A social market capitalism?
Elizabeth Warren, the combative Senator from Massachusetts, could truly be the next Democratic candidate for president of the United States if the leftward shift of the Democratic base continues at its current pace. The party's younger electoral base is now largely neo-socialist well represented by Bernie Sanders who, for age reasons (he will be 79 in 2020), could go on to the next round of the Democratic primaries. However, he could give Warren his endorsement.
The senator is often the object of Trump's ridicule who refers to her with the nickname of Pocahontas by adding in parentheses (the bad version). The Warren is indeed voluntarily subjected to a genetic test to verify her Native American ancestry, which she has long claimed but strongly questioned by her opponents. In fact, the test would appear to trace Warren's Native American ancestry between the sixth and tenth generations in her family genealogy. A story that proves when the political debate in the largest democracy in the world has hardened, spoiled and personalized.
However, some of Warren's recent releases on capitalism have amazed public opinion, which generally places her on the opposite side. After your statements, many have wondered if you are not rushing too much to the rescue of capitalism or if you have watered down the plans to lead it to strong containment. Perhaps there is even a moderate type of voting in his view. In reality, Warren is not fighting capitalism per se, but a certain type of capitalism, the monopoly-stock block, represented by Wall Street and the large monopolistic corporations. A capitalism that is not the only form that history has given us. The Rhenish model, for example, would not mind the senator from Massachusetts who sees in the co-management of companies, which operate in a condition of true competition, a possible solution to the distortions of the economic and governance system which have worsened after the great recession and with the advent of large Internet organizations.
Franklin Foer director of “The Atlantic” discussed these recent positions with Warren and the result was an interview, published in the Boston periodical, the main passages of which are reported below. An interesting picture emerges.
The Joan of Arc of capitalism?
While much of the American left's action in recent months has come under the banner of a renewed enthusiasm for socialism, Senator Elizabeth Warren has taken a different position. Lately, she expounded her views on the prospects for capitalism in a much-quoted speech and a Wall Street Journal editorial. Instead of advocating overcoming the system, she presented herself as its savior.
In his reflections there are two strong proposals for the reform of the business world One is the bill, called Accountable Capitalism Act, which would require major companies to reserve 40 percent of board seats for employees. The proposal is intended to be an antidote to the shortism practice of the largest publicly traded companies and to put an end to the ease with which CEOs make decisions that enrich them and their shareholders at the expense of workers and their company. A similar system exists in Germany and goes by the name of "co-management".
The second of her propositions is what Warren calls the Anti-Corruption and Public Integrity Act, a bill that aims to remove rampant corruption in Washington. Warren launched a frontal attack on lobbying, calling for a lifetime ban on federal civil servants (including the president, congressmen and cabinet secretaries) from turning into salaried peddlers of influence. His argument is that lobbying undermines the functioning of markets, allowing corporations to exercise extensive control over legislation and to use the government to bring down competitors.
When I heard Warren talk about the crisis of capitalism, I asked her to sit down with me to elaborate on her theory of capitalism. I interviewed her in her Washington, DC office. The transcript of our conversation has been slightly edited and condensed.
Markets produce value
Franklin Foer: All the investment bankers, who have voodoo dolls impersonating you, might be a little surprised by your recent declaration that you are “capitalist to the bone”. What did you mean?
Elizabeth Warren: I believe in markets and the benefits they can produce when they work well. Regulated markets can produce enormous value. Much of the work I've done — from the Consumer Financial Protection Bureau to my hearing aid law — is about making markets work for people, not making markets work for a handful of shareholders who squeeze all the value out of them. . I believe in competition.
Before: For what purpose?
Warren: Markets create wealth. Okay? That's why I taught commercial law. Let's go back for a moment to the basic principles of the market. When I was teaching, on the first day of class I took off my watch and suggested the class buy it. I suggested a price of $20. Then I asked the students: How much do you value this watch? Most of the class answered $20. But that wasn't the right answer. All we know is that the buyer is willing to trade a $20 bill for the watch. What did the buyer know about the seller's estimated value? Exactly the reverse happens. It's the salesman who'd rather have the $20 bill than the watch. Now, most people think the benefit of the markets is this: I get the $20 bill, great, which I value more than the watch, while you get the watch you valued more than the $20 Look, there's a huge excess value here. Maybe you wanted that watch because it complemented your fabulous watch collection or because you were in desperate need of a watch or because it was so sexy you'd be willing to pay hundreds of dollars. You got all that surplus value, and I, I really needed that $20. I had an investment opportunity for that $20 that yielded a much higher return. This is how markets create added value.
Before: But the markets right now are doing a good job of producing wealth. True
Warren: Right question.
Before: In your description of the watch and the note, the markets work well.
Rules are essential
Warren: Sure they work. The problem arises when the rules aren't enforced, when markets aren't neutral playing fields, and all that wealth is channeled in one direction. For example, until the financial collapse, there were many mortgage brokers selling mortgages. Wow! They have become super rich. Families thought they were buying a product they could afford and whose payments they also understood. But many of them have lost everything. This is a market that clearly wasn't working. The first thing the Consumer Financial Protection Bureau did after taking office was introduce new rules on mortgages. Not because he wanted to control the mortgage market, but so that the market could work. Let's look at the rules. These basically say you can compete, but you have to be very clear about the things you are competing on. Things like: Information needs to be clearly placed on documents and all in the same location, so people can put forms next to each other and see what's different. You can't put it on page 32 in tiny print.
Before: Often, it seems that you are not really criticizing the behavior of the markets, but describing the actions of theft and fraud.
Warren: Exactly. Theft is not capitalism. Right?
Before: Was there a time when capitalism in America worked?
Warren: There are times when certain parts of the markets have performed better. Look at it this way: The period 1935-1980 was a time when there was much more emphasis on the power of workers and unions. Union membership was increasing. There was stronger regulation of markets, increased enforcement of antitrust laws. The Securities and Exchange Commission had just been created and he was a neighborhood cop. Glass-Steagall was severely enforced, the FDIC was in effect (government body that monitors bank solvency and protects savers). And if you look closely, America's GDP rose 90% from 1935 to 1980, and 90% of the population got 70% of all the new wealth.
Before: Control, rules - these are fundamental concepts for you.
Warren: Yup.
The tragedy of the eighties
Before: What about human nature? We have this innate inclination to trade and commerce. Yet, the market also brings out an innate human tendency towards avarice and greed.
Warren: I would put it differently. There is always someone who will want to check things out. The question is having good rules and an effective policeman to enforce them. This is where the wheel started to fall apart starting in the 80s. This is a political question. It's not a market problem. There have been years of imperfect but well-enforced rules that have worked and held up quite well. Then came the 80s with lobbying by the wealthy well connected to politicians and the rules started to change. The rules have started to lean a little more towards the rich and powerful. Just a little more. Their enforcement has become increasingly weak. Remember the narrative that began in the 80s about deregulation and the beauties deregulation would bring to America? I understand that no one wants to comply with stupid regulations. I understand! But deregulation has become a code word for "firing the cops." Not the Main Street cops, the Wall Street cops.
Before: The 80s seem to be the time for your personal political transformation. Right? [Warren says he went from being a Republican voter to a consumer activist during that time.
Warren: Yes. But I don't want to exaggerate, because the truth is that I wasn't very politically active. I was sensitive and interested in economic ideas and what was happening to working families. This has been the motivation that pushed me towards politics since the first time I started to get interested in it.
Before: But has it changed your analysis of capitalism?
Warren: Absolutely.
Before: On the issue of regulation and control, you are very cautious.
Warren: I try to be fair.
The charter of governance
Before: When do you think you can implement the new structures provided by your Accountable Capitalism Act, aimed at creating a new federal structure for the control of companies - because such a structure is not yet ready for its establishment.
