When the Business Roundtable announced its revised statement of a corporation’s purpose recently, it got big media play. And why not: When 181 heads of America’s very biggest businesses — including Amazon, Apple, General Motors, and Walmart — gather together and, as a body, state that they have been practicing capitalism all wrong, this is news that is new.
For 50 years now, corporations have adhered to the orthodoxy that maximizing profit for the investing shareholder is their sole raison d’etre. Economist Milton Friedman, father of this orthodoxy, declared in 1970 that “the social responsibility of business is to increase its profits” — in other words, any negative impact of corporate activity on society was to be discounted. Conservatives took to this theory like catnip.
But now, in a major U-turn for American capitalism, the other components in the equation — the employee, the customer, the supplier, the community, and the environment — are to be deemed equal in value to the shareholder in the operation of a corporation. So vows the Business Roundtable’s “Commitment” statement.
The part about the employee got special emphasis in the media. While continuing to salute “America’s economic model,” the Roundtable acknowledges that “many Americans are struggling” — “Too often hard work is not rewarded.” Thus its new commitment to “investing in our employees”: “This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world.”
Sounds very pretty — in fact it sounds ideal — but is it for real? While the Roundtable refers to its “modernizing” language, it’s also humanizing. But, again, is it for real?
And why now? Why does this capitalist repurposing come now, when stagnant wages and severe income inequality have been a hard fact of the worker’s life for decades?
No doubt the present political moment — angry, polarized, pitchforks at the ready on both right and left — accounts for American capitalists’ sudden defensive shift. Describing the corporate mindset as “panic,” Washington Post columnist David Ignatius writes that “the guardians of capitalism seem to realize that they must respond to right-wing populists and left-wing progressives alike or face a worsening political crisis that is already hobbling the country.” Ignatius believes this panic could be a “turning point, opening the way for a future president to begin fixing the problems of stagnant wages and inequality that are at the core of America’s disarray.”
Likewise galvanizing: the “revolutionary” rhetoric of Democratic presidential candidates Elizabeth Warren and Bernie Sanders. Warren, whose poll numbers are rising and who reputedly scares Wall Street, constantly stresses the need for “deep structural change” to the economy, while Sanders speaks outright of “political revolution.”
Tellingly, Warren last year unveiled “The Accountable Capitalism Act,” which would, per Vox’s Matt Yglesias, “redistribute trillions of dollars from rich executives and shareholders to the middle class” by requiring corporations to consider equally “the interests of employees, consumers, and their communities” (sound familiar?). Prioritizing workers while “leaving business as the primary driver” (countering the “socialist” tag), Warren hoped to spur “a return to greater corporate responsibility, and bring back other aspects of the more egalitarian era of American capitalism post-World War II — more business investment, more meaningful career ladders for workers, more financial stability, and higher pay.” Writes Yglesias, “As much as Warren’s proposal is about ending inequality, it’s also about saving capitalism.”
On that point: This commentator has long wondered in print why there was not a greater awareness among business leaders of the damage done to the vessel in which the American economy sails — Capitalism — especially the damage done it and the world by the 2008 crash (which crash was caused in big part by business). The only way our great American experiment combining Capitalism and Democracy can work is by the responsible exercise of both. I kept calling for a George Washington visionary in the corporate sector, who brings business acumen and a humanitarian feel for the people, to step forth and save the vessel (here, here, here, and here).
One such figure raising the alarm about capitalism itself — Larry Fink, billionaire head of the world’s largest investment firm BlackRock — last year called on businesses to develop a greater social consciousness, saying in essence: “Contribute to society or lose our support.” And earlier this year, Ray Dalio, billionaire founder of the hedge fund Bridgewater, issued a paper, “Why and How Capitalism Needs to Be Reformed,” wherein he described how the “income/wealth/opportunity gap” poses an “existential risk for the U.S.” (Another billionaire, Donald Trump, stepped forth and took the White House. Lacking in both business acumen and humanitarianism, he is giving American capitalism a bad name that will last for a long time.)
For now, we have the Business Roundtable’s “Commitment” statement. More than a single individual, the heft of collective endeavor may enable the structural reform needed. Steven Pearlstein, Washington Post business columnist, considers the Roundtable’s statement a “signal,” while noting it has no legal force. (Pearlstein signals his reform ideas in his book’s title — “Can American Capitalism Survive?: Why Greed is Not Good, Opportunity is Not Equal, and Fairness Won’t Make us Poor.”)
How has the public reacted to the Roundtable’s “signal”? To take a small sample — a set of letters to The New York Times responding to initial reporting: One led with the “mendacity” of the C.E.O.s and ended by condemning their “ethical bankruptcy.” Two cited a “cynical ploy,” with one concluding: “Absent constraints by government, businesses will continue as always, putting profit before all, damn the consequences. The statement issued by the Business Roundtable is not to be taken seriously. It is just a cynical ploy to convince the gullible….that companies take the common people’s needs to heart, and are conscientious stewards of the public good, so there’s no need for big government to step in and rein in their excesses. Then watch their profits and personal wealth climb while the world declines.” Joseph Stiglitz, Nobel-winning economist, agrees: The turnabout is too good to be true.
It remains to be seen how this “commitment” of capitalists to reform capitalism itself will fare in the coming widely-forecast recession, or how forceful it remains if the Democrats who preach reform lose the 2020 presidential election — two key “stress tests.” And would these C.E.O.s consider bringing their own pay, now 254 times that of the average employee, back into the realm of the normal? Their statement is silent on this matter, while the public is not (see above). Meanwhile, capitalists might note the research showing young people’s waning attachment to both capitalism and democracy…..
Hope must remain tethered to reality — the historical reality of American capitalism that the great writer Edith Wharton captured in her 1913 novel “The Custom of the Country.” Citing the magnet force of money that serves as the country’s “emotional center of gravity,” Wharton wrote: “In the effete societies it’s love, in our new one it’s business. In America the real crime passionnel is a ‘big steal’ — there’s more excitement in wrecking railways than homes.”
At least we know the stakes: Both American Capitalism and Democracy need saving. Will we? Can we?
Illustration: “The Magnet” by Joseph Keppler, Jr., for Puck magazine, June 1911.