More Than One Kind of Capitalism
The Republican candidates for president seem intent on having a debate regarding Bain Capital’s business model and Mitt Romney’s role in it. At issue is whether the company engaged in anti-social behavior which though legal, harmed America’s public interest by eliminating thousands of jobs.
It will be interesting to see how this intra-party squabble plays out. Just last month Romney’s biggest strength seemed to be that he was a successful businessman and could bring to government the skills he learned in the private sector. Now his personal success is being questioned. Did it come at the expense of working people? Is turning business loose to make money in whichever way its managers see fit, a means to economic recovery or is it just a way for the 1 percent to make money at the expense of the 99 percent?
Romney has said that corporations are just people and that he enjoys firing people. His side of the debate is not off to a very good start. Whether his opponents will be willing to continue pressing him on the issue of anti-social corporate behavior is yet to be determined. If they do, they may be letting the cat out of the bag.
The problem of anti-social corporate behavior, behavior which though legal, seriously harms the public interest (for example, the environment, human rights, the public health and safety, the dignity of employees or the welfare of our communities), is a serious problem which so far both political parties have largely chosen to ignore.
There are many ways to make money, but some companies make money while damaging the public interest and others make money without damaging it. Until now, politicians on both sides of the aisle have been prone to ignore the latter. This no doubt has something to do with the billions of dollars the abusers spend each year on lobbying and financing political campaigns.
Bain Capital’s mission was about making money, not creating jobs. In the course of pursuing this mission, it did what every other Wall Street backed private equity firm did, ruined the lives of lots of people on Main Street by firing people in places like Gaffney, South Carolina and Kansas City. There was nothing exceptional about this. All private equity firms do the same thing. It’s fundamental to their business model.
Now that business model is being questioned. It’s about time, but why limit the inquiry to private equity? Plenty of big companies harm the public interest in other ways. Pollution and the emission of greenhouse gases, third world sweatshops and 5 million people dying every year from the effects of tobacco products are other examples where the existing form of capitalism produces profits at the expense of the public interest.
The conventional wisdom is that capitalism and conscience are mutually exclusive concepts. We can’t have the good things companies and capitalism provide without accepting the bad. This is the defense of the entrenched and unimaginative. The truth is that profits and protection of the public interest are not mutually exclusive. George W. Bush (another Republican) recognized this when he went to Wall Street in July 2002 to chastise business people for the accounting and other scandals involving companies such as Enron, Adelphia, Global Crossings and WorldCom. He said, “In the long run, there is no capitalism without conscience; there is no wealth without character.”
The debate over Bain Capital shows there is a possibility of more than one kind of capitalism. Changing the modern corporation so that it makes money without damaging the public interest is possible. It may require more intelligence, imagination and ingenuity, but both profit and protecting the public interest can occur simultaneously.
Current corporate law tells corporate managers that government does not care whether their companies harm the public interest or not. Under the corporate law, making money and protecting the company’s survival are what is important. As long as companies obey the other business laws and regulations on the books, it doesn’t matter how they treat the public interest.
The law should never encourage citizens to damage the public interest. Yet, this is exactly what our existing corporate laws do. It’s time to change them.
Protecting the public interest from corporate abuse can be achieved by adding a 28 word Code of Corporate Citizenship (the Code) to the duty of directors. The Code will change directors’ existing duty to act in the best interests of the corporation and its shareholders, by adding:
but not at the expense of the environment, human rights, public health and safety, dignity of employees of the welfare of the communities in which the corporation operates.
Once in place, these words will require directors of corporations to lift their game. It will require their companies that (thanks to the Citizens United decision) have all the rights of citizenship to finally recognize the obligations of citizenship as well. Making money will still be their goal. It just might not be as easy as it was before. Now they will have to achieve this goal without generating other costs which get foisted on the public.
While we can thank the republicans for raising the issue, making corporations better citizens should be a high priority for us all—republican, democrat and independent.