Oaktree Capital's Howard Marks takes a look at proposals from two of the Democratic presidential candidates:
- Senator Elizabeth Warren, already an announced 2020 presidential candidate, has introduced her Accountable Capitalism Act. Two of its provisions caught my attention:
. . . incorporation for large companies would become a federal matter, . . . These federally chartered companies would be mandated to consider the interests of a list of stakeholders, from investors to employees to customers and communities. These groups could then sue if they deemed the company had breached their duties. . . .
. . . Senator Warren's legislation calls for 40 percent of directors to be elected by employees. (The Financial Times, September 24, 2018)
- Senator Cory Booker of New Jersey, often mentioned as a presidential hopeful, has introduced legislation that I view as related:
The Worker Dividend Act would mandate that companies buying their own shares must also pay out to their own employees a sum equal to the lesser of either the total value of the buyback or 50 percent of all profits beyond $250 million. (Vox, January 10, 2019)
I absolutely am not writing to defend stock buybacks or criticize labor representation on boards. What I oppose is (a) the idea of governments deciding how companies will be run and (b) the appropriation of corporations' economics for parties other than their owners.
What would be the effects of turning over some of businesses' capital to workers, or requiring that they be put on corporate boards? Clearly, to do the former would be comparable to saying to shareholders, "That thing you thought you owned – the company – you don't really own that." Stock buybacks are a way of returning capital to companies' owners. Why should each one be accompanied by giving an equivalent amount to workers? Wouldn't the next step be to say, "Whenever a company pays a dividend, it has to distribute an equal amount to its workers"? And wouldn't that be tantamount to saying, "As for corporate capital, the workers own half"? Consequences? Ask yourself who would start a corporation in the future if it meant the workers would be entitled to half the gains.
What about requiring that workers be put on boards? To date, it has been the job of a corporation's directors to represent its shareholders. Requiring that 40% of them be workers would be, in essence, another way of saying the shareholders aren't in full control. If workers were put on boards, whose interests would they represent: the corporation and its shareholders, or labor? To whom would they work to deliver benefits? If an opportunity arose to increase efficiency and profitability by investing in automation, for example, how would labor's directors be expected to vote?
And that leads to the matter of requiring corporations to serve multiple interests. Today, directors are legally deemed to have done their jobs if they applied "business judgment" for the benefit of the company (and thus its shareholders). How would they be expected to simultaneously work for the good of the company and its owners as well as its workers, customers and communities? Can you imagine the lawsuits that would fly over the issue of whether too much had gone to one group rather than another? How could a court decide whether the multiple constituencies had benefitted in the appropriate proportions?
What I'd like to do is get some of the progressive politicians and the less-capitalist young people in a room and ask them a simple question: To what do you attribute America's preeminence in the world over the last hundred years and the generally superior living standards of its people? In short, what has been behind the United States' progress to the top of the heap?
What's absolutely clear to me is what it's not: that we're superior people, smarter, better, more virtuous or more deserving. Instead, I think it's our democracy, our freedoms, and our less rigid social and financial structures. But, extremely importantly, I also think there have been enormous contributions from capitalism/free enterprise, the free-market system, economic incentives, private ownership of property, individual economic opportunity, and the very limited involvement of government in the economy.
It's good to see a capitalist speaking out publicly in defense of capitalism.