Corporations declared to be drivers of inflation
As economists and politicians try to pinpoint causes of inflation and how best to curb it, the Reserve Bank of Australia (RBA) lays blame on companies. If that’s justified, can anything be done about it?
But while corporations lift prices at the same rate as inflation or higher, workers who want corresponding wage increases suffer a record rapid decline in real wages.
An intensifying and irksome dilemma, as Macks Advisory sees it, is whether paying employees what they want is advisable in the long term. Could it mean thousands of them lose their jobs in what appears to be an inevitable economic downturn? And what if inflation remains high, forcing up prices higher than wage increases?
So, what’s to be done?
The RBA’s only weapon to fight against inflation is interest rate adjustments. Yet governments could contribute so much more towards winning this fight but don’t. Why? Because they lack the political will to make necessary but unpopular vote-losing decisions, and because they’re too often influenced by corporations’ self-serving, behind-the-scenes activity.
Corporations and associated organisations contribute to the funding of political campaigns, lobby Ministers and agencies to manipulate regulations and achieve tax benefits that may increase profits while also disadvantaging public safety and the environment.
However, the Erb Institute of the University of Michigan recently released what it declared to be a much-needed set of Principles for Corporate Political Responsibility (CPR) to guide and evaluate participation of businesses in politics. Macks Advisory isn’t suggesting other organisations and individuals haven’t grappled with this problem, but the Erb Institute’s work on it is the most comprehensive we’ve seen.
And we see Erb’s Principles as something Australian businesses might usefully consider as a pointer to responsible behaviour politically, as having potential to make an important contribution to clarifying the meaning of political responsibility, as offering business owners incentive to aspire to this, and providing a means of determining who among them is acting responsibility and who is not.
So, what’s with the Principles of CPR?
The Erb Principles of CPR embrace three components.
The first goes well beyond funding political campaigns from corporate treasuries, to encompass lobbying, participation in drafting laws and regulations, support of non-profit organisations, and to conduct in public discourse of all kinds.
The second specifies standards for evaluating political actions. The core standard is responsibility, which is defined as conformity with healthy market rules (meaning companies should compete on price and quality of product or service rather than attempting the tweaking of laws and regulations to disadvantage competitors). Political responsibility should never subvert healthy competition, and established science must be respected – especially when related to climate change and hazardous chemicals).
The third component of the Principles encompasses another set of standards relative to legitimacy, accountability, and transparency.
- Legitimacy requires a company’s political activities to reflect its views (as distinct from those of its personnel), to function lawfully, and to refrain from pressuring employees, shareholders, or stakeholders to take positions they would not voluntarily endorse.
- Accountability requires alignment of a company’s own political activities with those undertaken through trade associations and third parties (that is the company shouldn’t be saying one thing and doing another).
- Transparency requires open and honest communication about corporate political activity, including provision of good-faith information and expertise to all levels of government in support of effective policymaking.
Commitment under Erb’s Principles
Although Erb’s Principles for CPR aren’t backed by law, they nonetheless include provisions to ensure they aren’t adopted lightly.
Erb requires corporations claiming to support its views on political responsibility to formally adopt one of three policies – the CPA Zicklin Code of Conduct for Corporate Policial Spending, the Global Responsibility Initiative Standard 415 on public policy, or a publicly stated policy prohibiting use of corporate treasury funds for election-related spending.
Each of these requires a company to take specific, observable measures in support of CPR.
Ed Dolan, who has a PhD in economics from Yale University and is a senior Fellow of the Niskanen Centre (a so-called “think tank” based in Washington DC), says that taken together, the declaration of CPR’s principles and the specific governance measures that support them, offer a set of objective standards against which to judge corporate political activities.
He sees the balance between free market capitalism and constitutional democracy as “delicate” but believes the Principles can help harmonise declaration and governance to promote a “much clearer dialogue” about companies’ participation in the processes of democracy.
A path not readily trod
It seems righteous behaviour by corporations in political activity is a path not readily trod. American Milton Friedman who in 1976 won the Nobel Memorial Prize in Economics for his research on political sciences urged corporate leaders to stop attempting to “act as legislators, executives and jurists” by using corporate resources “to restrain inflation, fight poverty, and so on”, noting the availability of “elaborate constitutional, parliamentary, and judicial provisions” to deal with those matters.
He said that in pursuit of profits, businesses “should stay within rules of the game” – presumably those relating specifically to “deception and fraud” as well as relating generally to property rights, the honouring of contracts, and avoidance of negligent behaviour towards employees and customers.
Half a century ago Friedman was arguing that it was up to governments to make the rules, and for businesses to go about making profits within those rules.
But that’s not happening. Corporations are becoming increasingly intrusive in rulemaking processes at every level -- including political activity -- something seen by many economists as a threat to democratic process, something that America’s Erb Institute says needs to be stopped globally.
We believe it’s a point well made.
