In an episode of the HBO comedy series Crashing, libertarian Penn Jillette offered this provocative opinion:
The most important revolution in human history, more important than agriculture, more important than writing, is the scientific revolution. The scientific revolution came down to these three words: I don’t know.
Jillette added, “No institution, no church, no king, no power structure had ever said in history, I don’t know.”
The Greek historian Thucydides put it this way: “Ignorance is bold, knowledge reserved.”
It’s hard to find a politician willing to say, “I don’t know.” Senator Elizabeth Warren is no exception. Her ignorance is bold. Recently she proposed The Accountable Capitalism Act. Under her proposed law, Warren and others in government will pretend to know much about that which they know nothing—running every large business in America.
The Accountable Capitalism Act
Writing in the Wall Street Journal, Senator Warren urges Americans to insist “on a new deal.” Under her Accountable Capitalism Act,
Corporations with more than $1 billion in annual revenue would be required to get a federal corporate charter. The new charter requires corporate directors to consider the interests of all major corporate stakeholders—not only shareholders—in company decisions. Shareholders could sue if they believed directors weren’t fulfilling those obligations.
Warren’s language is vague. Kevin Williamson, writing in the National Review, explains what the Accountable Capitalism Act would mean in practice:
The federal government would then dictate to these businesses the composition of their boards, the details of internal corporate governance, compensation practices, personnel policies, and much more.
In short, Williamson concludes that Senator Warren is proposing “the wholesale expropriation of private enterprise in the United States, and nothing less.”
Today, Warren’s proposal has no chance of passing. In a few years, under a democratic socialist president—I almost wrote national socialist president—Warren’s dystopia could become a reality.
Warren believes firms have an “obsession with maximizing shareholder returns.” Warren mistakenly believes that firms fail to consider other stakeholders. Does the United States Post Office or FedEx deliver a better user experience for you? The only firms who don’t consider other stakeholders are monopolies isolated from the forces of competition. To effectively compete, firms routinely consider the interests of customers, employees, suppliers, investors, and others, including the communities in which they locate.
The libertarian founder of Whole Foods, John Mackey has a name for considering all stakeholders, Conscious Capitalism. Mackey writes in his book Conscious Capitalism,
We believe that business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it can elevate our existence, and it is heroic because it lifts people out of poverty and creates prosperity. Free-enterprise capitalism is the most powerful system for social cooperation and human progress ever conceived. It is one of the most compelling ideas we humans have ever had. But we can aspire to something even greater.
The something greater is “higher purposes that serve, align, and integrate the interests of all their major stakeholders.”
In Mackey’s universe, this is all voluntary. For example, Whole Foods has been phasing out the sales of products containing GMOs. This is in response to demand from Whole Foods’ customers. As part of their strategy to maximize profits and attract customers, Whole Foods issues press releases explaining how they listen to customers and farmers and take actions that are good for the environment. Customers are free to buy GMO products from other stores if they prefer.
Warren doesn’t have in mind the voluntary actions of companies which must meet the test of serving consumers. Warner wants corporate decisions to be made by armchair quarterbacks who lack essential tacit knowledge and the knowledge of “particular circumstances of time and place,” as Hayek calls it. Without such knowledge, it is impossible to make decisions that effectively allocate resources to best serve consumers.
Being accountable to all stakeholders is a vague mandate. Williamson warns the intention of the Accountable Capitalism Act is to compel corporations to be “accountable to politicians, who desire to put the assets and productivity of private businesses under political discipline for their own selfish ends.” He adds:
It is remarkable that people who are most keenly attuned to the self-interest of CEOs and shareholders and the ways in which that self-interest influences their decisions apparently believe that members of the House, senators, presidents, regulators, Cabinet secretaries, and agency chiefs somehow are liberated from self-interest when they take office through some kind of miracle of transcendence.
Decision-makers accountable to politicians are a recipe for disaster. Venezuela sits on the worlds’ largest proven oil reserves, yet their socialist decision-makers are so incompetent in running a business that Venezuela has to import oil.
Down the Road to a North Korea-like Dystopia
North Korea already has a term for instructions being offered by those who know nothing about enterprise. When Kim Jong-un visits a barely-functioning enterprise and offers inanities prescribing improvements, his instructions are called “field guidance.”
Like his grandfather, Kim Il-sung, and father, Kim Jong-il, Kim tours the county dispensing his bottomless “wisdom” providing instructions for everything from producing more buses to increasing farm yields.
With his “benevolence” and “wisdom” Kim presumably claims to take into account the interests of all stakeholders. In North Korea, there are no messy market dynamics to get in his way.
The North Korean Worker’s Party newspaper has an English-language version. The front page is dedicated to reports of all the places that Kim Jong-un has recently dispensed his field guidance. Recently, he was at a fish farm and Kim “knew” just what the farm needed:
Stressing the need for the farm to become an engine leading the fish farming field of the country and a pioneer, educator and pedigree farm for the dissemination of ultra-modern fish farming technology, he set forth the tasks and ways for it.
He gave valuable teachings concerning the management and operation of the farm and the fish farming field, including the issue of keeping researchers to meet the goal of shortening the catfish production cycle and lowering the feed unit to the worldwide level.
Perhaps you have seen photos of government acolytes engrossed in taking notes as Kim dispenses his “guidance.” Does Warren have in mind the government acolytes she’d like to see running America’s corporations?
North Koreans, having little experience or understanding of a market economy, believe their leader is a living God whose wisdom provides the guidance the economy needs to run. Although citizens barely survive at a level of meager subsistence, North Koreans believe their country is thriving due to their leaders’ greatness.
In her book The Girl with Seven Names, North Korean defector Hyeonseo Lee describes her indoctrination as a child as she came to believe in the divinity of the North Korean despot:
The story of the nativity of…the Dear Leader Kim Jong-il, brought me out in goose bumps. His birth was foretold by miraculous signs in the heavens—a double rainbow over Mount Paektu, swallows singing songs of praise with human voices, and the appearance of a bright new star in the sky. We listened to this and a shudder of awe passed through our small bodies. My scalp tingled. This was pure magic.
Another defector, Yeonmi Park, in her book In Order to Live describes how she came to believe Kim Jong Il was sacrificing himself on her behalf as he delivered field guidance:
In school, we sang a song about Kim Jong Il and how he worked so hard to give our laborers on-the-spot instruction as he traveled around the country, sleeping in his car and eating only small meals of rice balls. “Please, please, Dear Leader, take a good rest for us!” we sang through our tears. “We are all crying for you.”
If you tell me America is a ways away from such a destructive mindset, instilled by generations of propaganda and brutality, I would agree. Yet, economic illiteracy is widespread. Those illiterate of economics “teach” each other through school systems and social media. Among journalists are many hostile to economic freedom. Dissenting views are no longer tolerated. For example, Prager University’s mainstream conservative site was recently censored by Facebook and YouTube.
The vast majority of the population believes the government should “strengthen the economy” and many fear the future. The combination is a combustible mixture. Imagine a major bear market and the resulting spike in fear. Then, it is not so hard to imagine a future president, with a mindset like that of Senator Warren, barnstorming the country dispensing field guidance. Is not President Trump managing trade via “bold ignorance” paving the way for more politicians like Senator Warren?
Barry Brownstein is professor emeritus of economics and leadership at the University of Baltimore. He is the author of The Inner-Work of Leadership. To receive Barry’s essays subscribe at Mindset Shifts.