In a recent ProMarket op-ed, authors Ed Dolan and Claudine Schneider share why the Erb Principles for CPR provide a framework for legitimate, accountable, responsible and transparent corporate political engagement — without sacrificing the interests of shareholders.
The basic tenets of free market capitalism appeal to businesses and consumers alike: respect property rights, compete openly and honestly based on price and quality, and follow common-law principles of fraud, nuisance and negligence. However, these tenets assume a division between government and business, where government defines laws and policy, and businesses follow them.
Unfortunately, this is not always how the real world works. “In the real world, corporations do not just mind their own affairs and leave politics to others,” write Ed Dolan, economist and Senior Fellow at Niskanen Center, and Claudine Schneider, a member of the Board of Directors of Niskanen Center and a former Republican U.S. representative from Rhode Island. “Instead, [some corporations] contribute company funds to political campaigns and political action committees to help elect candidates they like and defeat candidates they don’t like. After legislators are in office, they lobby them, directly or through trade associations, to vote for or against laws that affect their industry.”
What is the Captured Economy?
When business and government are intertwined, it opens the door for some businesses to “do everything in their power to shape rules that maximize their profits” — creating what is known as “the captured economy.” In this ProMarket op-ed, Dolan and Schneider explain why a captured economy is “anathema to supporters of free markets and constitutional democracy.” And, in our current environment, employees, customers, investors and voters have very little way to tell who is driving the captured economy and who is focused on real value-creation.
Addressing these issues, unfortunately, isn’t simple and requires more than a single action or regulation. “The obvious political obstacles in today’s polarized America are only part of the story,” the authors say. “Even if corporate political spending were limited, it is not the only avenue of corporate political activity. Furthermore, participation in public discourse, funding of nonprofits, and engagement in legislation and regulatory rulemaking cannot simply be cut off. The right to petition the government for redress of grievances is itself, for good reasons, explicitly protected by the Constitution.”
So what to do about it?
The Erb Principles for Corporate Political Responsibility
At a minimum, companies need to ensure their political activities are compatible with free markets and constitutional democracy.
This is why the authors support the Erb Principles for Corporate Political Responsibility, which encompass legitimacy, accountability, responsibility, and transparency, but do not require corporate leaders to “prioritize the interests of outside stakeholders over their duties to shareholders.”
The Erb Principles for CPR simply require “corporate leaders not use their political activities to change the rules of the game in ways that encroach on the public interest.” While such cross-industry principles are necessarily broad, Dolan and Schneider demonstrate how companies can use them in the context of current events to consider, “Are [our] political activities consistent with healthy ‘rules of the game?’ With free and open competition? With minimum adverse impact on stakeholders other than owners? With respect for established science?” In turn, the public can then use them as a checklist for asking, “Do I want to invest in this company? Do I want to buy from or sell to it? Do I want to spend my own time and resources disputing what it says in public discourse?’”
Schneider and Dolan say the Erb Principles for CPR offer a crucial step toward greater legitimacy, accountability, responsibility, and transparency, independent of the debate over shareholder primacy and stakeholder capitalism. They conclude, “The Erb CPR principles will be a worthwhile endeavor even if they do nothing more than help guide corporations through the politically charged environment in which we ﬁnd ourselves today.”