Dan Sutter: Making sense of woke business
Major League Baseball’s moving the 2021 All-Star Game from Atlanta over Georgia’s new voting law symbolizes businesses’ new willingness to take sides on political issues, typically the progressive side. Businesses previously avoided offending potential customers or employees. Selling to both Republicans and Democrats maximizes profit! Vivek Ramaswamy explores the causes and consequences of “woke” business in Woke Inc: Inside Corporate America’s Social Justice Scam. The book offers numerous valuable insights and creative analyses. Mr. Ramaswamy is the child of immigrants from India who grew up in Ohio. He attended Harvard for undergrad and Yale Law School and worked in pharmaceuticals including as CEO of Roivant Sciences, before stepping down in 2021. Progressive business leaders emphasize “stakeholders” (workers, suppliers, communities, etc.) over stockholders, the owners. Mr. Ramaswamy sees stakeholderism as a ploy. A CEO serving many masters need not follow orders from any: “By becoming accountable to literally everyone, they become accountable to no one.” Managers with a fiduciary duty to the stockholders can be held accountable. Many companies cultivate glowing reputations to cover their misdemeanors. Mr. Ramaswamy highlights Volkswagen, hailed as the world’s most sustainable automaker. “Clean diesel” cars briefly made VW the world’s top automaker. Except the company was using “defeat devices” to cheat on emissions tests. The author views finance’s wokeness as an arranged marriage. The financial crisis bailouts sparked Occupy Wall Street and big fines from the Federal government. Goldman Sachs and others led on wokeness to deflect attention from their misdeeds. Employees often push wokeness. Mr. Ramaswamy notes that Roivant’s Ivy League grads arrived woke. The New York Times’ newsroom staff have similarly staged numerous woke revolts. Leftists view everything as political, so making all institutions advance progressive social goals fits the game plan. Mr. Ramaswamy believes that corporate politics seriously threatens our democracy. Politics – based on one person, one vote – should decide questions like inequality or climate change. CEOs have excessive influence when corporations do politics. Making businesses maximize profit was “about protecting the rest of society from a Frankensteinian corporate monster.” Woke business involves firings for politically incorrect views. Google fired engineer James Damore in 2017 for questioning its’ gender equity hiring policy. Just this month, software company Outreach fired Griffin Green for his Tik Tok videos. Sexist and racist behaviors can disrupt workplaces; as a free market economist, I grant managers significant discretion on company business. But managers seem to be placating the social media mob while performing scant due diligence. What to do about this? Mr. Ramawarmy suggests using existing laws against religious discrimination: “[S]ince wokeness is a religion, employers can’t impose it upon their employees.” Does “wokeness” qualify as religion? Columbia University’s John McWhorter provides a strong affirmative argument in Woke Racism. Social media censorship is another element of woke business. Let’s grant social media bias against conservatives. Again, the question is what to do. I believe that only governments can censor. A media company only denies a speaker the use of its platform and cannot prevent the speaker from using other platforms. Mr. Ramaswamy offers another intriguing suggestion. Criminal law holds that the police cannot have someone conduct an otherwise illegal search. Twitter and Facebook act as government agents in censoring political speech. Again, existing law can address a problem. The problem of woke business, I think, goes beyond an opportunistic scam. Corporate America’s use of wokeness as a cover for making profit likely stems from an unwillingness or inability to defend the morality of business. Notre Dame’s James Otteson observes how many people believe that business should “give back.” But only those who have done wrong must give back. Professor Otteson argues that “Honorable business is neither morally suspicious nor even morally neutral: it is a positive creator of both material and moral value.” Wokeness will not protect business for long because progressives, as Mr. Ramawarmy notes, are hostile to business. This arranged marriage will not produce lasting bliss for corporate America. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: New perspectives on inequality
Inequality is one of America’s most contentious issues. According to a popular narrative, higher taxes on the rich are needed to control growing inequality. New research from the Johnson Center offers a different perspective. My colleagues G.P. Manish and Steve Miller have edited a new book titled Capitalism and Inequality: The Role of State and Market. The volume features contributions from leading economists on thinking about and measuring inequality and government policies making inequality worse. We can start with the provocative question of whether equality is the proper standard for our economy. Poverty, not wealth, is the norm in human history. Wealth must be created. Why do we think that wealth will be created equally across the economy? For a century, economists explained the value of goods based on the labor required to make them. The labor theory of value implies a relatively equal wealth distribution because most people worked long hours. The labor theory was the basis of Karl Marx’s critique that capitalists expropriated value created by the workers. Yet the labor theory was wrong. The marginalist revolution identified that value depends on the last unit of a good available, not all value in total. Water is much more valuable than diamonds but is available in abundance while diamonds are rare. Engagement rings consequently cost far more than a case of Aquafina. The theory also shows that labor and other factors used in production will be paid based on its marginal contribution. Although teachers make a more valuable contribution to society than professional athletes, athletes get paid far more. Many people can teach elementary school; few can throw a football like Patrick Mahomes. Over the past 300 years free markets have allowed humanity to prosper. But as philosopher James Otteson puts it, “the only way we have ever discovered to enable substantial numbers of people to rise out of poverty is a set of political-economic and cultural institutions that also engender inequality.” Market salaries also strike many as unfair. Mr. Mahomes is lucky to have been born with a talent that allows him to excel in a very popular sport but as a result now has a $500 million contract. The authors contend that we should worry more about how inequality comes about than unequal outcomes per se. Did someone get rich by capturing a portion of value they create in the market? This does not harm anyone because the value crated makes everyone better off. Capitalism and Inequality also examines the measurement of inequality. Economists Thomas Piketty and Emmanuel Saez have measured income inequality using tax returns. The research, popularized in Piketty’s book Capital in the Twenty-First Century, argues that the U.S. experienced modest inequality after World War II but worsening inequality since the 1980s. Furthermore, high Federal income tax rates (90 percent until the 1960s and 70 percent until the 1980s) contained inequality. Taxable income proves unreliable with the Reagan tax cuts. The reform sought to lower the high tax rates which made avoiding taxes more remunerative than earning income. Lower tax rates would produce less income sheltering and faster growth. Tax return measured inequality jumps significantly in 1987, after the Tax Reform Act of 1986 lowered the top tax rate to 28 percent. No fundamental economic change could have created such an immediate spike in inequality. This is the predicted reporting of previously sheltered income. The top income tax rate, furthermore, does not necessarily reveal the burden on high earners, or its progressivity. Economists have constructed comprehensive measures of tax progressivity based on households’ shares of taxes paid and income earned. These measures show that the Federal income tax is more progressive now than during the 1950s and 1960s. So much for the income tax holding inequality in check. In economics and other social sciences, our approach can affect how we interpret what we observe. Capitalism and Inequality seriously challenges the narrative of worsening that inequality requiring punitive taxes on our economy’s great wealth creators. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
