Public Policy and Governance – Page 177

Stakeholders Versus Shareholders

Several people who regularly comment on this blog are extremely critical of capitalism. That’s understandable, given the distorted version currently practiced in the U.S., but I would caution that broad-brush diatribes against a market economy and calls to abolish the entire system are misplaced.

The culprits that have led to what we actually have–a “system” more accurately described as “corporatism” or “crony capitalism” are twofold: a lack of understanding of where markets work and where they don’t–and public policies based both on that misunderstanding and on the outsized influence of monied interests.

A good deal has been written about the lax enforcement of anti-trust laws, and the concentration of economic power, but there has been less attention paid to structural problems that provide perverse incentives.

Earlier this month, Elizabeth Warren introduced a bill intended to address those problems. Titled The Accountable Capitalism Act, Warren’s plan “starts from the premise that corporations that claim the legal rights of personhood should be legally required to accept the moral obligations of personhood.” Warren has described herself as a “huge” proponent of capitalism, whose goal is to make the system work properly for all stakeholders.

And “stakeholder” is the operative word.

Shareholder primacy—the belief that everything a corporation does must be for the benefit of shareholders (who should extract as much wealth from the company as possible) and no one else—is the dominant legal framework operating within firms today…. Ignoring the contributions of all stakeholders to corporate success, the shareholder primacy model has driven the deep-rooted economic inequality that we live with in America today.

The linked discussion from the Roosevelt Institute traces the origin of this focus on shareholders to the detriment of others who have important interests in the operation and health of the corporation.

Part of the problem is that in the U.S., states charter corporations. As any corporate lawyer will confirm, larger enterprises “shop” for states in which to incorporate by looking to see which states have laws that are most beneficial (i.e., least restrictive). States woo new businesses, and so corporate law has become a race to the bottom (which is Delaware).

Warren’s bill would require large corporations–those with revenues over one billion– to be chartered by the federal government.

Under current law, corporate boards are elected by, and represent, shareholders. The consequences are predictable:

Board members who want to hold onto their seats are going to do what they can to please short-term oriented shareholders. And chief executives are now largely compensated in ways that are tied to the price of shares, so they have an additional incentive to steer the board towards decisions that push up short-term share prices. The existing shareholder primacy model means that boards focus too much on increasing their share price. That’s why Goldman Sachs estimated that American corporations are on track to spend $1 trillion dollars in 2018 on stock buybacks,essentially propping up the entire stock market by repurchasing their own stock.

Stakeholder governance would recognize that many different groups contribute to a corporation’s success. Employees, customers, even the public, have a stake in that success along with the shareholders, and they all should play some role in the corporation’s decision-making, as they do in a number of other countries.

This means that employees have real representation on corporate boards, so that decision-making is shared among stakeholders, instead of shareholders electing all board members. Accountability to stakeholders also means that the board has to consider all of the company’s stakeholders when making decisions, including customers, suppliers, and the broader public.

The focus on shareholder returns to the exclusion of all else hasn’t always been a part of corporate behavior, as Vox points out. That single-minded focus has come to mean that

for executives to set aside shareholder profits in pursuit of some other goal like environmental protection, racial justice, community stability, or simple common decency would be a form of theft. If reformulating your product to be more addictive or less healthy increases sales, then it’s not only permissible but actually required to do so. If closing a profitable plant and outsourcing the work to a low-wage country could make your company even more profitable, then it’s the right thing to do.

There is nothing about market competition that requires government to allow rapacious business behaviors. For that matter, markets only work properly when government works properly– insuring a level playing field and requiring obedience to laws and regulations.

When government fails to work, capitalism devolves into what we see around us.

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Crimes and Misdemeanors

There are crimes, and then there are crimes.

Americans are currently fixated on the antics of a deranged President and the (almost daily) revelations of his closest associates’ corrupt and criminal behaviors. I’m certainly not immune, as anyone who regularly reads this blog can tell.

