What if you threw a de-regulation party and no one showed up?
What does the reluctance of major automakers to join the Trump Administration’s effort to undermine California’s fuel economy rules say about today’s capitalism?
The reports last week that major auto-producers were shunning the Trump administration’s overtures to join its roll-back on fuel economy standards were striking: a modern man-bites dog story. But political economists have been talking for decades about how interdependent global capitalism, under the right conditions, can spur a “race to the top” as competitors seek one global standard to comply with and their choice often (for good reasons) is the most stringent standard not the most lax. Because if you set your compliance strategy to please the most stringent regulator, then you necessarily also will find it possible to efficiently comply with everyone else’s rules and you avoid the cost of producing different products for different markets and enforcing multiple standards and thus lose economies of scale.
Similar motivations — maybe we can call it the “white shoe cartel” phenomenon or “trading up”— also seems to be driving CEOs who are members of the Business Roundtable to publicly announce their view that “shareholder value” is too thin a metric by which to measure their mission statements. Long-term shareholder value paradoxically might be better achieved if management realized that the only way to get there was by taking care of customers, employees and communities. While capitalists have been relying on the free market to send the right incentives to achieve long-term value, this statement seems to be recognition that “shareholder value” often seems to privilege strategies for enhancing short-term profitability at the expense of the organization’s long term health and survival. The concepts of “license to operate” and the “triple bottom line” have been bouncing around for years and has prompted a variety of proposals about how to reform the governance of major corporations, from the “b-company” voluntary approach to the mandatory approach incorporated into Senator Elizabeth Warren’s proposal to require corporations of a certain size to obtain a federal charter that would widen traditional fiduciary duties to shareholder-owners to include “corporate social responsibility” to other constituencies and to environmental sustainability. With Warren now appearing to surge in the polls, the leading corporate executives’ signal of a willingness to engage in this debate is significant.
