Reviewed: Warren’s Accountable Capitalism Act
There are many similarities between Elizabeth Warren and Cornell Law’s accountable capitalism act, and my analysis of corporatism — the structure, stats, reasoning, and even specific phrasing…delivered in a miniaturized version.
Most importantly, the scholars seem at least to partially concur with the central claim of my paper that corporations are well beyond human control. We built a sort of “narrow-AI,” constructed of legal and financial components, and it got away from us. However, a core assumption in this proposal, is that while beyond state control, corporations could be leashed by federal control.
Clearly what we are confronted with now is an alien form of legally constructed “Frankenstein’s monster” or “army of robots,” originally created by states and now well beyond state control…our federal government — is both large enough and central enough to aid our states…
I question this unsupported assumption, as well as some of their recommendations which will be discussed later. But this Act is a noteworthy event, in that, after decades of talk on corporatism, we finally see specificity — pinpointed errors in the nonsensical/circular corporate rules, and logic-based proposals to correct those errors. The quality/intent of the proposals aside, that we are seeing them tells us resistance against out-of-control corporatism is developing quickly.
What follows is my critique of Cornell University Law School’s paper, which is associated with Elizabeth Warren. Keep in mind that I am a financial analyst and strategist — I personally don’t care if it’s Elizabeth Warren or Steve Bannon leading the charge — the only question for me: will the strategy likely be effective in resolving the root problem of out-of-control corporations? Also, I acknowledge the scholar’s statement that “some of us would like to go even further than the Act does,” and assume that to mean politicians have watered it down. But their published recommendations are all I have on my desk, so I’ll review those.
The Original Purpose of Corporate Privilege
It’s important to read this full section carefully — Original Purpose of the Corporate Privilege — as the general public still falsely believe the top-down corporate part of the economy is made up of “private businesses” and is thus “free-market capitalism.”
“Perpetual” legal entities authorized to act and hold assets in their own names while shielding their owners from legal accountability are now so ubiquitous, and have been part of our legal landscape for so long, that many Americans have forgotten the circumstances surrounding and the reasons behind their invention. Many have likewise forgotten what an extraordinary departure these entities represented from commonsense understandings of responsibility and legal accountability when first they were invented. And thus many have also forgotten the strictly conditional nature of “the corporate privilege” when first it came to be granted by the states of our federal republic. These privileges were, again, extraordinary, and thus were conferred only for limited, well-defined public purposes.
Hence the familiar ring, until recently, of phrases like “the [state-conferred] corporate franchise,” and adages like that pursuant to which corporations are observed to be “creatures of the state.”
The scholars have provided a recount of history here, and all Americans (regardless of ideological position) should start educating themselves on the history of corporations, or else doom themselves to keep losing to a force they do not understand.
A Key Distinction—Corporatism is NOT Capitalism
The first issue is in the title itself, the “accountable capitalism act.” But corporatism is not capitalism. In fact corporatism is by design a work-around for the rules of free-market capitalism, and removes accountability. And this removal of accountability, is granted by government.
What this almost appears to be is an “accountable corporatism act,” which is an oxymoron. The proposed actions do not seem to remove the “extraordinary privileges” of corporatism, which would begin the transformation into free-market capitalism. Rather the proposed actions would seem to hold corporate privileges a constant, and tie corporatism to the federation, in the hope that the U.S. government could wield control over this massive power. But even if successful, is this not “state capitalism,” i.e corporatism, which is similar to America’s current reality?
And this is no pedantic word game, but seems relevant to how this is being pitched. Strategically this title (assigned by Warren I assume) appeals to the left’s distain for capitalism, and push toward state-control socialism, ideological views which were ironically put into their heads by corporate media. In the wording itself the term REALIGNMENT is used…
…we all agree that your legislation takes the critical first steps in realigning our regime of incorporation with its original purposes.
But again, why is it assumed that aligning corporations with the fed government would “realign” them with the original purpose of serving a public good? Rather a formally merged corporate-government state (as opposed to the current dotted line) could lead to even more tyrannous results, and an even more uncontrollable conglomerate entity. Why not deconstruct the “ring of power,” instead of shifting the uncontrollable ring to a new and larger hand?
