By Lambert Strether of Corrente

Elizabeth Warren has introduced S.3348, the “Accountable Capitalism Act,” and launched it with an editorial in the Wall Street Journal: “Companies Shouldn’t Be Accountable Only to Shareholders.” (Warren’s bill has no co-sponsors; Senator Tammy Baldwin (D-WI), introduced a similar bill, S.2065, the Reward Work Act, co-sponsored by Warren and Senator Kirsten Gillibrand (D-NY). Neither bill has been co-sponsored by Senator Bernie Sanders (I-VT)). The heart of Warren’s “Accountable Capitalism” bill is a new Federal charter for corporations, which Warren describes in her one-pager summarizing the Act (PDF):

Very large American corporations must obtain a federal charter as a “United States corporation,” which obligates company directors to consider the interests of all corporate stakeholders : American corporations with more than $1 billion in annual revenue must obtain a federal charter from a newly formed Office of United States Corporations at the Department of Commerce. The new federal charter obligates company directors to consider the interests of all corporate stakeholders – including employees, customers, shareholders, and the communities in which the company operates.

In addition:

Borrowing from the successful approach in Germany [co-determination, see below] and other developed economies, a United States corporation must ensure that no fewer than 40% of its directors are selected by the corporation’s employees

And:

A United States corporation that engages in repeated and egregious illegal conduct may have its charter revoked

I urge you to read the one-pager in full; there are other provisions as well, including a neat strategem of class warfare that would set fire to reams of the 0.1%- and 9.9%’s paper wealth[1], but the directorships and charter revocations are the topics I will ultimately critique today.

I’ll begin with the obvious point that (1) corporations are indeed creatures of the State, and so there’s no principled reason for opposing opposing charter changes as such. I’ll then go on to show (2) the parallels to Warren’s Act in the German concept of “co-determination,” and (3) set the Act in the political context of the United States today, (4) contrasting co-determination with co-operatives, and then conclude with (5) a comparison to the New Deal, with suggestions on directorships and charter revocation. (Much of the commentary on Warren’s Act focuses on how it would reverse the “neoliberal turn” to “shareholder value” in the 1970s, so I don’t see a reason to add to it; Yves has already discussed this topic, concluding that Warren’s Act might actually increase shareholder value, as a byproduct of John Kay’s principle of Obliquity.)

(1) Corporations as creatures of the state. It should be obvious that corporations are created by the State, according to law laid down by the state, but since there’s a good deal of frothing and stamping on the right about this, let’s just state the obvious. Nathan J. Robinson writes in Current Affairs:

Let’s remember what a corporation actually is: It’s a legal entity, i.e., one constituted by government laws. The government defines the parameters of what a corporation is. To “incorporate” is to form the kind of entity that the law provided for, and to accept the rights and responsibilities that are outlined in the statute…. If Kevin Williamson thinks Elizabeth Warren’s proposal is dictatorial, just wait until he sees the Delaware incorporation statute, the law that defines how a corporation works. It tells corporations how their officers are to be selected, who has liability for what, what powers the stockholders have. It even tells them how often they have to have meetings! Dictatorship! Slavery! The road to serfdom!

So, if the nation decides that shareholders should not be the only corporate stakeholders whose interests are to be taken into accout, legislation requiring that is well within the remit of the State, and always has been. That’s how they do things in Germany, after all; a not unsuccessful capitalist nation-state.

(2) Warren’s “Accountable Capitalism” Act and the German concept “co-determination.” Breugel describes co-determination (Mitbestimmung as follows:

Codetermination is deeply rooted in the tradition of German corporate governance and has existed in its current form since the Codetermination Act of 1976. It has an explicit social dimension: as the German Constitutional Court ruled, codetermination on the company level is meant to introduce equal participation of shareholders and employees in a firm’s decision making and shall complement the economic legitimacy [2] of a firm’s management with a social one .

And:

Codetermination could be viewed as an institution enhancing workers’ representation and participation rights in a firm’s corporate governance. There are two levels through which employees are given codetermination rights to participate in a firm’s decision making: [a] the work council (“Betriebsrat”,establishment or “shop-floor” level) and [b] the supervisory board (“Aufsichtsrat”,company level).

Note that Warren’s Act operates only at the [b] board or company level, not at [a] the shop-floor level. (This is why Kevin Drum’s question — “Codetermination? Why Not Just Powerful Unions Instead?” — is misplaced; the shop floor is not in the scope of Warren’s Act, and unions would presumably manage that[3].) We’ll get to the implications of that when we look at co-operatives.

(3) Warren’s Act in the context of 2018 and 2020. In my view, Warren’s Act must be placed in the context of 2018 (giving the Democrats some muscular definition on policy, which heaven knows they need) and 2020 (a Warren vs. Sanders vs. [Establishment Cipher Here]. [4]) While it would be crazy to game out the 2020 Democrat primary today, Harold Meyerson usefully contrasts Warren and Sanders:

Comes now Elizabeth Warren, like Sanders, seeking to re-create the New Deal’s creation of a vibrant middle class—but in this instance, not through an updated version of governmental social provision, as Sanders suggested, but through that other dimension of New Deal success: bolstering worker power . This week, Warren introduced a new bill, the Accountable Capitalism Act, which seeks nothing less than the compelled conversion of American corporations from their current creed of maximizing shareholder value to the friendlier confines of benefiting all corporate stakeholders.

