Sunday, January 23, 2022

Christina Parajon Skinner Reviews “Grow the Pie: How Great Companies Deliver Both Purpose and Profit”

This morning, my inbox included a link to: Christina Parajon Skinner, Cancelling Capitalism? Grow the Pie: How Great Companies Deliver Both Purpose and Profit, 97 Notre Dame L. Rev. 417 (2021) [SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4000768 ]. What follows is an excerpt from the introduction.

In February 2019, Amazon announced a plan to build its new national headquarters in Queens, New York. The plan would create between 25,000 and 40,000 well-paid jobs and fill New York City's tax coffers with at least $27.5 billion. But Amazon cancelled its decision in the face of intense political opposition. Perhaps the most vocal opponent was New York congressional Representative Alexandria Ocasio-Cortez. She roundly celebrated Amazon's retreat, tweeting, “today was the day a group of dedicated, everyday New Yorkers & their neighbors defeated Amazon's corporate greed.”

But the congresswoman's maligning of Amazon's relocation was a sleight of hand. She told her followers that the “tax breaks” that would have gone to Amazon would instead now be available for public works, like subway repairs and teacher salaries. But this was wrong. The tax breaks would not be a “donation” of dollars that would have taken funds away from other public uses; rather, Amazon would have had some reductions from future tax bills if and only if--the company had improved the community in financially concrete ways. Yet Amazon was bullied out of town on these false pretenses, and Queens lost out on jobs, urban development, and hefty corporate tax payments. Here, both Amazon and Queens residents lost out--the citizens perhaps the most.

The tale of Amazon in retreat is one of many hard-hitting examples Alex Edmans gives in his book, Grow the Pie, all of which illustrate the growing popular antipathy against corporate profit. In the most charitable interpretation of Edmans's examples, people and politicians increasingly reject capitalism--the private harnessing of free-economic markets--because they appear to misunderstand the role that profits play in society. In other cases, however, it seems that politicians feint ignorance of the social benefits of capitalism in seeking to hum the most popular tune. Grow the Pie disabuses misperceptions by providing novel evidence and examples that bust the myriad myths now perpetuating the growing movement to “cancel capitalism,” as I'll call it here.

To be sure, the movement to cancel capitalism is not merely a political gambit. In one form or another, the notion that corporations' orientation toward profits, and their embrace of free-market forces, is morally or legally objectionable has been penned by leading business and legal scholars over the past few years. Perhaps not surprisingly, this scholarly antipathy toward capitalism (and its instantiation in corporate profit-seeking) has become more fervent over the past eighteen months. Academic, policy, and boardroom conversations about the merits (and demerits) of capitalism have taken shape in the “corporate purpose” debate.

But in many scholarly quarters at least, “purpose” has become synonymous with anti-profit--and some academics advocate for law or regulation to implement their view. Such academic thinkers urge that corporations should abandon the pursuit of profit for shareholders (at least in the first instance) and should instead act first and foremost in the interests of other stakeholders--employees, customers, suppliers, or the environment.

The ardency of “stakeholder capitalists” stems from a belief that profit-seeking corporations are responsible for most if not all of society's ills. As one prominent stakeholder theorist put it,

[i]t is almost as if business executives somehow believe[] that “companies should produce addictive products, minimize their wage bills and costs of employment, pollute the environment, avoid paying taxes so long as this raises their share price and does not undermine their share price for reputational or other risk reasons” ....

Such sentiment, however, elides profit-seeking in the ordinary course with legally reprehensible misconduct. It also obscures the reality that profits are--or at least can be--prosocial and that corporations are incentivized to create value for shareholders as well as society by “growing the pie”--in Alex Edmans's view.

Edmans fully agrees that companies should serve society, as stakeholders believe. However, unlike stakeholderists who have a distaste for profit-seeking--and seek to choke off capitalism at its roots--Edmans painstakingly proves that corporations can pursue profit while serving social goals. Grow the Pie is, in totality, a tome about how corporations can multi-task as such, and how they serve society most effectively and efficiently by pursuing profits. Society reaps maximum benefit from corporations when those corporations pursue profit--and do it extremely well. Edmans's careful analysis would thus leave capitalism intact in its current form, while pruning for externalities.

Grow the Pie's defense of capitalism is a tremendous contribution, albeit one which Edmans himself downplays. While the author largely bills his work as one aiming to correct the factual record about profit-maximization--while providing pointers for managers and policymakers--Edmans reaffirms the validity and viability of corporate capitalism as an ideology that, in practice, advances human welfare.

https://lawprofessors.typepad.com/business_law/2022/01/christina-parajon-skinner-reviews-grow-the-pie-how-great-companies-deliver-both-purpose-and-profit.html

Stefan J. Padfield | Permalink

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