Tuesday, August 21, 2018

Codetermination

This is Joseph

The new proposal by Elizabeth Warren to introduce codetermination to the United States has certainly engendered a lot of debate.  It led to attacks on the plan as a way to nationalize industries.  It also led to questions about whether the same goals could be achieved by empowering unions.  A lot of this seems to be an innate resistance to any form of wealth redistribution, which is a tough line to hold as wealth inequality increases and we slide into a crisis of affordable housing.

However, I suspect that there is an even bigger piece that is being overlooked.  Just consider these two provisions:

40 percent of the directors would be elected by the company’s workforce, with the other 60 percent elected by shareholders. 
Corporate political activity would require the specific authorization of both 75 percent of shareholders and 75 percent of board members.
This is a nice way to keep corporate free speech but to prevent a small class of managerial executives from controlling the political agenda of the companies.  A company is still free to be an advocate for political positions, but they need to build broad stakeholder consensus that this position is in the best interests of the business.  For obvious things that impact the business, like bankruptcy laws for banks, this is an easy sell.

Now other policy ideas could achieve the same goals.  But this is a rather clever assault on the principle agent problem as regards to corporate free speech.  

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