The specifics of this flawed Act aside, the positive development is a reality-based discussion on the nature of corporatism — corporations are state-sponsored, government-subsidized, publicly-traded entities, which have formed into one massive “oligopoly of oligopolies” market structure, one that can even influence elections (e.i. definitely not capitalism, and on a side point not democracy)…
Private firms enjoying publicly conferred corporate privilege in our states’ coerced “race to the bottom” now monopolize or oligopolize entire industries — including such de facto public utility industries as the news media, telecommunications media, social media and payment platforms, banking and finance, healthcare and health insurance, and even transport and retail in some cases. The same firms’ executives set their own pay and choose their own regulators — indeed, even their, and our, legislators — by determining through unaccountable and even shareholder-unapproved campaign donations and expenditures who wins many of our elections.
And so while the above statement is true, it is clearly not capitalism. In this age of language-based obfuscation tricks, we need to begin any analysis using proper terminology, and not use false names to appeal to uneducated and emotional ideological groups. America’s top-down economic system is corporatism, a system which is by design not accountable.
THE 5-POINT PLAN REVIEWED
#1: Federal Charters, and #2: Revokable
The proposal recognizes a new category of very large American corporations (>$1B annual revenue) called “United States corporations,” which must obtain a federal charter. This charter “obligates” the directors to consider the interests of all stakeholders, not just the controlling interest shareholders.
The new federal charter obligates company directors to consider the interests of all corporate stakeholders — including employees, customers, shareholders of all sizes, and the communities in which their companies operate — not just large shareholders.
On the general question of chartering, the large S&P500 corporations are national operating entities, and thus national charters are well-matched (e.g. FB doesn’t just operate in California). The smaller nature of states make them easily played against one another and captured. This gives mega-corporations a way to hide in a corrupted state-stronghold, while waging war on the country. For example, a corporation in California with a monopoly and national product, can externalize costs to the other 49 states, yet the federation can’t shut them down. This much of the Act is true.
But a federal charter, while well-matched to area of operations, does not necessarily make these controllable entities. The entire act is built on the baseless assumption that corporations, while not controllable by the states, are controllable by the federal government. The scholars’ proposal lets these special-privilege entities operate by authority of the federal government, a government which is currently captive of corporations, thus making the proposal circular.
Why do they assume the directionality of the flow of power, once the corporate-state is directly linked? Yes in theory the federation could shut the corporate entities down, but the entities also have leverage, great leverage, especially from being networked. Which has more power, the $25T market cap S&P500 holding an oligopoly on every major industry and with 30 million workers, or 2 million slow-witted government workers? Why wouldn’t a majority of S&P500 entities just pressure the government to pull the charters of minority players, thus increasing industry concentration and monolithic behavior, to maximize more profit? That’s the 50yr trend, and that’s what I’d recommend as their strategist. And how are these corporations “obligated” to consider all stakeholders, just because the government can theoretically issue a “corporate death penalty”? In reality, the government can’t do that because society is dependent on these oligopic corporate structures, corporations can just call their bluff. Also, when has the federal government shown any interest in protecting stakeholders? The government props up their state-entities to compete with China’s SOEs, at the expense of the American people. The whole thing makes no sense.
State Attorneys General are authorized to submit petitions to the Office of United States Corporations to revoke a United States corporation’s charter.
In contrast, my paper also recommended national charters and conditional corporate personhood, BUT with an imbedded option of a vote by the non-majority shareholders (i.e. the 50% of Americans who hold shares of the S&P500, often thru their 401K plans), NOT the government. The vote option could be exercised by some negative externality threshold event, and a negative vote would give the corporation one year to correct itself before being “turned off,” i.e. forced to become a private entity. In becoming a private company the failed corporation would of course be forced to give back all public money to shareholders, plus damages priced off externalities, and lose their public-entity special privileges.
