It's Not Business' Business

We haven't conferred on CEOs the authority or legitimacy to decide where public interest lies

Robert B. Reich isn't the first person you'd expect to defend Wal-Mart Stores Inc. (WMT ) and criticize the corporate social responsibility movement. But Reich—who served as Labor Secretary in the Clinton Administration—says his fellow liberals are barking up the wrong tree in urging companies to be do-gooders. He says it's elected governments that should set social goals and make rules for companies to follow. Reich teaches at the University of California at Berkeley's Goldman School of Public Policy and has put his latest ideas into a new book, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (Knopf). He spoke about the book with Economics Editor Peter Coy. Excerpts:

You sound like [libertarian economist] Milton Friedman in places.

I agree with Friedman that corporations are not set up to be social institutions. We haven't conferred on CEOs the authority or legitimacy to decide where the public interest lies. In fact today, arguably, there's even less consensus on what the public interest means. There is such polarization.

Aren't companies sometimes better than government at getting things done?

So harness them with specific laws and rules. Tell the private sector what to do. Corporations are going to play the game as fiercely as they can, and that's not a bad thing as long as the rules of the game reflect public values—preventing global warming, rebuilding New Orleans, etc.

In your view, is "supercapitalism" good or bad?

Capitalism has proven itself the most successful system ever designed for allocating resources to where they're most needed. Global capitalism over the last 30 years has been extraordinarily successful at providing consumers with a range of choices such as they have never had before and investors with returns unparalleled in history. At the same time, democracy is failing. We used to assume that capitalism and democracy went together, hand in glove. But the intensifying competition in the private sector is sloshing over into our democracy. The money companies are pouring in gets in the way.

Why do you describe the 1950s through the early 1970s as the "Not Quite Golden Age"?

The good features were: We had far less inequality. We were as a nation content with making progress on America's unfinished agenda such as civil rights and the environment. CEO pay was not all that far removed from the pay of the average worker. There was a much greater degree of job security. On the other hand, there was very little innovation. The economy was dominated by oligopolies. Consumers had very little choice. Investors did not get very good returns.

And today?

Today the situation is almost exactly the reverse. Consumers have extraordinary choice. Investors have done extremely well. You could hardly imagine a more dynamic economy. But inequality is wider than it's been since the 1920s and by some measures since the 19th century. CEO pay diverges mammothly from the pay of average workers. Almost no job is secure. It takes two wage earners to make ends meet for many families. We can't and shouldn't go back to what I term the Not Quite Golden Age. But we can do one very important thing, and that is try to better police the border between capitalism and democracy.

How?

This is not simply the normal laundry list of campaign-finance and lobbying reforms. Why haven't we made more progress? Our thinking is muddled. We need to understand that companies aren't people. They're legal fictions. Companies shouldn't have a right to free speech. By all means shareholders should have the right to express views, but shareholders who don't share those views should not have to join them.

What's wrong with the corporate social responsibility movement?

I don't think it makes sense to demonize Wal-Mart. I don't think it makes sense to praise GE (GE ) for being environmentally sensitive or Starbucks (SBUX ) for being a great employer. Don't believe for an instant that a company is going to sacrifice profits for the sake of social goals.

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