Populist movements come in many shapes and sizes, but always in opposition to some scapegoat. In the case of Democratic-primary candidate and Massachusetts senator Elizabeth Warren, that scapegoat is corporate America.
Before entering politics, Warren built an academic career on the study of debt, credit, and bankruptcy. Her research was animated by a belief that the American middle class is under assault by inscrutable corporate forces, from businesses that rig the regulatory code to predatory lenders that charge usurious rates on families that are just barely scraping by. Warren gained fame in the mid 2000s by arguing that medical bills were a key driver of personal bankruptcy, a controversial view at the time. The evidence Warren marshalled is now considered misleading at best, and at worst thoroughly debunked.
Yet whatever the merits of Warren’s academic work, it was at least subtle, involving complex legal and empirical arguments. But if 2016 has taught us anything, it’s that subtlety does not win presidential elections. So now Warren is attempting to superimpose on her wonky “I have a plan for that” substance a fiercely populist style, as if she had prepared for her presidential run by imbibing the latest scholarly research on how demagogues come to power.
Corporations, especially big ones, are particularly ripe for abuse. Although the Great Recession is now a decade in the rear-view mirror, one still senses a latent public desire for someone to be held accountable for it, and the home foreclosures and employment collapse it brought. Indeed, even as the economy has recovered, broader trends such as wage stagnation and cost growth in housing and education have kept the populist pump primed.
Warren clearly understands this. After she proposed the Consumer Financial Protection Bureau (CFPB) in 2007, the constitutionally dubious regulatory body was brought into being in 2010 by the Dodd-Frank Act. Warren was a Harvard law professor at the time. She vied to be the CFPB’s first director, a position that would have essentially made her the Queen of Hearts of consumer finance amid a historic mortgage meltdown: Heads would roll.
Having been passed over for CFPB director, Warren instead ran for Senate in 2012. Once there, she launched a multiyear campaign against Wells Fargo, a poster child for corporate malfeasance, that included calling the CEO to a hearing at which Warren demanded his resignation. To be sure, Wells Fargo’s misdeeds were real and many, but for Warren the financial-services company represented something more: a symbol of corporate America’s moral rot in the absence of the sort of aggressive, activist oversight only she could deliver.
“It’s time to break up Amazon, Google and Facebook,” exclaims Warren in one of her many campaign proposals released in the last six months. “Nearly half of all e-commerce goes through Amazon”; it and the other two firms “squash small businesses and innovation, and substitute their own financial interests for the broader interests of the American people.”
Characteristically, Warren’s anti-corporate attacks combine identifiable corporate brands with insinuations that their existence is behind our gravest macroeconomic trends. In this case, Amazon is the Standard Oil of our age, one among a handful of bogeymen gobbling up the economy and stultifying its dynamism. In reality, online retail still accounts for only about 10 percent of the total retail market, and Amazon claims 37.7 percent of this portion, not “nearly half.” Meanwhile, in recent years Amazon has averaged over $20 billion in spending on research and development, more than any other company. That’s hardly the expected behavior of a monopolist sitting on its laurels and “squashing innovation.”
Tech companies such as Amazon and Facebook draw the ire of Warren and others precisely because they deal directly with consumers, and are therefore easily recognizable targets. But dig into the details of Warren’s plan and one finds the flipside of her populist-wonk duality: a sweeping agenda to restructure the economy from the top down.
“Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as ‘platform utilities,’” Warren declares. Such companies would have to break off the platform from the rest of their business and would be “required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users” or face legal injunctions and fines amounting to 5 percent of annual revenue. Smaller companies, with annual global revenue of between $90 million and $25 billion, would face similar “fair, reasonable, and nondiscriminatory” standards, but without the mandatory breakup.
Needless to say, Warren’s proposal doesn’t attempt to define “fair and reasonable,” nor does she dare to reckon with the complex, unintended effects of entangling the bulk of the Internet economy in a web of new legal and regulatory liabilities. The utility-like nature of online platforms is simply treated as self-evident, as if searching the Web on Google or buying a new bookshelf on Amazon were anything like buying electricity from the only power company in town. Evidently, when your only tool is a progressive legal textbook, every company looks like a common carrier.
