On October 9, 2019, Greg Ip writes in the Wall Street Journel:
The Democratic Party’s favored presidential candidate has proposed sweeping changes to how business operates; many executives expect she would tack center.
For the past generation, Democratic presidential candidates have mostly talked of redistributing the rewards of American capitalism while leaving its basic structure intact.
Elizabeth Warren promises to break that mold. The Massachusetts senator, who has moved to the front ranks of the field, talks of remaking capitalism from the ground up. As president, she would drastically cut back the size and influence of big business, push private companies from parts of the economy altogether, and shift power to government and to labor.
Businesses are meeting the rising prospect of a Warren presidency with a combination of concern, skepticism and, for a few, a sense of opportunity.
Companies are used to Democrats criticizing business, whether John Kerry, the 2004 nominee, for outsourcing jobs or President Obama, for causing the financial crisis. But no front-runner has issued so comprehensive an indictment as Ms. Warren, who has blamed business for, among other things stagnant wages, high student debt,global warming, gun violence, the prison population, high medical bills, and the shortage of affordable housing and child care.
And no front-runner has proposed such sweeping changes to how businesses operate. A President Warren would seek to regulate big tech companies as utilities, break up big banks and split them from securities dealers, ban fracking of oil and gas, phase out carbon emission from buildings, cars and power plants in eight to 15 years, require big companies to appoint worker representatives to at least 40% of board seats, ban private health insurance and, effectively, for-profit college, and negotiate down drug prices.
Her policies would directly affect companies with sales of nearly $5 trillion and stock-market value of more than $8 trillion, a third of the S&P 500 stock index. Taxes on the wealthy and corporations would rise sharply.
That, in turn, has led to nervousness among some executives. “She could create an environment where it is next to impossible to function” for health insurers, said Vicky Gregg, a former chief executive of BlueCross BlueShield of Tennessee and now partner in a private-equity firm. “There’s no question that keeps you up at night if you’re a health-plan executive.”
Others, particularly in Silicon Valley, are enthusiastic supporters of Ms. Warren despite, or for some because of, her plans to break up big tech companies. Some economists predict her plans could boost growth and that business warnings about the harm of her policies should be taken with a grain of salt.
“Businesses have cried wolf far too many times for that to be taken at face value during a presidential campaign,” said Austan Goolsbee, a University of Chicago economist who served under Mr. Obama. When Ms. Warren first proposed companies should be responsible to all stakeholders, not just shareholders, some called it socialism, he noted. A year later, “the Business Roundtable announced something very much in the spirit of what Elizabeth Warren said.”
Some executives express the hope that her plans are so disruptive she would need to water them down significantly. A fracking ban “would decimate our industry,” said Scott Sheffield, CEO of Pioneer Natural Resources Co. , one of the largest U.S. shale companies. “We understand candidates for the presidential nomination often run to the extremes during the campaign and moderate their positions once they are responsible for governing.”
Still, there is no sign of such moderation from Ms. Warren, and political analysts warn not to expect any: Presidential candidates of late, including Donald Trump, have governed much as they campaigned.
By arguing that the growth of corporate power over the last 35 years is at the root of many problems in the U.S., she would make the place of business in society a central theme of the election. Ms. Warren, in laying out her case, has said she is “a capitalist to my bones,” whereas fellow candidate Sen. Bernie Sanders calls himself a “democratic socialist.”
“I love what markets can do, I love what functioning economies can do. They are what make us rich, they are what create opportunity,” she said on CNBC last year. “But only fair markets, markets with rules. Markets without rules is about the rich take it all, it’s about the powerful get all of it. And that’s what’s gone wrong in America.”
Supporters say her proposals wouldn’t displace capitalism but align it with what prevailed in the 1950s and 1960s and still does in many other Western countries.
She would impose a 2% to 3% tax on wealth above $50 million, repeal President Trump’s tax cuts for corporations and the wealthy, impose a new 7% tax on big company profits and a 14.8% tax on incomes above $250,000 to finance expanded Social Security benefits.
