era of high managerialism, because the management has become more identified with the idealised shareholder than the shareholders themselves, while the managers themselves have become substantial shareholders. A financial-management complex exists which serves its own rent-seeking interests, with the highly ironic result of huge shareholder entities like CalPERS or the Ontario Teachers having to fight their own system, the shareholder-value order, when they want companies that they basically own to stop polluting the air or whatever.

Mason concludes that the enormous growth of finance in the last 30-odd years is testament to the continuous effort that is needed to keep capitalism capitalistic. The phrase “disgorge the cash!”, by the way, came from someone who thought Apple should do just that rather than, as it turned out, make the iPad.

I’ve also recently been reading John Seddon’s Freedom from Command and Control. Seddon is something like Toyota’s number one fan, although in a service industry context. As such, he is fascinated by the problem of variety in demand.

Taiichi Ohno, at Toyota, realised that if the time taken to change over the slowest machine tool to a new task was equal to or less than the time it took to produce another car, it would be possible to make them all unique at no greater cost than making them identical. In flow production, time taken is equivalent to cost. One way to look at this relationship between variety and cheapness is as a trade-off – at one end of the scale, you have something like bespoke tailoring, with almost infinite variety at relatively huge unit cost, at the other, classic Fordism, any colour you like as long as it’s black.

Ohno, however, realised it was possible to shift the curve as well as move along it, by changing the production process to reduce the time (or cost) of changing the product. Seddon points out that variety in demand exists in time, as well as in space. Improvement over time requires change, and therefore variety. This is interesting because it starts to look like a dynamic theory of the firm, something that explains change over time. And it is one with far-reaching implications for the organisation of work.

The two books converge interestingly; I think Seddon’s view of the “management factory”, the structure of metrics with which managers perceive their businesses, is something analogous to Mason’s structural drive to liquidation. Stupid measurements, which don’t actually serve to improve anything, persist because they entrench the authority of managers over workers, in the same way that shareholder value exists to stop cash being reused in the productive process when it could be disgorged.

In fact, you could almost say that Seddon’s critique of management represents the micro-foundations of the Disgorge the Cash macro-phenomenon, or alternatively the micro-aetiology of the macro-disease. A really interesting point of Seddon’s is that forcing people to chase arbitrary targets induces them to cheat, and then the cheating contributes to their alienation and demoralisation, which in turn makes it ever more necessary.

In many ways, Disgorge the Cash explains why we don’t live in a Seddonist world, and why trying to fix capitalism via management or technology doesn’t work. On the other hand, it reminds us that it was possible to mitigate, reduce, or subvert the forces demanding liquidation and that it would be good.