It doesn’t stop there. In another of her signature proposals, the Accountable Capitalism Act, Warren would require any corporation with annual revenue over $1 billion to obtain a federal charter. These companies — all of the Fortune 500 and then some — would be required to reserve 40 percent of their boards of directors for employee representatives, a concept known as “codetermination.” Federally chartered corporations would have new legal obligations to various “stakeholders,” including consumers, business partners, and the communities in which they’re located. Any company that fails to live up to these stakeholder responsibilities would risk losing its charter, as judged by a new Office of United States Corporations.
Warren likes to downplay the radicalism of her agenda. When describing her 2 percent wealth tax on fortunes over $50 million, for example, she likes to say it’s only “two cents” off of every dollar, even though wealth taxes are levied year after year. Although it is framed as a revenue raiser, the actual long-run purpose of a wealth tax is to erode large fortunes until they cease to exist.
Similarly, when discussing her corporate reforms, Warren emphasizes that they will apply to only a thousand or so of America’s largest companies. Omitted is the fact that the 500 largest U.S. companies by revenue account for over two-thirds of U.S. GDP and approximately 17 percent of world output. Just as Warren likes to overstate our monopoly problem by defining markets narrowly, she understates her proposals when it’s convenient, giving truly seismic reforms the most innocent framing possible.
The U.S. has no doubt experienced sluggish productivity growth in recent decades, but it’s critical to get the diagnosis right. In Warren’s morality tale, our contemporary malaise traces back to the 1980s-era embrace of shareholder capitalism. When corporations care only about maximizing profits, on this theory, they focus too much on the short term, capture more and more labor income from workers, and corrupt our politics with money.
The truth, of course, is more complex. Evidence for a sharp break in corporate behavior beginning in the 1980s is hard to come by. Instead, economists including MIT’s David Autor point to globalization itself. There is a strong case to be made that China’s bid to become the world’s factory, for example, has both harmed the American working class and received inadequate attention from U.S. policymakers. But while that may call for significant public investments, reforms designed to hobble our biggest companies would merely forfeit technology leadership to Chinese national champions, as well.
Most importantly, Warren’s story must be squared with the trans-Atlantic nature of the slowdown. In an important recent paper, economists Robert J. Gordon and Hassan Sayed show that the industries retarding economic growth are the same in the U.S. and across Europe, despite vast differences in regulatory and corporate-governance regimes. Stagnant sectors include construction, manufacturing, transportation, and utilities. The correlation between U.S. and EU productivity growth would be close to perfect if not for the two American bright spots of technology and fracking — the latter of which Warren recently announced she would ban by executive order as president.
This is not to say that U.S. corporate governance is perfect. But one of the strengths of the shareholder model is precisely that profits and losses provide a way for the owners and boards of corporations to hold CEOs and business managers to account. When Enron executives criminally falsified their accounts, for example, it was not due to a sociopathic fixation on shareholder value (i.e., pandering to the owners), but rather reflected the investors’ loss of control over those appointed to act on their behalf.
For what it’s worth, employee board representation is common among large German employers, and it has yet to stop Volkswagen from stumbling into scandal after scandal. As a side effect, codetermination has also depressed the formation of Germany’s capital market (diffuse public ownership requires strong corporate boards) and done next to nothing to reduce inequality. In fact, wage inequality has risen faster in Germany than in the U.S., accompanied by even less economic growth and dynamism.
Anyone who says she wants to finish the job FDR started should scare you. In Warren’s case, it’s doubly disturbing, since she actually understands that FDR’s vision entails the hostile takeover of America’s commanding heights by corporatist technocrats. It is the sort of radical break from the American tradition that would never be enacted on the basis of reason and persuasion alone. But don’t worry: Elizabeth Warren has a scapegoat for that.
This article appears as “Scapegoat, Inc. ” in the October 14, 2019, print edition of National Review.