David R. Henderson  

Elizabeth Warren Channels Milton Friedman

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Elizabeth Warren Opposes Corporate Social Responsibility

On Facebook and elsewhere, many of my libertarian friends have claimed, quite correctly in my view, that Senator Elizabeth Warren, in this letter, is bullying various heads of major banks. She realizes that she doesn't have the legal power to get them to do what she wants and so she puts her request on a letterhead that reminds them that she does have some legal power over their livelihoods. The whole letter, which is only 2 pages long, is worth reading. Here's her specific request:

I am writing to encourage you to disclose financial contributions your institutions make to think tanks. In my view, policies by your institutions to conceal those contributions from public view are wrong. Greater transparency will benefit your shareholders, policymakers, and, ultimately, the public.

And, as we all know, Elizabeth Warren is all about transparency.

Beyond the bullying, though, there are two things I found interesting about Senator Warren's claims.

First, she's agreeing with Milton Friedman about his famous claim that corporations should not be "socially responsible." Here's the section of her letter in which she does that, and does it quite forcefully:

As the CEOs of public companies, you have an obligation to expend corporate resources only in ways that advance the interests of your shareholders.

Do I believe that she believes that? Of course not. I just find it interesting how far she'll go to find an argument to beat them with.

Second, and this is part of why I think she doesn't believe her own statement, she contradicts herself. In another part of her letter, she writes:

If the information provided by think tanks is little more than another form of corporate lobbying, then policymakers and the public should be aware of the difference.

But hold on. If "the information provided by think tanks is little more than another form of corporate lobbying," doesn't that mean that by contributing to think tanks and not revealing which think tanks they are contributing to, CEOs are expending "corporate resources" "in ways that advance the interests of [their] shareholders.?" So shouldn't Elizabeth Warren be applauding them for not revealing which think tanks they are contributing to? After all, according to her, advancing the interests of their shareholders is the only justified use of corporate resources.

Of course, we know the answer. But, again, it's interesting to see how far she will go in trying to get what she wants.


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CATEGORIES: Public Choice Theory



COMMENTS (27 to date)
Callum McPherson writes:

Do you think that this is a productive thing? One of the most important things for strong, efficient capitalism is strong information to all parties in the economy, no?

Steven writes:
On Tuesday, a video showing individuals making war whoops and tomahawk chop gestures outside a rally reportedly included Republican staffers and an aide to the senator, forcing Brown to play some defense. He said he did not condone the actions.

Big victory for truth and honesty against Warren there. Glad people showed restraint.

David R. Henderson writes:

@Callum McPherson,
Do you think that this is a productive thing?
Please be more specific. What’s the “this” that you refer to?

Greg G writes:

Even if you think government should not take an interest in where these corporate contributions go shouldn't shareholders be entitled to this information?

I think the people running corporations should be more willing to take credit for funding think tanks.

Callum McPherson writes:

Sorry. I would like to know what you think of, and what you think the implications are of:

1. Covert funding of think tanks by corporations

2. Covert funding of think tanks which claim to be independent by corporations

An example of this would be funding of climate change denying think tanks by oil companies.

Garrett M. Petersen writes:

On the bright side, it sounds like Senator Warren is fearful of these think tanks' growing impact.

Robert writes:

I think it would be great if we could learn about covert funding by corporation as long as we could learn about covert operations by the government and the political parties to influence the corporations and individuals for each politician’s benefit.

Do we know what the government has been instructing the heads of the health insurance companies behind closed doors?

Do we know how the IRS was converted from an administrative operation to an organization involved in soviet style influence on the last election which is still continuing if the latest reports from people who have spoke out about the health care law and have been audited are to be believed?

Until all covert government information is forthcoming, the public is correct to be cynical of the politician’s motives, including Senator Warren’s. The government should be ensuring that the scales of justice are calibrated to be perfectly level. Red Sox fans feel bad calls in their favor are justified, and Yankee fans feel the same way when the home field umpire shows them the same advantage; however, we should all hope that the umpires treat all teams the same way.

Henry writes:

I very much doubt she thinks corporations shouldn't have a social responsibility, I think she's lamenting the fact that there's no legal requirement for them to do anything more.

Curtis writes:

In the "First" comment -- isn't she just saying that corporations bear a fiduciary responsibility only to their shareholders? Sounds like Mr. Henderson is parsing is/ought.

As a couple commenters have pointed out, like Callum, the ability of money to produce knowledge which is then used to enact policy is frightening. Lyotard did a great job predicting this in The Postmodern Condition.

Ross Levatter writes:

David writes: "But hold on. If "the information provided by think tanks is little more than another form of corporate lobbying," doesn't that mean that by contributing to think tanks and not revealing which think tanks they are contributing to, CEOs are expending "corporate resources" "in ways that advance the interests of [their] shareholders.?" So shouldn't Elizabeth Warren be applauding them for not revealing which think tanks they are contributing to? After all, according to her, advancing the interests of their shareholders is the only justified use of corporate resources."