Many economists say high tax rates discourage investment and work, and thus slow economic growth. Gabriel Zucman, a professor of economics at the University of California, Berkeley who advised Ms. Warren on the wealth tax, said it depends on how the money is spent. “If it’s spent on child care, and that increases women’s labor force participation, then you get an increase in income for part of the population.” He noted the wealthy paid 91% rates on incomes and 77% on estates in the 1950s and 1960s and “there’s no evidence it killed innovation or growth.”
Mark Zandi, economist at Moody’s Analytics, wrote in a series of reports that the taxes required to pay for Ms. Warren’s proposals would damp investment and work by the wealthy, but that effect would also be more than offset by increased spending by lower-income people, such as child-care workers.
Supporters note almost every advanced capitalist economy has universal health care, and in Germany, big companies have worker representatives on their boards. “It has not killed German capitalism,” said Mr. Zucman. “They have some pretty strong corporations.”
If each Warren proposal has some precedent in U.S. or foreign experience, in its totality her program would be a sharp break with capitalism as American companies know it.
A senior executive at a Washington-based trade group who works closely with top CEOs said of the distinction often drawn between Ms. Warren’s capitalism and Mr. Sanders’s socialism: “I don’t know if business is buying that distinction. From a policy standpoint there doesn’t seem to be a great deal of difference.” (Mr. Sanders sought the nomination in 2016 but unlike Ms. Warren now, never led the Real Clear Politics polling average or online prediction markets.)
A common refrain among business is that Ms. Warren seems to thrive on attacking them, indeed considers it part of her brand. She retweets articles about their criticism with: “I approve this message.”
The rancor is most acute among financiers she regularly casts as villains, even after a decade of postcrisis reforms that have made banks safer, less profitable and their treatment of consumers more tightly regulated. She called her capital-gains-tax proposal, introduced this summer, the Stop Wall Street Looting Act. Some still stew over her blocking investment banker Antonio Weiss from a Treasury job under Mr. Obama in 2015, despite his Democratic credentials, because he worked on deals that moved some companies’ domiciles abroad.
Few, however, will say so publicly, fearful of the damage she can do to their companies and share prices. Two weeks ago, she knocked 3% off the shares of the two big bond-rating agencies by challenging the impartiality of their ratings in a letter to regulators. When the chief executive of UnitedHealth Group Inc., parent of the country’s largest health insurer, briefly addressed the impact of Medicare for All in an earnings call, it was blamed for driving down the entire sector’s share prices.
UnitedHealth says it “welcomes the renewed national discussion on how to achieve universal coverage.”
In July, Facebook Inc. CEO Mark Zuckerberg, referring to Ms. Warren’s plan to break up Facebook, said in remarks to employees reported by The Verge, a technology-news site: “If she gets elected president, then I would bet that we will have a legal challenge, and I would bet that we will win the legal challenge,” adding that “at the end of the day, if someone’s going to try to threaten something that existential, you go to the mat and you fight.”
Ms. Warren shot back on Twitter that Facebook has “a lot of power—and [faces] little competition or accountability.”
Last week, Mr. Zuckerberg held another employee Q&A, which was publicly live streamed. Asked about Ms. Warren’s plans and how Facebook’s platform would remain unbiased toward her, he joked he would “try not to antagonize her further,” then added employees needed to be neutral and empathetic to a wide range of opinions. “The value that we care about is giving people a voice and allowing people to express themselves,” he said. “We obviously try not to be biased.”
The consensus among business leaders is that few of Ms. Warren’s big initiatives will be enacted, because she will tack toward the center if she secures the nomination or the White House, or because Congress and the courts won’t let her. An antitrust lawsuit against a big tech company would take a decade or longer and probably fail, Barclays analysts said in a July note. Medicare for All “would destroy” private insurers, said Matthew Borsch, an analyst with BMO Capital Markets. But, he said, an executive of a major health insurer, in a recent private meeting, put the odds of such a plan passing at “10,000 to one.”
