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Tag Archives: Fifth Amendment

Liz Warren Pitches Another Goofball

23 Thursday Aug 2018

Posted by pnoetx in Central Planning, Property Rights, Regulation

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Accountable Capitalism Act, Board Activism, Don Boudreaux, Elizabeth Warren, Fifth Amendment, Kevin Williamson, Matt Yglesias, Richard Epstein, Unconstitutional Conditions

Elizabeth Warren wants to nationalize all private businesses with more than $1 billion in annual revenue. She plans to introduce legislation called the “Accountable Capitalism Act” that would, if enacted, authorize an outright theft of private property from the owners of these companies. Among other things, her plan would require large companies to obtain a federal charter and set aside 40% of their board seats for members to be elected by employees. In addition, henceforth these businesses would be answerable not merely to shareholders, but to employees along with a limitless array of other “stakeholders”. That’s because under their federal charters, firms would have a duty to create a “general public benefit”. The operative assumption here is that merely creating a product or service does not produce adequate value for society, regardless of the benefits to buyers, income to employees and suppliers, taxes paid, and the returns earned by millions of working people who have invested in these companies via pension and 401(k) plans.

In the very first place, Warren’s bill is unconstitutional, as Richard Epstein points out. Owning a business is protected as a property right under several amendments to the U.S. Constitution, but particularly the Fifth Amendment. Warren would place unconstitutional conditions on this right via the requirements for a federal charter and the so-called public benefit. If enacted, her bill would quite likely be ruled unconstitutional by the courts. But if it stood, capital would quickly take flight from the U.S., depressing asset values.

Don Boudreaux notes that absent ownership, vaguely-defined “stakeholders” have risked nothing in the success of the company. Shareholders bear the financial risk that the company will fail to produce adequate earnings, lose value, or fail. Management has a fiduciary duty to protect the funds that shareholders invest in the firm, including a duty to protect the firm’s ability to acquire credit. Warren’s legislation would compromise these duties by elevating the objectives of non-owners to the same or greater status than those who have provided the equity capital. Again, this would happen in at least two ways: required representation of employee-elected board members, and the vague public-benefit mandate under the firm’s federal charter.

Significant employee representation on the board is likely to distort decisions about labor compensation and virtually any decision affecting employment. While 40% is short of a board majority, union pension funds already purchase shares in companies both as investments and as a way of driving labor issues before shareholders and into boardrooms. Those votes, along with the 40% board representation and oversight from federal bureaucrats, would give additional leverage to labor in influencing the firm’s decision-making. To take the simplest case, economic efficiency requires that the rate of labor compensation be the same as the marginal value of labor productivity. Warren’s proposal would surely result in wage payments exceeding this threshold, diminishing the economic value of the firm and its ability to raise capital. And by reducing the efficiency of the production process, it would raise costs to consumers and/or business customers.

There any number of other worker demands that would gain viability. For example, extended break times or extra paid-time-off would certainly raise costs, and such demands from a plurality of the board would be unrestrained by the need to negotiate other terms. Or how about a plant-closing decision? The upshot is that mandated board representation for labor would create instability and lead to a decline in the firm’s performance, competitiveness, and attractiveness to suppliers of capital. Ultimately, the very jobs on which labor depends would be threatened.

Further dilution of business objectives would arise from the requirement under the federal charter to produce a “public benefit”. Serving customers is not enough, but what will satisfy federal overseers that the firm has fulfilled its social obligations? And what are the limits of those social obligations? Again, these amorphous requirements would constitute a theft of resources from the business owners, requiring the payment of alms in order to produce something of value. There is already evidence that board activism in pursuit of non-business, social objectives destroys business value:

“Labor-affiliated pensions regularly file shareholder proposals, usually involving social and political concerns. Those social and political shareholder-proposal campaigns are associated with lower shareholder value. These labor investors also tend to attack companies facing ongoing union-organizing campaigns, as well as companies with political action committees that support Republicans.”

In time, the dilution of objectives undermines a firm’s viability, its health of its suppliers, and its ability to employ workers and hire other resources. Many of the suppliers hurt by Warren’s proposal would be smaller firms. It would ripple through the ranks of consultants, repair shops, electricians, plumbers, accounting firms, janitorial services, and any number of other businesses. But even before that, Warren’s proposal would send capital scrambling overseas.

I share Don Boudreaux’s astonishment that writers such as Matt Yglesias in Vox can assert that the Warren plan would have no costs. It might or might not have an impact on the federal budget, but the cost of destroyed economic value in the business sector would be massive, not to mention the jobs that ultimately would be lost in the process. It’s also astonishing that proponents can pretend that Warren’s bill would “save capitalism” when in fact it would do great harm.

Finally, here is Kevin Williamson expressing his disdain for Warren’s true intent in putting her bill forward:

“Warren’s proposal is dishonestly called the ‘Accountable Capitalism Act.’ Accountable to whom?  you might ask. That’s a reasonable question. The answer is — as it always is — accountable to politicians, who desire to put the assets and productivity of private businesses under political discipline for their own selfish ends. 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.”

