We May Have Been Offered the Right Question at Just the Right Time
A New Vision of Economics in America
The Business Roundtable is a visible powerhouse in the American business community. It represents an important level of leadership within that community. It represents a significant amount of economic power.
The Roundtable pronounced last August that the purpose of a corporation is to promote “An economy that serves all Americans.” People took note; a different dialogue began.
This statement of purpose is a dramatic change from those that preceded it since the first such statement in 1978. Almost 200 major corporations pledged to conduct themselves for the benefit of all stakeholders, not just shareholders. The statement is not very long or complex. You can read it here.
Not surprisingly, reactions are not uniform. Some business and finance leaders found it unacceptable and too unfocused. Our esteemed Secretary of the Treasury is among this group, saying he would not have signed it. Others on the economic left rejected it as a bandaid for a failed system. They long for the siren song of socialism.
Who is Right?
I believe both groups of rejectors are wrong. The Roundtable model offers an important relook at a time wherein one is much needed. Asking what the purpose of a corporation is in the 21st Century is as timely a query as could exist.
I suspect that in the post Trump era we will find a more diverse and interesting leaders in all sectors. We saw this in the post Nixon era, resulting in some of the best legislation and policies in decades. The same could happen this time around.
It is clear to many of us that the traditional capitalist model is no longer working. Globalization and automation are here to stay. Unions are too weak to play a useful role in most sectors. Economic inequality is now a baked in feature of most economies. This inability to address inequality is worse in America today than in other industrialized countries. We continue on this path at great peril.
I learned a relevant lesson many years ago as a special forces soldier working in counter insurgency. There is nothing more dangerous than a people who think they have no options, the system is rigged, and they have nothing to lose. We have a lot of people who fit that profile today in America. They helped create the mess that is the Trump administration.
On the other hand, we have people who think socialism must be the answer. No profit motives, looking after the broader public good. What could possibly go wrong? A lot, of course.
History teaches us that socialism has its own problems. It is subject to blindness of economic principles. It easily drifts into over centralization and corruption. Accountability is an early casualty.
Guidelines for a Relook
One would think that by now, we could have developed a fusion model that offers the best of both. The Roundtable concept is not a bad place to begin.The case can be made that private ownership and risk taking are a natural imperative. Societies pretty well move in this direction or they stagnate. China today is nominally still a communist country. It is, on so many levels, the most capitalist country I have visited in years.
Equally, the case can be made that there are core societal functions not well served by the private sector. Having an insurance adjuster in Butte, Montana deciding if you need gall bladder surgery is, not to put too fine a point on it, nuts. Requiring your physician to deal with 50 different insurance companies is wasteful and counterproductive. Healthcare overall does not nest well in the private sector.
As examples, we expect government to provide for defense and security, to ensure our food and medicines are safe, and to control the transportation network. Some areas would seem fruitful to convert to private sector support may not always develop as expected. Private prisons come to mind as such an example.
What Comes Next?
So, by all means, let us take a look at how we organize our economic and societal selves. Let’s scrap the ideological dialogue and simply ask what works and how shall we measure success. Freeing business up from quarterly reports and shareholder dominance will not be easy, but the opportunity to reshape society is compelling.
By the way, if you would like to do some reading relating to how that future might look, I can recommend Jeremy Rifkin’s Zero Marginal Cost Society. He offers a thoughtful look at how we might evolve to a more Collaborative Commons model without limiting ourselves to the old models of capitalism vs. socialism.
The Brookings Institution (my old stomping grounds) also has just run an excellent series of short but thoughtful articles on this subject. Start with the one by Richard Reeves, Yes, capitalism is broken. To recover, liberals must eat humble pie.
Let the games begin.
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