Accountable, inclusive or responsible capitalism?

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.