I'm not sure I find this convincing. Surely Warren, to interpret her charitably, refers to advancing shareholder interest in the context of legal actions, and I'm pretty confident she thinks paying think tanks to front for them--to argue a position not because they believe it in the public interest but solely to benefit unnamed corporate sponsors--is (or should be) illegal.

So while I harbor no affection, intellectually or politically, for Ms. Warren, I'm not sure I see a contradiction in her thinking here...

Jeff writes:

Curtis, if corporate money were really all that influential in politics, Elizabeth Warren would still be boring her L3 students with lectures on how sub prime lending makes the Great Spirit's weep or something, not mau-mauing people's philanthropic pursuits from her perch on the Senate banking committee.

David R. Henderson writes:

@Callum McPherson,
1. Covert funding of think tanks by corporations
I haven’t thought through all the implications, but I do know two things:
(a) Warren is out of line asking them on Senate letterhead. That’s clearly a threat.
(b) One of the problems with out-in-the-open funding is that then those who fund them can be threatened by government. The government has such power over so many things that almost any corporation is vulnerable.
2. Covert funding of think tanks which claim to be independent by corporations
My answer is the same as on 1 above.

David R. Henderson writes:

@Greg G,
Even if you think government should not take an interest in where these corporate contributions go shouldn't shareholders be entitled to this information?
No. That’s a contractual matter between shareholders and management.

MingoV writes:

Dear Senator Warren:

I am writing to encourage you to disclose genetic contributions your ancestors made to you. In my view, obfuscations by your campaign staff to conceal your lack of Native American ancestry from public view are wrong. Greater honesty will benefit your constituents, your fellow senators, and the public.

Ross Levatter writes:

And now MingoV knows why the FDA shut down 23&Me...;-)

Greg G writes:

David

Where do I go to contract with a company with management that is eager to give up this information? Transparency is not a natural result. It's one of the things you need regulation to maintain.

There is a principal/agent problem here. Management will usually be much stronger than individual shareholders and management has little to gain from more transparency.

Andrew_FL writes:
One of the most important things for strong, efficient capitalism is strong information to all parties in the economy, no?

No.

Capitalism, unlike socialism, functions in the absence of the individual possessing perfect knowledge. It could not be otherwise.

David R. Henderson writes:

@Greg G,
Where do I go to contract with a company with management that is eager to give up this information?
I don’t know. And where do I go to contract with a company with management that is eager to hide this information?

Scott Sumner writes:

That second quote is amazing. I wonder if she will retract it?

Greg G writes:

David,

That is exactly my point. We can't tell which is which. A system that required more transparency would be better. The owners of a company should be entitled to this information. How can they make informed decisions without being informed?

Greg G writes:

Andrew_FL

"The Use of Knowledge in Society" is an argument against government central planning of the economy. It is not an argument against the owners of companies being informed about the activities of the companies they own. Of course no one has perfect knowledge. Companies with better informed owners will perform better than companies with poorly informed owners.

David R. Henderson writes:

@Greg G,
A system that required more transparency would be better.
That’s what I’m disputing.

Emil writes:

The problem with the calls for transparency is that they are selective. It is clear that a company cannot (and should not be required to for obvious reasons of competitive advantages) to disclose all of its contractual relationships with clients and suppliers. It would be meaningless (too much information), would be costly (the transparency and compliance obligations in place today are already creating a huge cost, especially for quoted companies) and would risk breaching privacy. What is it that is so special about a think-tank? How is a think-tank defined? (The obvious impact of such regulation is that you would have lots of companies that are today think-tanks changing their model of affiliation in order to be able to call themselves something different)

Tracy W writes:
1. Covert funding of think tanks by corporations

Excellent idea. More money for currently unpopular ideas.

2. Covert funding of think tanks which claim to be independent by corporations

Dependents on how the think tanks define independence.

An example of this would be funding of climate change denying think tanks by oil companies.

Thanks to this I have far greater confidence in the quality of climate change research than I would otherwise. There's a lot of worrying evidence about the quality of work in many of the sciences, what with publication biases, not-so-anonymous-peer-review and just-making-stuff-up. The money poured into the opposite view really pushes the climate scientists to avoid those flaws. We could do with moneyed interests lobbying against a lot more scientific fields. (An even better way of checking the quality of science is for engineers to use it, but that's not always achievable.)
Sadly the political willpower to stop climate change isn't there.

Hazel Meade writes:

In order words: "How dare you exercise your free speech rights in support of ideas I disagree with"! HOW DARE YOU?"

Really think it's appalling that a politician should think to stong arm private entities into revealing who they are supporting politically. We have secret ballots for a reason, and anonymous donations for the same reason.

Andrew_FL writes:

@Greg G: I'm afraid you didn't grasp the point if that is what you suppose.

Hayek's point is that a socialist planner needs perfect knowledge that it cannot possess. And he cannot possess that knowledge, not because he is a planner, but because he is a mere human. Well, so is every "owner" (presumably you mean "shareholder"). So they cannot have perfect knowledge either. But they don't need perfect knowledge. They only need price signals. The shareholder can respond to price signals without knowing these details. In fact focusing on the details that don't make a difference to the price signals can only lead him to error.

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