In recent pieces, we’ve been analyzing elite behavior. We’ve discussed why elites pick beliefs that are non-obvious to normies, why they do so subtly as to not trigger normie ire, and why our elites prioritize egalitarianism even at their own expense (even if some of them may be faking it).

Over the next few weeks, we’ll dive under the hood on elite theory to understand how elites have evolved over the years, and how that’s affected our underlying institutions. 

But first, let’s start with a history lesson on James Burnham.

James Burnham is one of the leading political philosophers in elite theory — and he’s been misunderstood by both the left and right. Burnham predicted the rise of managerialism in the 40s — a trend that would go on to characterize the decades to come.

Orwell observed the rise of managerialism: “Capitalism is disappearing, but Socialism is not replacing it. What is now arising is a new kind of planned, centralized society which will be neither capitalist nor, in any accepted sense of the word, democratic.” 

Burnahm’s book, The Managerial Revolution, argued that Marx had misconceived the true nature of the revolution — it wasn’t the proletariat that was overthrowing bourgeois capitalism but a new group of people called the professional-managerial class (PMC).

Burnham claimed that there are two different kinds of capitalism: Bourgeois/Entrepreneurial capitalism and Managerial capitalism.

You could think of Bourgeois capitalism as Robber Baron capitalism (think Atlas Shrugged) — industrialists like Ford, Rockefeller, Carnegie building up their empires and retaining a controlling stake in them. What’s differentiating about Bourgeois capitalism is that the owners are also the managers. The people who own the company also run the company. There’s total alignment between managers and shareholders. 

Managerial capitalism, by contrast, is defined by the split between ownership and control — on both the founder and investor side. Instead of owners having direct control, you have layers of intermediary managers (e.g. board of directors, executive teams, hired CEOs) who are running the company on behalf of the shareholders and original owners, but who also have different incentives as a result of having less ownership. They may be more short-term driven than long-term driven, for example, since they are incentivized by their salary instead of their equity ownership. 

You also have this same dynamic on the investor side, too. Instead of investors putting their own money to work, you have investors investing other people’s money on behalf of their LPs, which means they also have different incentives since it’s not their capital and their incentive often comes in the form of fees.

So what we see as a result is professional managers on both the founder side and professional managers on the investor side representing an increasing number of shareholders who have smaller and smaller stakes in the companies. This means the people with almost no skin in the game represent a dispersed base of shareholders that hold basically no power. 

It’s the principal-agent problem on both sides: major corporations are nominally owned by passive shareholders but actually controlled by credentialed professionals who own a much smaller percentage of stock and thus have very different incentives (optimizing for the short-term over the long-term, among other things).

But what led to the shift to Managerialism? Well, businesses started getting much bigger. As a result, those same businesses needed to hire more people and develop scaling expertise, which is very different from early stage company building expertise. These growing businesses also needed to raise more capital, which required more investors and thus more intermediaries. 

That wasn’t all though. Mid century was an era of peak centralization across the board: the coordination of massive systems — mass production and consumption, mass politics, mass armies, and so on — that necessitated distinctively managerial competencies. Peak centralization meant tons more shareholders, which meant way less accountability. Paradoxically, the introduction of more people to the game meant less eyes on the ball and thus less individual skin in the game. 

Even Joseph Schumpeter, the father of creative destruction, noticed a drastic change. He came out and said the Age of Entrepreneurship is over — that from here on out, it will be only big industrial multinational companies run by