The Great Democracy

by Ganesh Sitaraman

  Something like this approach existed for many years, but in the late 1970s, a new theory emerged. Scholars argued that managers were merely the agents, or servants, of the owners—the shareholders. Under this theory, managers should maximize value to shareholders, and this was accomplished by boosting profits. This approach birthed the shareholder primacy movement. In its purest form, shareholder primacy holds that the interests of workers, the community, the environment, or the public or social good do not matter. The only concern for managers is value to the shareholder, and that value is easily measurable: stock price.30

  By the turn of the twenty-first century, shareholder primacy had become the dominant approach to corporate governance, even as it had perverse consequences for businesses and society. Companies began to shift their earnings from reinvesting in their workers, equipment, and future into paying their shareholders. Between 2003 and 2012, more than 90 percent of the earnings of S&P 500 companies went to shareholders in the form of stock buybacks or dividend payments. On the theory that share prices are what matter, corporations started compensating CEOs through stock options so the CEOs would have an incentive to boost share value. The result was massive inequality within corporations. In 1965, the ratio of CEO to worker pay was 20 to 1. In 1989, it was 59 to 1. By 2016, it had skyrocketed to 271 to 1. More broadly, because most Americans don’t own any stock at all, the focus on boosting share prices has increased inequality by funneling money from workers to shareholders.31

  The story of the rise of corporate power must be told alongside the story of labor power. In the late nineteenth century, populist reformers observed that corporations had undermined another aspect of economic democracy: small farmers and artisans were becoming wage laborers. In many cases, these workers had little control over their lives, livelihoods, or economic destinies because corporate bosses called the shots. The populists therefore argued that corporations had to be transformed. Some advocated for requiring all corporations to become cooperatives, with joint ownership and control by employees. Others, like future Supreme Court justice Louis Brandeis, argued for industrial democracy, a form of worker participation short of becoming a full cooperative. “The employees must have the opportunity of participating in the decision as to what shall be their condition and how the business shall be run,” Brandeis said in 1915. Brandeis meant that workers would have a real say and stake in corporate governance—and that they should bear the consequences of their mistakes. Neither cooperatives nor industrial democracy came to pass. Instead, labor unions mobilized, organized, and won a system of worker-management bargaining.32

  Under the National Labor Relations Act of 1935, workers would organize into unions within companies and be able to negotiate and bargain with their employers for better terms and conditions of their employment. By the post–World War II era, about one-third of the American workforce was unionized. But neoliberalism’s attack on labor unions undermined the precarious détente between workers and companies that existed for the generation after World War II. Companies took an active role in breaking unions. They classified workers as independent contractors to avoid having employees in the first place. And they lobbied hard for anti-union laws throughout the states—laws that would make it harder for unions to grow and organize and, in the process, would crush the ability of unions to advocate for the interests of working people in the political process. They largely succeeded. By 2012, union membership had plummeted to only 11 percent of the workforce.33

  Achieving economic democracy will require serious reforms in corporate governance and in the role of workers in companies. One of the key lessons of the history of corporate law is that corporations don’t exist in nature. They only exist because we the people, acting through our democratic government, have passed laws that allow for their creation. As a result, we can change those laws to tame corporate power. We should start by passing a federal law to require that large corporations be chartered at the federal level rather than the state level, with conditions on receiving a federal charter. We should create a new Bureau of Corporations within the Department of Commerce, which would be tasked with licensing the biggest corporations that operate in America based on revenue and number of employees.

  Federally chartered corporations would be required to meet a number of criteria. First, they would have to adhere to principles for benefit corporations. Benefit corporations are traditional corporations, but their charter requires that they engage in publicly beneficial activities and sustainable value in addition to generating a profit. This requirement would prevent corporate managers and boards from pursuing shareholder profits alone, instead of also considering the interests of the business, its workers, the environment, or the public good more broadly. Second, federally chartered corporations would be banned from compensating any of their senior managers with anything other than a salary (for example, they couldn’t get paid through stock options). This would delink the managers from the short-term incentives of boosting stock prices for themselves and investors. Finally, federally chartered corporations would either have to be organized as cooperatives, with full employee ownership and governance, or they would have to be unionized and half of all board members would have to be representatives of employees. This latter approach to corporate governance is called codetermination.