My recommendation makes corporations directly dual reporting–to shareholder profits, and stakeholder interests, with the federal government just acting as a third-party administrator. It gives the general public shareholders the ability to exercise the equivalent of a “death penalty,” which is a terrifying disincentive — you lose your charter, and you cease to exist! As a corporate financial analyst, I can say that we would take this risk very seriously in our Excel models; suddenly the negative externalities inflicted on the voting public, would be quite important to us. As the scholars put it…
Fail the purpose of the privilege, the thinking went, and you forfeit the privilege.
And so if these are quasi-public entities, and the intention is to make them dual reporting to shareholders and stakeholders, why not directly link them to the shareholding public? Why the roundabout game in this Act? Also, how could the government possibly supervise so many legal-entities, when they didn’t even supervise the big Wall Street sub-prime scam which we on the inside knew about? The public bear the negative externalities themselves, and are working inside the big corporations, THEY know what’s happening, and only they know if the consequences are acceptable to them.
#3: Employees On the Board
Employee-elected board members for large federally-chartered corporations is not a terrible idea. It could be disruptive. Working in the early 2000s in sub-prime mortgage origination and securitization, we all knew what was happening. We may have elected anti-predatory-lending reps to the board, and the stench of bad loans might have been exposed before the global meltdown.
Every United States corporation must ensure that no fewer than 40% of its directors are selected by the corporation’s employees.
The first problem is that employees are fearful of retaliation, those who vote “wrong” could simply be methodically removed from the organization. In 2003 I did consider, “should I contact the bank’s fraud prevention hotline, the SEC?” But I’m not so naive, those who drew attention to themselves were out of a job, or ignored. See also the recent Wells Fargo fraud, and Google’s Damore; whistle blowers are dealt with.
However the main issue is this proposal does NOT satisfy their claimed goal of “a system that produces better outcomes for ALL corporate stakeholders,“ since corporate employees only make up 10% of the population (≈ 30M of 300M), and are by their nature on the payroll.
Again, why not directly link the board to the shareholding pubic, using directors selected by the minority shareholders (i.e. we, the half of Americans who hold stock, which includes employees). These representatives sitting on the boards would make minority stakeholder interests heard. For example “hey GOOG/FB/TWTR, don’t ban 35% of the population, conservatives, off the internet.” The representatives get a board vote, and could go public revealing insider schemes. This is true “shareholder primacy,” synthesized with stakeholder interests, which is the stated goal (or should be).
Additionally, there could be a required government representative on the board. These are not true private entities, they are government-sponsored entities, and thus the government should be responsible for an awareness of what is happening inside these board rooms (thus no claiming they didn’t know, as in 2008). If largest shareholders didn’t like that, they could always buy back all the shares and go private.
The result would be a disturbing transparency (from the perspective of the current insider boards). You’d have to buy off the the entire country, not just a subset, and if you could do that, well…the purpose is achieved.
We want the corporations we hold shares in to maximize return, so long as they do not do so by cannibalizing our own well-being via negative externalities. And only the shareholding public is capable of making that judgement.
#4 Restrictions of Stock Sales by Insiders
The proposal imposes restrictions on the sale of company shares by insiders.
To ensure that corporate decision-makers are focused on the long-term interests of all corporate stakeholders…the bill prohibits United States corporations’ directors and officers from selling any company shares within five years of obtaining the shares…
My contribution on this topic is more about the macro-analysis, not the micro-analyses of devising specific policies. But yes, these would be nationally-chartered corporations granted such privileges only because they were expected to provide a long-term benefit to society, and so longer-term stock holding periods seem appropriate.
However see my later point about the additive nature of these five proposed rules. If we try to stack new controls, on top of existing flawed core legal programming, it will fail. But if the core anti-capitalist elements are removed, then normal functioning markets takes care of the rest without the need to micro-manage.
#5 Board Approval for Political Spending
Politics is not my field. So maybe I’m wrong, but there’s no reason I can think of, why massive quasi-public entities would be campaigning for public representatives. The general public exist, and can do that themselves.
