I offer a course at the University of Michigan called Business in Democracy: Advocacy, Lobbying and the Public Interest which draws students from both the schools of business and public policy into an examination of the role of lobbying in policymaking and the role of regulation in the market. Halfway through the semester, I ask the students what their classmates think of them taking this course. Their answers surprise me. The business students report that some peers ask why they would take a course on government. “What does this have to do with business?” The public policy students report that some of their peers were aghast. “You actually went into the business school? You actually took a course there? Business is the enemy!” Both groups of students express a viewpoint that is not just naïve but also problematic for creating and maintaining a functioning market. Far too many students believe that government regulation is an unwarranted intrusion into the market, and conversely, that markets operating within a framework of ethical and legal parameters are essential for achieving a society where everyone has the opportunity to flourish. It is time to fill this gap.
The Role of Business in Policymaking
At present the gap is glaring. Few business schools offer courses on “legislative affairs” or “government engagement” (more formal terms for lobbying). One analysis of the top 20 business schools found that only four require courses in corporate political activity. Most other schools offer the topic as an elective, or not at all. And of those courses, fewer still teach a responsible form that serves the public interest beyond mere competitive gain.
Into this void, students, like the general public, hold stale tropes of lobbying as cigar-smoking operators working in dark rooms, plying lawmakers with gifts in exchange for legislative favors. The reality is often far more banal and focused on careful patience in building trust and relationships with politicians and staffers and the tedious work of providing needed information and analysis on arcane policy and legislative details. Some refer to lobbying as the Fifth Estate in guiding the development of market rules and reforms.
Indeed, constructive and responsible lobbying does exist. Some companies have used their lobbying power for the public good on issues such as stopping domestic violence (Mary Kay), addressing childhood obesity (The Cartoon Network), strengthening labor laws in developing countries (Levi’s), and promoting welfare to career programs (Cascade Engineering). But these are exceptions that prove the rule; a rule that business schools should seek to change.
This becomes all the more important in today’s economic environment where corporations are increasingly drawn into policy debates around issues like LGBTQ rights, gun control, democracy, abortion, immigration and more. Some business leaders argue that their engagement is necessary because government is not functioning properly. But they tend to overlook the extent to which their influence is playing a role in that dysfunction. To make matters worse, many business leaders often lack the political acumen to effectively navigate these complexities and suffer from conflicts of interest when doing so. Marc Benioff, CEO of Salesforce, for example, defended his stance on LGBTQ rights in Indiana by citing the data that customers will pay more for products from companies that drive positive social and environmental change. No democratic citizen should want to live in a society where policy addressing vital social issues is decided in battles between dueling piles of money in the pursuit of more money.
So, proper coverage of the role of business in policymaking should begin with a balanced and robust discussion of the hazards when corporate interests play a strong role in influencing the policy process. When does engagement allow companies to encroach on areas where only democratically elected officials should have influence, legitimizing their distorting influence and strengthening “the link between democracy and capitalism at a time when we should instead disentangle one from the other.” The true irony is that, if corporations genuinely aim to improve policy, they should work to reduce their own influence in politics. This means insulating policymaking from the undue influence of moneyed interests, including their own; taking the brave step of unilateral political demobilization and increasing responsibility, transparency, and accountability in corporate political spending, lobbying, advocacy and funding---all the markers of Corporate Political Responsibility.
The Role of the Government in the Market
The other side of the educational coin of business/government engagement is the role of government in the market – a historically divisive topic. Naomi Oreskes and Erik Conway document how proponents of free markets have historically sought to denigrate government, arguing that it “cannot improve the functioning of markets; it can only interfere.” But Joseph Stiglitz (and others) rightly point out that while market equilibrium can exist in theory, it cannot exist in a real world competitive economy with imperfect information or incomplete risk markets, concluding that “there is no respectable intellectual support for the proposition that markets, by themselves, lead to efficient, let alone equitable outcomes.”
But again, students (and the general public) fall back on stale tropes of false binary choices, such as between liberal versus conservative values, Keynesian versus Neoclassical models, socialism versus capitalism, or simply more versus less government. Instead, we need a more sophisticated examination of the proper and balanced roles between business and government in a functioning market that serves society's needs.
The truth is that the American economy has had a long history of government intervention. Mariana Mazzucato points out that “From the internet to nanotechnology, most of the fundamental technological advances of the past half century – in both basic research and downstream commercialization – were funded by government agencies, with private businesses moving into the game only once the returns were in clear sight. … entrepreneurs like Bill Gates and Steve Jobs were able to create great products because they surfed the waves of government-funded technologies.”
The idea of industrial policy, which has been at the center of ideological divisions regarding government and the market, is undergoing a renewal in both practice (witness the Biden Administrations steps int the domain and the Trump Administration’s headlong leap) and academia. According to Dani Rodrik, rather than viewing industrial policy as protectionism, there has been a recent shift in academic research toward seeing it in a much more favorable light, “tending to find that such policies – or historical accidents that mimic their effects – have often led to large, seemingly beneficial long-term effects in the structure of economic activity.” In the end, Mazzucato writes that creating economic value is a collective process. Innovation in the future's green technologies, for instance, requires both corporate investment as well as strong industrial policies that support all stages of the production process, from raw material sourcing to R&D and eventually the final product.
Political Skills Needed for 21st Century Business
Today’s business school students will become tomorrow’s corporate leaders; some will even become lobbyists, and a few will have a career in politics. They need to be taught how to be wise stewards of the market, using their influence to create a fair and sustainable economy that serves all. As Rebecca Henderson points out, “We must remember that free markets must be balanced by democratically accountable, transparent governments and strong civil societies, if we are to build a just and sustainable future. Business must step up to make this possible. Our economies, and with it our firms, will suffer enormously if we don’t address the problems that we face.”
While corporate leaders might not be ideal political actors, it is cynical to believe that corporations cannot play a constructive role in lawmaking and public policy. Conversely, it is naive to assume that corporate influence on lawmakers is inherently benign, as corporate interests often diverge from those of broader society. Business schools should help students navigate this complicated political terrain; we cannot let them get pulled into the domain blind.
Comments
Comment on this Insight