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How Elizabeth Warren wants to remake capitalism

Rick Newman
Senior Columnist
Sen. Elizabeth Warren, with her husband Bruce Mann, announcing the formation of a committee to run for president in Cambridge, Mass. on December 31. (AP Photo/Bill Sikes)

She doesn’t advocate socialism, the way Bernie Sanders does. But Sen. Elizabeth Warren—for now, the leading Democratic presidential candidate for 2020—wants to remake capitalism more aggressively than most of the people she’ll be running against.

Last year, the Massachusetts senator introduced a bill called the Accountable Capitalism Act, which is likely to form the framework of her economic platform as a candidate. Warren, a long-time critic of banks and big corporations, crafted the blueprint for the Consumer Financial Protection Bureau, set up after the 2008 financial meltdown to police abusive lenders. Under President Obama, the agency was an aggressive consumer advocate that penalized hundreds of companies for cheating consumers or otherwise breaking the rules. President Trump has scaled back the CFPB, arguing it amounts to government overreach.

The proper role of the government in the economy will be a key point of debate in the 2020 election, with Warren favoring a much stronger federal hand in corporate matters, to help protect workers and boost middle-class prospects. Here are four planks of the Accountable Capitalism Act, with our notes on how practicable they are and how they might help Warren’s election chances:

Require big companies to follow new rules. Publicly owned companies must now be chartered in a state of their choosing (often relatively lax Delaware), and generally operate in a way that maximizes profitability. Warren wants to require a new federal charter for companies with more than $1 billion in revenue, which would force them to consider other factors, such as employee needs and community impact, when making big decisions like closing a plant or offshoring work to another country.

Prospects: Some voters love the idea of making it harder for companies to fire workers or close facilities, but this would probably lead to bloated, inefficient companies losing their edge against global competitors. There’s more to a strong economy than profits. But profits are at least a clear and measurable standard everybody understands. Other types of standards based on employment levels or worker satisfaction would be squishier, subject to interpretation and vulnerable to political manipulation. Plus, Americans are more comfortable with regulation at the state and local level—where companies are mostly regulated now—than with swampy Washington. Warren’s federal-charter idea probably won’t catch on.

Give workers a say on corporate boards. Warren wants 40% of company directors to be chosen by employees, so that workers’ needs are a bigger part of corporate decision-making. There’s a precedent for this: In Germany, by a quirk of history, half of all company directors must be chosen by workers.

Prospects: This idea could fly. We already have some sizable employee-owned companies, and there’s nothing inherently wrong with worker representation on a board. It wouldn’t lead to miracles, however. While Germany tends to have lower unemployment than many other countries—especially during recessions—it also has high labor costs that lead some companies to locate work elsewhere.

Make corporate execs wait longer to sell shares received as compensation. Company stock constitutes the biggest portion of CEO and other executive pay, and some critics think this creates an incentive for pumping short-term stock prices instead of focusing on longer-term strategy that might, say, maximize employment. Warren wants to make execs hold stock longer before selling.

Prospects: Meh. CEO pay is probably inflated, but it’s not clear a longer holding period for insider stock sales would change much. Big U.S. multinationals are already very competitive, both short-and long-term. And even if new rules encouraged better long-term planning, that doesn’t mean pay or job security would improve, since many innovations these days involve automation that replaces workers.

Put new limits on political spending by corporations. Warren wants to require 75% approval by directors and shareholders for any corporate donations to candidates, political-action committees or other political groups.

Prospects: Sounds good! The gusher of corporate money into political campaigns distorts elections and enslaves candidates to big donors, including billionaires giving on their own behalf. Corporate donations surged following the 2010 Citizens United Supreme Court decision, and any new law limiting them would probably face a similar court challenge. But most Americans think there’s too much money in politics, and they’re right.

In addition to the Accountable Capitalism Act, Warren backs the expansive and costly Medicare-for-all plan drafted by Bernie Sanders, rather than a more limited version that would cost less, which some other Democrats support. She also favors a Sanders-style “college for all” plan that would make four years of higher education free for families earning up to $125,000 per year.

She wants to roll back some of the 2017 Republican tax cuts, but hasn’t said how high she thinks taxes on businesses and the wealthy should be. And she still thinks bank regulation is too light. Soon we’ll find out if voters agree.

Confidential tip line: rickjnewman@yahoo.com. Click here to get Rick’s stories by email.

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Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman