Accountable Capitalism Act
It’s called the Accountable Capitalism Act. Here’s the bill text.
Yves Smith has a take on this…lots of talk in the news econ sections:
Elizabeth Warren introduced her Accountable Capitalism Act in the Senate yesterday and set forth the logic of her bill in a Wall Street Journal op-ed. The Massachusetts senator described how as recently as the early 1980s, even conservative groups acknowledged publicly that corporations were responsible to employees and communities as well as to shareholders. And as we’ve written, and is implicit in the Warren article, there is no such thing as a legal obligation to “maximize shareholder value”. It’s simply an ideology that has become widely accepted, even as some of its most prominent advocates, such as Harvard’s Michael Jensen, have since renounced it. But this practice has become so deeply embedded and so damaging that it will apparently take a change in rules, or at least a credible and live threat to do so, to change behavior in boardrooms and the C-suite.
We documented in the early 2000s that the cost of shareholder-fixated short-termimsm was that corporations as a whole were net saving, as in not investing, which was a disturbing departure from long-establihed norms. Corporate priorities have become even more warped in the post-crisis era as companies borrowed to buy back stock.
Warren highlights how “shareholders come first” doesn’t look to have been very positive for anyone save corporate execs who have asymmetrical pay deals. They get paid handsomely even in the face of so-so to lousy performance, and are paid egregiously if results are good.1
But executives tend to get paid more (including through stock options) when the stock prices increase and failure to produce quarterly returns tends to induce the market to reduce stock value. Return to investors isn’t legally required; it’s financially motivated.
It seems to me that there is a natural tension between capitalism and democracy.
If you believe that the intent of democracy is to provide a government which benefits all its citizens then runaway capitalism is anathema. By its very nature corporations will struggle to amass huge wealth and use that wealth to lobby the government to deregulate them and reduce their tax burden. (They want all the benefits of a free, educated, and stable society, they just don’t want to pay anything for it.)
Corporations are a possibly necessary evil. But from time to time the US government has had to rein in the largest corporations.
The gilded age was a period of the concentration of wealth. After monopolies and trusts came to be seen as anticompetitive measures, the Sherman Antitrust Act was passed in 1890. In 1914 the Clayton Antitrust Act was passed to broaden the controls over large corporations.
In 1933 after it was realized that large banks had broadened and deepened the Great Depression, the Glass-Steagall Act was passed. Its aim was to leave a separate more stable commercial banking system and let the investment bankers continue with actions which might bring on their own downfall but not the US economy.
Laws and regulations passed during the Great Depression brought on a period of overall economic stability. But large corporations were constantly lobbying the US Congress to deregulate them. By 2008 they had been so successful that we had the second Great Depression. (The Great Recession was a public relations term.)
So again we have had a huge concentration of wealth, inadequate regulation of corporations, and a federal government that has governed so lopsidedly that the voters have rebelled! They elected a complete political outsider .
I predict that Senator Warren’s bill will not even get a modest consideration. It should but it won’t. The headlines are already screaming about communism! (Fake news!)
Democrats and Republicans in the US Congress need to take a long look at the laws which they have enacted since 1980.
Investment Banks came into being with the rescue of them (AE, GS, GMAC, AIG, etc.) during 2008 in order for the Fed/Gov to fund them and regulate them (I am sure you knew this). This gave them access to lower interest rates on loans. In my opinion, the access to lower interest and being banks should have ended when the nation was stable again.
Very concise and accurate description of the real failure. Capitalism was properly regulated in the 1950’s, 60’s and 70’s and provided tremendous prosperity for the working and middle classes. It was the withdrawal of regulation that has caused the failure. This has been a failure of governance, not a failure of the economic principle of capitalism.
I would disagree with you regarding Warren’s bill. It should not receive a moment’s consideration, as it is a federal usurpation of powers reserved to the states by the constitution. (“All matters not specified herein…”)
“It should not receive a moment’s consideration, as it is a federal usurpation of powers reserved to the states by the constitution. (“All matters not specified herein…”) ”
Ah, but the commerce clause has been stretched to cover almost any transaction taking place across state lines.
Senator Warren’s bill would certainly be about regulating interstate commerce. Should Delaware be allowed the exclusive right to set the standards of conduct for businesses engaged in interstate commerce between Kentucky and Ohio?
