23.05.2021 – 18:32
Political CEO. In America, business and politics are becoming more closely linked, with troubling consequences, writes The Economist
When Americans notice elsewhere that business and politics are getting mixed up, they often see this as a sign of institutional degradation, flawed capitalism, or authoritarianism. Today, the mix of government and corporations is happening right in America. Sometimes this is done in the name of honest causes, such as protests against new laws restricting voting rights in Georgia and other US states.
It is sometimes evident in the attitudes and political statements of executives: the latest manifesto by Jamie Dimon, head of JPMorgan Chase, cites military procurement and criminal justice as issues, among many other important concerns. The link between politics and companies is most clearly reflected in the way the Business Roundtable, a lobbying group, has expanded corporate responsibilities.
The Economist strongly supports the protection of voting rights. We believe that companies operating in competitive markets drive social progress. But as classical liberals, we also believe that concentrations of power are dangerous. Businessmen will always lobby to their advantage, and the closer they get to government, the more damage they can do to the economy and politics.
America was a pioneer in separating business from politics in the nineteenth century. This innovation reduced patronage and helped enrich the country. However, relations between the state and firms have remained strained, from the ambition and bribery of the Gilded Age to post-1945 corporatism. In recent decades, general opinion on the issue has been dominated by Milton Friedman. , a twentieth-century economist who argued that the authority of bosses derives from company owners, and that they should prioritize the interests of owners, which are usually concerned with maximizing long-term profits.
Few companies have fully met this ideal, but nowadays, they are rejecting it, due to some imposing forces. While more citizens want companies to support the causes they hold dear, executives who remain silent risk being accused of being enemies. Fund managers are already seeking to evaluate firms’ “social and governance” results in response to customer demand.
Technology firms are influencing political speech. Many Americans think the government in Washington has collapsed and hope businesses can fill the gap. Donald Trump attacked and at the same time lured businesses. President Joe Biden has a big government-based agenda aimed at an alliance with business to push for national renewal, fight climate change, and prepare America against China’s rise.
Although these goals are individually commendable, on the whole, it can change the role of the business, leading to often underestimated risks. One of them is the display of hypocrisy that discredits everyone. Many socially conscious investment funds are facing numerous charges against technology giants for violating antitrust laws. Business roundtable members, who vowed to take care of all their shareholders, cut hundreds of thousands of jobs last year and have launched anti-tax campaigns to cover the social costs of the pandemic.
It is natural to want to protect voting rights, which are essential for democracy. But that inevitably leads to the next test – like support for new federal voting laws, Supreme Court reform and China’s boycott of human rights abuses in Xinjiang. If CEOs claim that their companies are moral actors, will they be consistent in any social cause?
Even the energy of the economy is at stake. Calls for companies to serve all stakeholders are futile because they do not provide guidance on how to prioritize competition, or how to measure CEO performance. A healthy corporate scene is heterogeneous, not homogeneous: even in an economy where jobs are being created, some companies need to lay off people, just as a country that is reducing emissions still needs some firms who sell oil.
Some of today’s companies are already protected thanks to their connections with the government, at the expense of other innovative companies, which do not enjoy these connections. Such is Delta Airlines, which lobbied privately to change voting legislation in Georgia. It is part of an oligopoly that harms consumers, has just received $ 8.5 billion from the government, has reduced the workforce by 19% during the pandemic and is a major environmental polluter.
The risk for politicians is lower. The lack of consistency on their part is obvious: progressives who once hated corporate involvement in politics are now pushing it, while Republican leaders, who previously supported big business, now want to silence them. But politicians constantly shy away from accusations of hypocrisy.
The real danger is that when businesses are asked to help solve political problems, such as voting reform, executives can use their political role and influence to promote their own narrow interests. It is very flawed the idea that popular dissatisfaction with politics can be resolved by giving more power to an elite of unelected members, such as company executives.
The idea of competition by Friedman is a better way of developing for companies and politics. Competition makes it legitimate and profitable to embrace social change. In a market, firms need to anticipate and adapt to the preferences of society. Consumers want more humane and useful products, so firms are bringing innovations to provide them, from Beyond Meat to Tesla, and thus forcing companies like McDonald and General Motors to adapt.
In order to recruit the best staff, firms increasingly need open and diverse cultures. And to thrive in the long run, companies must anticipate how laws on externalities will change as public opinion shifts. Few capitalists would make sustainable investments today based on the assumption of zero taxes on carbon emissions, or supplies from labor camps in Xinjiang.
Maybe the new corporate agenda is simply creating another front in the competition – marketing to gain talent and clients. If so, the best and most effective tactics are available, such as the Home Depot program to increase its staff voting. Because companies can not at all replace effective governance.
It is the state that ensures that markets are competitive and not prone to monopolies or corruption. Only governments can tax the consequences, such as pollution, and enable social benefits. And the only legitimate way to mediate bitter divisions in America and protect fundamental rights is through the political process and the courts, not executive packages.