The Case for Public Holding Companies (PHCs)
Capitalism is perhaps the best economic system we got. Only extremists could deny this. But nobody can deny that capitalism has its flaws. Adam Smith noted nearly three centuries ago that shareholders are more devoted to profits than their home country; resulting in conflicts of interest negating the very citizens investors are supposed to enrich. The reluctance of businesses to abandon China after the pandemic began (when it was clear the government’s incompetence is what allowed it to spread globally) is a wonderful example of this.
A complaint made by economic egalitarians is that shareholder profits continue to climb while wages fall. Those who invest the most in companies make a lot of money, while the rest of us get diddly squat. Whether such populist talking points are accurate (or even harmful) is irrelevant. Even wealthy interests — embodied by the likes of the World Economic Forum — feel all stakeholders in society should be accounted for by corporations. Why? To tie the interests of stakeholders to the profits of shareholders. To accomplish humanistic aims.
To address both these problems, I make a simple proposal: Public Holding Companies (PHCs), or Public Holding Corporations.
To understand what a PHC is or what it would do, we should first define its private-sector equivalent. A holding company is a firm whose primary means of generating profits is by owning shares in different businesses. A holding company, for example, may own 80% of shares in a clothing corporation, 40% of a restaurant corporation, and 10% of a phone corporation. Often owning controlling shares, not only does the holding company receive a cut of the profits, they also get to appoint representatives to corporate boards; nudging management towards their goals. This not only benefits the holding company, but for those involved it is the alternative is bankruptcy and avoidance of entrepreneurial risk.
What would a PHC do then? Unlike regular holding companies, a PHC would be owned by the central government (or provincial/state government in some cases). Profits a PHC makes would go towards the state itself. PHCs would purchase minority or majority shares in private companies — highly profitable ones like Amazon especially — so the State not only gets a slice of the cake, but can influence management towards public policy aims. Suppose the theoretical United States Strategic Investment Bureau (USSIB) bought 20% of Tesla’s shares; they could appoint representatives to the company board and millions of their dollars would go towards the State.
This would achieve many, many beneficial aims.
- If PHCs prove profitable enough, they can substantially reduce private sector taxation. (A win for fiscal conservatives.)
- PHCs can optimize business management and regulatory structures as the failure to do so would produce democratic backlash.
- Public-private partnerships and safety nets can be funded through PHC profits, which means stakeholder interests are now tied (to some extent) to shareholder profits.
- They would reduce economic inequality since much of the profits driving it will go into government hands (sometimes for redistributive purposes).
- PHCs would, ultimately, bend corporations to the national interest (e.g., environmental goals, community welfare, and national security).
What is fantastic is that my idea has already been implemented in Canada through their Crown corporations. One example of this is the Public Sector Pension Investment Board which invests in private real estate markets, financial institutions, and infrastructure; the returns—worth billions of dollars I might add—are then put into public spending schemes like pensions. Their holdings, as well as other Crown corporations with investments in an extensive number of private-sector companies, can be found here. In Norway there exists the Government Pension Fund that invests not only in natural resources, but also in foreign companies like Microsoft; and they have also generated billions of dollars in profit.
I am open to figuring out how to make this better. Some may fear corruption; but we could make it so that by law PHC profits must go towards certain government programs and functions to minimize the risk of this. We can debate other measures to ensure PHCs do their job in the public interest. But I think the mere concept of PHCs is worth discussing, debating, and exploring.
