THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Wednesday, August 22, 2018

The Accountable Capitalism Act

Senator Elizabeth Ann Warren (Democrat, Massachusetts) has created a bit of a stir with her “Accountable Capitalism Act” proposal.  The ACA is a proposed piece of legislation recently introduced by Senator Warren that she believes would restore accountability of corporations to their employees and to the public at large.  At the heart of her proposal is her oft-repeated declaration that “corporations are not people.”

Elizabeth Ann Warren
Well, no one said they were.  They are, however, “legal persons” ("social tools"), meaning that they have  rights.  Of course, corporation ownership rights are only those enacted into law.  Private property rights of natural persons (i.e., human beings), on the other hand, are embedded in human beings as part of nature itself.  This is reflected in the Virginia Declaration of Right, the Declaration of Independence, and Article 17 of the United Nations’ Universal Declaration of Human Rights.  Rights delegated from their owners, the shareholders, true, but nonetheless rights as real as rights retained by human persons . . . about whom the senator is not as concerned, at least when it comes to the natural and inalienable right to life.
No, Senator  Warren’s proposed legislation, whether or not that is her intention, would take away the inalienable right to private property, another natural right.  Her idea would alienate the rights of private property away from shareholders — thereby nullifying to that degree the right to be an owner at all — by taking control away from the shareholders and vesting it in the employees and the public at large.
Given that (as Louis Kelso noted) “Property in everyday life, is the right of control” (“Karl Marx: the Almost Capitalist,” American Bar Association Journal, March 1957), by taking control and the rights to the fruits from the owners, she is destroying private property.
The fruits?  Yes.  According to Senator Warren,
In the early 1980s, America's biggest companies dedicated less than half of their profits to shareholders and reinvested the rest in the company. But over the last decade, big American companies have dedicated 93% of earnings to shareholders — redirecting trillions of dollars that could have gone to workers or long-term investments. The result is that booming corporate profits and rising worker productivity have not led to rising wages.
We’re not certain where Senator Warren got her figures . . . but why is it wrong for owners to have the income generated by what they own?  By rights they should not have only 93%, but 100% of the earnings of their capital.
Peter S. Grosscup
Senator Warren also wants to shift control of the corporation away from the owners, and to the workers and the community by requiring big corporations to be chartered at the federal level instead of the state level.  Over a century ago Judge Peter S. Grosscup was saying the same thing, but to protect minority owners and the public, not to give a vague “accountability” to the federal government. In his 1905 article, "How to Save the Corporation," the "Progressive" Grosscup outlined a plan that would broaden the base of ownership of large corporations without harming private property and restore private property to its rightful place in American life without harming anyone's interests.
Senator Warren does say one thing with which we agree, at least partially.  She thinks corporations should have the consent of 75% of the shareholders and directors before making political contributions.  We say they should have the consent of 100% for any and all contributions, period.  What right has a corporation that I own to give away my money without my full, free, and uncoerced consent?
One section of the proposed law would require corporations to have the purpose of “creating a general public benefit.”  Another would require that directors must consider the interests of shareholders (whose property has been taken away and who remain only nominal owners), employees, customers, the community, environment, and the long-term.
Excuse us, but this sounds chillingly similar to the situation that prevailed in the Third Reich . . . yes, that “Third Reich.”  As George Holland Sabine (1880-1961) described this development,
In the Third Reich the law was made deliberately vague.
The judiciary . . . completely lost its independence and security, while at the same time judicial discretion was extended practically without limit. The law itself was made studiously vague, so that all decision became essentially subjective.  The penal code was amended in 1935 to permit punishment for any act contrary to “sound popular feeling,” even though it violated no existing law. . . . Obviously no rational administration of such statutes was possible. Equality before the law and due process were supplanted by complete administrative discretion. What totalitarianism meant in practice was that any person whose acts were regarded as having political significance was quite without legal protection if the government or the party or one of their many agencies chose to exert its power. (George H. Sabine, A History of Political Theory, Third Edition. New York: Holt, Rinehart and Winston, 1961, 918.)

