Is short-termism on its way out? Steven Pearlstein of the Washington Post has posited as much, in the wake of the departure of one CEO after another from White House advisory councils after the Charlottesville protests. He argues that this event
is likely to be looked back upon as a turning point in the evolution of American capitalism – an acknowledgment from some of the nation’s top corporate executives that the single-minded focus on maximizing profits and share prices that has been their mantra for the past three decades is no longer politically viable or morally acceptable.
Short-termism – the “single-minded focus on maximizing profits and share prices” to which Pearlstein refers – has been a bugbear of financial reformers for years.
A previous blog urged corporate leaders to view the renegotiation of NAFTA as an opportunity to leave behind their exclusive fixation on profit-maximizing trade deals and instead get behind some basic principles that, while they may not immediately boost share price, will pay dividends in the long run. Even before CEOs quit White House Councils after Charlottesville, Elon Musk had done so in protest over the proposed withdrawal from the Paris Climate Accord, and companies participated in rallies to save our national parks.
It’s too early to tell whether we’re experiencing a fleeting corporate crisis of conscience, or something more fundamental. Assuming the latter, how might that kind of change manifest itself in trade policy? Here are three areas to consider:
Enforceable labor and environment obligations. These are actually low-hanging fruit, now so mainstream that the Economist is citing them as an obvious way to improve NAFTA.
These obligations were referenced in our most recent blog. But since then the Canadians have provided intriguing new wrinkles. They are seeking to expand the scope of the environmental provisions beyond those in TPP by expressly requesting that climate change be referenced in NAFTA 2.0, as well as by including an affirmation of all multilateral environmental agreements (MEAs) to which the countries are parties.
While the Canadian proposal does not seem to include anything more than hortatory language on climate and MEAs, even referencing “climate change” is problematic for many Congressional Republicans. But businesses, including those businesses that expressed frustration at President Trump’s proposal to withdraw the United States from the Paris Climate Accord, have the ability to step up and agree with the Canadians. In doing so, they would make it easier for moderate Republicans to accept the language.
Beyond our trade agreements, the same companies that were concerned about the erosion of national parks should consider pressing for something long-overdue: an environment criterion in the Generalized System of Preferences. We don’t like the potential pillaging of our own precious national resources; we shouldn’t have a trade policy that encourages the pillaging of precious national resources in developing countries, either. Businesses that project a pro-environment image have argued that tariffs on outdoor apparel should be removed in order to promote enjoyment of the great outdoors; these businesses should back up the image by doing openly supporting, and advocating for, an environment criterion in GSP. As Mr. Rangel said during debate over these programs, “to enjoy the great outdoors, there must be great outdoors to enjoy.”
Worker training. Companies that sponsor apprenticeships overwhelmingly recommend them. Nevertheless, such programs have been in decline since 2001. The Center for American Progress (CAP) theorizes that short-termism may be responsible, as companies forego investments in these types of programs to boost profit margins.
Apprenticeships are a particularly valuable tool to improve “middle skills,” which require education beyond high school but not necessarily a four-year degree. Workers with these skills see a meaningful improvement in their earning potential. These programs provide benefits to the company that sponsors them, not only in terms of improved productivity, but recruitment, retention, safety, and morale as well. One Canadian study from 2009 estimated a net return to companies of 47 cents for every dollar spent.
As CAP has noted, a “skilled workforce is a key driver of economic growth.” Therefore, programs to enhance worker skills are valuable in their own right. However, as we have previously discussed, trade agreements benefit skilled workers over unskilled workers. This disparity, coupled with concentrated regional job losses in, for example, the Midwest, may account for at least some of the current prominence of trade skepticism in the American policy debate. Companies that support trade agreements should take into account that if they, and others, invest in workers’ skills, and these workers reap more benefits from these agreements, then more workers may consider these agreements to be potential opportunities rather than threats.
Companies can also be more active in supporting government-sponsored worker training programs. For example, when renewal of Trade Adjustment Assistance (TAA) was considered in 2015, there was no tangible corporate effort to support its renewal, let alone to fight to maintain funding levels – which ended up getting slashed. Only when the push to enact the Trans-Pacific Partnership began to meet meaningful roadblocks a year later did companies began to argue in favor of expanding the very TAA funding that had just been cut.
