Something’s been bugging me about Tik Tok. I’ve almost downloaded it about a dozen times over the past few months. But I always stop short. I don’t have a ton of time (here’s why) so forgive me as I resort to some short form tricks here. To wit:
The past week or so has seen a surge in commentary on the role of corporations in society, a theme familiar to readers of this site. While it might be convenient to peg the trend to Senator Elizabeth Warren’s newly minted Accountable Capitalism Act (more on that in a second), I think it’s more likely that – finally – our collective will is turning to our most logical and obvious instrument of social change, namely, the instrument of business.
We humans like to organize ourselves into social units. They range from the informal (pickup basketball games) to the elaborately structured (Senate hearings). Our ability to harness collective will is unsurpassed in the animal kingdom, it’s one of our key evolutionary adaptations, driving the success of our species across the globe.
As I’ve arguedelsewhere, one of our most sophisticated social structures is the corporation, which has co-evolved with our various systems of government over the past half millennium or so. The very first corporations were in fact formed (or chartered) by governments – the Dutch East India Company is the most common example of this. In the past century, however, corporations have largely sought to shake the yoke of government regulation – and nowhere have corporations won more freedoms than in the United States, where firms are now considered legal persons with an unrestrained right to “free speech” (IE, the ability to fund political positions).
So this is where we are today: Large corporations have the legal right to exercise unlimited influence over our political sphere, and the commercial imperative to control (and profit from) nearly all our society’s data. That kind of power will necessarily produce a backlash, one that’s found an articulate, but highly unlikely, argument in Senator Warren’s proposed legislation. From the release announcing the Accountable Capitalism Act:
For most of our country’s history, American corporations balanced their responsibilities to all of their stakeholders – employees, shareholders, communities – in corporate decisions. It worked: profits went up, productivity went up, wages went up, and America built a thriving middle class.
But in the 1980s a new idea quickly took hold: American corporations should focus only on maximizing returns to their shareholders. That had a seismic impact on the American economy. In the early 1980s, America’s biggest companies dedicated less than half of their profits to shareholders and reinvested the rest in the company. But over the last decade, big American companies have dedicated 93% of earnings to shareholders – redirecting trillions of dollars that could have gone to workers or long-term investments. The result is that booming corporate profits and rising worker productivity have not led to rising wages.
Additionally, because the wealthiest top 10% of American households own 84% of all American – held shares-while more than 50% of American households own no stock at all – the dedication to “maximizing shareholder value” means that the multi-trillion dollar American corporate system is focused explicitly on making the richest Americans even richer.
Here are a few of the act’s key proposals:
Companies with more than $1 billion in revenues must register with, and agree to be regulated by, a new Federal oversight body known as the Office of United States Corporations. By registering, firms are obliged to “consider the interests of all corporate stakeholders – including employees, customers, shareholders, and the communities in which the company operates.” This enshrines what is often called a “multi-stakeholder philosophy,” the underpinning of B Corps like Patagonia and Kickstarter, into federal law.
A corporations’ workers would be empowered to elect at least forty percent of their firms’ board of directors.
Long term restrictions on the sale of stock by board directors and corporate officers – three years for stock buy backs, and five years for everything else. This is to insure that a large firms’ managers plan for the long term.
A prohibition on political spending of any kind without approval from 75 percent of both directors and shareholders.
There’s more, but I think you’ve got the point – this is a sweeping and presently impossible piece of legislation that radically rethinks the governance of our most powerful corporations. It guts corporate political spending, upends business’s current compensation structure (often based on stock grants), radically reshapes board governance (giving a near majority control to workers), and creates a massive conservative bogeyman in the form of yet another Federal government oversight entity. In today’s political environment, Warren’s legislation is DOA.
But in tomorrow’s? Quite possibly not. Senator Warren is widely considered a front-runner for the Democratic nomination in 2020, and her initial opponent won’t be Trump – it’ll be Bernie Sanders, whose supporters likely will find plenty to love in Warren’s new plan.
Regardless of whether the act has any chance of passing without a strong Democratic majority in both houses of Congress, Warren has smartly identified a central issue in our country’s political conversation, and declared it to be fundamental to the Democrats’ platform for 2020. It’s about time someone did.
More recent reading on the role of capitalism in our society:
Robert Reich’s Saving Capitalism: For the Many, Not the Few is a readable rant that – should you disagree with Reich’s central premise – will elicit eye-rolls and summary dismissal. But while his well-known political ideology (he served as Secretary of Labor under Clinton) is on constant display, I found Reich’s book both timely and important.
I am drawn to any work that posits a better way forward, and as you might expect, I agree with Reich far more often than not. You have to be willfully ignorant to pretend our current economic system is equitable (Reich argues we’re in the “second Gilded Age“) or capable of creating long-term increasing returns. And while many in our industry cling to libertarian fantasies in which technologic silver bullets solve our every social need, back here on earth we need to do better than pine for the singularity. Fixing income inequality and the loss of the middle class requires hard policy choices and a re-framing of the problems at hand.
Reich’s compact book lays out a strong prescription for what he feels is ailing our capitalist system. Anyone in tech should pay attention: Reich lumps the tech elite right alongside bankers, big pharma, and agribusiness as the new monopolists, and argues that if our capitalist society is to truly prosper, some pretty fundamental changes have to occur in both our economic policy as well as the structure, practices, and purpose of the companies we build.
Most of Reich’s argument turns on this simple premise: The debate between “free markets” and “government intrusion” is a false choice. “The central choice is not between the “free market” and government;” Reich argues, “it is between a market organized for broadly based prosperity and one designed to deliver almost all the gains to a few at the top.”
Reich goes on to deliver example after example of how the rules governing our current capitalist system are rigged to deliver “pre-distributions” of wealth to those in power. From banking to broadband, pharma to agriculture, Reich details subtle market mechanisms that concentrate power and capital into the hands of the “new oligarchs.” Government doesn’t intrude on markets,Reich argues, in fact government creates markets. Citing regulatory and enforcement frameworks for property, monopoly, contract, and bankruptcy law, Reich argues that opposition to government regulation “hides a larger reality: the necessary role of government in designing, organizing, and enforcing the market to begin with.”
The proper role of government, Reich argues, is to insure fairness to all – and today’s capitalist system is anything but fair. Reich traces the role of money in politics, for example, and the disastrous roll back of regulations limiting corporate giving to political campaigns. He shows how corporate lobbying has effectively hamstrung food safety legislation and stifled innovation in our nation’s infrastructure. He details how corporations have successfully lobbied for tax loopholes that allow for massive increases in executive pay.
Reich takes on several sacred American myths along the way. One is the idea that corporations must be run to maximize profit – the almighty “shareholder return.” “The idea that shareholders are a corporation’s only owners, and therefore that the sole purpose of the corporation is to maximize the value of their investments, appears nowhere in the law,” Reich writes. Instead, Reich argues, corporations should balance many constituents – employees, customers, communities impacted by their operations and their products. And in fact, this idea was once quite commonplace in American capitalism, Reich reminds us. Back in the 1950s, Fortune magazine exhorted its readers to act like “industrials statesman” who “regard business management as a stewardship, and … operate the economy as a public trust for the benefit of all the people.”
Reich also skewers the American myth of meritocracy – that we are paid what we are worth. “The notion that you’re paid what you’re “worth” is by now so deeply ingrained in the public consciousness that many who earn very little assume it’s their own fault,” Reich writes. “They feel ashamed of what they see as a personal failure—a lack of brains or a deficiency of character. [But] those who are rich and becoming ever more so are neither smarter nor morally superior to anyone else.”
I have a feeling there are more than a few folks in the Valley who’d disagree with that last statement.
Here are a few more of Reich’s tidbits:
– The $26.7 billion distributed to (recently bailed out) Wall Street bankers in 2013 bonuses would have been enough to more than double the pay of every one of America’s 1,007,000 full-time minimum-wage workers.
– In 2001, the top ten websites accounted for 31 percent of all page views in America, by 2010 the top ten accounted for 75 percent.
– Google and Apple have been spending more money acquiring and litigating over patents than on doing research and development.
– The richest four hundred Americans have more wealth than the bottom 50 percent of Americans put together.
– Fast food and low-wage service jobs are subsidized by public benefits, driving significant profits for large corporations.
Capitalism must be “saved from its own excess,” Reich concludes. “There is simply no way the American economy can be sustained if the richest 10 percent continue to reap all the economic gains while the poorest 90 percent grow poorer; there is no way American democracy can be maintained if the voices of the vast majority continue to be ignored.”
Reich’s prescription includes overturning Citizens United, considering a basic universal income, rethinking our intellectual property, patent, and copyright laws to insure wealth created by innovation ultimately returns to the public domain, and nothing less than the “reinvention of the corporation.”
It’s that last thought that was the true “aha!” for me – it echoed my own thinking about what I’ve come to call the “NewCo narrative” – the story of a new kind of corporation, one driven as much by purpose as profit. I didn’t read “Saving Capitalism” expecting to find affirmation for our nascent movement, but I’ll admit it was satisfying to hear Reich calling for a new approach to corporate philosophy. “We’re likely to see a reversion to a time when many jobs were considered “callings,” expressing a deeply personal commitment rather than simply a means of acquiring money,” Reich writes, arguing that in the end, workers and consumers will be the most effective agents of change in our economy, be it through the ballot box (Reich does raise the specter of a populist third party separate from either Democrats or Republicans), or, more likely, through the formation of new kinds of companies which see themselves as responsible citizens of the world. Hear Hear!