Osler, Hoskin & Harcourt LLP Distinguished Lecturer discusses the state of American and moral capitalism

Photo by Greg Black

Professor Lawrence E. Mitchell of the George Washington University Law School delivers the Osler, Hoskin & Harcourt LLP Distinguished Lecture in Business Law on "Financialism: The End of American Capitalism" in Macdonald Hall on March 26, 2010.

On March 26, Professor Lawrence Mitchell of George Washington University visited Queen’s Law as the fourth Osler, Hoskin & Harcourt Distinguished Lecturer in Business Law in 2010.  Speaking to students and faculty, he discussed the impact and lessons the sub-prime mortgage crisis bears on the state of American capitalism, incorporating new material for his upcoming book, Financialism: the End of American Capitalism.

“I come to you as a humiliated and embarrassed American after watching the debacle of the last two years,” began Mitchell. A self-described ‘progressive’ corporate law scholar, his macro-economic reflections on the financial crisis underlie his belief that the United States’ new market order no longer operates on a platform of capitalism, but one of “financialism.”

Financialism is a form of self-interested trading, where there is no intent of financing and facilitating new market ventures in a self-supportive manner. This fosters a model requiring little social and economic responsibility of the investors. In Mitchell’s opinion, this threatens to rob the United States of its future.

Mitchell suggested the ‘financialism’ phenomenon is rooted in two reasons that are “dangerous in practice.” First, a misinterpretation of Adam Smith’s philosophy has led to investors believing and advocating growth through individual wealth maximization. Second, the proliferation of various trading instruments has allowed investors to trade without any real concern or empathy of true business operations that should drive stock prices.

After conducting empirical studies of the American landscape, Mitchell made the surprising and rather shocking discovery that in the United States public shareholders have taken out more money from the markets than they have ever invested. Despite this fact, much power in the market has moved towards the shareholders. This has resulted in a disconnect between responsibility and risk, which destabilizes the foundations of the American economy if self-interested stockholders have the ability to ‘gamble’ with the rest of America’s well-being. It is this attitude, Mitchell maintained, that needs to be altered.

“American capitalism is not well served by these financial institutions that are too big to fail,” said Mitchell. This prompted a question from Professor Nicholas Bala as to what prescriptions can be adopted for the future of the markets.

As one option, Mitchell proposed a capital gains taxation regime that would slow down the capital markets and would alleviate some pressure for managers to continually producing higher gains for their company. He also advocated the elimination of off-balance sheet debt financing and a reformed executive compensation plan that would require managers to hold stock for a number of years after retirement.

During the question and answer period, the audience asked Mitchell for his thoughts on governmental intervention in the financial markets, particularly after the sub-prime mortgage crisis.

Mitchell’s answers consistently underlined his strong belief that nothing is inevitable and that many financial disasters could possibly be averted. Throughout the crisis, he maintained that there were very conscious decisions made that represent what he considered an unfortunate culture change away from producing goods in a corporation towards a model of increasing profits.

“I think the right thing to do in 2008 was to let [the financial institutions] all fail,” Mitchell said.

After his presentation, the students and professors had the opportunity to speak with Mitchell directly on his ideas during the reception in the student lounge. 

“The Osler series add a highly relevant and necessary corporate law theory dimension to our school’s curriculum,” said Gareth Stackhouse, Law ‘11. “The class room discussions were lively, intellectual, and attracted a diversity of opinion.”

In the distinguished business law lecture series generously sponsored by Osler, Hoskin & Harcourt LLP and directed by Professor Paul B. Miller, five internationally renowned academics delivered topical and scholarly papers in the winter term of 2010. For more information on the other lecturers and to see a video and photo gallery of Professor Lawrence Mitchell’s presentation, go to http://law.queensu.ca/events/oslerDistinguishedLecturesInBusinessLaw.html.