In the August 14th WSJ Elizabeth Warren wrote, Companies Shouldn’t Be Accountable Only to Shareholders
To be brief she proposes that corporations with over a billion dollars in revenue get federal authorization and approval requiring the pursuit of the proper objectives. 40% of board seats would be selected by the employees.
It was breathtakingly ignorant and foolish. Any party that tolerates such ideas is off the rails.
Kevin Williams at National Review, Elizabeth Warren’s Batty Plan to Nationalize . . . Everything
It is also cynical. Senator Warren is many things: a crass opportunist, intellectually bankrupt, personally vapid, a peddler of witless self-help books, etc. But she is not stupid. She knows that this is a go-nowhere proposition, that she will be spared by the Republican legislative majority from the ignominy that would ensue from the wholehearted pursuit of this daft program. It is in reality only a means of staking out for purely strategic reasons the most radical corner for her 2020 run at the Democratic presidential nomination. The Democratic party in 2018, like the Republican primary electorate in 2016, is out for blood and desirous of confrontation. So Senator Warren is running this red flag up the flagpole to see who salutes.
To propose such a thing for sincere reasons would be ghastly stupidity. To propose this program for narrowly self-serving political reasons is the sort of thing that would end a political career in a sane and self-respecting state, which Massachusetts plainly is not and has not been for some time.
To those on the left who look at Senator Warren’s proposal and think that giving the government a stronger whip hand over American businesses is just the ticket, I would like to present four questions: Who is the president of these United States? Who is the majority leader in the Senate? Who is the speaker of the House? How would you evaluate the composition of the Supreme Court, either as it stands or after President Donald Trump has the opportunity to nominate another justice or two? The power you give the federal government will be there during Republican administrations, too. Any future populist demagogue who finds his way into the White House will have access to the same power. No one should be trusted with that kind of power.
And nobody who seeks that kind of power should be trusted with any power at all.
But Warren isn’t really concerned about businesses failing. She’s worried about the ones that succeed despite operating in ways that she doesn’t like. What she really wants to is put the federal government in a position of evaluating and approving how companies grow. She wants to substitute the decisions of people who run businesses with the prejudices and preferences of people who think like she does. And she wants to use the courts to enforce her ideas of how corporations should be managed.
No company operates just for profits. They never have. The best performing companies have to get the best employees, the best resources, and the best suppliers. Those who sacrifice ethics- like Theranos- never last.
Warren shows no understanding of what profit is. It is the signal that determines the best allocation of resources. The better ideas attract the most capital through the profit incentive. Profit is a byproduct of innovation and ideas. Ms. Warren would substitute this with a government bureaucracy who will determine the proper allocation of resources. The would not only squelch economic growth and innovation, it would increase corruption exponentially as businesses curried political rather than consumer approval. Startups would head overseas.
Profit is the oxygen of business. We are not motivated when we arise in the morning by the desire to get oxygen, but we do not get far without it.
There is a need to regulate certain standards- such as environmental, and I agree that shareholder value is a short term and misguided incentive for executives. But to suggest that a federal agency should determine if the business should exist based on government standards of performance, or that profit serves an immoral function separated from other moral concerns is just ignorant of how our system functions and such ignorance should get nowhere near the reins of power.
To think that she knows better how to guide this incredible economic engine is the height of arrogance and smugness and the fatal conceit that plagues her party.
A post script:
from National Review, Elizabeth Warren’s Corporate Catastrophe by Samuel Hammond;
As motivation, Warren cites stagnant median wages and the declining labor share of income. Yet to call this bill a non-sequitur doesn’t quite do it justice. Changes in labor share, such that they exist, are almost completely explained by rising real-estate prices (which appear in the statistics as capital income). Stagnant wages, meanwhile, are largely the result of a secular decline in economy-wide productivity — a force that the country’s biggest, most productive firms are actively fighting against. Indeed, as Michael Lind and Robert Atkinson note in their recent book Big Is Beautiful, productivity growth in any era tends to be driven by a handful of highly innovative frontier companies at one end of the size distribution. Workers in large firms, for instance, earn on average 54 percent more than their small-business counterparts. This helps to explain why regulations that distort the size distribution of firms can have such a big impact on a nation’s aggregate productivity.
Increasing productivity growth is a hard problem. Vilifying America’s mega-corporations, in contrast, is easy. Warren’s proposal, by channeling the very real malaise of much of America’s working class into a campaign against her favored scapegoats, thus has all the hallmarks of populism at its most Trumpian.
further post script from the letters to the editors at The WSJ:
Sen. Warren says corporations shouldn’t be accountable only to shareholders. They aren’t. Corporations already answer to various arms of the federal, state and local governments. In fact, before shareholders get any part of a company’s earnings the various levels of government get their cut. Those who supply goods or services to the company get paid. Employees get paid. The banks who lend money to the company get paid. All of these get their due with a high level of certainty. Shareholders get paid last.
Lest anyone question whether socialism continues its rise in the Democratic Party, they should look no further than Sen. Elizabeth Warren’s “Companies Shouldn’t Be Accountable Only to Shareholders” (op-ed, Aug. 15) in which she rhetorically asks, “What do Americans get in return for [corporate America]? Outside of automobiles, smartphones, lifesaving drugs, airlines, hospitals, philanthropy and the highest standard of living in the world, what have American corporations ever done for us?
Sen. Warren’s “Accountable Capitalism Act” represents one of the greatest expropriations of private property rights in our history, and arguably the most expansive command and control proposal ever presented by the Democratic Party.
She proposes to force owners of successful companies to cede “at least” 40% of their ownership rights to employees and require corporate directors to consider the interest of “all major corporate stakeholders.” Does anyone doubt that 40% will soon become 51%? Or that government will both define and dictate acceptable corporate behavior to their favored stakeholders? Capital won’t be risked when investors know they will lose control of that capital.