Many business leaders have no problem with Ms. Warren’s goals, but do with the speed and means by which she means to reach them. Minneapolis-based electric utility Xcel Energy, which serves eight states, in December pledged to slash its carbon emissions 80% by 2030 and 100% by 2050. That’s not good enough for Ms. Warren, who has targeted 100% by 2035.
The problem, said CEO Ben Fowke, is that getting from 80% to 100% depends on as-yet-unproven advances in storage, carbon capture, and nuclear and hydrogen generation. Ms. Warren “would set up some unrealistic expectations.”
Automobile manufacturers are rolling out electric models, but none has yet found a way to make such a car affordable to mainstream consumers and profitable. “The current market is 1% electric vehicles. All of those, 100%, are sold at a loss. The industry isn’t here as a non-profit,” said one auto executive. The economics will improve, yet Ms. Warren’s plan to make all new cars emissions-free by 2030 “is, simply put, preposterous.”
The Trump administration is already mulling action on drug prices. Ms. Warren would go much further, letting Medicare negotiate prices with suppliers, permitting imports of cheaper foreign medicines and having the federal government manufacture scarce generics.
Ron Cohen, CEO of biotech drugmaker Acorda Therapeutics, said there are legitimate concerns about drug costs and some price increases have been excessive. But her proposals won’t work, he said: Patients could lose access to vital drugs if Medicare and manufacturers can’t agree on a price, and it would be more efficient for the federal government to offer existing manufacturers incentives such as tax breaks to make scarce generics.
Ms. Warren’s sympathizers aren’t surprised by the blowback. They see big-company CEOs as preoccupied with their own welfare rather than that of the economy as a whole. Small banks, they argue, would benefit from breaking up big banks, and startup technology companies would benefit from breaking the grip of big tech companies on internet search, social media and e-commerce.
“Breaking up big tech is pro-growth and pro-innovation,” said Bharat Ramamurti, who heads Ms. Warren’s economic policy team. “In the ’90s, Microsoft was threatening to corner the internet via Internet Explorer and Windows, and federal government antitrust action helped pave the way for companies like Google and Facebook to emerge in the first place. And now Google and Facebook dominate that space, and smaller tech companies are run out of business or snapped up—undermining innovation and dynamism.”
Some private analysts agree: “If Warren does break up the big tech giants, we will see more competitors and innovation,” said Jonathan Tepper, head of financial markets advisory firm Variant Perception, who has been critical of the companies. “The telecoms and tech boom happened after AT&T no longer had a stranglehold on U.S. telecoms. Likewise, breaking IBM’s hold of hardware and software led to the software boom of the 1980s and 1990s.”
Business supporters
Ms. Warren does draw business support, in particular in Silicon Valley, because some agree with her plans for business, don’t think they’ll happen or simply consider the rest of her agenda more important. Venture capitalist and liberal donor Chris Sacca called her wealth tax “*extremely* and *radically*… reasonable” on Twitter.
In June, venture capitalist and former Facebook executive Chamath Palihapitiya tweeted: “I don’t agree with many of her proposals but I donated to Elizabeth Warren because SHE IS THE ONLY MAJOR CANDIDATE WITH STUFF WRITTEN DOWN.” In an email, Mr. Palihapitiya predicted big tech wouldn’t ultimately be one of the issues Ms. Warren prioritizes.
In response to concerns that phasing out fossil fuels would kill jobs, Ms. Warren has said her green energy and climate adaptation plans will create millions of even better paying jobs.
Businesses have a history of adapting to, and ultimately profiting from, expanded government. Accountants vehemently opposed being regulated under the 2002 Sarbanes-Oxley Act, then made a fortune advising companies on the law’s provisions, notes one former Democratic staffer who worked on the law.
Some health-insurance executives hope Ms. Warren’s push for Medicare for All will fall short and, to win over moderate legislators, she will instead expand coverage in a way that would bring them more customers—as Mr. Obama’s Affordable Care Act did.
