Posts Tagged ‘economy’

Cartoon of the day

Posted: 8 September 2019 in Uncategorized
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Cartoon of the day

Posted: 4 September 2019 in Uncategorized
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The same day I wrote that capitalism was coming apart at the seams, indicated by the shocking disparity between the compensation of corporate CEOs and workers, the Business Roundtable published its new statement of purpose of a corporation.*  The 180 or so corporate executives who signed the statement declared that all their stakeholders, not just owners of equity shares, were important to their mission.

Many business pundits, such as Andrew Ross Sorkin, greeted the new statement as a sign that the era of shareholder democracy (what he refers to as “shareholder primacy”) had finally come to an end and that a “significant shift” in corporate responsibility to society would be ushered in. Readers, however, had their doubts, most of them echoing JDK’s response to Sorkin’s piece: “Talk is cheap.”

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The fact is, over the past three decades, net dividend payments to shareholders have soared—from $178 billion in 1989 to $1.3 trillion in 2019 (that’s an increase of 630 percent, for those keeping track).** And much of the responsibility is laid at the feet of mainstream economists like Milton Friedman (pdf), who famously declared that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits” and the only responsibility of corporate executives is to their employers, the shareholders—and corporate raiders such as Carl Icahn.

As I see it, the idea of shareholder democracy has merely served as a cover for any and all corporate decisions and strategies. When pushed to take on other responsibilities, or to make other decisions, the corporate defense has long been that it ran counter to the mission of maximizing profits or shareholder value.

In reality, corporations have never attempted to achieve just one objective or to maximize one value. One issue is that the usual objectives or values ascribed to corporate managers are ill-defined. There is neither singular meaning of profits (since, as they’re reported, they’re largely the result of a particular set of accounting conventions, defined over the fuzzy boundaries of the inside and outside of a corporate entity) nor a unique time frame (over what period are profits or dividends maximized—a week, quarter, year?).*** But the defense of such a corporate mission has served as a convenient excuse to resist pressures to make different decisions or adopt alternative strategies—such as increasing worker pay, improving working conditions, implementing environmentally sustainable practices, and so on.

My view, as I argued back in 2013, is that corporations have never done just one thing or followed a single rule. They do make profits (at least sometimes, depending on the definition and timeframe). But they also seek to grow their enterprises and destroy the competition and maintain good public relations and buy government officials and reward their CEOs and squeeze workers and lower costs and reward shareholders and implement new forms of automation and build factories that collapse and. . .well, you get the idea. In other words, they appropriate and distribute surplus-value in all kinds of ways depending on the particular conditions and struggles that take place over the shape and direction of their enterprises.

The problem inherent both in the new Business Roundtable statement of purpose and in the attempts by corporate critics to argue that corporations should take on additional social responsibilities is that corporations are already too central to the U.S. economy and society. They’re the main institution where the surplus is appropriated and then distributed—with all the consequent effects on the wider society. The private decisions of corporate entities, as decided by the boards of directors and implemented by the chief executives, are responsible for the Second Great Depression, the grotesque levels of economic inequality that have been growing for decades now, the global-warming crisis, and so much more. Why would anyone want to give corporations even more power or scope to decide how to solve those problems when they’re the root of the problem in the first place?

No, the only viable strategy is make corporations less important, to decenter the American economy and society from the decisions made by corporate directors and executives. That begins with fostering the growth of other types of firms (such as worker-owned cooperatives) and making sure that the workers employed by corporations play a significant role in corporations (including how much surplus there will be and how it will be utilized). That’s the best way of moving beyond the era of shareholder democracy to a real economic democracy.

Anything else is just cheap talk.

 

*I certainly don’t want to imply that the Business Roundtable was responding to my blog post. No, the fact that they felt it necessary to issue such a new statement of purpose is an indication that American corporations—and, with them, U.S. capitalism—have lost a great deal of legitimacy in recent years. As Farhad Manjoo [ht: ja] recently wrote,

A recession looms, and the nation’s C.E.O.s are growing fearful.

It isn’t the potential of downturn itself that has them alarmed — downturns come and downturns go, but whatever happens, chief executives, like cats, tend to land on their comfortably padded feet.

Instead, the cause of their fear appears to be something more fundamental. . .They’re worried that when the next recession breaks, revolution might, too. This could be the hour that the ship comes in: The coming recession might finally prompt the masses to sharpen their pitchforks and demand a reckoning.

**During that same period, average hourly earnings (for production and nonsupervisory workers) increased by only 140 percent—but corporate profits (after tax) rose by 570 percent.