The "Tin Lizzie."
Senator Warren’s proposal would also limit the application and enforcement of “the Business Judgment Rule” by means of which minority shareholders have been deprived of virtually all rights in what they ostensibly own.  Oh, don’t get the senator wrong.  She does not want to restore rights to shareholders . . . just take them away from the directors!  Ironically, the first big test of the Business Judgment Rule was Dodge v. Ford Motor Company, 204 Mich. 459, 170 N.W. 668 (Mich. 1919).
The Dodge brothers, who had the second largest block of shares after Henry Ford (although a minority), had continually requested the right to have input into decisions about automobile design.  When they finally decided Ford was never going to let them have any say-so, they started setting up another automobile company in secret, using their dividends from the Ford Motor Company to finance the venture.  Henry Ford found out and cut the dividend rate, claiming that he did so as a public service to enable people to purchase his product, and in any event, he claimed he needed the cash to expand plant facilities.
Henry Ford
Naturally the Dodge brothers were a trifle irritated.  Under the natural law interpretation of the rights of private property, they not only had a right to the same dividend they were getting before, they had every right to all the profits attributable to their proportion of ownership of the Ford Motor Company, regardless of the use to which they put the profits (as long as it was legal, of course).  They sued, and the case went all the way up to the Michigan Supreme Court.
While the Court agreed that a business corporation is not a public charity and is to be run for the exclusive benefit of the shareholders (good for the Dodge brothers), it also ruled that the majority owners of the corporation had the right to withhold payment of dividends if, in their opinion, the company needed the cash (bad for the Dodge brothers).  In other words, Henry Ford could withhold payment of dividends, just not for the reason he gave . . . so he changed his reason, giving him total power.  As far as the Court was concerned, it was up to the Dodge brothers to prove they had the right to receive dividends in any amount, rather than Henry Ford having to give any reason for non-payment of dividends.
In effect, the Court declared that Henry Ford, the majority shareholder and chairman of the board, could run Ford Motor Company as he saw fit without permitting minority shareholders any rights at all in either decision making or to dividends as long as he operated the company “in the best interests of the shareholders” . . . as determined by (guess who) Henry Ford!  If shareholders wanted dividends, they now had to prove that the company did not need the money . . . meaning that minority shareholders had to prove a negative, which is logically impossible.  Translation: under the Business Judgment Rule, minority shareholders only have such rights as the majority shareholders say they do.
Had the Court ruled the other way, i.e., that Henry Ford had to prove to the satisfaction of the shareholders that he needed their money, Ford would have been forced to borrow money to expand plant facilities or sell new shares to get the cash, and the shareholders would have had the money that belonged to them, anyway.  The natural right of private property would have been respected, and today’s world would be in much better shape.
Louis O. Kelso
Do you want to know the saddest part of the whole proposal?  There is a way to do what she wants to do for employees right now without violating private property, confiscating and redistributing, or anything else.  It’s called “the Employee Stock Ownership Plan” or ESOP, it was invented by Louis O. Kelso and it has successfully turned tens of millions of workers into owners of the corporations that employ them without taking anything away from the existing owners, and by increasing, not decreasing take-home pay without increasing costs to the consumer.
How?  By allowing workers to purchase shares in the company that they pay for out of the future profits of the company.
But what about the public at large?  Do they get anything out of this?  Doesn’t the public interest have a claim on anything?
To be sure it does.  First and foremost, the public has an absolute right to demand that the rights of every child, woman, and man be protected, and that includes the rights to life, liberty, and private property.  When the rights of a single individual person can be taken away, everyone’s rights become insecure to that degree.  You can’t legitimately give rights to some by taking away the rights of others.
But what about the rights of private property?
Now, there the senator has a legitimate complaint.  People in the surrounding community and the public at large are being treated unjustly . . . but they will not be treated justly by treating others unjustly.  No, the way to respect the public interest is to make it possible for everyone who desires to do so to become an owner of capital, with the full rights of private property.
But not by redistributing existing ownership.  No, by allowing everyone to participate equally in the financing of new capital that can then be  owned, just as Henry Ford should have done with the Dodge brothers and all other Ford shareholders.  CESJ has, in fact, proposed this very thing in its “Capital Homestead Act,” which — not by coincidence — also happens to be the core of a “pro-life economic agenda.”
 In any event, Senator Warren might want to step back a bit before she gets too far reinventing the wheel.