None of your business

Listen to the podcast segment "A terrible plan to slam capitalism" from the August 25, 2018 episode

Sen. Elizabeth Warren has proposed what she calls the Accountable Capitalism Act. It's pretty bad.

In her own words:

  • "The legislation aims to reverse the harmful trends over the last thirty years that have led to record corporate profits and rising worker productivity but stagnant wages."
  • "American corporations with more than $1 billion in annual revenue must obtain a federal charter from a newly formed Office of United States Corporations at the Department of Commerce."
  • "[A] United States corporation must ensure that no fewer than 40% of its directors are selected by the corporation's employees."
  • "[P]rohibits directors and officers of United States corporations from selling company shares within five years of receiving them or within three years of a company stock buyback."
  • "United States corporations must receive the approval of at least 75% of their shareholders and 75% of their directors before engaging in political expenditures."
  • "Permits the federal government to revoke the charter of a United States corporation if the company has engaged in repeated and egregious illegal conduct"

While there are nuggets of good to be found in this proposal, overall it is arbitrary and capricious.

There's no real evidence that shoehorning "stakeholder" decision-making into the boards will result in better policy, and this kind of system would invite ugly amounts of regulatory capture. Over-regulation would put an arbitrary ceiling on company size for many businesses, too. The German model it's trying to copy isn't very responsive to change, and entrenching large businesses in their place doesn't benefit workers or consumers.

What should Sen. Warren propose instead? Instead of fat-fingered, ham-fisted intervention, how about paving an easier way for what you think would be better? America used to have a much stronger movement for mutualism -- credit unions, fraternal organizations, mutual insurance companies, and the like. Don't make it harder to be large -- make it easier to build the things you want, but to let people do it voluntarily.

In the long run, the rules of the game determine the outcome -- or, if you prefer, "every system is perfectly designed to produce the results that come from it." So if what we want are more institutions that reflect the interests of many "stakeholders" rather than just "shareholders", it makes more sense to lay the groundwork to make it easier for people to create the next generation of mutual associations, cooperatives, and even "public-benefit corporations", rather than to take Sen. Warren's approach by ham-handedly attempting to kludge an entirely different model of capitalism onto businesses that emerged in a totally different environment.

Design the system -- holistically -- to create the desired outcomes. Don't try to retrofit a brand-new set of massively interventionist rules onto a vast existing system.

Brian Gongol

Brian Gongol

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