Just a few weeks ago, the media was fawning over Alexandra Ocasio-Cortez and her youthful makeover of tired socialist ideas. Not to be outdone, Elizabeth Warren penned an essay in the Wall Street Journal introducing a modest proposal to completely remake capitalism as we know it. Her Accountable Capitalism Act would create an “Office of United States Corporations inside the Department of Commerce,” requiring any corporation with revenue over $1 billion to obtain a federal charter. These charters would force businesses to vest decision-making authority in a variety of “stakeholders” that would include the company’s workers and other vaguely-defined groups in the communities affected by the company.
It would seem like old-fashioned socialism hasn’t gone completely out of style if Matt Yglesias’ fawning coverage at Vox is any indicator of this kind of plan’s popularity with left-leaning Americans.
“As much as Warren’s proposal is about ending inequality, it’s also about saving capitalism.”
Putting aside the fact that Warren is likely using this to position herself as the hard-left favorite for the 2020 presidential election, it’s worth examining what such a policy would actually mean for businesses and working people in the United States. A full analysis would require both a legal scholar and an economist. Fortunately, Professor Richard A. Epstein of the Hoover Institution and NYU’s School of Law joined The Bob Zadek Show to explain how Elizabeth Warren’s Surreptitious Socialism threatens the foundations of our (mostly) free economy.
The most sinister aspect of Warren’s proposal is its surface appeal. Giving workers and community members a greater share alongside shareholders and the board of directors seems like a nice way to orient a corporation around goals nobler than a mere profit motive. But as Epstein points out, the way the bill is defined, anyone could claim to be a stakeholder — even a firm’s competitors. Take away the forces of free competition and you kill the engine of prosperity.
That’s far from the only problem. In a global economy, where corporations have a choice of where to do business, such a law would send capital fleeing to other countries to avoid the burdensome compliance costs, which would predominantly be driven by political rather than social or economic concerns.
As Milton Friedman explained decades ago, the profit-motive harnessed within a functioning legal system is all that’s required for both the individual and collective good to be maximized. Warren’s plan to “save” capitalism would conveniently align corporate interests with her own political interests. While she may not wish to turn the U.S. into North Korea overnight, it’s a slippery slope from her Accountable Capitalism Act to full-blown socialism.
For a full discussion of the long list of errors and economic fallacies Warren makes in her piece, tune into the show of ideas — not attitude.
- @RichardAEpstein | Twitter
- “Defining Ideas” — Column by Richard A. Epstein | Hoover Institution
- Elizabeth Warren’s Surreptitious Socialism | Hoover Institution, August 20, 2018
- Warren’s screed in the WSJ.
Related Shows (Subscribe to the Podcast):
- Trump vs. Free Trade with Richard Epstein, June 7, 2017
- Richard Epstein on Climate Change, Aug. 13, 2017
- Consumers Beware: The Consumer Financial Protection Bureau is Here to Help, with Todd Zywicki, Oct. 19, 2014