…by requiring United States corporations to obtain shareholder and board approval for, and publicly to disclose, all political spending…they also would have to disclose all political and lobbying expenditures.
The problem is that since the boards would have 40% employee elected representatives (per the scholars’ proposal), and these employees tend to be blue-city workers, this would seem to skew power, and ignore the red-rural stakeholders. Is this not already the current reality which is leading to corporate exploitation, public anger, and the events of the 2016 election? Problem not solved.
Under my recommendation the boards would have 40% public elected representatives, and you would expect that to lead to political spending being more representative of the general shareholding public’s will. But then, with the board mirroring the public, what’s the point of spending? Problem solved.
KEY QUESTIONS & WHY I’M DUBIOUS
Why were these ideas chosen, from a basket which includes more effective and inclusive solutions to the problem? Inclusivity matters in this case, because these are quasi-public entities granted charters to serve a public need, and the stated goal is to make them accountable to those stakeholders.
The “Additive” Nature of the Ideas
The other thing I noticed is that these proposals are additive in their nature. But for decades, ALL attempts to pile controls on top of corrupt core programming, have failed. My thinking on macro-problems is always to study why prior moves failed, and make different moves which address the true root cause.
The opposite would be subtractions of corporate privilege, which I recommended in my paper, and which this Act does not contain.
Inability to Implement
The checkmate in this game — once you remove human control by building legal entities that make decisions solely by the simple mathematical rule “maximize profits,” and the entites network to form a super-entity so powerful that it can control the state and federal governments — then that super-entity also controls law, such that no laws legitimately limiting its power can be passed. And that point was reached perhaps 20yrs ago.
Politicians talk the talk, and there is much truth in this Act. But there is no reason to believe this politician has the ability to enact truly anti-corporate law. Politicians do however have the ability to enact pro-corporate law, dressed up as anti-corporate law, which is business as usual.
Remember that Bannon and Trump ran a decidedly anti-corporate campaign too (e.g. anti-corporate media, anti-globalism), which is why they drew unprecedented attacks from the corporate media arm. Although they “won” on that platform, their anti-corporate win was nullified within six months in office — revolutionaries ousted, replaced by representatives of corporate America (Goldman Sachs’ Mnuchin & Cohn).
We’ve seen political posturing for 30 years, and perhaps even legit moves more recently, and perhaps a corporate coup. There’s a lot of talk, and a lot of scuffling, for sure. Yet all resulting in the same outcome — increased corporate power (e.g. most recently; corporate tax cuts, and corporate media mergers). Why will it be different this time? Warren and Cornell Law fail to answer this question.
Any intelligent person questions the intent of politicians. And here we see a proposal which focuses LESS on removing corporate power and aligning these quasi-public entities with public interests, and MORE on keeping corporate power and aligning it with a) the corporate workers themselves, a 10% subset of the public, and b) the federal government.
a) Blue City Control?
Notice the real bearers of the negative externalities of corporatism, 90% of the general public, are still being ignored, despite roughly half of them holding shares in these corporations. Why do they get no direct say, but only via a proxy which likely does not represent them? Also notice that those excluded, happen NOT to be Elizabeth Warren’s base. Geographically speaking, corporate headquarters are located in blue cities. The left-behind red areas, approximately 85% of counties, remain unheard from, which is the very situation which brought about careless outsourcing and the 2016 electoral collage win (a protection the founders created to overthrow urban tyranny).
Also, I was able to find 11 of the 14 “scholars” on Twitter (see their feed), and 100% appear to be activists of the Social Justice religion (see lead scholar Robert Hockett’s use of “we” and “retake” government). Is this the language of an objective person looking to limit corporate power, or an attempt to wield it for their tribe? The rational person must ask, is this a plan to double down on tyranny? Update, Robert Hocket has since blocked me on Twitter. Why would a sincere anti-corporatist be blocking one of the finance industry’s most knowledgable and outspoken people on the topic?
b) Federal Control!