The problem is, while we are all distracted by the grade-B gangster movie taking place in and around the Oval Office, we’ve lost focus on what is surely the most egregious and damaging crime of all: the administration’s war on science and its sabotage of the fight against climate change, subjects I touched on yesterday.

We are already seeing the effects of our warming planet, but an irrational administration (populated with ex-lobbyists for fossil fuels and religious extremists who reject not only climate science but the theory of evolution) is intent upon rolling back even modest efforts to move America away from greenhouse-gas-producing energy sources.

A consortium of scientists and environmental organizations is trying to re-focus our attention on the urgent need to move to clean energy–and the imperative of addressing what is clearly the largest challenge we face. 350.org, the Sierra Club, the Union of Concerned Scientists, Jobs for Justice and several other organizations are sponsoring nationwide “Rising for Climate” demonstrations on September 8th.

Indiana’s march will begin at the Statehouse at 10:00 a.m. The announcement points up Indiana’s “contribution” to the problem.

We, the people, are running out of time. Join us on September 8, 2018 to demand our elected officials take urgent action on human-driven climate change, protecting our health, moving to 100% renewable energy and creating local, equitable jobs for our city, state, country and planet.

Indiana is home to five of the top 22 worst greenhouse gas and toxic super polluter coal plants in the nation. Indiana is the second largest source of industrial greenhouse-gas emissions in the United States and exceed those from 187 countries (more info at www.superpolluters.com). The time to act is now.

We rise in solidarity on Sept. 8 with communities across the globe. We march in advance and in support of the Global Climate Summit in San Francisco. Elected officials in Indiana, hear our message: take action now.

The time for empty declarations of intent and unreasonable transition timelines has closed. It is time to make Indiana fossil-free and create sustainable, equitable jobs!

The march will end at Christ Church Cathedral, and will be followed by a Community Forum beginning at 11:30 AM.

Will these marches change the retrograde policies being pursued by people in the pockets of fossil fuel interests? Of course not. What they will do, however, is what the Women’s March(es) did: focus voters’ attention on important issues, and send lawmakers the message that millions of Americans care deeply about the environment and will vote to punish a criminal unwillingness to protect it. Marches will encourage further activism. They will encourage people who care about the environment to run for office.

And they will promote solidarity, and encourage people who may feel that they are lonely voices for sanity, by providing evidence that they are not alone.

What’s the old saying? A journey of a thousand miles begins with one step?

If you can, take a step. Rise for Climate on September 8th.

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It’s Who You Know

I have always been irritated by the common saying “It isn’t what you know, it’s who you know.” Not that there isn’t a good deal of truth to it–that’s what networking is all about, when you think about it– but it’s an observation that is often meant to be snide. The subtext is “So-and-so wasn’t really qualified, but he/she knew someone.”

I always assumed that even if “so and so” got the job on the basis of connections, people who failed to perform would soon be shown the door. That naive belief has been crushed by the Trump Administration, where jobs are filled by cronies and actual expertise–not to mention any evidence of intellectual honesty– is far more likely to get you fired than hired.

In all fairness, people who do know what they’re doing aren’t exactly eager to work for the Gang That Can’t Shoot Straight. But still.

The Guardian recently took a look at the Department of the Interior.

Prominent US climate scientists have told the Guardian that the Trump administration is holding up research funding as their projects undergo an unprecedented political review by the high-school football teammate of the US interior secretary.

Scientific funding above $50,000 now has to be vetted by an additional review, to ensure–in Secretary Zinke’s words–that expenditures “better align with the administration’s priorities”.

As we’ve seen, protecting the environment and America’s public lands are not among those priorities. Neither is climate science.

Zinke has signaled that climate change is not one of those priorities: this week, he told Breitbart News that “environmental terrorist groups ” were responsible for the ongoing wildfires in northern California and, ignoring scientific research on the issue, dismissed the role of climate change.

Steve Howke, one of Zinke’s high-school football teammates, oversees this review. Howke’s highest degree is a bachelor’s in business administration. Until Zinke appointed him as an interior department senior adviser to the acting assistant secretary of policy, management and budget, Howke had spent his entire career working in credit unions.

