Editor’s Note: Jeffrey Sachs is a professor and director of the Center for Sustainable Development at Columbia University. The opinions expressed in this commentary are his own.
On Monday, 181 of the nation’s leading CEOs issued a statement pledging that, above all else, corporations must have a commitment to all their stakeholders, including customers, workers, suppliers and the communities where they operate.
It’s about time. For more than two decades, this group — known as the Business Roundtable — had asserted that the principle purpose of a corporation was to “generate economic returns to its owners.” This previous assertion of “shareholder primacy” was self-serving and enormously destructive. Leading CEOs, including many who signed the new statement, have caused grave damage to the American economy and society. And that damage continues.
For decades, many of America’s top CEOs have pushed for unaffordable personal and corporate tax cuts, a rollback of environmental protections, sky-high salaries for themselves and stagnant wages for their workers, abusive financial practices, unaffordable drug prices and unhealthy food products. These actions have contributed to a massive rise in inequality of wealth and income, environmental destruction, huge budget deficits, financial crises, and death and despair due to the egregious failures of the corporate health care and food industries.
Things have gotten wildly out of hand since the late 1970s. That’s when US Supreme Court justice Lewis Powell Jr. opened the floodgates of corporate money in politics. In his opinion in the case First National Bank of Boston v. Bellotti, Powell held that political spending by corporations is protected by the First Amendment. Then, in the early 1980s, Ronald Reagan became president and proceeded to slash top personal and corporate tax rates, deregulate industry and attack the unions.
In 1978, CEO salaries were 23.1 times the average wage of workers in the same industry. In 2018, they were estimated to be an astounding 221 times the average wage. Corporate profits after tax have also soared, from an average of 6.9% of GDP during the 1970s to 9.9% of GDP during this decade. In the meantime, average hourly earnings, adjusted for consumer price inflation, stagnated between 1978 and today.
The chairman of the Business Roundtable, JPMorgan Chase & Co CEO Jamie Dimon, declares that “major employers are investing in their workers and communities.” But the most conspicuous recent corporate “investment” after the 2017 tax cuts has been share buybacks — a move that aims to boost stock prices and the value of stock options held by the CEOs.
Major companies have also used their market power to get away with abusing the public interest. JPMorgan Chase has been fined at least $13 billion from the 2008 financial crisis alone, and has been fined since. And according to a recent analysis by several non-governmental groups, JPMorgan ranked as the largest bank financier of fossil fuel investments since the signing of the Paris Agreement on climate change in 2015.
Pervasive corporate abuses include financial violations across Wall Street, indictments for massive fraud (Wells Fargo), a settlement over privacy violations (Facebook) and an opioid epidemic allegedly spurred by corporate greed (Purdue Pharma). And fast-food and soda beverage companies may say they are offering healthy options and providing the necessary nutrition info, but the truth is they are stoking obesity and metabolic diseases.
The idea that the corporate purpose should focus on profits alone was promoted by free-market academic economists, such as Milton Friedman, who wrote that if a corporate CEO did not aim to maximize profits, the CEO in effect was squandering the owners’ money. Yet Friedman ignored the great harms that CEOs cause when they abuse their company’s market power or meddle in politics through corporate lobbying and campaign funding.
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In the real world, not Friedman’s idealized one, CEOs use corporate influence and money to curry Congressional support for tax cuts, deregulation and bailouts. They exploit their monopoly power in the marketplace, deploy legions of corporate law firms to evade prosecutions, hide taxes in offshore havens and often cheat when the expected costs of fines are less than expected profits. When the abuses pile up to the extent of inciting a financial crisis, they turn back to the government for bailouts. Through it all, they enjoy impunity: sky-high CEO salaries and little responsibility for harms done to customers, workers and communities.
Monday’s statement won’t necessarily change the behavior of these companies, but it should definitely change society’s attitude toward the corporate sector. The game is up. The CEOs are admitting it. Corporations have not been representing the stakeholders. They’ve been representing the managers and owners. Consumers and workers have been paying the price of corporate abuses, and citizens have been footing the fiscal bills of bank bailouts, unaffordable corporate tax cuts and tax evasion.
The 2020 elections should be the reckoning. The US political system is in the hands of the corporate lobbies, including Wall Street, private health care, the military armaments and gun industries, privately owned prisons and Big Oil. These lobbies have used market power and political influence to write their own ticket to wealth. We need to elect candidates who will stand up to the corporate sector rather than take money from it.
Companies must have a public purpose beyond greed. Wresting our democracy back from corporate power will take years but should be at the forefront of American politics. It’s a vital task that certainly can’t be left to some soothing new words from the CEOs.