Not so long ago, corporate leaders understood they had a stake in the country’s prosperity.
The October 1944 edition of Fortune magazine carried an article by a corporate executive that makes for amazing reading today. It was written by William B. Benton — a co-founder of the Benton & Bowles ad agency — and an editor’s note explained that Benton was speaking not just for himself but on behalf of a major corporate lobbying group. The article then laid out a vision for American prosperity after World War II.
At the time, almost nobody took postwar prosperity for granted. The world had just endured 15 years of depression and war. Many Americans were worried that the end of wartime production, combined with the return of job-seeking soldiers, would plunge the economy into a new slump.
.. Today victory is our purpose,” Benton wrote. “Tomorrow our goal will be jobs, peacetime production, high living standards and opportunity.” That goal, he wrote, depended on American businesses accepting “necessary and appropriate government regulation,” as well as labor unions. It depended on companies not earning their profits “at the expense of the welfare of the community.” It depended on rising wages.
.. These leftist-sounding ideas weren’t based on altruism. The Great Depression and the rise of European fascism had scared American executives. Many had come to believe that unrestrained capitalism was dangerous — to everyone. The headline on Benton’s article was, “The Economics of a Free Society.”
.. In the years that followed, corporate America largely followed this prescription. Not every executive did, of course, and management and labor still had bitter disputes. But most executives behaved as if they cared about their workers and communities. C.E.O.s accepted pay packages that today look like a pittance. Middle-class incomes rose fasterin the 1950s and 1960s than incomes at the top. Imagine that: declining income inequality.
And the economy — and American business — boomed during this period, just as Benton and his fellow chieftains had predicted.
Things began to change in the 1970s. Facing more global competition and higher energy prices, and with Great Depression memories fading, executives became more aggressive. They decided that their sole mission was maximizing shareholder value. They fought for deregulation, reduced taxes, union-free workplaces, lower wages and much, much higher pay for themselves. They justified it all with promises of a wonderful new economic boom. That boom never arrived.
.. Even when economic growth has been decent, as it is now, most of the bounty has flowed to the top. Median weekly earnings have grown a miserly 0.1 percent a year since 1979. The typical American family today has a lower net worth than the typical family did 20 years ago. Life expectancy, shockingly, has fallen this decade.
.. Elizabeth Warren, the Massachusetts senator, is now rolling out a platform for her almost-certain presidential campaign, and it includes an answer to this question. It is a fascinating one, because it differs from the usual Democratic agenda of progressive taxes and bigger social programs (which Warren also supports). Her idea is the most intriguing policy ideato come out of the early 2020 campaign.
Warren wants an economy in which companies again invest in their workers and communities. Yet she doesn’t believe it can happen organically, as it did in the 1940s, because financial markets will punish well-meaning executives who stop trying to maximize short-term profits. “They can’t go back,” she told me recently. “You have to do it with a rule.”
.. require corporate boards to take into account the interests of customers, employees and communities. To make sure that happens, 40 percent of a company’s board seats would be elected by employees. Germany uses a version of this “shared-governance” model, mostly successfully. Even in today’s hypercompetitive economy, German corporations earn nice profits with a philosophy that looks more like William Benton’s than Gordon Gekko’s.
.. Is Warren’s plan the best way to rein in corporate greed? I’m not yet sure. I want to see politicians and experts hash out her idea and others — much as they hashed out health care policy in the 2008 campaign.
.. But I do know this: American capitalism isn’t working right now. If Benton and his fellow postwar executives returned with the same ideas today, they would be branded as socialists. In truth, they were the capitalists who cared enough about the system to save it. The same goes for the new reformers.
The Breakdown of the Capital-Labor Accord and Okun’s Law
we talk a lot about the “post-war capital-labor accord” and the golden age of the 1940s-1970s. In these years, inequality went down, unions flourished, civil rights laws were passed along with LBJ’s Great Society programs like Medicare, etc. Corporations saw themselves as not just profit-seeking nexuses-of-contracts but also as institutions with duties to their stakeholders – employees, local community organizations, etc.
