September 23, 2014

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Reviving the American Dream: The Idea of “Entrepreneurship"

Moderate limits to corporate power are necessary to revive the American Dream.

James_hoopes

By James Hoopes

The final part of a series based on the book Corporate Dreams: Big Business in American Democracy from the Great Depression to the Great Recession (Rutgers University Press, 2011).

A market economy has two sides, a demand side and a supply side.  Liberal economic policy had long encouraged government deficit spending to stimulate demand.  1970s economic slowdowns, in which employment responded slowly to government stimulus, encouraged conservative supply side thinking.

The supply siders criticized liberals’ fixation on fighting poverty by preparing the poor for corporate jobs. Large corporations had not been a net source of new employment for many years. The way to fight poverty was to drive down government spending in order to cut taxes and encourage entrepreneurs who would create new jobs.  Supply siders implemented tax cuts which probably helped fuel 1980s growth, but there was no discernible impact on poverty.

Information Technology Increases Corporate Power, Weakens Labor

Conventional wisdom at the time held that information technology would lower transaction costs, Corporate Dreams: Big Business in American Democracy from the Great Depression to the Great Recessiongiving the advantage to small business and encouraging downsizing.  But it turned out that information technology also lowered the cost of management, making it possible for many large firms to become more entrepreneurial. 

GE, rather than downsizing, went into unrelated businesses with the belief that information technology facilitated “boundaryless” management. IBM developed into a “services” company, advising other companies on the implications of high technology for their business strategies.  Most famously of all, WalMart used information technology to make itself a master of low cost logistics, outsourcing manufacturing to China.

Trickle Down Fails

These entrepreneurial giants slashed jobs and fell far short of the supply siders’ promise that entrepreneurship would lift the poor. Instead, they began to leave behind some of the middle class.  As the 1990s came to an end America was increasingly divided into a two tier society of haves and have nots. It was a time for entrepreneurial leadership in politics and government, but America got the same old corporate fluff.

It was a fluke but in 2000 Americans elected an MBA president.

Thanks to a confusing ballot in one Florida county, George W. Bush carried the corporate cult of values-based leadership into the White House. Nowhere was Bush’s substitution of values for competence more clear than in his response to the 2001 Enron crisis. WorldCom, Adelphia, Tyco, and a dozen others, all of them like Enron so enthralled by the witch’s brew of morally pretentious leadership that they neglected mundane operations and hid their corruption from themselves as they slipped into fraud.

The Great Recession & the End of Corporate Moral Leadership

Bush futilely called on CEOs to exercise moral leadership. Americans weren’t buying it. Congress, ownership societyfearful of voters’ wrath, passed the Sarbanes-Oxley bill, subjecting American corporations to unprecedentedly tight regulation of accounting practices. The corporate world and possibly the economy in general would have been far better off if Bush, rather than resisting the reform movement, had tried to lead it toward sensible regulation.

Bush wanted an “ownership society” that gave the poor a stake in the capitalist game.  He therefore pressed banks to lower lending standards out of “compassion.” Corporate America compassionately responded with introductory teaser rates that lured low-income homebuyers into mortgages whose future payments they almost certainly could not afford. In 2006, the real estate market ran out of buyers, and prices began to fall, leaving low equity owners with no reason to make the payments they could ill afford.  Some of America’s biggest financial institutions faced a liquidity crisis.

By 2008 the Great Recession was underway.  Bush bailed out banks but not ordinary Americans who, newly inspired by the danger of debt, began to cut consumption. As demand fell, unemployment soared to nearly 10 percent at the end of the Bush administration. Early in the new Obama administration Congress passed a stimulus bill big enough to prevent a depression but too small to promote a strong recovery.

Can We Revive The American Dream and Entrepreneurship?

Could one imagine a recovery of the American Dream?  If so, would it be the old corporate American dream? Or would it be some new, entrepreneurial dream?

The need for a moderate anti-corporatism to complement the perennial government-versus-market debate was made clear in 2010 by the passage of health care reform. Corporations succeeded in killing a “public option” that had the best chance of lowering heavy costs while the individual mandate to purchase insurance promised to bring them millions of new customers. The relatively weak and pro-corporate new law was greeted with foolish cries of “socialism.” 

Actually, the new health care bill seemed likely to free many Americans for entrepreneurship; they would no longer have to cling to corporate jobs to get health insurance. 

Self-employment is one possibility for recovering something of the American Dream. Unfortunately, Social entrepreneurthe teaching of entrepreneurship goes on mostly in high-priced business schools which may be why, in popular culture, entrepreneurs are well heeled “job creators” who give work to others. 

The reality is that more than a few entrepreneurs are people of modest means who give work to themselves. If government at all levels created programs to teach entrepreneurship and promote self-employment, it would also strengthen the hand of everyone left behind running the cash registers at big box retailers.

Civil Society To The Rescue?

Corporate employment will remain the lot of many Americans. In the global economy there will not any time soon be an international equivalent of the Wagner Act, the 1930s measure that strengthened labor unions and created the 1950s American Dream. Therefore, the countervailing power that working people need against corporate power will have to come not from government regulation but from civil regulation – i.e. outside pressure by NGOs, watchdog groups, and public opinion in general. 

The early 21st century surge of interest in corporate social responsibility (CSR) sparked debates about whether CSR should be philanthropic or strategic, motivated by outside social pressure or inside profit seeking. From the perspective of this book, which has shown that corporations have often proven socially irresponsible, it behooves citizens to adopt a moderate anti-corporatism and participate in applying outside pressure. 

Supposedly tough-minded realists warn that companies are not charities, which is all the more reason for civil regulation. In a democracy, corporate social responsibility is everyone’s job.

Catch up on the series:

From Heroism to Values-Based Leadership: The Contemporary Cult of Corporate Executives

Ethical Leadership: The Corporation Loses Its Way. Again.

CSR & the Rise of Moral Leadership: What Manner of Man(ager)?

The Corporation Strikes Back on Moral Ground: Restoring Corporate Hegemony

Corporate or Government Failure? Creating the American Dream

The Corporate American Dream At Its Height: The History of Capitalism

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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