Ms. Warren, of course, isn’t alone in appealing to working-class angst with policies that businesses oppose. The same is true of many of Mr. Trump’s initiatives, such as tariffs. Glenn Hubbard, a Columbia University economist who was chairman of President George W. Bush’s Council of Economic Advisers, bemoaned what he sees as the Democrats’ leftward shift from Bill Clinton to Elizabeth Warren. But when it comes to helping workers hurt by globalization and technological change, he added: “The Republican Party hasn’t done a good job recently of defending an alternative point of view.”
Gary Reber Comments:
Elizabeth Warren: “I love what markets can do, I love what functioning economies can do. They are what make us rich, they are what create opportunity,” she said on CNBC last year. “But only fair markets, markets with rules. Markets without rules is about the rich take it all, it’s about the powerful get all of it. And that’s what’s gone wrong in America.”
Great, Warren believes in fair and measured free markets with operational rules. But she really has no plan for achieving this goal.
Warren does not speak of broadening the ownership of productive capital assets, with the goal of making EVERY citizen productive through owning the non-human means of production. Warren speaks of breaking up monopolies but does not speak of the concentration of capital asset ownership.
If Elizabeth Warren wants to win the presidency she needs to advocate for empowering EVERY child, woman, and man to become a productive capital asset owner.
No president has done so since Abraham Lincoln with his Homestead Act, which created the opportunity for Americans to own land –– at the time the most valuable capital asset.
It should be obvious. Even Donald Trump brads about his capital wealth. Revisiting Donald Trump’s rallies and press conferences following his primary wins in 2016, he stressed that he OWNS this and that business or real estate property, and that these productive capital assets are debt-free. Of course, anyone with a sense of how businesses operate knows that this is an attribute of a successful business. Trump has not and does not use his own money savings to finance his ever-expanding business interests (the accumulation of productive, wealth-creating, income-producing capital assets), but instead uses capital credit loans, which are paid back by the earnings produced by the investments, or if not, he files for bankruptcy protection for any particular failed business venture. If his past savings are used at all it is as collateral to guarantee the bank loans, should an investment fail to produce the anticipated earnings to be used to pay off the loans. As such, in the event of failure, his assets can be confiscated. This is the logic of corporate finance, in which investments must pay for themselves — by earning profits, which are first pledged to pay off a capital credit loan, and once paid off to produce an income stream to the owner(s). This is how people in business get richer and richer and how the already wealthy capital ownership class continues to monopolize the ownership of virtually ALL FUTURE wealth-creating, income-producing capital asset expansion.
In the same 2016 election period, Hillary Clinton was increasingly advocating for companies to “profit share” with their workers. This is not actual ownership but a tax credit carrot to encourage corporations to share their profits with their workers. Of course, because the workers do not actually gain ownership of the companies that employ them under this approach, the profit sharing can be arbitrarily suspended at any time and the workers still have no legal or effective say in the management of the companies that employ them.
Neither Trump nor Clinton, or for that matter none of the present crop of presidential candidates, have EVER advocated for workers to OWN the corporations that employ them or more significantly, for EVERY child, woman and man to be a capital OWNER in the viable corporations, both established and start-ups, growing the economy. As is the usual case, their focus is on JOB creation or, as in Elizabeth Warren’s case, a focus on rebuilding the middle class, which does not mean capital asset ownership creation for the vast majority of Americans. In the case of Warren, she, as with Bernie Sanders and all the other Democratic Party candidates for the presidency, she has not come to the realization that what makes the top 1 percent wealthy is because they OWN productive capital assets, the result of progress in the technologies of production.
The reality is that all government economic policies are argued or justified in the context of how many JOBS will be created or saved, completely ignoring that those who already OWN the corporations receiving tax breaks and incentives are empowered by the system to continually enrich their personal ownership of capital asset wealth.
Warren is advocating for guaranteeing workers 40 percent of seats on corporate boards of directors and requiring them to serve goals beyond profit maximization. She is also an advocate for an additional non-escapable 7 percent tax on corporations
Warren has yet to acknowledges the importance of workers owning the corporations that employ them, nor has she expressed any understanding of how an ownership concept can be extended to empower EVERY child, woman, and man to become a productive capital asset owner along with the responsible growth of the economy.
