Elizabeth Warren’s Accountable Capitalism Act isn’t radical – it’s a return to the roots of American economic prosperity
© Anna Moneymaker

When Massachusetts Sen. Elizabeth WarrenElizabeth Ann WarrenAnother recession could hit US in 2019, says credit union association chief Warren says vote should be delayed, asks what Kavanaugh is hiding Kavanaugh hires attorney amid sexual assault allegations: report MORE introduced her Accountable Capitalism Act it was hailed on the left as “bold new legislation to curb corporate greed,” and criticized on the right as a proposal to “destroy capitalism” and “nationalize every major business in the United States of America.”

However, the reality is very different. Sen. Warren’s bill is not radical at all. Rather, it represents a much needed attempt to return our country to the commonsense economic policy that guided its growth and prosperity for most of our history.

Whatever the eventual fate of her bill, Warren has served her country well by pointing out that the present focus on shareholder profit as a company’s only goal needs to change.

It is important to understand and recognize that the goals of our great American corporations have changed profoundly over time. To see this, one has only to compare two statements from the Business Roundtable, an enormously influential group of major corporate CEOs.

In 1981, the Business Roundtable wrote in its Statement on Corporate Responsibility that companies should always consider the effects their actions have on a number of groups including their shareholders, their communities, their employees, and society at large. But by 1997, their Statement on Corporate Governance discussed only how they could best serve their shareholders.

These Roundtable statements show how the whole outlook and thinking of our corporations have changed away from a concern for the general welfare.

The consequences of that change are not as well-known as they should be.

It is a fact, although one that is often obscured, that most corporate stock belongs to those who are already wealthy. So, intended or not, our corporations have as their goal today, making the wealthy wealthier. And that is what is actually happening in our country.

Many other negative consequences of this goal are well spelled out by two distinguished academic observers: Lynn Stout in The Shareholder Value Myth and Marina Von Neumann Whitman in New World, New Rules: The Changing Role of the American Corporation

But our corporations do not have to act this way. The Business Roundtable statements show clearly that there was a time when corporations behaved differently. What we are doing now is the exception, not the rule.

Is there anything we can do now that will cause our corporations to better serve our country? The answer to that question is a very clear “yes.” There are in fact many things we can do.

Certainly one significant possibility, as suggested in Warren’s bill, is to have employees serve on the boards of our largest corporations along with those who represent the shareholders, and that the board clearly acknowledge its obligation to consider the interests of all the stakeholders.

But there are other possibilities as well. We live in a complex world and different approaches may work better in different industries. Some of these many possibilities are discussed in an article I wrote with economic historian Richard Sylla, The American Corporation. Many more are discussed in Christopher Mackin’s Wealth at Work: Employee Ownership and Responsible Accumulation.

Some approaches such as Employee Stock Option Plans (ESOPs) and cooperatives are already widely used either here or abroad. In our insurance industry, familiar names such as State Farm or Mutual of Omaha are mutual insurance companies. In these companies it is the insured, rather than outside shareholders, who are paid the profits from company operations.

There are many more possibilities we can find or invent that are well-suited to today’s world and to our rapidly changing technologies.

It is important to realize that the problem we have today with our corporations is not a problem of evil men. Rather, it is the natural result of a flawed system.

Fortunately, in our country, unlike in many autocratic countries, we have the freedom to explore and make changes in that system. We can act with or without the participation of government, and with or without the cooperation of those who currently benefit most from the status quo.

We should use that freedom to explore, to develop, and to adopt a variety of corporate goals that serve our country better. We should restore our corporations to their proper role: building a stronger and more widely prosperous America.

Building a more widely prosperous country will not be easy. Nobel laurate Michael Spence made an important point when he wrote in 2011:

This is not a problem for which there are easy answers. As the issue becomes more pressing, ideology and orthodoxy must be set aside, and creativity, flexibility, and pragmatism must be encouraged. The United States will not be able to deduce its way toward the solutions, it will have to experiment its way forward.

Warren is not standing by and ignoring or denying the problem we have. Her proposal is the beginning of a renewal process our country badly needs. We should thank Warren for getting this essential process moving.

Ralph Gomory has been awarded the National Medal of Science. He has held significant leadership positions in both industry and the nonprofit world and has written widely and testified to Congress on issues of trade and corporate governance.