March 22, 2018

March 22, 2018

Today, Wisconsin Democratic Senator Tammy Baldwin is introducing a bill that, if enacted, would make the American economy a damn sight better, fairer, and more productive. The Reward Work Act would curtail stock buybacks and require corporations to have their employees elect one-third of their boards of directors.

This year (and it’s only March!), Baldwin notes, corporations have spent $225 billion on buying back their own shares—an amount that vastly exceeds what they’ve spent on R&D or other investments, much less using their tax cuts to raise their workers’ wages or give them bonuses. As University of Massachusetts economist William Lazonick has been documenting for a number of years, the corporations on the Fortune 500 routinely allot the lion’s share of their profits to buybacks and dividends, often taking on debt to do so.

The practice of buying back shares—which, by decreasing their number, boosts their value—took off after Ronald Reagan’s Security and Exchange Commission passed a rule (10b-18) that enabled CEOs to engineer buybacks without fear of being penalized for manipulating share prices for personal gain. The rise of buybacks and greater dividend payments fit neatly into the Milton Friedman-promulgated doctrine that the purpose of corporations was to “maximize shareholder value,” though Friedman probably didn’t suspect that this would come to mean “at the expense of long-term productive investment and employees’ earnings.”

Baldwin’s measure repeals rule 10b-18. In calling for worker representation on corporate boards, it takes a leaf from German laws requiring “co-determination.” In Germany, corporations must divide their boards equally between shareholder and employee representatives, giving workers a share of power over corporations’ practices. It is one of several reasons why the German middle class has not eroded in recent decades to the degree that the middle class has shrunk in other advanced economies.

In introducing this bill, Baldwin is betting that this form of progressive populism will stand her in good stead in her re-election campaign this year in Wisconsin. Like Ohio’s Sherrod Brown, who’s also up for re-election in an industrial Midwestern state that Donald Trump carried in 2016, she’s wagering that a pro-worker, anti-Wall Street agenda will resonate with many of the working-class white voters who swung to Trump. Baldwin and Brown could well be charting the future of Democratic politics. Let’s hope they’re right.