.. Then everything went to hell in the 1970s. Oil shocks, poor economic performance, large increases in foreign competition, an overheated economy created by the meeting of increased social spending and increased military spending, all combined to create massive inflation and other sorts of economic upheaval.
.. union contracts were blamed for causing inflation and big business began to push for
regulatory changes (to fight the hated EPA and OSHA, along with unions) and increased layoffs.
Institutional investors, growing rapidly in size in part *because* of the prosperity of the “golden age” (e.g. the massive pension funds like CALPERS and TIAA-CREF), began to demand discipline from corporations unused to having to listen to anyone
.. Changes in financial regulations and institutions made possible the junk bond market and, in turn, a more active market for corporate control – suddenly, large firms that were used to making acquisitions became targets.
.. by the mid-1980s, the golden age had ended along with the capital-labor accord and something new had begun – perhaps we can call it the “neoliberal era
.. This era’s hallmarks include the dramatic decline in unions, massive increases in the share of wealth going to the top 1% and .1% (cf. Piketty and Saez), massive increases in the share of profits going to finance (cf. Krippner 2005), and an overall change in the way that corporations perceived themselves.
.. No longer institutions with obligations beyond profit-seeking, corporations became (thought of as) legal fictions that served the sole purpose of maximizing shareholder value
.. The old dominant strategy of firms was to “retain and reinvest”, the new mantra was to “downsize and distribute”
.. The old model of the firm was GM – a massive, vertically integrated institution that dominated a market and did everything in-house. The new model was the “Original Equipment Manufacturer” (OEM), a firm like Nike that designs a product and markets it but outsources and off-shores as much of the actual producing, distributing, etc. The firm is now a brand, an identity demarcating a certain set of contracts, whose value is more about intangibles than men and machines.
.. Okun’s Law is an economic relationship between the magnitude of an economic downturn (in terms of real GDP) and increases in unemployment
.. if GDP (production and incomes, that is) rises or falls two percent due to the business cycle, the unemployment rate will rise or fall by one percent. The magnitude of swings in unemployment will always be half or nearly half the magnitude of swings in GDP.
.. The last downturns – 1991ish, 2001ish and the current moment – have all been characterized by “jobless recoveries” or, more broadly, much larger decreases and much smaller increases in unemployment than would be predicted by Okun’s law.
.. “businesses will tend to “hoard labor” in recessions, keeping useful workers around and on the payroll even when there is temporarily nothing for them to do”.
.. Manufacturing firms used to think that their most important asset was skilled workers. Hence they hung onto them, “hoarding labor” in recessions. And they especially did not want to let go of their prime productive asset when the recovery began. Skilled workers were the franchise. Now, by contrast, it looks as though firms think that their workers are much more disposable—that it’s their brands or their machines or their procedures and organizations that are key assets.
.. The 1980s saw a reordering of the world – a transition from a period governed by one set of rules that privileged the relationship between businesses and their employees to one that privileged (relatively speaking, in ideology anyway) shareholders.
.. What variables should we care about, if GDP seems to be connected less to welfare than it used to be?
.. the neoliberal period is marked by dramatic, mind-boggling increases in executive compensation without, as far as I know, any signs of better performance or increased shareholder value.
A Ford Exec Who Took the Long View
Populism could intensify if corporate tax cuts don’t yield benefits for workers.
Miller made Ford take automobile safety seriously while General Motors lagged behind. The choice cost Ford sales because some customers balked at paying for innovative equipment such as seat belts. Miller defended his policy as the right thing to do and said corporate leaders should always ask themselves whether they were willing to have their decisions publicly reported. Volkswagen executives have paid dearly for ignoring this advice, and they are not alone.
.. I wonder how many of today’s executives would be prepared to sacrifice sales and profits to do the right thing. Most of them have been taught that maximizing shareholder value is their sole responsibility—and if this means ignoring the needs of workers and the well-being of local communities, so be it.
