What Governments Can Do
1. Investigate Needed Structural Reforms. In stockholder capitalism, the leaders of most major corporations sit at the top of an authoritarian organization structure that gives them authority over economic resources greater than those of most countries. The law, the financial incentives of their compensation packages, and the board of directors all tell them that this power is to be used almost exclusively to increase shareholder return. The stockholders, moreover, typically are kept unaware of the actions taken in their name for their exclusive benefit and are shielded from any liability for the consequences of those actions. Does this not imply the need for appropriate public authorities to consider seriously proposals to reform the organizational structure of publicly traded, limited liability corporations in America? Is it time for the government to consider limiting the size of corporations, stripping them of some of their special rights and privileges, and finding ways to vest partial ownership in the employees, community members, customers, and suppliers?
2. Investigate the Financial Accounting Standards Board. It is hard to question the need for accounting standards. As stated in the FASB mission statement, “Accounting standards are essential to the efficient functioning of the economy because decisions about the allocation of resources rely heavily on credible, concise, and understandable financial information.” But are the standards proposed by the FASB the best guide to the allocation of resources by business entities? Currently it is resisting counting the stock options given to executives as expenses, even though they clearly are employee costs and some accounting firms are insisting that their clients count them as operating costs. The Securities Exchange Commission of the Federal Government has statutory authority to establish financial accounting and reporting standards for publicly held companies. However, the Commission’s policy has been to rely on the private sector – that is to say, the FASB—for this function “to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest.” The leadership of the FASB is drawn from public accounting firms, representatives of large corporations, and major associations of preparers. We note with interest the absence of representatives of the public interest. The Securities Exchange Commission should immediately launch an investigation of the FASB’s ability to be stewards of the public interest. The investigation should be broadly based and consider issues such as human resource accounting, life cycle costing, and cost exporting.
3. Invest in R&D, Infrastructure, and Human Capital. In the l970s, when Americans were putting in place the investments in highways, airports, safer cities, etc, that would eventually pay off in the l990s, federal investment in these activities averaged better than 2.5 percent of GDP. The percentage shrank dramatically during the l980s under the Reagan and 1st Bush administrations, and it continued to decline under Clinton and the Republican-dominated Congress in the l990s. By 2001, it was down to less than l.5 percent of GDP. Similarly, the federal role in financing education and supporting worker retraining and relocation has lagged. To use unexpectedly high levels of federal revenue to finance huge tax cuts or to needlessly reduce the public debt is poor stewardship, since many of these funds have a much higher use correcting vast under-investments in the very grounding of healthy economies.
4. Foster Rising Wages. Higher wages give managers an incentive to work harder at improving productivity. Improved wages and greater job security, moreover, permit families to consume more, which helps generate the aggregate demand that turns potential growth into actual output. To help improve wages, policy reforms should help strengthen unions, increase the minimum wage, expand the Earned Income Tax Credit, and reject those elements of welfare reform that force single parents into the job market with little regard for their skill levels or the state of the local economy. These reforms, when properly implemented, need not lead to the export of jobs to lower-wage countries. Productivity, even more than wages, is the key to rational decision-making in corporate life.
5. Create Incentives for Public/Private Partnerships. Encourage corporate best-practice policies of the type outlined above.
6. Review Tax and Other Legislation Affecting Corporate Costs. Market forces do not ordinarily reflect all the social and environmental costs of economic activity. The true costs of production should be measured to include not only the usually reported costs of a business, but also the costs of externalities that damage the environment and may lead to countervailing public expenditures for, say, health-care and clean-up costs. If producers were encouraged through various economic incentives to count all costs as costs of production, they would search harder for more efficient ways of organizing production. Then, too, they no doubt would set prices at levels more commensurate with total costs, goading consumers into more environmentally sensitive decisions about what and how much to buy.
7. Enforce Anti-Trust Policies. For the last century, public policies have attempted to contain monopoly and curb corporate abuses of market power in two ways: by prohibiting certain kinds of business conduct, and by curbing market structures that are thought to lead to anticompetitive abuses. In recent years, the enforcement of anti-trust laws has weakened, in part because many people have become skeptical of the ability of government to improve the performance of large multinational enterprises. While it is true that the intrinsic rivalry of very large firms, particularly those involved with rapidly changing technologies, has made enforcement of the laws more difficult, these facts do not excuse the government from enforcing the law.
8. Allow Expansionary Federal Reserve Policy. Recent experience with unusually low unemployment rates, yet with inflation well in check, suggests that something else—perhaps global competition—has changed public expectations about inflation. The single-minded purpose of the Federal Reserve Board to control inflation, therefore, seems out of date. The Humphrey-Hawkins Full Employment Act of l978, moreover, instructs the Fed to conduct monetary policy so as “to promote effectively the goal of maximum employment, stable prices, and moderate long-term interest rates.” It is time that the Fed understands its mission to be the overall health of the American family.
9. Establish Fair Trade Based on Labor Rights and Standards. What is needed is the creation of a fair trade regime and a new global economic architecture analogous to what the leading nations of the world developed at the end of World War II. Instead, we are getting a further devolution of power from individual governments to the private sector and growing international economic chaos. One way to counter this trend is for the World Trade Organization to adopt something stronger than existing protections (against slavery, forced labor, the suppression of unions, and the exploitation of child labor) without undermining the incentive for multinationals to invest in developing nations. It should include some form of international labor rights and some minimum form of international standards regarding minimum wages, hours-of-work, health and safety, and benefits. Meanwhile, labor leaders must continue to push for labor rights and standards language in new bilateral and regional trade compacts.
10. Regulate Global Speculation. The world economy has flirted with chaos in recent years, as vast amounts of financial capital have shifted venue almost instantaneously. While the experts disagree on the relative merits and political feasibility of debt forgiveness, limited exchange rate controls, taxes on speculative transactions, and the creation of international bankruptcy procedures, there is widespread agreement that capital hyper-mobility is not leading to higher standards of living or rewarding good productivity performance. Capital markets must be re-regulated. Mobilization already is on record as supporting a so-called “Tobin Tax” on speculative international capital movements. Part of any program to civilize globalization will entail reforming and redirecting the key Bretton Woods organization: the World Bank and especially the IMF. At the core of any new system should be a renewed commitment to securing the currency stability that is necessary to underwrite the coordinated international expansion needed to avert worldwide recession. The present largely ceremonial summits of the G7 would need to be replaced with meetings that actually deal with substantive issues. A permanent secretariat should be created with the skills and authority to manage the international payments system.
Alternative View: Michael E. Porter and Mark R. Kramer, “Creating Shared Value: How to reinvent capitalism—and unleash a wave of innovation and growth,” Harvard Business Review (Jan-Feb 2011), http://www.waterhealth.com/sites/default/files/Harvard_Buiness_Review_Shared_Value.pdf.
John B. Cobb Jr. is Ingraham Professor of Theology Emeritus at the Claremont School of Theology in Claremont, California.Photo by Andres Ojeda.___________________
Notes
[i] For information, contact the Financial Accounting Standards Board, Post Office Box 30816, Hartford, CT 06150.
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