The Accountable Capitalism Act Will Never Happen. But Now the Conversation Will.

(Cross posted from Searchblog)

The past week or so has seen a surge in commentary on the role of corporations in society, a theme familiar to readers of this site. While it might be convenient to peg the trend to Senator Elizabeth Warren’s newly minted Accountable Capitalism Act (more on that in a second), I think it’s more likely that – finally – our collective will is turning to our most logical and obvious instrument of social change, namely, the instrument of business.

We humans like to organize ourselves into social units. They range from the informal (pickup basketball games) to the elaborately structured (Senate hearings). Our ability to harness collective will is unsurpassed in the animal kingdom, it’s one of our key evolutionary adaptations, driving the success of our species across the globe.

As I’ve argued elsewhere, one of our most sophisticated social structures is the corporation, which has co-evolved with our various systems of government over the past half millennium or so. The very first corporations were in fact formed (or chartered) by governments – the Dutch East India Company is the most common example of this. In the past century, however, corporations have largely sought to shake the yoke of government regulation – and nowhere have corporations won more freedoms than in the United States, where firms are now considered legal persons with an unrestrained right to “free speech” (IE, the ability to fund political positions).

So this is where we are today: Large corporations have the legal right to exercise unlimited influence over our political sphere, and the commercial imperative to control (and profit from) nearly all our society’s data. That kind of power will necessarily produce a backlash, one that’s found an articulate, but highly unlikely, argument in Senator Warren’s proposed legislation. From the release announcing the Accountable Capitalism Act:

For most of our country’s history, American corporations balanced their responsibilities to all of their stakeholders – employees, shareholders, communities – in corporate decisions. It worked: profits went up, productivity went up, wages went up, and America built a thriving middle class.

But in the 1980s a new idea quickly took hold: American corporations should focus only on maximizing returns to their shareholders. That had a seismic impact on the American economy. In the early 1980s, America’s biggest companies dedicated less than half of their profits to shareholders and reinvested the rest in the company. But over the last decade, big American companies have dedicated 93% of earnings to shareholders – redirecting trillions of dollars that could have gone to workers or long-term investments. The result is that booming corporate profits and rising worker productivity have not led to rising wages.

Additionally, because the wealthiest top 10% of American households own 84% of all American – held shares-while more than 50% of American households own no stock at all – the dedication to “maximizing shareholder value” means that the multi-trillion dollar American corporate system is focused explicitly on making the richest Americans even richer. 

Here are a few of the act’s key proposals:

• Companies with more than $1 billion in revenues must register with, and agree to be regulated by, a new Federal oversight body known as the Office of United States Corporations.  By registering, firms are obliged to “consider the interests of all corporate stakeholders – including employees, customers, shareholders, and the communities in which the company operates.” This enshrines what is often called a “multi-stakeholder philosophy,” the underpinning of B Corps like Patagonia and Kickstarter, into federal law.
• A corporations’ workers would be empowered to elect at least forty percent of their firms’ board of directors.
• Long term restrictions on the sale of stock by board directors and corporate officers – three years for stock buy backs, and five years for everything else. This is to insure that a large firms’ managers plan for the long term.
• A prohibition on political spending of any kind without approval from 75 percent of both directors and shareholders.

There’s more, but I think you’ve got the point – this is a sweeping and presently impossible piece of legislation that radically rethinks the governance of our most powerful corporations. It guts corporate political spending, upends business’s current compensation structure (often based on stock grants), radically reshapes board governance (giving a near majority control to workers), and creates a massive conservative bogeyman in the form of yet another Federal government oversight entity. In today’s political environment, Warren’s legislation is DOA.

But in tomorrow’s? Quite possibly not. Senator Warren is widely considered a front-runner for the Democratic nomination in 2020, and her initial opponent won’t be Trump – it’ll be Bernie Sanders, whose supporters likely will find plenty to love in Warren’s new plan.

Regardless of whether the act has any chance of passing without a strong Democratic majority in both houses of Congress, Warren has smartly identified a central issue in our country’s political conversation, and declared it to be fundamental to the Democrats’ platform for 2020. It’s about time someone did.

More recent reading on the role of capitalism in our society: 

Louis Hyman: It’s Not Technology That’s Disrupting Our Jobs

L.M. Sacasas: Technopoly and Anti-Humanism

Tom Wheeler: Time to Fix It: Developing Rules for Internet Capitalism

Neil Irwin: Are Superstar Firms and Amazon Effects Reshaping the Economy?