Mises Wire

Elizabeth Warren Wants Even More Crony Capitalism

While she may claim to protect consumers in one moment, US Senator Elizabeth Warren (D-MA) unapologetically endorses destructive, socialist measures in the next. In a new Senate bill, Warren introduced the “Accountable Capitalism Act,”  which seeks to establish an “Office of United States Corporations,” which would be a federal board created for the task of issuing (or not issuing) charters to wealthy corporations, body corporates, body politics, joint-stock companies, or limited liability companies (hereafter referred to solely as “corporations”). These charters would be required of corporate firms with “more than $1,000,000,000 in gross receipts” to operate; without one, they would not fit the legal definition of corporation. Corporate charters would not be given out indiscriminately to firms that required them, for this would be redundant and result in little social change. Rather, Warren’s grand plan to “save” capitalism is to use these charters to destroy the profit motive, ultimately gutting the market of one of its most essential mechanisms.

Under the act, the Office of United States Corporations would be given the authority to restrict the issuance of charters only to those firms which have been deemed to “create a general public benefit; and balance... the pecuniary interests of the shareholders of the United States corporation with the best interests of persons that are materially affected by the conduct of the United States corporation.” Like most progressive sentiments, though, the ideas of creating a general public benefit and balancing conflicting interests is completely unclear and reliant upon arbitrary whims. What qualifies a benefit as being “general” or “public,” and at what point are interests to be considered properly balanced? Of course, the Office of United States Corporations is the deciding judge on these issues, and if it determines a particular corporation to be too profit-seeking or to not be sufficiently beneficial to society, it will use its authority to completely paralyze them. At best, it will force comapanies to ensure they receive under $1 billion in gross receipts per annum, significantly hampering their productive affairs, if it cannot eliminate their operation entirely. More pragmatically, it would simply force most large corporations to leave the United States and find a more suitable country for operation.

According to the bill, what must be taken into account in the issuance or non-issuance of a charter is the conduct of corporations with regard to the interests of “shareholders,” “the employees and workforce,” “customers and subsidiaries of the United States corporation,” “community and societal factors,” “the local and global environment,” and the corporation itself in “the short-term and long-term.” Since this is the case, the act allows any major corporation to be shut down due to the grievances of any shareholder, employee, customer, or even member of society. The question of which grievances are legitimate and take precedence, of course, is left to the Office of United States Corporations, a dangerous power to be granted.

The Accountable Capitalism Act would ultimately put the federal government in control of the largest firms of the economy, micromanaging them so that they conform to its plans and work for its benefit. It would be, essentially, a system of centrally planning the economy, or more accurately: centrally chartering it. Worse still, imagine the state of the market after the Office of United States Corporations inevitably became infested with corporate lobbyists; each large firm would be warring for survival in the congressional coliseum. Such a scenario would be economically ruinous, affecting firms not only at the corporate level, but also affecting the entire balance of the rest of the economy.

Warren’s bill does more than create a new regulatory bureaucracy and establish malleable guidelines governing it. It also creates definitive requirements for corporations with the framework of Warren’s far-left philosophy. The bill states, “Not less than 2⁄5 of the directors of a United States corporation shall be elected by the employees of the United States corporation” which is to say that employees will have democratic control over nearly half of their company’s directorial composition. In a footnote of Power and Market, Murray N. Rothbard briefly explains why such workplace democracy is bound to fail, and why it seldom appears in the market without the interference of the government. As he states:

if each owner receives only one vote regardless of how much money he has invested in a project (and earnings are divided in the same way), there is no incentive to invest more than the next man; in fact, every incentive is the other way. This hampering of investment militates strongly against the [democratic] form.

Not all employees have the same stake in a given business. Some may have worked there for decades, care about its reputation, and have much money invested in it as shareholders, while others may be recent hires with no money invested in it. The latter, compared to the former, has much less of an interest in determining who the best directors would be for a business. Even if they did have an equal interest and stake in doing so, they would still not necessarily be good decision-makers. Workplace democracy, even if instituted for determining only 40% of a corporation’s directors, then, would wreak havoc on the economy. There is a reason why some people are only employees and not simultaneously shareholders; namely, because of the fact that they may not make intelligent, efficient decisions with regard to the composition of the firm’s personnel. The Accountable Capitalism Act would still, though, make employees’ voices heard for the sake of democracy and equality, even if the result would be disastrous. Failure to comply with this 40% requirement would result in a civil money penalty against the corporation of between $50,000 and $100,000 per day, which would be collected after the closing of a 180-day period.

Although Warren claims the Accountable Capitalism Act would help consumers, it actually does the opposite. By the nature of the market, corporations can only exist insofar as the serve consumers. If customers are unhappy with a particular firm, they never have to visit the company again. Likewise, if shareholders or employees are unhappy, they can completely disassociate from the company. This process, which is coordinated via the receiving of profit or loss, allows for better, more value-productive firms to thrive and for worse, less efficient firms to fail, eventually going out of business if their inefficiencies persist. In giving the state the ability to control wealthy corporations, Warren’s bill would restrict choices for consumers, leaving them with a worse quality of goods at higher prices. Capitalism is already accountable, and there is nothing that the government can do but destroy this.

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