.. The bills’ drafters are assuming that executives will use these funds to invest in their businesses.
But that’s not what happened the last time this was done, in 2004, when corporations were allowed to bring back overseas assets if they paid a tax of only 5%. During the next three years, the 15 companies that repatriated the most raised salaries for senior executives, cut more than 20,000 jobs, decreased investment in research, and expanded dividends and stock buybacks. All this happened despite the letter of the law, which specified that the funds be used for investing in research and the workforce and prohibited their use for compensating executives and repurchasing stock.
.. If these bills pass, average Americans will expect something in return—higher wages, better working conditions, and more opportunities for their children. If corporations take the money and run, public retribution will be severe.
.. America needs a new era of broad-minded, socially aware corporate leaders who understand the long-term relationship between the well-being of their companies and the well-being of their country.
.. An environment in which profits soar while wages stagnate may make for satisfied shareholders. But the revolt against the arrangements that sustain this imbalance is already under way. Today the targets are immigration and trade treaties. Tomorrow the demands could include restrictions on the ability of corporations to shutter plants and fire workers at will. The day after tomorrow, if massive corporate tax cuts yield no benefits for workers, we could see an intensified revolt against elites, not only cultural elites, but the captains of industry and finance as well.
Taking the long view is self-interest rightly understood. It means refraining from squeezing the last bit of profit out of your business right now in order to secure a flow of profit over time. The economy rests on a set of political arrangements that the people can revise and—if things get bad enough—upend.
Indie Hackers: Startup Stories
First, our design focuses on the end user of our product (sales reps, support reps, etc.) rather than managers/executives. We focus on making a product people will want to use even if it comes at the expense of automation and reporting which is what the higher-ups normally want. Generally, if a company is big enough that the person in charge of purchasing CRM software isn’t going to actually use it themselves, we’ll lose the sale.
Second, we invest heavily in customer support. That means customers who are older, less tech savvy, or who just don’t want to figure things out for themselves prefer working with us.
.. Throughout the entire history of the company, we’ve never had a single individual thing that resulted in a meaningful surge of new customers all at once. (And we’ve been at the top of HN a couple of times, it just didn’t actually do anything for us.)
.. . We were at 6 paying users after 6 months, 47 after a year, and 200 after a year and a half.
.. The dream is to find some marketing channel where you can buy a user at some acceptable amount. (For us, that’s $100-$150 per paying user we get.)
.. But forget everything I said above. By far the most important factors in our growth are low churn and high word-of-mouth. I really don’t know how to market and no one should take marketing advice from me, but once we get a customer, we’ve had great success in keeping them and getting them to tell their friends. Almost all of our growth is organic. There are downsides to this: it takes a long time, there’s no way to step on the gas, etc. But it’s way less fragile and more sustainable than any marketing channel I’ve ever tried
.. I’d even go so far as to say that the most important thing I do right now as CEO to help grow the business is recruit the best support people possible.
.. Thinking about money and profitability and your business model is super important if you aren’t profitable. But as soon as your business becomes profitable, then you have the freedom to decide for yourself what you care about. If “maximizing shareholder value” is your idea of an inspiring mission, then go for it. But that’s not something I care much about.
.. To me, this is one of the biggest benefits of bootstrapping. There’s nothing stopping bootstrappers from trying to make as much money as possible, but they also have the freedom to optimize for other goals instead. The second you raise money from investors, you really don’t have a choice.
.. one nice thing about slow, steady growth is that I’ve normally been able to identify and correct my mistakes before they became huge issues.
.. Unless your customers are programmers, getting a post on Hacker News won’t matter. Being known by everyone at your local startup networking events won’t matter. Winning a bunch of startup competitions won’t matter. The way I see it, only two audiences matter: your customers and (if you have them) your employees. If you spend time trying to impress anyone other than those two groups, you’re wasting time.