Warren should realize that the core reason the top 1 percent receives virtually ALL FUTURE income gains is because the top 1 percent are the very people that OWN America, with the bulk of the capital asset ownership concentrated among the top .1 percent of the American population.
What Warren needs to do is to aggressively advocate for unrigging the system with reforms that will empower EVERY child, woman, and man to acquire personal ownership stakes in the FUTURE productive capital assets that will propel our economy’s growth. I am not referring to unproven small business or entrepreneurial endeavors, which, however would be significantly strengthened as the overall economy produces an expansion of “customers with money” to create demand. The primary focus needs to be on the already successful businesses growing our economy. I believe that if Warren fully embraces this policy direction, as she has underlying understanding of concentrated capital asset ownership and its corresponding political power as the cause of economic inequality, she will win the primaries and the presidency, while more effectively realizing the political revolution that is long overdue to put all Americans on the path to inclusive prosperity, inclusive opportunity, and inclusive economic justice.
Warren needs to stretch her thinking much farther, to think in terms of empowering workers to become owners of the business corporations they are employed by, using the proven financial mechanism known as the Employee Stock Ownership Plan (ESOP), which provides a pre-tax pay-back mechanism to finance worker ownership (as individuals) without ANY loss of wages or benefits or requirement of past savings, and with the newly issued stock purchase-financing paid for with the full earnings of the investments in a corporation’s growth. (See http://www.cesj.org/learn/capital-homesteading/ch-vehicles/employee-stock-ownership-plans-esops/)
But we must not limit broadening capital asset ownership to employees of corporations as there are tens of millions of Americans who do not work for a for-profit business corporations, such as workers in small businesses or government positions, or who are unemployed, under-employed or unproductive, on welfare or who are senior citizens with only meager Social Security income, which effectively reduces their life to a struggle to meet day-to-day, week-to-week, and month-to-month demands.
Instead of the OWN the FUTURE or BE OWNED issue being presented, all one hears from both sides of the political spectrum is: “We will provide JOBS and put Americans back to work and raise the minimum wage!, and redistribute the earnings of the rich.” While that sounds good, it is, in fact, terribly shortsighted. With the U.S. population continuing to climb and the rate of job-devouring automation and robotics exponentially skyrocketing, along with the job-destroying and wage-devaluation forces of globalization due to American businesses outsourcing or off-shoring their parts and finished products manufacturing, an individual’s or family’s 100 percent reliance on “JOBS” for subsistence will soon be totally outmoded. This means that your children and their children will be faced with unimaginable economic insecurity in the FUTURE, regardless of educational achievement, if the system is not reformed to empower them to become productive capital owners, and prevent those who already hoard the capital asset ownership of America from monopolizing ALL FUTURE ownership of America’s capital asset growth.
This is not to say that education, and tuition-free public colleges and universities is not an important mission, but except for a relative few, the majority of the population, no matter how well educated, will not be able to find a job that pays sufficient wages or salaries to support a family and purchase a home or prevent a lifestyle which is gradually being crippled by near poverty or poverty earnings. Thus, education is not the panacea, though it is critical for our future societal development to innovate and invent future technologies of production. Furthermore, younger, as well as older people, will increasingly find it harder and harder to secure a well-paying job — for most, their ONLY source of income — and will find themselves dependent on taxpayer-supported government welfare, open or disguised, or concealed.
Our visionary politicians would best serve us by devising plans that involve ownership of the capital asset producing corporations of the United States economy, in particular the large corporations responsible for producing the bulk of the goods, products, and services bought by Americans, without penalizing the wealthy class to do so. The Center for Economic and Social Justice (www.cesj.org) has solutions that make sense and which cross party lines quite easily. One of CESJ’s core policy proposals is to enact the Capital Homestead Act, also known as the Economic Democracy Act and adopt the Unite America Platform. This will empower EVERY child, woman and man to acquire personal ownershi[ stakes in the FUTURE capital asset wealth of the American economy, without the requirement of past savings or ANY reduction in wage earnings or benefits, using insured, interest-free capital credit, repayable with the FUTURE full earnings of the investments in the viable corporations growing the economy. (See http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/). Also see the Unite America Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html.
