August 27, 2018

Through a series of policy positions Senator Elizabeth Warren is setting up a run for the US presidency in 2020. One of her position papers was recently outlined in an Augst 15 Op Ed of the Wall Street Journal printed edition. In the article, the senator outlined her views regarding what she believes should be the objectives of US corporations. She then proposes a series of steps to correct what she considers to be some ills in corporate behavior. We have much to disagree with her views. The Senator is quite the dirigiste. She is proposing an increase in the regulatory burden. That in turn will increase compliance costs, reduce the flexibility of corporations and in our view make shareholders worst off. Then there is other criticism that we would make. According to our views on the theory of the firm, we have shown that profit maximization does not preclude the firm from taking into account and accommodating some of its stakeholder’s desire. We provided a simple rationalization as to why there is parental leave, paid vacation retirement benefits and a multitude of other action that a critic of market forces and competition would have a hard time explaining. The theory of the firm outlined here explain why it is in the best interest of the corporation to do so. Hence viewed from this perspective, compelling corporations to provide these services maybe unnecessary, undesirable and costly.

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