Notice the focus on the federal government, with the general public getting no direct say, but only via a proxy which likely does not represent them. The reason for extra suspicion here, is there’s just no way to ignore that Warren is deeply associated with the phenomenon of postmodernism (e.g. fabricating “oppressor” and “oppressed” groups, pretending to be a member of an “oppressed” group, and using these to seize power). Postmodernism has one goal — to seize institutional power for “their tribe,” and use it to push tyrannical agendas on the rest of the population. We’ve seen this specifically with attempts to seize corporate board rooms, and then wield that power against their “identity group” enemies. It’s just impossible to ignore this glaring risk. Again, the rational person must ask, is this a plan to double down on tyranny?
c) Inclusivity, or Exclusivity?
Which brings us to Warren’s marketing of this Act as being about “empowering.” But what about the other 87%? There are 243M working age citizens, yet only 30M corporate + 2M federal being identified as stakeholders in this plan. People are supposed to just trust that the 13% will “do the right thing”? Smartly engineered systems don’t rely on trust or luck, they use safeguards.
The line between big corporations, and the federal government, is already blurry and the results highly disturbing — after such a merger you could have final-form corporate-fascism. It doesn’t take a veteran forecaster to expect such power would be used against the 87%, groups Warren has shown no interest in protecting.
Key Point—Intent & Effectivity Can Actually be Known in Advance
There is a simple test I use when inferring if a player has the intention and ability to enact a move which would likely decrease corporate power. Question: do we see all-out-war from most corporate media entities to defame and deplatform the anti-corporate player? If YES, they may be a legitimate risk to corporatism, if NO they are not viewed as a threat. Players are not viewed as threats if they are 1) weak and thus irrelevant, or 2) already corporate controlled.
And so good intent and effective moves can be known in advance, by coordinated corporate attacks, which usually come from the corporate media (the voice of corporate interests). The larger the threat, the more resources will be expended on propaganda, to protect future profits. We can study how the oligopoly responds (NYT, CMCSA, DIS, T, FOXA, CBS, VIAB, NWSA) — if the media corporations support this Act to curb corporatism, then this Act is a scam to increase corporate power. Yes, I acknowledge this assumes we are not yet at the point where corporate media uses reverse psychology deception, but so far we see support for the Act (NYT, WaPo, etc).
Corporations per current governance must maximize profits, and thus must oppose any movement that truly seeks to limit their power, as less power WILL mean less than maximized profit. We can know would-be effective moves, because they will be stopped.
How does Warren explain this flaw in her story?
THE MACRO VIEW, PUTTING THIS BILL IN CONTEXT
We are undeniably now seeing growing calls for specific action against corporatism from both the left and right, and we are seeing politicians recognize this market and sell to it (Trump, Bernie, Warren, Yang). This uprising originates from the negative externalities of corporatism (e.g. tech authoritarianism, healthcare extortion, fake news, tainted food supply, environment destruction, subprime collapse).
However the ability and intent of politicians to deliver, is highly questionable. Corporatism is not going to just hand over power. Because any new programming conflicts with its existing programming (i.e. new profits will be less than maximized profits), and the machine WILL oppose the change. And the machine has unmatched resources, a $25 trillion market valuation, to win against any power in America, which I suspect includes the U.S. government.
The other problem is the general public remains deeply confused about the nature of their shared enemy. It is difficult to comprehend legal-entities, as they have no physical body, and we see stepped-up divide and conquer tactics from corporate media to keep them confused.
As for the bill in question, it signals an awareness of the root problem. However it is confusing in that it appears to be about “accountable corporatism,” and yet corporatism by its nature, is not accountable and attempts to make it so have failed. The bill we need in order to pull America out of corporate-fascism, is one which disables corporatism by 1) removing these special privileges, such that entities are herded back down into free-market capitalism, or at least 2) making quasi-public corporate entities accountable to the general public (not to the federal government, or an unrepresentative proxy on the board).
Overall I find academic work of the scholars exciting, in that there are other people out there who get the root problem. But I find the Act itself a weak strategic move against a virtually impenetrable target, from a questionable player. Or worse, a deception to increase corporate power.