The Corner

Economy & Business

Is German Corporate Governance Really a Better Model?

There’s been a lot of ink spilled over Senator Elizabeth Warren’s “Accountable Capitalism Act” here at National Review. Kevin infuriated many on the left with his lacerating critique last week, and then Sam Hammond followed up with an essay warning that her proposal threatened to “fundamentally upend the way the most productive companies in the American economy work from the top down.” If you’re interested in reading more on the subject — and I’d recommend it, as Warren is considered a leading contender for the 2020 Democratic presidential nomination — I urge you to check out Matt Klein’s latest in Barron’s. You’ll have to subscribe to read it, but good journalism is worth paying for. Which reminds me . . . have you signed up for NRPLUS yet?

Back to Matt’s column. One of Warren’s chief arguments for revamping corporate governance in the U.S. is that excessive short-termism has contributed to underinvestment and income inequality, and she insists that we would do well to learn from Germany’s example. But what if the German model isn’t all it’s cracked up to be?

Despite their supposedly “long term” focus, German companies have consistently invested less than American ones since 2000. German workers have also experienced much smaller pay raises compared with their American counterparts. Most telling of all, the median German household’s income has plunged, even though average income has increased rapidly. Regardless of its ostensible commitment to “stakeholder capitalism,” Germany has become one of the most unequal societies in the rich world.

This isn’t to suggest that short-termism isn’t a problem. Matt offers thoughts on what we might do to address it more effectively. But it seems that Warren’s prescriptions might actually make matters worse, especially if our goal is to increase our long-term productive potential.

Several years ago, I came upon the work of the political theorist David Ciepley, who sees corporations as “franchise governments” that can’t be understood as purely private. Elsewhere, Ciepley has argued that the central role of corporations in modern market economies undermines the individualist assumptions that undergird neoliberalism, and that we need a new regulatory approach capable of harnessing corporate power to public ends. My sense is that Ciepley’s influence accounts for some of the enthusiasm for Warren’s latest intellectual foray. For the sake of argument, say we accept Ciepley’s framework (which, for the record, I find provocative and illuminating). One still might conclude shareholders should be left in charge, especially if we accept Matt’s conclusion that doing so will redound to the benefit of rank-and-file workers and the families and communities that depend on them.


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