  The idea of a federal incorporation law is not a new one. In 1908, Theodore Roosevelt called for a federal agency with the power to license, control, and supervise corporations. Today, the case for a federal incorporation law is strong. Federal chartering of the largest companies in the country would both prevent the race to the bottom in corporate governance standards and reduce the power of companies that pose the greatest threat to political and economic democracy. The conditions placed on federally chartered companies would end the problematic shareholder primacy approach to corporate strategy, which exacerbates inequality, undermines long-term value, and harms workers. And the internal governance reforms would empower workers to have a say over the company. This would not only mean that the company would be better to its workers but would also inject a significant new perspective into corporate decision-making. Indeed, the case is so strong today that political leaders again have picked up and modernized Roosevelt’s idea along similar lines to those proposed here. Senator Elizabeth Warren, for example, has proposed an Accountable Capitalism Act that would require federal charters for large companies and worker participation on their boards.34

  Although new federal charter requirements would make the largest companies more democratic, reforms to labor law would also help empower workers at midsized companies and ultimately enhance the political power of working people. First, we could adopt a rule of automatic unionization of workplaces, unless workers opt out. Under current law, workers have to vote in order to create a union. These elections are beset with problems, including corporate managers and even politicians interfering in the electoral process to prevent unionization. Another approach is to flip the default so that all workers who are covered by the labor laws will be members of a union unless there is an election and a majority opt out of the union. This change would help rebuild labor union membership all across the country. Second, many countries around the world have works councils, a collaboration between workers and managers at the worksite to discuss improvements, best practices, and other issues. Unlike codetermination, works councils don’t bargain for wages or engage in high-level policymaking. Instead, they bring together, for example, autoworkers and managers in a single plant to talk about how to improve the line, increase productivity, enhance safety, and innovate. Works councils are democracy on the assembly line, democracy in the cube farm. They empower workers, turning them from cogs in the machine to participants in the enterprise. Works councils are illegal under current law, in part because they might undermine unionization. But this is much less of a concern if works councils are combined with default unionization.35

  Finally, we need to shift to a sector-based approach to collective b
argaining. Labor bargaining at the company level doesn’t always make sense. Companies in many sectors face serious competition, and increased labor costs could make the difference between success and failure in the marketplace. But if every company in the sector adopted the same prolabor policies, for example, on wages or safety standards, there would be no competitive problem. Making policy along these lines is called sectoral bargaining, and it exists currently in countries around the world. But the sector-based approach is far from common today in the United States. A new statute establishing a process for sectoral bargaining could have a significant impact for workers while solving a serious competitive problem for corporate managers.36

  Of course, the reality of work today is that not everyone works for a corporation. Some people strike out on their own and are self-employed or start small businesses. Others are independent contractors or gig economy workers. For these people, corporate democracy and reviving labor unions might be helpful for the broader economy and for advancing economic democracy as a general matter. But these reforms are less likely to get them health care coverage and retirement savings. For their economic security and opportunity, we will also need robust public options for the basic preconditions for a flourishing life.

  Public Options

  As we have learned, during the liberal era after World War II, the dominant model for providing many of these essential social and economic goods was called the Treaty of Detroit. Under the Treaty of Detroit, automakers and labor unions agreed to a system of employer-based benefits: for example, workers would get health insurance from their employers. Since the treaty, much of the American social safety net operates this way. Health care, unemployment, pensions, retirement accounts—all are provided through employers. In the neoliberal era, this started to change. Neoliberals preferred a system in which people would fend for themselves in accessing these necessities—education, health care, and childcare would be available, they argued, through the marketplace.

  Today, however, neither of these approaches makes much sense. The economy is precarious, and workers and families are financially insecure. Workers no longer work for a single employer for a career (if they ever did). The reality is that many people are now independent contractors and freelancers, workers who don’t have a single salaried position—and as a result, can’t get health care, childcare, or other benefits through an employer. At the same time, leaving their fate to the marketplace means they are highly vulnerable to fraud and predation, assuming they can afford to shop in the marketplace at all.

  Having access to these basic elements of everyday life is a precondition for being a full citizen in both an economic democracy and a political democracy. It is very difficult to participate in the economy, or in democracy, when you’re sick. It’s difficult when you don’t have childcare. It’s difficult when you don’t have transportation infrastructure to get to work or the ballot box. It’s difficult if you don’t know how to read or never got a basic education. As a result, we can’t just rely on employers providing basic social goods to their employees. We need another approach. And throughout American history, we the people have provided just that, through a public option.37

  What is a public option? A public option is a universally accessible, government-provided good or service that coexists with private sector options. A public school is a public option. Any kid can attend—without fees or preconditions—but if you don’t want to go, you can attend a private school instead. A public swimming pool is a public option; a private swimming pool is in your backyard. A public park is open to all; your backyard is a private option. Public libraries mean you don’t have to build your own private library for books you might read just once or not at all. Public transportation, like buses, subways, and trains, means you can get around town, but you can also opt for the private option of a car. Public options are critical to democracy because they enable everyone in our democracy to improve themselves civically, morally, culturally, and economically.