I believe that Senator Warren’s bill deserves some modest consideration because we are past due for a serious discussion of the impact of corporations’ behavior on the people of the United States. Suicides and drug overdoses are caused by desperation.
When corporations convinced the two major political parties to adopt free trade treaties and thus eliminate meaningful tariffs, the last restraints on corporate behavior were cut loose.
1. If the US government wanted to raise corporate taxes or increase regulation, corporations could move to China and send their products back to the US. Apple avoided federal taxes by stashed their cash in Ireland and the US Congress groveled with a tax cut.
2. If American workers would not accept lower living standards, then corporations could move to China and send their products back to the US. The minimum wage has not been raised as often as it should have and it never will be raised often enough. Stagnant wages have become the norm.
Our current situation is not sustainable over the long term. If wages do not go up, then public welfare must go up. If corporations shirk all public responsibilities then the federal government will have to step in. And all of this will be happening at a time when when we are already seeing large federal deficits.
I think if the coming blue wave Congress amends the NLRA to set up regularly scheduled union cert/recert/decert elections at every private (non-gov) workplace — I would suggest one, three or five year intervals, local plurality rules …
… that once labor unions are widely reestablished everything else labor needs would fall into place: most of the stuff Warren and others are pushing for.
There is an awful lot of other stuff — read:
New Work Towards a New Labor Law
August 16th, 2018 – Sharon Block
A “lot of stuff” can’t make a hot election issue among the folks who the Democratic party should be trying to corral back into the progressive fold — certainly is too diffuse to make into a decisive issue — at least they will get the idea you want to help which is more than Hillary could do. A decisive issue would be what should be the core rescue regulation of American democracy: regularly scheduled union certification elections.
Easy to explain why regularly scheduled elections are the only way to go: just point out that anything resembling normal organizing of a work site has become an impossible path to tread. Just explain that even if anti-organizing behavior were made a federal felony and tens (!) of thousands of enforcement agents were hired, what is to stop millions (!) of business owners from laughing and saying: “What are you going to do, lock us all up?”
The business culture of this country (uniquely in all modern economies as far as I know) has become so riddled with (illegal) union busting that it has become healthy-cure proof — it’s just the dominant culture and can’t ever be changed.
Nothing radical about regularly scheduled elections. Ask the spiritual father of the same, Wisconsin governor Scott Walker. At his hard driving instigation Wisconsin became the first Republican admin to require its public (non-private) employees to vote to recertify their union every year — majority of union required to recert, not just of those who vote.
Other state Repub parties have worked on the same for their pub employees. Florida Repubs wanted to decertify teachers union anytime union membership fell below 50% of employees — which they hoped might happen in the summer when teachers quit but none are hired. Decertified without a vote!
Time to put an end to voter suppression in America’s millions of private workplaces. Jimmy Hoffa said that a union is a business. No other form of business is subject to routine extortion against forming by competing interests — in unionizing case from going through the legal steps to certify. All harm to all democracy all the time. No harm anytime from simple elections to allow people to be free to choose (;-] thanks Milty).
So because the commerce clause has been stretched and abused to a large degree, we should stretch and abuse it even farther?
What’s more, have you read the text of the bill? It requires that the corporation “balance best interests of the general public, the pecuniary interests of shareholders, the persons that are materially affected by the conduct of the corporation, the employees and workforce of the corporation, the suppliers of the corporation, and the customers and subsidiaries of the corporation.”
Not even Solomon in all of his mythical wisdom could possibly do that, or even approximate it. All the new “Director” of “Office of United States Corporations” would have to do is show any action taken by a corporation which favored the interests of one of those named groups over any of the others and he/she would be able to revoke the charter of the corporation. This should be given serious consideration?
In addition, the corporation must act to “further the general public benefit” of “each community in which offices or facilities of the corporation, subsidiaries of the corporation, or suppliers of the corporation are located.”
So before a manager could make a decision on any proposed business action, he/she would first have to find our how in many communities the business has facilities, subsidiaries or suppliers, and then evaluate it’s impact on each of those communities. If it negatively impacted even one of those communities, he would have to rule out that action. Seriously. Should such a law receive even a moment’s consideration?
In addition to the difficulties of defining and regulating appropriate behavior as well as forcing corporations to add employees to their boards, our current Supreme Court would be unlikely to find this legislation constitutional (see Citizens United, for example as well as various statements about corporations being people/persons and so on.). As others have noted, this is a hypothetical discussion on something highly unlikely to be enacted into law.