Sen. Elizabeth Warren Plans to Curb Big Business and CEOs
Posted On March 28, 2021
Senator Warren plans to stifle the influence of big business and various CEOs. The senator is not a fan of Wall Street or of corporations, especially large companies and their CEOs. Many people agree with her. They see multiple CEOs collect massive bonuses even when their decisions hurt consumers and other stakeholders. To fix these problems, Senator Warren introduced bills in the Senate to establish awhealth tax in individuals, to improve CEO responsibility, and configure the framework to dissolve the big tech companies.
While the status quo is unacceptable, the senator’s proposals do not address central issues. Therefore, if these bills are passed as is, they will discourage innovation and creativity and slow economic development.
Before discussing these proposals, let’s look at the senator’s background. Senator Elizabeth Warren was a law professor for more than 30 years, including nearly 20 as Leo Gottlieb Professor of Law at Harvard Law School. She was an advisor to President Obama and one of the main architects of the Consumer Financial Protection Office. After the Great Recession in 2008, he chaired the congressional oversight panel of the Troubled asset relief program (TARP). The senator has been an outspoken critic of business and a strong consumer advocate.
Sure, we must protect consumers from abusive businesses, but Senator Warren’s proposals will not solve specific problems and could hamper economic growth.
Senator Warren estate tax
Senator Warren, who does not identify himself as a socialist, is proposing a two percent wealth tax for Americans with assets above $ 50 million, increasing to three percent on assets of more than $ 1 billion.
Undoubtedly, inequality is a problem; however, we do not solve the underlying causes by taxing the rich. First, we must identify the systemic problems. Specifically, we must learn why there is no acceptable sustained increase at the lowest income levels. In Warren’s proposal, we narrow the income gap by taking from the rich and then redistributing the amount seized to the lower rungs. How does this approach solve the endemic problem? It is not like this! Among other things, it ignores incentives to create jobs and wealth.
Taxing the rich does not solve the problem. It is true that it will increase tax revenues; But governments will create more programs, hire more people, and get even more creative with wasteful spending. Then again, Warren and her husband made $ 905,000 in 2018, putting them in the top one percent of earners. Should they redistribute part of their income? Certainly not! But Senator Warren’s rhetoric might lead some people to think that she should because her income is huge. Warren and his fellow Democrats consciously or unconsciously promote identity politics, exacerbate class struggle, victimization, and rights.
Senator Warren and the Responsibility of CEOs
It is vital that Americans and Canadians identify the causes of income inequality and address them. But whatever solutions we develop, they should emphasize creation of wealth by everyone in society, not the redistribution of wealth. To be sure, the redistribution of wealth from above will discourage wealth and job creation. The message the senator is sending to people who aspire to be the next Bill Gates, Warren Buffet or Jeff Bezos is simple: Although he can work hard to develop businesses that create millions of jobs, expand the economy, and plan to donate most of his wealth to charity, the government prefers to redistribute his wealth. Is this what we want to communicate to the next generation of entrepreneurs?
One of the bills that Senator Warren introduced is the Corporate Executive Responsibility Law , “Which holds the executives of large corporations criminally responsible when their companies commit crimes, harm large numbers of Americans through civil violations, or repeatedly violate federal law.” Additionally, Senator Warren reintroduced the Ending the Too Big for Jail Law, a comprehensive bill to hold big bank executives accountable when the banks they run break the law. Introducing these bills, Warren said:
“Corporations don’t make decisions, people do, but for too long, CEOs of giant corporations that break the law have been able to walk away, while harmed consumers are left picking up the pieces.”
“These two bills would force executives to responsibly manage their companies, knowing that if they mislead their customers or collapse the economy, they could go to jail.”
CEOs can be detrimental to their companies
I agree with Elizabeth Warren that too many CEOs hurt consumers and shareholders and leave their companies with significant financial gain. We must hold criminal CEOs who break the law accountable. However, we must be careful not to punish CEOs for bad and well-intentioned corporate decisions? That is the role of the board of directors and shareholders! Still, I realize that the interconnectedness of corporate board members will allow some CEOs with poor performance records to survive.
Paul Carroll and Chunka Mui in their book Billion Dollar Lessons saying:
“We define failure as canceling major investments, closing unprofitable lines of business or filing for bankruptcy … The scope of the failures was staggering [over 25 years]… From 1981 (through 2006), 423 American companies with assets of more than $ 500 million went bankrupt. Their combined assets at the time of their bankruptcy were $ 1.5 trillion; yeah, that’s a trillion with a “t” … During those 25 years, 258 US public companies combined for $ 280 billion in write-offs. ”
Carroll, Paul, and Chunka Mui, Billion Dollar Lessons: What You Can Learn from the Most Unforgivable Business Failures of the Last 25 Years, Penguin, 2010, pages 279-291
Carroll and Mui discovered that the problem was not negligence or poor execution. It was a bad strategy. Should a CEO go to jail for bad strategy? By incompetence? Some “negligent” acts arise from incompetence. As drafted, the bills will not prevent poor strategy from developing, but could deter well-intentioned and competent CEOs from taking the measured and necessary risks that are essential to running businesses. Existing laws will deal with dishonest CEOs and send them to jail. However, it is crucial that Democrats and Republicans find a bipartisan way to agree on a bill that addresses the fundamental problems that Warren’s bills are trying to solve.
Senator Warren Wants to Divide Big Tech Companies
Here again, the senator has misdiagnosed the problem and provided a naive and counterproductive solution. Sure, Facebook abused people’s data, but splitting Facebook wouldn’t solve the privacy issue, for example. A $ 10 billion Facebook company (Warren’s breakout threshold is $ 25 billion) could easily misuse personal data. Size is not the problem. We need consumer oversight, corporate transparency, and simple, pragmatic government oversight.
I agree with the senator when she says:
“I want a government that makes sure that everyone, even America’s biggest and most powerful companies, plays by the rules … And I want to make sure that the next generation of great American tech companies can prosper.”
The challenge is to find the right minimal regulatory solutions, not bureaucratic. Every business must follow the rules!
Only one CEO went to jail after the Great Recession. Should others have gone because of their mismanagement and poor decisions? CEOs of various companies abuse people’s private information and waste shareholders’ funds; this must end! However, we are fooling ourselves if we believe Size of the big tech companies Warren is targeting is the problem. In fact, because of the visibility of these big tech companies, we are better off with them today as they are than if we divided them into smaller companies.
The government must level the playing field, enforce sensitive regulations, but not succumb to the temptations to overregulate businesses. Facebook is trying to entice the government to regulate the industry, which would effectively help create a more substantial barrier to entry than the current one. The regulation requested by Facebook will guarantee the almost monopoly of Facebook. Instead, the government should require Facebook and similar companies to be transparent about how they collect, use and share private information, among other things.