Senator Warren: America's Newest Corporate Raider?

Last week, Senator Elizabeth Warren (D-Mass.) introduced the Accountable Capitalism Act, a fully drafted plan that would introduce federal supervision of the country’s large corporations and require forty percent of their boards of directors to be elected by their workers. Lots of smart critiques have already been published. Walter Olson offers a brief round-up, and the Niskanen Center’s Sam Hammond convincingly explains at National Review why Germany’s worker councils, which seem to be an inspiration to Warren, are no kind of example worth emulating. Warren’s plan is almost certainly a bad idea, and deserves to be criticized as such.

Still, I can’t help but feel that Article I conservatives ought to stick up for Warren, at least a little, and defend her from attacks like Kevin Williamson’s, which calls her bill a “batty plan to nationalize . . . everything.” He also says that because Warren knows this is a “go-nowhere proposition” in the current political environment, we should understand it as a cheap and cynical play to win the hearts of the far left. Neither part of that is right, and it is worth explaining why not.

First, consider the political positioning of the bill. Of course, Williamson is obviously right that the bill isn’t going anywhere in this Congress, and Senator Warren understands that as well as anyone else. In no way does that imply, however, that she is wrong to offer such a bold and sweeping plan. The general pattern in American legislative history is for an idea to be “incubated” for some time before it is actually enacted into law, and that process includes having legislators champion bills before their time has come. If a legislator such as Warren wants to have an ambitious program ready to launch in, say, 2021, subjecting it to public criticism and scrutiny in the summer of 2018 just seems admirably well-prepared. On this account, it’s also worth noting that Warren offered a full bill, not just some flowery language to pander to progressives.

More broadly, we all know that Senator Warren is running for the Democratic nomination for president right now, and it is impossible to understand her recent legislative proposal apart from that fact. She is among the nation’s leading political celebrities with a strong anti-corporate brand, and she is building on that reputation with this proposal. That’s just sensible presidential politicking by a national legislator. We should want our legislators to establish themselves as champions of big, substantive ideas that address what they (and their constituents) take to be the pressing problems of the day. That is their job, even if many of our representatives today seem to think that their responsibilities are limited to showing up to cast votes at their party leaders’ behest, fundraising, and aiming a steady stream of invective at the other party.

So, does Warren’s bill address an important contemporary problem? Yes and no.

Under the bill, every company operating in the United States with gross receipts exceeding $1 billion in a year would need to seek a charter from a new Office of United States Corporations. That charter would commit each company to the “purpose of creating a general public benefit,” defined as “a material positive impact on society resulting from the business and operations of a United States corporation, when taken as a whole,” to be more specifically identified in the company’s charter. Every company would be committed to looking out for the interests not only of its shareholders, but also: the employees of the corporation itself, its subsidiaries, and its suppliers (!); its customers; “community and societal factors, including those of each community” it or its suppliers are located in; “the local and global environment”; and the short-term and long-term interests of the corporation. Although the priority of these many criteria would remain undefined, shareholders and state attorneys general would be empowered to sue for a failure to strike a suitable balance.

Warren has picked a smart target in Milton Friedman’s idea that corporations exist solely for the purpose of maximizing shareholder value. Friedman wrote that well-meaning businessmen discussing the social responsibilities of business were most likely “preaching pure and unadulterated socialism.” Rightly understood, the corporation’s sole purpose “will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.” As Friedman saw it, those basic rules were fairly easily satisfied, such that profit-maximizing could and should be the near-exclusive focus. But, as Hammond says, Friedman “was simply wrong, descriptively and prescriptively.” In fact, social expectations about how responsible corporations ought to behave have always been complex, and most citizens have generally regarded a monomaniacal focus on profits to the exclusion of all other goods as pathological.

And it isn’t as if disillusionment with Friedman’s idea is confined to progressives, either. President Trump’s frequent demands that American corporations should prioritize American job creation are quite clearly a rebuke to multinationals thinking of nothing but their profits. Many more articulate voices can be found advancing similar ideas in the pages of American Affairs, one of the more intriguing new publications in recent years. Nor is this anything new. Americans have always had a tense relationship with their corporate creatures, frequently suspecting them of illicitly taking advantage of the many in favor of the few. When voices across the political spectrum rail at corruption today, they are very often talking of the corruption perpetrated by large corporations.

Warren is also mostly swimming with the tide of history here. As Joseph Schumpeter put it in his Capitalism, Socialism and Democracy (1942), as capitalism proceeds, it seems to routinize innovation in large corporate structures such that “economic progress tends to become depersonalized and automatic. Bureau and committee work tends to replace individual action” (133). That leaves society at large with a diminished sense of the importance of “the figure of the proprietor and with it the specifically proprietary interest” (141). He continues:

The capitalist process, by substituting a mere parcel of shares for the walls of and the machines in a factory, takes the life out of the idea of property. It loosens the grip that once was so strong—the grip in the sense of the legal right and the actual ability to do as one pleases with one’s own; the grip also in the sense that the holder of the title loses the will to fight, economically, physically, politically, for ‘his’ factory and his control over it, to die if necessary on its steps. … Dematerialized, defunctionalized and absentee ownership does not impress and call forth moral allegiance as the vital form of property did. Eventually there will be nobody left who really cares to stand for it—nobody within and nobody without the precincts of the big concerns. (142)

The truth is that most of us highly diversified or passive investors who own a tiny fraction of every one of America’s largest public corporations don’t feel much in the way of real proprietorship just by being shareholders. Senator Warren is probably right to realize that many people feel that large businesses ought to be run as quasi-public concerns, even if direct government control of the traditional socialist variety is distinctly unappealing. Some politician in our era is likely to find a winning political issue in demanding more from corporations in some form or another.

Having said that, it isn’t clear that Warren’s favored solutions would be at all helpful. Incumbent workers at many large firms will look out for their own interests rather than those of American workers, generally. Empowering them might well yield stagnation without any compensating long-term gains. The bill would also give enormous power to the director of the new Office of United States Corporations, who (it seems) would have great discretion to simply dismember a corporation it disliked. Creating such an unchecked discretionary power over America’s largest companies would seem to open the door to rank political cronyism of the sort Warren often decries. The open-ended litigation this law would invite would be interminable and would further politicize our judiciary. In short, it is easy to see why Warren’s solutions would be worse than the disease.

Still, you can’t blame her for trying. Or, at least, you shouldn’t.