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.

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23 Responses to “Accountable, inclusive or responsible capitalism?”

  1. Virgens VK Says:

    [Miliband saw “capitalism is the least worst system we’ve got”]

    It is… until the moment it isn’t.

    Idealism is not to believe a better world is possible, but to believe the status quo can last forever. If Milliband understood the concept of entropy (let alone of dialetic), he would know that.

    [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”]

    Emphasis on “believe”. That’s not the position of a scientist, but of an ideologue.

    [Elizabeth Warren (…) has introduced a bill into the US Congress called the Accountable Capitalism Act.]

    This Act won’t help, but won’t hurt either. Best case scenario, it will lay bare the contradictions of capitalism in a formal document (which I don’t think will happen). At this time of the match, this is really despair: the USA is in inexorable decline, and the elite, be it Republican, be it Democrat, are shooting at every direction with all the ideological ammunition they have. But the elephant in the room is that the only way out for the USA (if it wants to preserve its status as the “lonely superpower”) is to trigger a WWIII against Russia and China (and it would have to win the war, without taking any significant damage to its own territory, like what happened in WWII).

  2. Jon Says:

    Great article! I’d love a couple of references for the workers councils stuff, if you have them

  3. stephenhinton Says:

    Michael. I’d like to hear your view on the radical idea of going even further and paying capitalists for performance. Could it be that it is merely lack of imagination that holds progress back? Corporations are good at producing results because they get rewarded.

    In today’s digitalised economy when we can in theory access sales figures real time on every tube.of toothpaste on the shelves overnight and equally a full database on every individual out of work, that a new bargain be struck with capitalists for the right to sell their stuff to and employ citizens that they get performance pay or lack of performance fees.
    It seems to me up to now corporations and the capitalist owners have had a free ride: educated workers, public transport to get them to work, generous rights on using and using up common assets and tax planning facilities and best of all government contracts.

    Maybe for example if everyone was employed by state and rented out to corporations this state organisation would have hefty bargaining power? Surely this is the art of the deal Trump talks of?

    • Anti-Capital Says:

      That’s one helluva radical idea. Capitalists have been paying themselves for their performance since day 1, and part of that performance is foisting off social costs into the taxation/public debt nexus.

      Of course capitalists have had a “free ride.” That’s what surplus value is. You have to expropriate the bourgeoisie, not “incentivize” them.

      • stephenhinton Says:

        Well I don’t see the general public voting to prise money creation away from bankers or ownership from the 1%. But an employment tax that rises with unemployment and paid to workers as a dividend might incentivise employment. And similar instruments to keep house prices down? Anyway interested to hear, if not fettered capitalism then what ?

      • Anti-Capital Says:

        Expropriation of the bourgeoisie; unfettered socialism

    • SimonH Says:

      The problem with putting fetters on capitalism is that it always finds a way to get out of them.

      • Nadim Mahjoub Says:

        That is partly true. There is no such a thing as “always”. Any system will enter a major crisis and any system will come to an end. I have an issue with Michael’s capitalism “won’t and can’t deliver”. I think it is more complicated than being so certain. Our analysis should that capitalism can and can’t deliver. It delivers to some people and make others believe in it; it delivers to a significant section of the middle class as a buffer that holds the system from cracking into a deep class conflict; it bounces back and it also delivers illusion and faith; it delivers goods that match the conservatism in people …if today the middle class has seen a significant attack on its standard of living in some countries, it doesn’t mean that the crisis is deep enough to usher its destruction or that it lost faith in the system… China, to a large extent has softened teh crisi of capitalism in the last decades. There is no reason, for example, to exclude that the capitalists will not invest in Africa on a big scale as a new area for corportae profit and keep the “Westerners” afloat.

      • stephenhinton Says:

        According to Michaels recent post, China is not capitalist because the state still owns the majority of shares in the largest companies.

        Is state share ownership, properly done, a way to fetter capitalism? A tripartite board with workers, state and investors present could thrash thing out for the better of all?

