Milton Friedman Wouldn’t Like It but Consider This
(743 words, three-minute read—contributed to by Alexis Chapman)
Criticism of corporations remains a staple of several of the Democratic candidates’ stump speeches. Between them, they have called for higher taxes, tighter regulation of Wall Street, mandatory labor representation on boards, limits on stock buybacks, and the breakup of companies like Amazon and Facebook. Sifting through all this, could it be that the rise of corporate power in the US requires a regulatory response? Let’s try to be fact-based and rational.
The debate about corporate power is nothing new, and hasn’t just come from one party. Regulating corporations was one of the primary goals of the Progressive Party in the late 1800s and early 1900s. Their work to limit corporate size and power led to the passage of antitrust laws that are still relied on today to prevent monopolies.
Although corporate power has been a major target of Senator Warren, who has released a plan to “break up Amazon, Google, and Facebook,” and of Senator Sanders, who has proposed, among other things, to grant company shares and board seats to workers, in 2019 it was Republican lawmakers who expressed concern over perceived anti-Republican bias by tech companies. Senator Cruz threatened legal action against Facebook, Apple, and Google using antitrust laws, but seemed to lack non-anecdotal evidence to support his claims.
Putting the current politics aside, perhaps even the most ardent defenders of free markets like the late economist Milton Friedman would consider three potential areas of additional regulation: privacy, corporate influence in Washington, and corporate responsibility.
Privacy: Most of us are aware of the risk to our privacy in the modern world. No one should be surprised that services that are ostensibly “free” are actually paid for by the sale of our privacy. In other areas of life where it is impractical for individuals to protect themselves—think drug safety, healthcare, etc.—we have grown to rely on government regulation to play a role. In the area of privacy regulation, the US lags the European Union, which in 2018 implemented the far-reaching General Data Protection Regulation (GDPR). The GDPR protects EU citizens’ sensitive data, empowers them to control their data, and grants them the right to request the complete deletion of their data—meaning to be completely “forgotten.” In the US, while several states have passed their own regulations, the federal government has failed to keep up. Rather than passing universal privacy policy as has the EU, the federal government has passed sector-specific regulations such as the Health Insurance Portability and Accountability Act (HIPAA). This patchwork of protections needs to be modernized for everyone’s protection.
Corporate Influence: One of our readers recently shared the view that “you better understand an issue when you follow the money.” Indeed, In the area of corporate influence, Americans would benefit from being better informed of the size and influence of the corporate lobby. OpenSecrets.org is a useful source of related data. Today there are approximately 12,000 lobbyists in Washington who spend over $3.0 billion per year pursuing the interests of their clients. Of the 20 largest spenders, 19 are businesses or business associations, with the US Chamber of Commerce being the single largest at $77 million. The medical profession, including the pharmaceutical industry, is the largest sector, with 2,775 lobbyists representing 1,296 clients at a cost of $593 million. When this is added to the influence of the insurance industry, which deployed 901 lobbyists and spent $155 million, it should be no surprise that Congress is unwilling to seriously tackle universal healthcare in the US.
Corporate Responsibility: A common refrain from critics of free markets is that corporations are beholden only to their shareholders and that they will disregard employees, the environment, safety standards, etc., in the pursuit of earnings. Their response is to advocate for tighter regulation. While certainly every community has some bad actors, most companies understand that balancing all of these interests is not only part of corporate responsibility but is also in their best interest. You can’t produce a great product without loyal associates, and loyalty does not exist in companies that abuse their employees. You can’t build a great brand if your product is unsafe—consumers are smarter than that. And increasingly, investors, clients, and prospective employees are asking companies to demonstrate their commitment to sustainability. As Jamie Dimon said in the JPMorgan 2018 Corporate Responsibility Report, “long-term business success depends on community success,” and JPMorgan is investing in communities to make that a reality. With this in mind, the Business Roundtable recently revised their Statement on the Purpose of a Corporation to include investing in employees, dealing fairly and ethically with suppliers, and supporting communities by embracing sustainable practices. While such examples of corporate responsibility are laudable, it is likely that there will always be room for some government encouragement of good behavior. These cases will require lawmakers who understand economics, are technologically literate, and are not beholden to the same companies they are trying to regulate.