Managerial Capitalism Decouples Ownership and Control

The classic model of capitalism (bourgeois capitalism), in which the proprietor of the business fully owns and controls the business, was replaced by managerial capitalism where managers, despite owning small amounts of the company, exhibits full control over the business.

As a result of the massive scale of modern enterprises, it was inevitable that a managerial class are needed. The upshot is that highly skilled managers can operate increasingly large and complex businesses. The downside is that managerial capitalism takes less risks and, as a consequence, new things don’t get built.

See also:

  • Baumol’s cost disease shows how management salaries and productivity are also decoupled
  • At worst, managerial capitalism is a negative art—significant gains come from avoiding risk rather than taking it for higher possible gains
  • The Tendency Towards Managerial Capitalism Makes Startups Possible

    In the modern economy, managerial capitalism is the prevailing way companies are run. While startups tend to resemble bourgeois capitalism at the beginning (founders with full ownership and control), they eventually transition to a managerial model to scale (managers with low ownership but full control). Ironically, this transition is why startups are possible in the first place—it creates an opportunity for new startups to innovate. We know this is true because the big established companies don’t continue innovating and building all the new things themselves.