CANCELLING CAPITALISM?

• Author: Skinner, Christina Parajon
• Position: Grow the Pie: How Great Companies Deliver Both Purpose and Profit

GROW THE PIE: HOW GREAT COMPANIES DELIVER BOTH PURPOSE AND PROFIT. By Alex Edmans. Cambridge & New York: Cambridge University Press. 2020. Pp. 357. $24.95.

INTRODUCTION 417 I. THE CORPORATE PURPOSE DEBATE: SHAREHOLDERS, STAKEHOLDERS, PIE-GROWERS 421 II. MYTH-BUSTING: WHY PROFIT IS PROSOCIAL AND WHAT THIS MEANS FOR LAW 426 A. Positive Law on Purpose 427 1. Stifled Innovation 429 2. Janus-Faced Corporations 430 3. Statist Corporate Law 432 B. CEOs and Activists 432 III. WHAT ROLE FOR LAW IN PIE-GROWING? 435 CONCLUSION 440 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." (1)

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. (2) 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. (3) 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. (4)

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. (5) 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. (6)

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".... (7) 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.

Injecting this viewpoint into the academic debate is critically important at a time when voices of stakeholderists seem the loudest. Sociological research long ago confirmed that societal expectations (as often shaped by academic discourse) have real impact on our social systems and institutions. Popularly, the phenomenon is recognizable as the "Oedipus effect." Renowned economist George Soros translated that concept into economics, giving us good reason to think that what people are told about capitalism from the so-called experts will, in turn, dictate the shape of our markets and economy for many years to come. These are not petty stakes. (8) Souring on capitalism prematurely, or based on factual inaccuracy, risks discarding decades of economic institution building. (9) Between the lines, one could read Grow the Pie to admonish its readers not to forget that capitalism has raised standards of living globally and fuels the innovation that enables human progress. (10)

The main goal of this Review is to highlight what I see as Edmans's most important contribution in writing Grow the Pie--to explain why profits are prosocial--and then to expand the connection between his analysis to law and macroeconomic policy. The Review thus urges that Grow the Pie provides a compelling foundation for considering why our existing legal frameworks should support the status quo, as enabling free-market capitalism, and proposals for radical reform should be abandoned. (11) Ultimately, and ideally, this Review will draw attention to the ways in which Edmans's data synthesis provides a compelling defensive of a free-market corporate law landscape, influencing the trajectory of U.S. corporate law and financial regulatory reform in the next few years.

1. THE CORPORATE PURPOSE DEBATE: SHAREHOLDERS, STAKEHOLDERS, PIE-GROWERS

   In a 1970 opinion piece in the New York Times, Milton Friedman famously wrote that the "one and only social responsibility of business... [is] to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." (12) The 1970s and 1980s were, of course, the halcyon days of free markets, with the world still booming from postwar prosperity, deregulation in the wind, and markets seen as the moral superior to the communism of the Soviet Union.

   That sentiment turned, though, after the financial crisis of 2008--where unbridled markets seemed at the core of markets melting down and the painful macroeconomic recovery that ensued. Around that time, capitalism detractors' voices became louder and stuck in people's ears. (13) In the 2010s, stakeholder views become increasingly prominent, reaching a fever pitch in 2020 in coincidence with the groundswell of social and political unrest. As discussed above, for stakeholderists, questioning a corporation's purpose just meant decrying its Friedmanesque pursuit of profit.

   Edmans appears, in all aspects of the book, motivated to expose a false paradigm that had become embedded in that corporate purpose debate--that is, the assumption of a binary choice between shareholders and stakeholders. Edmans rejects the notion that corporations must choose "us" (i.e., "executives and shareholders") or "them" (i.e., "workers and customers"), rejecting that shareholder primacy and stakeholderism are truly odds. (14)

   He does this by offering up an alternative view of a corporation's ideal purpose, one that serves both of these (heretofore presumed to be opposing) groups. The eponymous theory in Grow the Pie, the crux of which Edmans sets up in Chapter 1, holds that business is not a zero-sum game, in which stakeholders lose when shareholders win and vice versa. The pie metaphor is really quite handy for grasping what should be an instinctively intuitive concept:

   The pie-growing mentality stresses that the pie is not fixed. When all members of an organisation work together, bound by a common purpose and focused on the long term, they create shared value in a way that enlarges the slices of everyone--shareholders, workers, customers, suppliers, the environment, communities and taxpayers. (15) As one can see, the basic notion is that--with intent fixed on growing value (without...