In corporate America, shareholders should be equipped with the tools to limit corporate political spending. This is essential for creating a just and prosperous economy.
Many shareholders live in a progressive bubble where Elizabeth Warren is celebrated, although perhaps taken more seriously than literally, and the term “neoliberal” is an epithet applied to anyone who objects to the government intervention anticipated by her platform.
In another bubble, such skepticism is championed as “free-market conservatism.” But these bubbles are closer than their inhabitants imagine, as demonstrated by Warren’s embrace of the label “capitalist” and by the reaction of progressives to the new isolationism.
Free Marketers versus Progressives
Serious policy arguments about where we can turn to address fundamental concerns like growing inequality, ecological risk, and human rights continue to involve adjusting the dials on the “Washington consensus” that has governed policy circles and international organizations for decades.
This consensus takes economic ideas like gains from trade, comparative advantage, and the reality of transaction costs and turns them into policy prescriptions, including the policies that underlie the markets we use.
The difference, which I do not mean to understate, involves emphasis. While free marketers may emphasize gains from trade and thus increased property rights, the progressive crowd will focus on the need for the regulation where collective action is the least costly route to an efficient outcome.
But serious conservatives do not believe that pollution should be unregulated and serious progressives do not believe all industries should be nationalized – there is much common ground. Corporate political spending salts this common ground.
Maximizing Profit
Take economist Milton Friedman’s famous 1970 article proclaiming that corporations’ only responsibility is to make money: progressives cast it as the epitome of greed-centered neoliberalism, while free marketers view it as a touchstone of common sense. This is what he actually said:
“In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of their society, both those embodied in law and those embodied in ethical custom.”
That is, maximize profit to the extent that shareholders desire, but only within ethical and legal boundaries. I would submit that progressives and free marketers agree on this point but differ in how those ethical and legal boundaries should be designed, and what it is that shareholders actually want.
The hard question is how far to let private enterprise go in using free markets to allocate resources and make economic decisions. When does social and environmental degradation outweigh the productivity created by the invisible hand? And when is the collective action through government needed to rein in the collateral damage of competition?
Corporate Political Spending
This is where corporate political spending becomes a problem. In a democracy, legal boundaries should be created in a process that treats all voices equally. But money gives business interests outsized influence in setting the very bounds that Friedman cited as legitimating profit-seeking.
Corporate money has deregulated the finance industry, distorted government capacity to address climate change, and limited the very competition that makes the free market an essential tool for price discovery and resource allocation.
Citizens United, the Supreme Court decision that freed corporations from important spending restrictions, has made it virtually impossible to rein in this spending. There is now a wasteful spending arm’s race, in which business spends ever more on influence to expand profits without creating anything new, and less on the innovation that creates shared and durable value. This is the worst nightmares of free-market conservatives and progressives combined: government interference in the market to advance the interests of the powerful.
In an ominous turn, corporations are now using their influence to suppress accountability to shareholders, although Friedman’s theory relies on corporate responsiveness to shareholders for its legitimacy: proxy rules are being reinterpreted and rewritten to make it harder for shareholders to insist that corporations respond to their desires.
The powerful CEO lobbying group Business Roundtable wants to leave the drawing of boundaries to corporate managers, defying both the political and corporate democracy that Friedman’s theory relies upon.
Legislation and Regulation
This combination of factors puts our economy at risk, as shown by the market crash of 2008 and the wildfires ravaging California. The pursuit of profit through legislation and regulation that leaves common environmental and social resources unprotected does not only threaten those resources; it threatens the average shareholder saving for retirement or education, which is diversified and reliant on healthy markets and systems that thrive over the long run.
Institutional shareholders, such as pension and mutual funds, hold the lion’s share of stock in large public companies. They owe it to their beneficiaries to encourage corporate support for a constitutional amendment to overturn Citizens United, as promoted by organizations like Business for American Promise.
These institutions must also serve as the voice of the average shareholder in rulemaking proceedings and litigation around proxy rules so that shareholders can continue to advocate for reduced political spending at the companies they own. In addition, they can engage directly with companies in their portfolios to create substantive political spending guardrails. These actions will help support a thriving, innovative economy that works for all of us and our children.