A show of restraint on “regulatory coherence.” Regulatory coherence became a buzzword during the TTIP and TPP negotiations. Regulatory coherence in theory encompasses two different concepts: domestic good governance, and cross-border cooperation. For the United States, good governance should be about ensuring that our trading partners provide due process protections in the rulemaking process, akin to those set out in the Administrative Procedures Act. Cooperation should be about making an effort to ensure that there are no unnecessary differences in regulatory approaches among trading partners.
Whatever the theory, there are concerns that transparency and cooperation are in reality not the only goals. Indeed, the TPP Regulatory Coherence Chapter has little to say about due process such as notice and comment. Instead, it very nearly defines good regulatory practice as conducting “regulatory impact assessments” (RIAs) before implementing proposed regulations.
Examined more closely, the thrust of the RIA provision (Article 25.5) is a series of hurdles for governments to pass prior to regulating. These hurdles include the increasingly controversial cost-benefit analysis (CBA), an element of some U.S. rulemakings that is opposed by those who believe it is being abused by litigious businesses to thwart regulation. As one professor noted, “CBA itself needs to be subject to CBA before it is mandated by law.” As matters stand, it has taken nearly a decade for the middle class to nose ahead of where they were before the financial crisis upended the global economy; how does that kind of loss factor into CBA? There may be an appropriate role for CBA, but enshrining it in a permanent trade agreement is a bad idea when the concept itself remains subject to serious pushback at home.
Furthermore, while due process provisions such as notice-and-comment would benefit NGOs and businesses equally, RIAs shift the burden in favor of business and against government. To include these controversial provisions in trade agreements only strengthens the perception that these deals are the creatures of crony capitalism, at the expense of each nation’s sovereign right to regulate.
Regulatory cooperation is a separate issue, yet, despite its anodyne name, potentially risky. The Europeans, for example, are criticized for having cast regulatory cooperation as a vehicle for either watering down Dodd-Frank, or exempting themselves from it. During the furor over whether financial services regulatory cooperation would be included in TTIP, the Europeans pressed the Commodity Futures Trading Commission to relent on derivatives regulations that would have applied to European branches of American banks, and also demanded to be exempted from new capital requirements from the Federal Reserve. Put differently, they wanted to be exempted from the very safeguards that agencies were introducing to mitigate the risk and scope of another U.S. taxpayer bailout.
Indeed, the Europeans have even sought provisions that would require American regulators to consult with them before proposing a rulemaking – thus giving foreign sovereigns greater access to our regulatory process than American citizens themselves. As previously noted, Americans trust neither business nor government; but providing foreign governments with greater access to our rulemaking process than that enjoyed by our own citizens could untap as-yet undiscovered sources of trade skepticism.
Some will say this is much ado about nothing; the TPP Regulatory Coherence chapter is not enforceable and contains soft obligations (i.e., Parties “should” undertake certain actions, rather than “shall”). But it is worth asking whether these provisions are the camel’s nose under the tent. Over time, will the business community will push for the chapter to be enforceable and to convert the “shoulds” to “shalls”? That would inhibit Congress’ flexibility to pick and choose when CBA is appropriate. In point of fact, making the chapter subject to dispute settlement might be enough; there is precedent at the WTO for a panel, sua sponte, to decide that “should” means “shall.”
There is more at stake than just trade policy. The very compatibility of capitalism and globalism has come into question. As Martin Wolf has explained in the Financial Times, prosperity strengthens democracy – but the financial crises of the 1930s and the 2000s
led to poverty, insecurity and anger. Such feelings are not conducive to the trust necessary for a healthy democracy. At the very least, democracy requires confidence that winners will not use their temporary power to destroy the losers. If trust disappears, politics becomes poisonous.
Wolf goes on to note the deep tensions between democracy and capitalism, summed up as this: “Electorates desire some economic security; capitalism is prone to boom and bust.” His prescription? “Manage capitalism so that it supports democracy and to manage democracy so that it makes global capitalism work better for all. Today, we are making a mess of this marriage. We must do far better.”
Trade – the heart of global capitalism – is a good place to start. The tumult in today’s political environment presents an opportunity to look beyond short-term profits and invest in long-term welfare; to distribute the benefits of trade more broadly; and to refrain from pushing for race-to-the bottom rules that interfere with governments’ ability to govern.
In doing so, companies might begin to chip away at the public’s suspicion that collaborations between government and business are at odds with the national interest. In other words, businesses might begin to restore the trust that would take us out of this poisonous environment.