Call to Action: Regulating Business
If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life.
U.S. Senator John Sherman of Ohio (1890)
Games need rules. Sports need referees. Businesses need regulation. If winning is the only rule and profits the only scoreboard, then a small number of businesses can reach a point of critical mass where they’re capable—and incentivized—to muscle out the competition, squander public resources, shun innovation, and pass along costs to the consumer.
According to Nobel Prize-winning economist Milton Friedman, the only inherent social responsibility of a business is to increase its profits. That’s why, when left to its own devices, the free market begins to consolidate and thereby suppress the very attributes that make it great. The role of government, therefore, is to establish a set of rules that can incentivize businesses to take on other social responsibilities. This ensures that the playing field remains fair, competitive, and beneficial to the consumer-citizen.
Government and business need not be opposed; they’re supposed to be on the same team. This doesn’t need to be a partisan issue. Extremism in any direction is rarely the proper response to anything. Between the opposite poles of anarcho-libertarianism and autocratic-communism, there’s a wide and nuanced spectrum of ways to regulate and deregulate business. Over the course of American history, both Republican and Democrat administrations have fought to roll back the reach of harmful business practices. And, while relatively few people control large businesses, everyone is a consumer—and it’s consumers that these regulations are meant to protect.
In today’s world, if corporations are going to have the legal rights of citizens, then they should also be expected to behave as citizens and contribute to the overall social good. And, just as civil society is dependent upon laws regulating citizen behavior, the world of business requires laws that regulate corporate standards of practice.
Three New Business Regulations to Implement
Break Up Mega-Mergers
Don’t let oligopolies control the marketplace. Senator John Sherman, the author of the Sherman Antitrust Act of 1890, famously said: “If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life.”
Monopolies and near-monopolies are fantastic for one business and terrible for everyone else. When large enough controlling interests merge into a singular unit, they can suppress competition and innovation, and pass on those prices to the consumer.
In the 19th and 20th centuries, antitrust action saw the Justice Department and Republican President Theodore Roosevelt intervene in the infrastructure-critical industries of oil, steel, and the railroads. The 21st century, however, runs on a newer infrastructure with different components: the internet, telecommunication, and big data. For better or worse, these are new necessities of life. But the dangers of over-consolidation are still the same.
Over 70 percent of internet traffic goes through Facebook or Google. Amazon controls nearly 50 percent of all online shopping. While these are the natural consequences of growth and success, they inevitably lead to the same negative effects as all near-monopolies do and it’s the government’s duty to regulate them.
When large platform utilities such as Facebook merge with competitors like Instagram and WhatsApp, they distort the landscape. Your messaging, your photos, and your contact information are all being controlled by a single entity. When a large company like Amazon provides the premier platform for online shopping—and also acts as a vendor on that platform—then they’re effectively refereeing the game while playing at the same time.
In both instances, smaller upstarts with fresh and innovative products are forced to either use the dominant company’s platform and play by those rules or fold up shop altogether. Introducing legislation that would prohibit companies over a certain revenue level (e.g., $25 billion) from participating in a platform that they control would reinstitute fair, nondiscriminatory business practices that would both foster innovation and widen options for consumers.
Give Workers Representation
Allow employees to elect board members. Shareholder capitalism— i.e., where a company is motivated primarily to increase its value in order to pay its shareholders—has led to a disturbing trend where companies downsize and distribute profits to their key financial interests (shareholders) instead of retaining and reinvesting those profits into higher employee pay, better training, and newer equipment, which would benefit workers, consumers, and the wider economy.
According to data aggregated by economist William Lazonick, modern commercial business owners are taking far more money out of the financial sector (via share buybacks and dividends) than they introduce into the system (via reinvestments). This results in a situation where profits are not shared in equal proportion with the people who helped earn them, and cost savings and innovation are not realized by the consumer. It doesn’t have to be this way.
An alternative which is largely practiced in Germany—Europe’s economic anchor—is the idea of codetermination: the cooperation between workers and management, especially through the representation of workers on boards of directors. This practice results in more equal pay, boosted productivity and innovation, and less short-term thinking in strategic decision-making.
