Holding System

Holding System

 

the possession by some joint-stock companies of the securities of other companies (sometimes a reciprocal relationship).

The holding system is an important form for linking and interconnecting capital. It gives rise to a multilevel system, with many enterprises subordinate to a financial group or to financial magnates, who thereby obtain the opportunity to dispose of a huge sum of capital belonging to other people, as well as to extract exorbitant monopoly profits from the enterprises under their control. The parent company buys controlling blocs of shares in the subsidiary, or “daughter” company, which, in turn, may establish control over “grandchildren” companies. The holding system emerged with the rise of the joint-stock company in the epoch of premonopoly capitalism and reached its high point under imperialism, during the period of the rule of finance capital, an outgrowth of the fusion of industrial and banking capital.

The holding system is strengthened by personal link-ups and long-term financial ties. It is the foundation for the domination of the financial oligarchy. Lenin wrote: “The big enterprises, and the banks in particular, not only completely absorb the small ones but also ‘annex’ them, subordinate them, bring them into their ‘own’ group or ‘concern’… by acquiring ‘holdings’ in their capital, by purchasing or exchanging shares, by a system of credits, etc., etc.” (Poln. sobr. soch., 5th ed., vol. 27, p. 327).

Under contemporary conditions, the holding system has taken several forms. Wealthy individuals, such as big industrialists or bankers, who own shares in commercial and industrial corporations and credit and financial institutions, may exert a decisive influence on particular companies or firms. At the same time, members of the financial oligarchy own shares in industrial companies and banks. Sometimes, the same effect is achieved by the creation of holding companies that own large blocs of shares in various industrial corporations and credit or financial institutions. In the 1960’s and early 1970’s charitable foundations, which are established with funds set aside by financial magnates from their inheritances, also played the role of holding companies. The billionnaire Rockefeller family hides its wealth in more than 100 charitable foundations and trust funds, avoiding inheritance taxes while maintaining rights over transferable assets.

In another form of the holding system, credit or financial institutions, such as banks and insurance companies, acquire large blocs of stock in commercial and industrial corporations. After World War II (1939–45) credit and financial institutions purchased a substantial portion (approximately 30–45 percent) of the stocks issued by corporations. Stocks owned by the financial oligarchy and by the wealthiest families were acquired by commercial banks, which established special trust departments for this purpose. Exercising broad powers and acting in the name of the owners of these stocks, the banks became participants in the top-level control of industrial concerns.

Another form of the holding system involves the acquisition of shares in credit and financial institutions by commercial and industrial corporations. This arrangement ensures industrial firms of control over financial institutions and gives them access to money capital necessary for expanding production and increasing their capacity to maneuver with large-scale credit. Mutual, or reciprocal holding of shares by various commercial and industrial corporations is another form of the holding system.

Under state-monopoly capitalism, the traditional concept of the holding system has been broadened. Through state enterprises and institutions, the state functions as a co-owner by holding shares in private companies. Conversely, private companies may purchase shares in state enterprises. This system is characteristic of Western European countries and Japan and less typical in the USA, where the percentage of government-owned enterprises is insignificant.

Specific forms of the holding system are also found in particular branches of the economy. For example, in addition to joint-stock companies, the insurance business has companies organized on a cooperative basis, in which each individual or institution holding an insurance policy legally becomes a co-owner. Nonetheless, the dominant role in the insurance business is played by the financial oligarchy and the large industrial firms and credit institutions, which are insured for thousands and millions of dollars. This form of holding system is most common in the USA, Canada, and Great Britain.

Under the impact of the processes affecting finance capital under state-monopoly capitalism, the character and forms of the holding system are changing and becoming more complex.

REFERENCES

Lenin, V. I. Poln. sobr. soch., 5th ed., vol. 27, p. 327.
Anikin, A. V. Sovremennaia kreditnaia sistema kapitalizma. Moscow, 1964.
Zhukov, E. F. Strakhovye monopoliiv ekonomike SShA. Moscow, 1971. Page 139.
Soedinennye Shtaty Ameriki. [Moscow, 1972.] Pages 140–41.
Men’shikov, S. M. Sovremennyi kapitalizm. Moscow, 1974. Pages 50–52.

E. F. ZHUKOV

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