Rescuing capitalism from itself

In mid-August, 2019, 183 leaders of some of America’s largest companies—AT&T, American Airlines, Johnson & Johnson, JPMorgan Chase, Chevron, Caterpillar, Citigroup, and John Deere—issued a “Statement on the Purpose of a Corporation” under sponsorship of the Business Roundtable. The letter attracted immediate praise—and an abundance of skepticism. Here were the titans of capitalism admitting that they, and their corporate allies, have been seriously indifferent to the economic anguish of a large majority of American workers. The letter stated:

Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all…While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.

Among commitments to customers, suppliers, communities, and shareholders, the letter promised to transform the American corporation by:

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. We foster diversity and inclusion, dignity and respect.

It is important to reflect on this profound admission by a small number of corporate elites. Why now? Perhaps there is an emerging sense of guilt after years of aggressive suppression of labor unions, stagnant wages, moving jobs abroad, and shifting corporate profits overseas where tax exposure is minimized. The 2017 Trump tax cuts that produced large-scale stock buy-backs (a gift to owners)—coupled with scant regard for the plight of their own workers—may also have played a role. But is this epiphany motivated by guilt or fear?

In light of recent news, fear may well be the primary motivation. Late in 2019 it was revealed that FedEx, whose CEO Fred Smith was one of the signers of the manifesto of new corporate behavior, managed to reduce its tax obligations for 2018 to exactly zero. In fact, it seems that the federal government owes FedEx a tax refund. Smith had been an assiduous presence in Donald Trump’s campaign, and a few days after the election he was in Trump’s New York office. David Abney, CEO of UPS, another signer of the promise to do better, joined his greatest competitor in lobbying for Trump’s tax cuts. The two of them discovered their mutual interest and joined hands to write an op-ed piece for the Wall Street Journal on August, 13, 2017 advocating the Trump tax cuts.

Several things might be said about the negative tax liability of FedEx. We need not engage here in theoretical discussions about whether or not corporations should pay taxes as long as their employees do so. Nor is it necessary to explore the subsequent investment of corporations that is often advanced as justification for such lobbying. The evidence suggests that companies receiving the largest tax cuts actually invested less in the following year. And of course we know that virtually all companies used the savings to reward share-holders with massive share buybacks and dividend boosts. The point here, and it is one that defines the central argument of Possessive Individualism, is that such behavior plausibly stands as yet another reason why the long-forgotten workers under managerial capitalism have begun to feel anger. After all, many of them actually do pay taxes.

And now, with a presidential election approaching, and the word “socialist” wafting through the air, maybe there are good reasons for the one percent (or the upper crust of the one-percent) to be looking over their well-tailored shoulders. Setting aside intrigue with this corporate mea culpa, two questions require answers: Why has this problem been allowed to fester for so long? And  what can be done about it?

First, the persistent disregard for workers burdened by stagnant household incomes is the inevitable result of a meritocratic winner-take-all economy. American capitalism is now so involuted, disfigured, and encrusted that it has ceased to be a source of hope. The burst of material plentitude that began with the Industrial Revolution seemed to offer a better life all around. Instead, it has bred a culture of acquisitiveness and self-centered hedonism. It also has become an excuse for the embrace of the worst of human instincts—social differentiation and exclusion. The American version of capitalism is no longer an engine of improved livelihoods and social hope. How did this happen?

The defining spirit of our time is the alluring fiction of modernism. The autonomous acquisitive individual was both rational and moral. Prevailing economic orthodoxy provided the necessary benediction. Reigning ideology insists that the economy—the market—is a separate and quite delicate sphere of efficiency and rectitude. When held up against the self-dealing incoherence of politics, tampering with the economy can only inflict harm. Kenneth Arrow proved that social choices were inconclusive and contradictory. Only markets offered consistent clarity. Politicians must not interfere with the mystical workings of the economy. Private firms now comprise the sacred temples of modern capitalism. Government intervention in the market is dangerous and must be avoided. This protected realm is the fragile fount of future well-being.

Ironically, the celebrated individual of American mythology is now an unwitting accomplice in her own economic marginalization. Dependent on the constellation of sanctified private firms for her precarious livelihood, she is unknowingly enlisted in the self-defeating cause of laissez faire. We are now in an era of hedge fund conjurers and private equity tormenters. Think of it as managerial capitalism. Here, the exquisite wrangler rules. Millions of nervous employees live in fear of the abundant caprice of “scrunching” and “the deal funnel.” As politicians quake and bluster before the alleged hordes of migrants seeking a better life, their constituents exhibit behavior that further confounds the anomie and paralysis.

The solution will require two profound changes. First, the acquisitive individual must rediscover a sense of loyalty to others as neighbors, as colleagues, and as participants in the shared social process of living. Second, the private firm—falsely celebrated as a job creator—must be reimagined as a public trust in which the economic well-being of employees becomes a central part of its purpose. In the absence of these dual transformations, capitalism as we know it cannot endure.

Featured Image Credit: “Low angle photo of glass building” by Lee Ferrell. CC0 via Unsplash.