There’s been a lot of talk on the what’s next of finance, in particular the idea that the partnership model will make a comeback. In his much-lauded Portfolio piece, Michael Lewis suggested that the banks would’ve never taken such risks, so highly levered, under the old partnership model. The decline at Goldman has got people talking how that firm might take itself private, and what model it might employ.
In the UK, finance has charted a similar evolution as ours: from partnership to public to bust. So was the emergence of the public corporation causal or just incidental. Alexander Campbell at Risk.net writes:
This is far from the first time I’ve heard the suggestion that partnerships – or other forms of employee ownership – might be the way forward for the financial sector. The UK’s mutual building societies spent decades being humdrum, unexciting, unambitious – and solvent. Then they all demutualised, as more than one recent conference attendee from a major bank pointed out to me, and what happened to them? To Abbey National, Bradford & Bingley, Halifax, Midland, C&G, Alliance & Leicester, Woolwich, and, of course, Northern Rock? Bought up or shut down, almost to a man.
So what difference does it make? Campbell’s explanation is one of the most succinct we’ve seen:
I’m not trying to write off the public limited company altogether. But which lines of business are still dominated by employee-owned companies or partnerships? Lawyers, doctors, dentists, undertakers – all areas with little physical capital, but where human capital, trust and reputation are key.
Where you need physical capital – in manufacturing, for instance – tapping the equity market is indispensable. But isn’t it now becoming increasingly obvious that easy access to vast amounts of (apparently) freely flowing capital -through the equity or the wholesale markets – has in fact been a huge temptation, rather than a boon, for banks?
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