Warren: It's about taking the current structure and making it work better. Every business in America is registered somewhere. The country's big banks have already been registered at the federal level. The governance charter is where the rules are. For decades there have been restrictions on these cards on what companies can do and guidance on what they must do. Quarterly, annual shareholder meetings etc. What I propose is to change those rules for multibillion-dollar companies. The reason is because now the rules are not working. We were talking about when GDP went up, productivity went up and workers' wages improved. Since the 80s, this trend has flattened out. GDP keeps rising, productivity keeps growing, but workers are lagging behind and the gap has now become huge. 84 percent of the wealth in the stock market goes to 10 percent of the population. Half of Americans own no stock and do not participate in the distribution of wealth. Not even an action. Not even in a retirement plan or a 401(k). A huge part of the value created by companies is channeled to shareholders. It hasn't always been like this. There was a time in America when wealth was shared among those who helped produce it. workers and investors. This no longer happens today.
Before: In what you say we see the influence of the work of Louis Brandeis on the social causes of the economy. Brandeis had a vision of how the economy could be structured differently when rules were applied. He favored small business. In your view, who gets favored? Are there forces in the marketplace that you feel have been unfairly harnessed that you want to see released from the shackles?
The competition
Warren: Yes Perfect. Competition is the solution. I love competition. I want to see starting a start-up for anyone with a good idea, giving them a chance to go into the market and try. This is what interests me the most. Right now there are so many people who are challenging my reforms and other reforms, who claim to be pro-business. They aren't actually. I'm pro-monopoly. I'm pro-concentration of power, I'm for something that crushes the competition. This is where politics and economics interact. Once a company scales up to bill hundreds of millions of dollars – nope! billion dollars – today it tends to use these resources to influence the government, to cut off the legs of competitors so that no one else can climb the social ladder. They want to cut that scale so that the big ones no longer have to compete with the small ones. You were asking what excites me about the markets? Actually what excites me about the markets is the competition. I want to make sure I have a set of rules that allow anyone with a good, competitive idea to get into the game.
Before: I hear your latest proposals are an attempt to save capitalism, which implies that it is in trouble. What do you think is the state of American capitalism?
Warren: I worry about both capitalism and democracy. Everyone once believed that people who work hard and play by the rules have a chance to build a life of real security and that their children will be better off than they are. Today that dream collides with a very harsh reality: the world works better for a smaller and smaller number of people. This is a problem for capitalism and for democracy at the same time.
Before: At the moment, on the left, there is a lot of talk about socialism, which seems a bit far from what you say about the role of capitalism.
Warren: I repeat. I love the competition that comes with a market that has decent rules. I love the legislation that encourages anyone with a good idea to go into their own business.
Before: When Franklin Roosevelt talked about the crisis of capitalism, he saw emerging alternatives to capitalism that he didn't like and he made it an argument to speak to the country, to say "Look, we need these reforms to save this system, in order to prevent something bad from happening dangerous, something that goes in another direction.”
Warren: Okay. You bring the discussion up to 10 meters, which is great, but my argument is much more concrete. We have to make capitalism work for families and we have to make democracy work for families… It's not a question of alternatives, I'm just saying that families live in this precise economy. A growing stock market isn't good for the half of Americans who don't own a single share of stock. Increased productivity, which doesn't translate into wage increases for the people who actually do the work, isn't creating a better future for them. Skyrocketing costs for education, health care, and housing impoverish families who are struggling with low wages. Each of these issues is about lived experience, and it is this that influences my view of capitalism and democracy in 2018.
Before: I find it interesting that you have used the word democracy frequently in connection with all of this.
Warren: Here's what it is. Either you have an idea and you want to enter the market and then you need a competitive market, or you are an employee and you want to be able to negotiate your performance, you want to have some bargaining power to get a share of the value you produce . This is participation, but it is also the building of democracy. When Big Pharma comes to Washington and gets a law that says the federal government can't negotiate drug prices, then democracy doesn't work for families. When the big [coal] companies can get new regulation from the EPA, which will increase the particulate matter in the air and trigger over 100.000 premature deaths, then democracy no longer works for the American people. So you are right. All I'm working on is giving individuals the opportunity, the freedom to participate in this economy and in the governance of this country. I love these things.