These proposals clearly demonstrate that most people are wrong to take for granted that the only way to finance new capital asset formation (not risky investment in already-owned stock speculation) — and thus widespread capital asset ownership and control — is through cutting consumption and accumulating money savings, thus assuring that ONLY the already rich can afford to finance new capital formation, and as a result the richer they will get. “Past savings” are by definition, the virtual monopoly of the rich. The solution is saving in the future to finance new capital asset formation now. In other words, we need to switch from financing with money withheld from consumption in the past, to financing with the present value of what is reasonably expected to produce in the future. That way, nothing is taken out of anyone’s pocket now, and anybody who comes up with a financially feasible project should be able to get financing for it.
We don’t need the rich to finance new capital formation. To finance new productive capital using “future savings,” it is only necessary to have a feasible capital project ready to start building. The present value of the project can be put into contract form (a “bill of exchange”) and either used directly as money to finance the new capital formation, or taken to a commercial bank and discounted, using newly created bank promissory notes as new money in the form of demand deposits (“checking accounts”). To make things less risky and ensure a uniform, stable, and elastic asset-backed reserve currency, the Federal Reserve Bank would rediscount such qualified paper, with the central bank’s promissory notes substituted for or backing the commercial bank’s promissory notes.
In other words, all that is necessary to finance new capital formation without the rich is feasible capital projects that can pay for themselves out of their own future earnings, and a banking system to provide media of exchange that are recognized as uniform and stable. Significantly, if new capital asset formation can be financed without using past savings, that means the rich are not needed in order to become an owner of productive capital…and that means that every child, woman, and man — regardless whether she, he, or it has savings now — can use “future savings” to become an owner without taking anything away from “the rich” or penalizing success, while at the same time becoming good “customers with money” to create demand for the responsible and “green” growth of the economy.
Using this method of finance is preferable to form new capital assets using the present value of the anticipated future stream of income and wealth embodied in a “bill of exchange” contract. Present value can be turned into “money” by contract, and this contract can be used to purchase new productive capital that repays its purchase price — “self-liquidating.” This will enable corporations with “feasible capital projects” (meaning they pay for themselves out of their own profits) to grow without having to retain earnings — instead, earnings can be fully paid out to the people to whom they belong: the shareholders. The new capital wealth creation, represented by new issues of stock (directly tied to ownership and control sharing) can be financed to benefit anyone (whether employed or not) without first having saved. This should be an equal opportunity right to interest-free capital credit.
The role of capital credit insurance facilitated with private insurance or a government reinsurance agency (ala the Federal Housing Administration concept) would serve as the replacement for past savings collateral to protect the commercial bank in the event of a failure of the capital project to produce the expected FUTURE earnings that would be used to pay off the capital credit loan. Thus, national capital credit insurance would replace the requirement for pledged security, allowing employees and non-employees (EVERY citizen within the system) to become new capital asset owners simultaneously with the growth of the economy, while eliminating the sole ownership of America by the few.
To win the presidency, Elizabeth Warren needs to advocate for the enactment of this proposed legislation that will effectively empower EVERY citizen to become a productive capital OWNER without the requirement of past savings or ANY reduction in wage earnings or benefits.
If our politicians would, for a moment, bury their hatchets and open their minds and examine the ideas outlined by the CESJ, the voters in our country would be getting far more than just jobs and increased minimum wages, or falling into dependency on the State and whatever elites control the coercive powers of government for their economic well-being, and benefit from a long-term policy direction that will provide economic security to EVERY citizen and their heirs, as we build a FUTURE environmentally responsible economy that can support general affluence for EVERY child, woman, and man.
For a more in-depth presentation of solutions see “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11.