Howke looks to be a perfect fit for an administration intent upon protecting the fossil fuel industry while dismantling efforts to understand and combat climate change. I’m sure the administration considered his utter lack of scientific background or experience evaluating grant proposals to be a feature, not a bug.

Funneling every grant over $50,000 to a single political appointee from departments that range from the Bureau of Indian Affairs to the [US Geological Survey] to the Bureau of Reclamation suggests a political micromanagement approach,” said David Hayes, an interior deputy secretary in the Obama and Clinton administrations who now directs the State Energy and Environmental Impact Center at the NYU School of Law. He described it as “political interference” that is “both unprecedented and pernicious”.

Trump’s cabinet, staff and political appointees may represent the most extensive collection of petty criminals, buffoons, religious zealots, White Nationalists and know-nothings ever assembled. Certainly, concepts like ethical service and the public good are entirely foreign to them. It’s reminiscent of the old song: they all get by (i.e. keep their jobs) with a little help from their friends.

And they try to be “helpful” in return. Earlier this year, political appointees at the National Park Service attempted to censor a scientific report by removing every mention of the human causes of climate change.

What is that great quote from Neil DeGrasse Tyson? Reality doesn’t care whether you believe in it or not.

If we don’t rid ourselves of this horror show of an administration very soon, America–and the planet–are totally screwed.

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The Dreaded ‘Socialism’ Of Denmark

One of the aspects of our (debased) public discourse that absolutely drives me nuts is the misuse of language–words used not to convey meaning, not to communicate, but to demean and dismiss.

For quite a while, “liberal” was the epithet of choice, mostly courtesy of Rush Limbaugh and his clones. These days, mostly thanks to Bernie Sanders, it’s “socialist.” It would be annoying enough if the people who use the term as a sneer actually knew what it meant, but it is abundantly clear that they don’t.

Allow me.

In virtually every modern, democratic country, economies are mixed, meaning that markets supply many, if not most, of the goods and services needed/wanted by the people who live there, while many others are socialized–that is, provided communally through government. Experience has demonstrated that it makes sense to socialize the provision of services like police and fire protection, streets and highways, education and garbage collection, and to meet social needs through programs like Social Security and Medicare.

Some countries socialize larger elements of their economies than we do, but that doesn’t make them communist hellholes. Unless, of course, you are a Fox News”reporter.”

As Paul Krugman responded,

Last weekend, Trish Regan, a Fox Business host, created a bit of an international incident by describing Denmark as an example of the horrors of socialism, right along with Venezuela. Denmark’s finance minister suggested that she visit his country and learn some facts.

Indeed, Regan couldn’t have picked a worse example — or, from the point of view of U.S. progressives, a better one.

Denmark has undeniably made different decisions than we have about the size of government and the proper economic “mix.”

American politics has been dominated by a crusade against big government; Denmark has embraced an expansive government role, with public spending more than half of G.D.P. American politicians fear talk about redistribution of income from the rich to the less well-off; Denmark engages in such redistribution on a scale unimaginable here. American policy has been increasingly hostile to organized labor, and unions have virtually disappeared from the private sector; two-thirds of Danish workers are unionized.

So–how are these soul-less denizens of an all-powerful state surviving?

Danes are more likely to have jobs than Americans, and in many cases they earn substantially more. Overall G.D.P. per capita in Denmark is a bit lower than in America, but that’s basically because the Danes take more vacations. Income inequality is much lower, and life expectancy is higher.

The simple fact is that life is better for most Danes than it is for their U.S. counterparts. There’s a reason Denmark consistently ranks well ahead of America in measures of happiness and life satisfaction.

Denmark’s economy is best described as social-democratic. It’s basically a market economy, but one in which–as Krugman puts it– “the downsides of capitalism are mitigated by government action, including a very strong social safety net.”

Americans, as we know, don’t do nuance. (In the age of Trump, we don’t do much civility, either.) We prefer flinging insults to having discussions, and either/or formulations and bumper-sticker put-downs to thoughtful consideration of calibrated solutions to our problems.