***As I have long explained to students, that’s the myth that serves as the foundation of the neoclassical theory of the profit-maximizing firm: what exactly are corporate profits and over what time frame are they supposed to be maximized? The assumption of a profit-maximizing firm is equivalent to what one hears from many so-called radical economists, that “capitalists accumulate capital.” Again, no. Accumulating capital (that is, purchasing new elements of constant and variable capital) is only one of the many possible forms in which capitalists distribute the surplus-value they appropriate from their workers. Sometimes they accumulate capital, and other times they don’t. The presumption that they always seek to accumulate capital is the heroic story proffered by classical economists (so that, in their view, capitalist growth would take place), much as neoclassical economists today presume that capitalists maximize profits (so that, in their view, an efficient allocation of resources will result). Marxists presume neither that capitalists maximize profits nor that they always and everywhere accumulate capital.

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Banksy-Capitalism

It’s time to get back to blog writing—after a 6-month hiatus during which I taught my final two courses at the University of Notre Dame (A Tale of Two Depressions and Marxian Economic Theory) and prepared for my retirement (which involved, among other things, sorting through, packing up, and moving decades of “stuff”). Now, after 38 years of teaching, I am officially Professor of Economics Emeritus. But, rest assured, I plan to continue this blog and other writing projects. 

For the first time in almost four decades (aside from a few research sabbaticals), I don’t face the prospect of returning to campus and teaching economics. But, I can’t help it, I still worry about what millions of students in the United States and around the world will learn—or at least be subjected to—when they enroll in their economics classes this fall.

One of the major issues for any economics class, especially an introductory or principles course, is how to make it useful for students. My own approach has always been to teach the basics of mainstream economics—the key assumptions, the standard models, the relevant conclusions—and then to teach the critique of mainstream economics (including alternative theories within the discipline of economics). Two for one, I used to tell the students. In my view, they would be better students and citizens of the world when they understood both how mainstream economics affected their lives and how they could criticize and explore alternatives to the hegemonic theories within economics.* And I updated the content, and made it more useful to students, as mainstream economic theories changed and as particular issues were taken up in the media and political discourse.

That’s certainly not how mainstream economists approach teaching. For example, Justin Wolfers, a liberal mainstream economist at the University of Michigan, recently announced that he wants to make introductory economics useful to students by teaching them “a set of tools that can empower them, providing insight that will guide them toward better decisions.” And those “better decisions”? Exactly the presumptions and pronouncements that mainstream economists have celebrated since their approach was invented by Adam Smith and then reinvented in the late nineteenth century as neoclassical economics. It’s the entire arsenal of comparative advantage, rational choice, opportunity cost, given scarcity, and so on.

The approach introduced by Wolfers with such fanfare is no different from the miserable and misleading analogy invoked by Harvard’s Greg Mankiw between international trade and hiring someone to shovel snow. And it accomplishes nothing more than demonstrating that current economic arrangements are exactly as they should be because, in the view of mainstream economists, free trade is always mutually beneficial:

Start thinking this way and you’ll quickly see that the ideas that guide your everyday decisions also propel international trade, which is why American engineers design iPhones, while foreign workers — who have fewer alternative opportunities — do the laborious work of putting them together. By assigning tasks this way, Americans have gotten cheaper iPhones, and Chinese and Indian consumers have gotten greater access to advanced technology.

Fortunately, there are many other economists who are devising courses that are much more useful to today’s students. Last year, Aditya Chakrabortty wrote about one such course, in which students learned that the rules of the economy “aren’t laws of nature.” And just last week, Andrew Simms and David Boyle published a new beginners’ guide to economics for non-experts:

In it we ask some heretical questions that that could get us expelled from most university economics departments, such as: is the price mechanism so clever, or rising productivity always a good thing? We talk about the trouble with growth, and why working less might be better. Our common starting point is that the economy should serve rather than dominate people, and that it must work within planetary ecological boundaries.

As against what Wolfers, Mankiw, and so many other mainstream economists teach their students, these approaches are useful to students because they serve to denaturalize both existing economic thought and economic arrangements, thereby creating space for alternative ways of thinking about how the economy is organized and creating other possibilities.

I’ll only be able to rest easy in my retirement when the teaching of economics is taken out of the hands of mainstream economists and the millions of students who enroll in economics classes are taught to think critically and creatively about the economic dimensions of their lives and the world around them.

 

*So, I was heartened and gratified when, on the occasion of my retirement, some of my former students shared their thoughts about what they’d learned along the way:

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