Right-To-Work Prop A: Freedom of Speech, Association and Contract

30 Monday Jul 2018

Posted by pnoetx in Labor Markets, Right to Work, Unions

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Andrew Wilson, Daniel J. Mitchell, Fifth Amendment, First Amendment, Fourteenth Amendment, Freedom of Association, Freedom of Contract, Freedom of Speech, Missouri 2018 Proposition A, Monopsony, Political Action Committees, Right to Work, Show-Me Institute, Steve Spillman, Union Activism, Union Dues

I’d be angry if my employer forced me to contribute to the company’s Political Action Committee (PAC), and that view is shared by many of my colleagues. It would be illegal, of course, at least as a condition of employment. I love my job, but I give nothing to the PAC because I do not trust it to properly represent my political preferences. That goes for political contributions and lobbying activity that might benefit the company and, by extension, my own economic interests. I simply do not believe the company will refrain from corporatist practices, and I do not under any circumstances want my contributions lavished on politicians with whom I have policy differences.

In my home state of Missouri, unions and their political allies insist that union dues payments should be a condition of employment in unionized workplaces. Like PACs, unions are major political contributors, and I’d be surprised if there weren’t a large number of union members who object to the use of their dues for political contributions and activism. Of course, most of that activism is broadly anti-capitalist. This, quite simply, constitutes compelled speech and is a violation of employees’ First Amendment free-speech rights. Forced membership is a violation of the worker’s freedom of association under the Fourteenth Amendment.

Unions are also presumed to represent the interests of workers in negotiating with management, but not everyone wants that representation, especially given the corruption that has often plagued unions over the years and the poor economic performance of unionized industries in general. That last statement applies to public employee unions no less than private sector unions. Prohibiting non-union workers from employment at a unionized firm violates their freedom of contract under the Fifth and Fourteenth Amendments. I agree, however, that an employee refusing to join a union should not automatically be entitled to the wages and benefits negotiated by the union in collective bargaining with the employer. That should be strictly between the non-union employee and the firm.

Missouri Proposition A, which is on the state’s August 7 ballot, is a referendum on a right-to-work (RtW) law already passed by the general assembly and signed by the governor last year. I’ve discussed reasons why some libertarians have expressed disagreement with this kind of legislation—primarily because it denies an employer the right to hire workers exclusively from a unionized pool of labor. As Daniel J. Mitchell has noted, right-to-work laws are a second-best, compensatory solution to other forms of government intervention in labor markets that essentially grant unions monopsony privileges. Furthermore, giving primacy to an employer’s right to deal exclusively with a union ignores the rights of non-union workers and the rights of union members who do not wish to contribute to a union’s political activities. Trampling on the latter stands in contrast to the established protection of my rights against coerced contributions to my employer’s PAC.

The standard economic argument in favor of RtW laws hinges on the favorability of a state’s business environment and its competitiveness with other states. Andrew Wilson explains how and why Prop A will create jobs in Missouri. He notes that over the ten years ending in 2014:

“…average job growth in the 22 states with RTW laws in place for most or all of that time was more than twice as fast (at 9.1 percent) as in the 28 forced-union states. The RTW states also had considerably faster growth in personal income (at 54.7 percent compared to 43.5 percent) and a much stronger economic growth (50.7 percent compared to 38.0 percent).”

Wilson also remarks on a historical phenomenon which pro-union forces refuse to acknowledge: unions have undermined the competitive position of the industries upon which their members rely. It’s a classic principal-agent problem. Workers appoint an agent for representation, but the agent acts independently to maximize its own gains, often at the expense of the workers. RtW applies discipline to the process, reinforcing the union’s incentive to put members’ interests above of its own. After all, nearly all employers have to compete for workers, and private employers have to compete in product markets. Union workers have been exempt from competition only to the extent that their wage demands have not undermined the business’ competitive position, but they frequently have.

The real rub, according to RtW opponents, is that business interests will simply “crush” unions under RtW and impose lower wages and poor work conditions on workers. But as I alluded above, there are employers that prefer to work with a union for a variety of reasons. Second, suppose that new employees of a unionized firm refuse to join the union, or that some union members opt out. That’s a pretty strong indication that union membership is an unattractive proposition. Whose fault is that?

I favor Proposition A because workers should not be forced to accept representation by any third party, firms should not be forced to hire exclusively from those willing to do so, and because workers should not be required to contribute to union political initiatives. But as Steve Spellman writes, unions could do much to enhance their value to both workers and firms, attracting membership and gaining advantages in bargaining with employers:

“If unions focused on providing helpful, outsourced H.R. functions to companies, such as worker recruitment, drug screening and taking care of all that labor-law-compliance paperwork, it would sure change their reputation. As would standing up for its members, while also taking necessary (and fair) disciplinary actions instead of covering up for the occasional bad apple (even if that is only one worker out of 1,000). … If we can dream a little here, unions could also be best positioned to stand up for workers who are discriminated against, for whatever reason, rather than waiting on the law to catch up with our evolving society.”

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