TWO BUBBLES, ONE MODEL
I spend much of my time in a progressive bubble where Elizabeth Warren is celebrated (although perhaps taken more seriously than literally) and where “neoliberal” is an epithet applied to anyone who objects to the government intervention anticipated by her platform. In another bubble, such skepticism is championed as “free market conservatism.” But these bubbles are closer than their inhabitants imagine, as demonstrated by Warren’s embrace of the label “capitalist” and by the reaction of progressives to the new isolationism.
Serious policy arguments about where we can turn to address fundamental concerns like growing inequality, ecological risk and human rights continue to involve adjusting the dials on the “Washington consensus” that has governed policy circles and international organizations for decades. This consensus takes economic ideas like gains from trade, comparative advantage and the reality of market failure, and turns them into policy prescriptions.
The difference (which I do not mean to understate) involves emphasis — while free marketers may emphasize gains from trade and thus increased property rights, my progressive crowd will focus on market failures and the need for the regulation of externalities. But serious conservatives do not believe that pollution should be unregulated and serious progressives do not believe all industry should be nationalized — there is much common ground.
Corporate political spending salts this common ground.
MILTON FRIEDMAN IN THE MIDDLE
The truth is that most progressives and conservatives are using the same formula but are assigning different — sometimes vastly different — values to its elements. For example, these two bubbles often engage on the wisdom of Milton Friedman; progressives cast his famous 1970 article — proclaiming that corporations’ only responsibility is to make money — as the epitome of greed-centered neoliberalism, while free marketers view it as a touchstone of common sense. Here is what he actually said:
“In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of their society, both those embodied in law and those embodied in ethical custom.”
That is, maximize profit to the extent that shareholders desire, but only within ethical and legal boundaries. I would submit that progressives and free marketers agree on this point but differ in how those ethical and legal boundaries should be designed, and what it is that shareholders should want.
Thus, there is not really a difference of opinion as to the role of corporations in society. The hard question is how far to let private enterprise go in using free markets to allocate resources and make economic decisions — when does social and environmental degradation caused by the pursuit of profit outweigh the productivity created by the invisible hand? When is the collective action made possible by government needed to rein in the collateral damage of unrestrained competition?
POLITICAL SPENDING DESTROYS FRIEDMAN’S LOGIC
This is where corporate political spending becomes a problem. In a democracy, legal boundaries should be created in a political process that treats all voices equally. But money is giving business interests outsized influence in setting the very legal bounds that Milton Friedman cited as legitimating corporate profit seeking. Corporate money has deregulated the finance industry, distorted government capacity to address climate change and, as detailed in the work of Thomas Phillipon, limited the very competition that makes the free market an essential tool for price discovery and resource allocation.
In an ominous turn, corporations are now using the same tools to suppress accountability to shareholders, even though Friedman’s theory relies on corporate responsiveness to shareholders for its legitimacy. As discussed later in this newsletter, proxy rules are being reinterpreted and rewritten to make it harder for shareholders to insist that corporations behave responsibly. The Business Roundtable it seems, would like to leave the drawing of boundaries to corporate managers, defying both the political and corporate democracy that Friedman’s theory relies upon.
This combination of factors puts our economy at risk, and one need look no further than the market crash of 2008 and subsequent recession or the wildfires ravaging California to see this.
WHAT THE SHAREHOLDER COMMONS IS DOING
We are working with Business for American Promise to bring institutional shareholders into the movement for a constitutional amendment overturning Citizens United, the Supreme Court decision that freed corporations from important spending restrictions. We are planning to serve as the voice of the universal shareholder in rulemaking proceedings and litigation around proxy rules so that shareholders can continue to advocate for reduced corporate spending at the companies they own. Finally, we are hoping to create substantive political spending guardrails that shareholders can implement at companies within their portfolios.
This effort is critical. Let us know if you want to be a part of this important initiative.