I would sharpen Meyerson’s point by saying that Sanders’ policies — provision of services like #MedicareForAll or free college — make him a social democrat; but Warren’s Act — empowering workers, albeit partially, to allocate capital through co-determiation as directors — place her on the road to democratic socialism, if that be defined as democratic control of the means of production. Of course, it’s unlikely that Warren will go very far down that road, but that’s where the road leads. And speaking of democratic control of the means of production, there’s another approach that is, if not on the table, at least in the air: Worker’s co-operatives.

(4) Co-determination contrasted with co-operatives. Co-operative advocate Richard Wolff explains:

Some capitalist economies have already made concessions to workers demanding more than undemocratic dependency. Halfway measures, such as the German concept of Mitbestimmung, or co-determination, for example, allow workers to participate in the management of a company. Workers have also sometimes gained ownership of parts or even all of the enterprises where they work (for example, employee stock ownership plans in the U.S.). But worker ownership alone is fundamentally insufficient. In most capitalist economies, such measures still exclude workers from the actual direction and control of enterprises. Worker co-ops put the workers in direct control. They democratize the direction of companies, rather than just giving employees a stake in some of the management decisions. Workers decide democratically who to hire and fire as managers, and direct their management activities. They become, in effect, their own board of directors.

Warren’s Act carefully draws the line against democratization, both by limiting worker board membership to 40%, and by ruling democracy on the shop floor out of scope. (Returning for a moment to 2018 and 2020, I doubt very much that Sanders will up the ante on Warren with co-ops, if only because provision of services is where he is most comfortable, and corporate goverance is not in his wheelhouse, as it is in Warren’s[5].)

(5) A second New Deal? Finally, if the Sanders approach to public provision of services were combined with Warren’s approach of co-determination, would that amount to a second New Deal? Certainly, such a combination would greatly, albeit incrementally, improve the lives of tens of millions of workers, and on a far greater scale than liberal Democrat Obama’s pissant Affordable Care Act. That’s nothing to sneer at! Nevertheless, this combination could be like the New Deal in both weakness and strength:

1) As the New Deal’s Social Security program originally did not cover domestic servants, Warren’s Act has partial coverage. The charter only applies to corporations of $1 billion and up, so what about all the other workers? (The German Codetermination Act applies to firms with over 2000 employees. Perhaps Warren’s bill is meant to cover capital-heavy, employee-light Silicon Valley firms, but it might be better to add an employee head count as an alternative.) 2) Unlike FDR’s New Deal, Warren’s Act provides no way to strengthen union capabilities on the shop floor, whether for organizing or anything else. 3) As FDR’s New Deal saved capitalism, so might Warren + Sanders. Whether this is a weakness or a strength I leave to you[6]. That does not, of course, mean that either the 0.1% or the 9.9% will support it (“Come along. We’re going to the Trans-Lux to hiss Roosevelt“[7]).

Finally, two points on Warren’s Act as written:

(A) 40% of its directors are selected by the corporation’s employees. What’s the rationale for 40% of the directorships? S.2065 has, I believe, 33%. Why not 45%? Or 50%? Or 51%? Or 60%? Has the 0.1%’s performance on capital allocation — I’m thinking of all those McMansions with styrofoam pediments before the Crash, but I could be thinking of Juicero, or Uber, or moving our industrial base to China — really been all that great?

(B) A United States corporation that engages in repeated and egregious illegal conduct may have its charter revoked. On charter revocation, I believe “may” should be struck out and replaced with “shall.” That’s the best way to handle repeat offenders like Wells Fargo (or Countrywide (or Promontory)).

So, with two minor, minor and friendly amendments to the text of the act…

NOTES

[1] Vox: “[S]hare prices could fall by 25 percent. For the vast majority of people who earn the majority of their income by working for wages, cheaper stock would be offset by higher pay and more rights at work. But for billionaires with huge stock holdings — and for CEOs with compensation packages tied to share price performance — it would be a disaster.”

[2] As in “legitimacy crisis”? I don’t know the political background for the Codetermination Act of 1976; here is the legislative history.

[3] Although unions, as representative bodies, clearly have problems of their own; see the Teamster’s support for a two-tier wage system, rejected by shop floor stewards.

[4] Idea: Dukakis is tan, rested, and ready!

[5] Interestingly, and surprisingly, at least for those who see voters as sheeple, co-determination polls well “in literally every single House district.”

[6] I view “ism”s as means, not ends, including capitalism, and socialism.

[7] I always thought the Trans-Lux was a hotel; in fact, it’s a chain of movie theatres where news-reels of FDR’s fireside chats were shown. So, the stigmatization busiess is not a new one…