Due in large part to economics being more of a scholastic field with its schools of thought, rather than an empirical field as its apologists would insist, there is not much experimentation going on to enhance the corporate business model. So one important ingredient for restoring economic balance would be greater tinkering with the requirements for licensing business corporations. Granted, the requirements likely would be uniform within a particular state, but changes over time and across fifty states would provide the type of empirical information we need to restore balance. Here are two suggestions I have for corporate tinkering.
One of them I have discussed before on The Middle Class Forum, and it is one of my most frequented posts. In lieu of a minimum wage law, a condition for licensing corporations could be a maximum compensation ratio relating what the CEO makes to the lowest rung on the labor pyramid. A maximum compensation ratio is more consistent with free market principles than a minimum wage law, as the consumer’s dollar does not care how it is divvied up by the supplier of goods. You won’t hear maximum compensation ratios being advocated strongly by free market libertarian think tanks, however, as free markets are not what they are about.
Another suggestion I would make for corporate tinkering would be to place a percentage cap on investment returns. Now a cap, unlike a maximum compensation ratio, does affect the supply and demand of markets, but that is precisely the point in the case of investments. While I would be hesitant to propose caps in relation to goods, services or labor, caps on capital markets are fair game. In no shape or form does a capital investment market exist without heavy-handed intervention and protection from government, so attempting to conform capital investments to “free markets” is much like closing the door after the horse is out of the barn.
Since I’m not an economist I have no idea what such a cap should be set at, but that is the advantage of tinkering and experimentation. The point of a cap is to drive investments towards the merits of goods or services rather than its potential to be maximized in trade independently, and sometimes in contradiction, to the actual merits of what is being produced. As long as the cap is more lucrative than other fixed return alternatives, and uniformly applied, people will still choose to invest in this manner. The difference is that a product whose trade value can be inflated independently of productive merit, such as a barrel of oil, does not gain a government-bestowed advantage for the investment dollar over products that must compete primarily on productive merit alone.
Tags: Free Market Merit