Our choice isn’t between capitalism (which, in the U.S. has devolved into corporatism) and an all-encompassing socialism (as if that were even possible.) In a country populated by rational people, we would examine aspects of our current economy and consider whether they are working properly, or whether it might be cost-effective to “socialize” them. (That is what the debate about single-payer health insurance is all about.)

Before we can make sound policy decisions, however, we need to employ the English language for its intended purpose: to describe reality and thus serve as the basis for actual communication.

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Get The Lead Out

Doug Masson recently shared a news article and a righteous rant.

The shared article was a report on lead contamination in northwest Indiana. It seems we Hoosiers have the nation’s largest source of such contamination–not a distinction to celebrate.

The nation’s largest source of industrial lead pollution is 20 miles down the Lake Michigan shore from Chicago in Indiana, churning more than twice as much of the brain-damaging metal into the air each year as all other factories in the region combined.

The company responsible is ArcerlorMittal (a company I’d never heard of); its Burns Harbor plant is the (ir)responsible emitter. According to the report, the plant has topped the list since 2013.

The continuing coverage of Flint, Michigan’s unsafe water generally includes a recitation of the effects of lead poisoning, and they aren’t pretty. They also aren’t reversible; if a child ingests lead through the water, as in Flint, or from flaking of old paint in run-down houses, or from areas of contaminated ground (we have a number in Indianapolis’ poorer precincts), the damage to that child’s intellectual functioning is life-long.

The referenced “rant” is how Masson describes his frustration–which I share–with conservatives’ constant attack on regulation. Pollution is the poster child for why regulatory activity is an essential function of government. As Doug points out, absent regulation, it will always be cheaper to pollute the air that others breathe or the water that others drink than to dispose of the waste from your manufacturing process in a manner that doesn’t harm others.

Meanwhile, pollution means that the market is getting incomplete information about the cost of (in this case) the steel being produced. They offload some of the costs of their production onto the people suffering brain damage from the lead pollution. Those people are, in effect, subsidizing the cost of production. Because the cost of the pollution is not reflected in the price of the steel, the market gets the signal that this form of production is more efficient than it really is. Polluters are rewarded and, consequently, environmentally sound production processes are put at a competitive disadvantage because they don’t force nearby residents to subsidize the process by breathing in the tainted air.

Economists call pollutants generated by manufacturing “externalities,” and note that failing to account for them in the cost of goods being produced distorts the market and–as Doug notes–puts manufacturers who are properly disposing of their pollutants at a pricing disadvantage.

Are some regulations onerous and unnecessarily broad? Sure. Are others inadequate? Absolutely. Regulatory activity by its very nature must be calibrated–ideally, rules governing commercial enterprises should be only as restrictive as necessary to the achievement of the desired result.

When we discuss government regulatory activity in my classes, I always emphasize the inadequacy of the usual political and ideological “either/or” formulations–as I tell my students, the need for and adequacy of any particular regulation will always be what lawyers like to call “fact-sensitive.” Issuing a wholesale assault on “regulation” writ large makes no more sense than advocating the elimination of “laws” because some laws are over-broad or unnecessary.

One of the most frustrating elements of our current impoverished and dishonest political discourse is the over-simplification of issues that are complex and/or nuanced. Too much of our public debate is conducted via bumper-sticker slogans and easy, inaccurate generalizations. When it comes to protecting the environment, those formulations are not only inaccurate, they are dangerously misleading.

Most Americans want the air they breathe to be clean, the water they drink to be safe, the playground soil to be free of harmful contaminants. It would be wonderful if we could rely upon the ethics of manufacturers to ensure the safety of our environment, but we can’t. We have no choice but to rely upon the government to promulgate and enforce rules against despoiling our air and water.

Of all the many obscenities being perpetrated by the Trump administration, watching the EPA play “footsie” with favored corporate polluters while refusing to discharge its most basic responsibility–to safeguard the environment– may be the worst.

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