Her latest proposal is just
another doomed effort to reform capitalism…
Accountable, inclusive or
responsible capitalism?
By Michael Roberts
Senator Elizabeth Warren is
tipped as a likely Democratic presidential candidate in 2020. She is seen
as being on the ‘left’ of the Democratic Party, a radical fighting against the
powerful rich and Trumpism in all its forms. To promote that image, she
has unveiled legislation aimed at reining in big corporations, redistributing
wealth, and giving workers and local communities a bigger say.
She has introduced a bill into
the US Congress called the Accountable Capitalism Act. Under the legislation,
corporations with more than $1bn in annual revenue would be required to obtain
a corporate charter from the federal government – and the document would
mandate that companies not just consider the financial interests of
shareholders. Instead, businesses would have to consider all major
corporate ‘stakeholders’ – which could include workers, customers, and the
cities and towns where those corporations operate. As she put
it: “Over the last year, corporate profits have soared while average wages
for Americans haven’t budged. It’s been the same sad story for decades. Today
I’m introducing a new bill to help return to the time when American companies
& workers did well together”.
Warren argued in an article in
the Wall Street Journal of all places, there was an “obsession with
maximizing shareholder returns effectively means America’s biggest companies
have dedicated themselves to making the rich even richer,” and she was
looking to reverse “a fundamental change in business practices” dating
back three decades that made corporations beholden to the bottom line at the
expense of better worker wages and local investment. In other words,
according to Warren, capitalism did have a period when it benefited both capitalists
and workers in equal measure (presumably in the Golden Age of the 1960s, before
inequalities got out of hand under ‘neoliberalism’).
Large companies dedicated 93%
of their earnings to shareholders between 2007 and 2016 – a shift from the
early 1980s, when they sent less than half their revenue to shareholders and
spent the rest on employees and other priorities (what these were is not
clear). Warren said. “Real wages have stagnated even as productivity has
continued to rise. Workers aren’t getting what they’ve earned. Companies also
are setting themselves up to fail,” she wrote.
Under her bill, anyone who
owns shares in the company could sue if they believed corporate directors were
not meeting their obligations (??). Employees at large corporations would
be able to elect at least 40% of the board of directors. An estimated 3,500
public US companies and hundreds of other private companies would be covered by
the mandates.
Warren’s proposal comes when
the latest
data show that the chief executives of America’s top 350 companies
earned 312 times more than their workers on average last year, according to a
new report by the Economic Policy Institute.
The rise came after the bosses
of America’s largest companies got an average pay rise of 17.6% in 2017, taking
home an average of $18.9m in compensation while their employees’ wages stalled,
rising just 0.3% over the year. The pay gap has risen dramatically, with
some fluctuations, since the 1990s. In 1965 the ratio of CEO to worker pay was
20-to-one; that figure had risen to 58-to-one by 1989 and peaked in 2000
when CEOs earned 344 times the wage of their average worker. CEO pay
dipped in the early 2000s and during the last recession but has been rising
rapidly since 2009. Chief executives are even leaving the 0.1% in the dust. The
bosses of large firms now earn 5.5 times as much as the average earner in the
top 0.1%.
Warren’s analysis and policy
proposals join a long line of such approaches by those who want to ‘save or
maintain’ capitalism by ‘correcting’ its worst features as though these were
anachronisms of the time and not inherent structural features. But inequality
of income and wealth is, to use the much overused cliché, in the DNA
of capitalism. And the dominance of corporate directors and management is
the very basis for making profits for companies under the capitalist mode of
production. To imagine that companies can be forced to adopt ‘social’
targets rather than maximise profits by some legislation is not only utopian,
it will be self-defeating.
And Warren’s proposals are
hardly radical. A few years ago, in the UK there was an attempt to
promote, not Accountable Capitalism, but “Inclusive
Capitalism”, the brain-child of Lady Lynn Forester de Rothschild,
Chief Executive Officer, E.L. Rothschild, the exclusive London investment
company with investments in media, asset management, energy, consumer goods,
telecommunications, agriculture and real estate worldwide. Lady
Rothschild wanted to persuade company chiefs that capitalism must go “beyond
financial performance only, in an effort to enhance the value of environmental,
human, ethical and social capital”. The idea was backed by
luminaries like Bill Clinton; Mark Carney, Governor of the Bank of England;
Justin Welby, the Archbishop of Canterbury in the Church of England; and, to
cap it all, Prince Charles of the British monarchy! These eminences were out to
tell the world that capitalism is a great and good thing and can be made even
better if we can reduce inequality and poverty, end global warming and wars,
and operate in a ‘moral’ way. Like Warren, Lady Rothschild argued
that “the imbalance of capital and labour” must be acted upon.
Even earlier, the UK received
the idea of “responsible capitalism’ from the long forgotten ex-Labour leader
in the UK, Ed Miliband. Miliband reckoned that the ‘creativity’ of
capitalism should be allowed to flourish in ‘free markets’, but within rules to
ensure that it is not ‘irresponsible’ and was made “more decent” and “humane” . Miliband
saw “capitalism is the least worst system we’ve got”, so there
was no alternative than to try to make it work. “We need to get the
private sector working with government”, Scandinavia-style.
It’s a huge dilemma for these
‘well-meaning’ exponents of ‘saving capitalism’. As Thomas Piketty, the
super star economist and author of best-selling Capital in the 21st century,
put it in an
interview in the FT: “I believe in capitalism, private property, the
market”— but “how can we tackle inequality?” . Piketty’s
answer was a global wealth tax which he admitted is a “utopian” dream.
Lady Rothschild wanted to get shareholders in companies to take a stand
on CEO compensation and on the ethical and environmental policies of the
companies they own. Warren wants to put workers on the boards of large
companies – something that has happened for decades in Germany with workers
councils, with little impact on reducing inequality or establishing more
‘social awareness’ on the part of Volkswagen or Siemens etc.
Have workers councils reduced
inequality and given workers more say in the activities of their companies?
Academic studies on the subject differ, but the majority of research suggests
co-determination and works councils have mainly been successful in boosting
productivity in the workplace – the main objective of companies – but not
in raising wages and conditions for workers.
Germany’s labour reforms in
the early 2000s led to a stagnation of real incomes and rising inequality, with
little opposition from ‘workers councils’. About one quarter of the
German workforce now receive a “low income” wage, using a common definition of
one that is less than two-thirds of the median, which is a higher proportion
than all 17 European countries, except Lithuania. A recent Institute for
Employment Research (IAB) study found wage inequality in Germany has increased
since the 1990s, particularly at the bottom end of the income spectrum. The
number of temporary workers in Germany has almost trebled over the past ten
years to about 822,000, according to the Federal Employment Agency.
German real wages fell during the Eurozone era and are now below the level of
1999, while German real GDP per capita has risen nearly 30%. The forces
of globalisation and capital were much more powerful than workers councils in
adjusting inequalities and real incomes.
Elizabeth Warren, Lady
Rothschild, Ed Miliband and Thomas Piketty believe in capitalism as the best
social system for everybody. All reckon or hope that capitalists can be made to
or persuaded to act to reduce inequality, create a better environment and adopt
moral policies in investment. Piketty wants more and higher taxes to do this;
Lady Rothschild wants shareholder power. Warren wants a charter and workers on
company boards. You can call it accountable, inclusive or responsible, but
capitalism won’t and can’t deliver.
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