    • vk Says:

      Your idea isn’t radical for the simple fact it is not an idea: capitalists must always reward themselves according to their performance because performance is always measured by one factor: profit rate (which is surplus vaçue by another name). If the capitalist wants to reward itself more, it needs to perform better because it is this better performance which generates the material base for its better reward.

      • stephenhinton Says:

        Vk, I meant of course rewarded by government for social performance, giving back to the community etc. I guess this would come from negative taxes and fees for example based on the numbers employed against sales volumes. The more employed per dollar sold, the better the tax rebate? This is the opposite to the current idea of all corporations paying same taxes whether social or not. We have polluter pays, why not good samaritans payed?

      • vk Says:

        It doesn’t matter, because “reward” in capitalism is always accounted in money terms. Money has no substance, only quantity: you have more or you have less money.

        So, you can’t reward a capitalist with “negative tax” for it spending more money on “social performance”. You would still be paying back the money it spent on the “social”.

        When it comes to profit (i.e. distribution of the socially produced wealth in the capitalist system), it really is a zero sum game. Either you expropriate the rich to give to the poor or you enhance the exploitation on the poor to give to the rich. The only way out is to change the rules altogether: socialism.

  4. Charles A Says:

    “(Elizabeth) 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.” Yes, and let’s pass the news on to the fans of workers’ cooperatives, who ignore the lesson of Mondragon’s typical capitalist venality.

  5. David P Ellerman Says:

    http://employeeownedamerica.com/2018/08/21/the-limits-of-sen-warrens-accountable-capitalism-act/
    Here is my recent post on the topic of Senator Warren’s proposed Act.

  6. ucanbpolitical Says:

    Ah the corporatist democratic party with its corporatist proposal. What a distraction. The key issue is the trade union movement in the USA. I have not found any statement from the Warren that she is supportive of legislation that reverses anti-union legislation and activities of the corporates and levels the field of struggle. Nonetheless a good article. With the majority of workers now supporting socialism, more and more politicians will be nodding in that direction. We really are entering into the realm of united front work where we support any initiative that strengthens the working class, while warning workers not to trust these politicians but in their own ability to organise and empower themselves. What we must not do is adopt a vow of silence and not criticise these leaders as a condition for united front work.

  7. Mike Ballard Says:

    What counts in the class struggle over the collective product of labour is more wealth flowing back to the producers and less of it ending up in the coffers of the appropriators aka, the capitalist class. What advances the class struggle political is consciousness amongst the workers that they produce the wealth and they damn well are entitled to socially own and democratically manage it. The strategic goal should always be to abolish the wage system and establish production of wealth for use (while living in harmony with the ecosphere) with distribution of said wealth based on need. In other words, the end of commodity production and sale.

  8. Nadim Mahjoub Says:

    Here is again why I find the last sentence of Micheal’s piece “unconvincing” and it reinforces compartmentalisation of thought, i.e. exclusion of sociology, psycholgy and philosophy. Poltical economy should be complemented by other disciplines
    “The temporal paradox is that, although Marx comes after Spinoza, it is Spinoza who can now help us fill the gaps in Marx.” The gaps concern a problem Marx poses, but never completely resolves: Why, and how, do workers return to work each day? If labor power drives the entire capitalist economy, then what is it that motivates individuals to continue to sell their labor power? Lordon believes the answer can be found in Spinoza’s theory of desire, of the conatus that constitutes an individual’s striving, and the affects that define it. In Lordon’s approach to the Spinoza/Marx relation there are echoes of Spinoza’s fundamental political question, “Why do the masses fight for their servitude as if it was salvation?” coupled with Marx’s basic critique of the alienation of capitalism. It is a question of knowing why people will continue to work for a system that exploits them, appropriating their productive powers while granting them less and less control.
    https://lareviewofbooks.org/article/labor-human-bondage-spinoza-marx-willing-slaves-capitalism/

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