Chris conflates an argument with a state of affairs here:
In the labour market, many people favour big incentives and little risk-pooling. Unemployment insurance, they say, reduces people’s incentive to find work, whilst big wage inequality encourages them to work harder.People do argue that unemployment benefits reduce the incentive to find work, and that's got to be true. However, it's a lesser evil than starving unemployed people. But that's an argument. The situation with dispersed share ownership is a state of affairs that has developed organically, a very different thing. And it's less true in the case of managed funds where the risk is spread between many owners but the management of funds is concentrated in people who really do focus the minds of managers.
However, when it comes to the market for corporate ownership, things are different. The dominant form - measured in pounds if not the number of companies - is dispersed ownership. This generates good risk-spreading but weak incentives.
You can see my puzzle. For workers, risk and incentives must be sharp. But for capitalists they must be blunt. Strange, huh?
The problem is, this focussing is corrupted by cronyism, by the fact that business managers and fund managers are drawn from the same small pond and tend to reinforce rather than challenge each other's behaviour.
But that's a combination of corruption and stupidity. It's not capitalism. Capitalism would also exist if risk (share ownership) were less dispersed.
UPDATE: Link to Chris's post added.