In the contemporary American way of business, where shareholder interests reign supreme, corporate executives increase their pay by squeezing the worker. But in a world where workers have representation on the board, the executives must consider both shareholder and worker interests in order to earn higher pay. Mandating that companies allow workers to elect 20 to 40 percent of the Board of Directors would do more to incentivize businesses to invest in themselves, rather than simply pay themselves.
Prevent Undue Consumer Risk
The Glass-Steagall Act—four specific provisions in the U.S. Banking Act of 1933—separated commercial banking from investment banking. Born out of the Wall Street crash of 1929 which created the Great Depression, it sought to limit the ability of large banks to gamble with their customers’ money. But starting in the 1960s, it began to come under repeated attack, until finally, in the 1990s, it was overridden by legislation and judicial rulings to the point of obsolescence. In 1999, President Bill Clinton declared Glass-Steagall to be “no longer appropriate” and less than ten years later, the U.S. suffered its greatest financial crisis since the Great Depression.
Some experts, such as Nobel Prize-winning economist Joseph Stiglitz, have argued that the removal of Glass-Steagall’s regulations had the indirect effect of creating a large investment bank culture that was complicit in the resulting financial crisis. Former Federal Reserve Chairman Ben Bernanke, however, believes that the precise activities those investment banks committed, which contributed to the crisis, were not explicitly prohibited or regulated by Glass-Steagall.
At its core, however, the principles of the Glass-Steagall Act remain as fundamentally important as ever: reigning in a business’s ability to take opaque risks for which the customers pay the price. Some banks may be too big to fail, but none are too big to be regulated. It’s time to reboot Glass-Steagall.
Three Existing Business Regulations to Protect
Net Neutrality
Net neutrality is a founding principle of the internet: that all traffic be treated equally. However, in recent years, corporate lobbyists have attempted to do away with this function and are seeking to create pay-to-play internet fast lanes.
Some argue this would result in faster internet speeds, but it would only apply to businesses that pay extra; it would disproportionately harm small-business owners who cannot afford to pay for speeds as fast as richer, more established corporations.
In a business climate where fast and reliable access to data is crucial to success, a lack of net neutrality warps the playing field in favor of the older, larger companies instead of the younger, more innovating ones. There’s further evidence that a lack of net neutrality leads to higher prices for wireless data for the average consumer over time.
A subject of fierce political debate in the U.S. over the last two years, net neutrality is a critical form of business regulation, ensuring fair and equal access to the century’s most precious resource. The fight’s ongoing—and worth fighting.
Consumer Financial Protection Bureau (CFPB)
As a response to the 2008 financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. It created the Consumer Financial Protection Bureau (CFPB).
While Dodd-Frank went on to become one of the most controversial forms of recent regulation, eventually earning a partial repeal in May 2018, the CFPB has remained relatively unchanged and posted quietly impressive results. In less than a decade, the CFPB:
- Reformed the mortgage lending process
- Reduced malicious debt collection methods
- Performed numerous public investigations into financial institutions’ shady dealings
- Retrieved nearly $12 billion in refunds and canceled debts for 29 million aggrieved consumers
While the CFPB has received pushback from some corporate lobbies and legislators for its leadership structure, it remains an important bastion of consumer advocacy that enjoys significant support from the public.
Environmental Regulations
Environmental considerations have always been a part of business regulation. Whether it’s the food we eat, the water we drink, or the air we breathe, business plays a significant role in the shared environment.
While stricter environmental considerations may initially harm a business’s bottom line—it’s cheaper to burn your trash than dispose of it properly, for example—it’s a government’s duty to protect its people and its property from harm.
Environmental regulations result in lower greenhouse gases, reduced vehicle emissions, fewer harmful pesticides, and more securely disposed-of waste. And environmental regulations have a knock-on economic benefit, too: they boost the opportunities of cleantech firms who are trying to solve social issues through business ventures in innovative, win-win ways. Even though the main regulation enforcer, the Environmental Protection Agency (EPA), is going through a deregulatory phase as of late, its recent list of accomplishments is a good reminder of how dire the ecological climate might be if not for the regulations already in place.
And with a growing list of supporters in Congress for the Green New Deal—a proposal which aims to simultaneously address the threats of climate change and economic inequality—the time is right for actions supporting the environment and U.S. workers. Only time will tell if American legislators are willing to act in the interests of the public or if they will further the interests of their wealthy corporate campaign donors.