  Historically, public options haven’t always been perfect, and they haven’t always been inclusive. But when designed right, they have significant benefits. They provide universal access to important goods and services. Anyone can use them, regardless of race or gender. And because the fees are reasonable to ensure widespread access, wealth isn’t a factor either. Public options thus not only expand equality, they also enhance freedom. A public option can also introduce competition into markets that are highly concentrated, forcing private monopolists to offer better services or lower their prices. In addition, public options help build community and stitch Americans together as one people. Public libraries, for example, offer a place for people to come together to enjoy educational programs, storytime for children, and other activities.

  Today, however, the economy and society are changing rapidly. It now takes more than a public library and a public school to thrive in the modern world. To have an economic democracy, everyone needs to have the basic opportunity to succeed in the economy. As a result, we now need a new set of public options so that all of our citizens can be full members of our economic and political democracy. Consider a few examples of public options that are critical to the future.

  In the modern economy, having high-speed internet access is as critical as it was to have electricity a hundred years ago. But 6.5 percent of Americans don’t have any access to even moderate-speed internet, defined as 25 Mbps download speeds. For the roughly 25 percent of rural communities that have no access, the absence of broadband keeps them disconnected from the national and global economy. In places where there is access to high-speed internet, the problem is different: often, internet service is a monopoly. If we move up to high-speed internet—100 Mbps downloads—almost half of neighborhoods have only one provider, and 36 percent have none at all.38

  A public option—a government-provided internet service that would compete with the private sector—would help solve these problems. Some cities have already taken steps to build municipal broadband networks as a public option. Chattanooga, Tennessee, for example, offers internet through a fiber network. Residents get 1 Gbps service from the city’s Electric Power Board for less than seventy dollars per month. By 2019, more than one hundred thousand residents and businesses were taking advantage of the city’s broadband service. The city experienced a tech boom, with new jobs and businesses popping up, and it even used the new network to improve electricity service. Importantly, Chattanooga didn’t ban Comcast or AT&T or anyone else. It just offered a simple, straightforward service—without frills, gimmicks, or hidden fees. Cities around the country should follow Chattanooga’s model and provide broadband service as a public option. The consequence would be a stronger economic democracy—broader access, better service, and more competition.39

  The most hotly debated public option today is for health insurance. The idea is that the government would let anyone have access to Medicare (or a similar government-provided health insurance plan). If people don’t want to use it, they can buy private health insurance instead. Commentators often point out that the public option is different from another proposal: single-payer health care. The argument is that single-payer is the exclusive government provision of health insurance with no private option. But in reality, although single-payer health care is not a competitive public option, it is a baseline public option. In countries with national health insurance systems, and even for Americans on Medicare, there is often a private market for additional health insurance above and beyond what the government option provides. The private market finds opportunities where they exist, but there is a baseline of public provision that ensures universal access to health care.

  What could a public option in health care look like today? The passage of Obamacare in 2010 set up exchanges—or marketplaces—in every state. People can go to the marketplace and purchase health insurance there, and the plans have requirements as to what they must offer to ensure a basic quality of coverage. The simplest short-term possibility for a public o
ption would be for the government to offer its own health care plan, like Medicare, on the exchanges. People could then choose to get Medicare or whatever private plans are available. A broader reform would eliminate the state exchanges, create a single national exchange with many competing plans, and offer Medicare on the national exchange. A final approach would be single-payer reforms. Everyone would be enrolled in Medicare from birth and have lifetime guaranteed health insurance. Private insurers would then compete to provide additional or complementary coverage for those who wanted it.

  Childcare is another arena in which a public option could be helpful. For most families, taking care of children while juggling work is a real challenge. Kids don’t go to school until kindergarten, the school day is short and rarely coincides with the workday, and schools don’t run year-round. As a result, parents are forced to think up (and, if they can afford it, pay hefty sums for) ways to have people watch their kids: latchkey programs, babysitters, neighbors, childcare providers, after-school programs, summer camps. If they can’t find a way to take care of the kids, a family might have to forgo a necessary second income or just leave the kids to their own devices.

  A public option for childcare could help alleviate this challenge for millions of families. It would have three parts to it: infant care for children under the age of three, full-day preschool that would be integrated with public schools, and before-and-after-school care that would also be integrated with public schools. This optional service would allow parents who want to use it to be able to work, even when their children are little, and provide supervision, care, and enrichment to children during work hours before and after the school day. This system isn’t a pie-in-the-sky idea. It’s been road tested—most of it already exists in France. In France, crèches care for infants under age three. The écoles maternelles offer pre-K. And then the public schools take over from there. In the United States, cities and states are already moving toward creating universal pre-K programs. A public option for childcare simply acknowledges that the challenges are broader than just the pre-K years.