If corporations really believe in environmental, social, and governance investing, shouldn’t they be refusing to take government subsidies? Richard Morrison, senior fellow at the Competitive Enterprise Institute, and John C. Mozena, president of the Center for Economic Accountability, join the Overton Window podcast to discuss how the waning of ESG opens the door to less politically divisive froms of coprorate activism.

Mozena and Morrison argue in their July report “Corporate Social Irresponsibility: After ESG, activist investors should side with taxpayers” that progressive activists could get better results for their causes by demanding that companies stop taking economic development money from taxpayers.

“Going out there asking for a bunch of money to do things that the research shows very clearly just don’t return benefits to the communities that are paying for them, to the taxpayers who are paying for them, you just simply cannot in any way call that ethical corporate governance,” Mozena says. “And for people who do believe that companies have a responsibility to act ethically in the world, to do good by the communities in which they do business, this is a topic they ought to be looking at.

“Our paper also makes the follow-on point that companies in recent years have made all these statements about having an ESG component or division and how this is something we take seriously or whatever. If they don’t want to keep getting dragged into the same culture war stuff that they’ve been sort of dragged into over the past couple years, they can oppose corporate welfare and promise not to do it as part of their ESG governance. It’s a topic that really doesn’t have partisan political baggage, and it’s one that they can get involved in without having to pick a lot of those fights.”

The traditional challenge for opponents of corporate welfare has been that “economic development” seems to make intuitive sense, because it promises to create jobs and spur business activity.

“I think at best, sometimes these simply fail entirely,” says Morrison. “Sometimes there are promises made, and companies simply don’t build plants, don't hire people, and nothing goes forward. But even when there are bricks piled on bricks and there is visual stuff happening, where we see plants being built, it is at best moving money around rather than creating new wealth.”

In their report, Morrison and Mozena describe the high financial and social costs of state and local governments’ subsidy programs. The authors encourage activist investors, ratings agencies and other “stakeholders” to hold companies accountable when they take taxpayer money. The infrastructure for such a movement already exists, they argue, though participants may see themselves variously as investors, advocates for principled business, or believers in corporate social responsibility. The rapid recent shift in public opinion away from “diversity, equity and inclusion” programs creates an opportunity to preserve the concept of corporate governance in a way that more truly serves the public interest.

“If you are the shareholder of a company — and lots of activists and advocacy organizations have small stakes in companies just so they can have the opportunity to do this — you can put forward a shareholder proposal and then you can also do direct shareholder engagement, where you call or email the investor relations office at a corporation and they can sit down and talk with you,” Morrison says. “Even very big companies are responsive if they are sure you that you have a serious point to make. They are more responsive than a lot of people probably imagine, because there actually aren’t that many people out there out there doing that, and so some some friends of ours in the free market movement have been doing that.”

Mozena and Morrison point to the 2019 cancellation of Amazon’s plan for an expansive corporate campus in New York City, after a coalition of Big Apple lawmakers, progressive activists, and even union officials objected to the project’s $3 billion public price tag.

“As reporting on these proposals came out, there was a real public backlash,” Morrison says. “People across the political spectrum, said this is too much, this is excessive. This is sort of like mortgaging the future of the city or county for jobs that may or may not show up. They felt that way even though Amazon is an extremely popular company — and if you look at some of the brand marketing research on what companies America loves, Amazon is way at the top; it has a huge, stratospherically high approval rating as far as customers go.

“But when it came to the political economy, the sort of politics of this, a lot of people who are normally Amazon customers said this feels wrong. This is way too much of a giveaway. Taxpayers are being soaked. So I think the Amazon people and some other big companies, because this was such a high-profile issue, maybe learned their lesson, that even if they can get millions of dollars of promised subsidies, the negative PR involved in the process as a whole is not worth it for them.”

Unfortunately, politicians have not learned to translate that civic spirit into success at the polls.

“If a swing state governor running for re-election can take credit for ‘winning’ a thousand manufacturing jobs through a subsidy program, it doesn’t really affect the partisan voters on either side,” Mozena says, pointing to research from the University of Texas and Duke University. “But in the middle, among the independent voters who often win or lose elections for you, that can move independent voter intent by as much as nine points. You shift nine percent of independent voters, you’re going to win a lot of elections.”

There is some evidence that the 2024 capture of the Michigan State House was driven in part by voter disgust about failed high-profile subsidy deals. But Morrison and Mozena acknowledge that the case against economic development deals is tough to make. They see a clear analogue with corporate rules on international business, which prohibit public companies operating overseas from paying bribes to or accepting largesse from public officials. 

“This is a marathon, not a sprint,” says Mozena. “And we’re in the fairly early stages of it. So we’ve been sort of having discussions with some groups of people who are involved in the management of state pension plans. I think the single biggest institutional investor in the world is CalPERS, the California Public Employees Retirement System. They got somewhat into ESG investing and got their fingers burned a little bit. So there are some discussions to be had there. Part of our plan moving forward is to do more of this stuff publicly. But at this point it’s very much that we have to introduce them to the concept.”

“There are two parts here,” Morrison says. “There’s what we’re asking government officials to do and not to do. And there’s what we’re asking companies to do and not to do. I think we have a good opportunity with a lot of these companies because, as the paper points out, most companies, the vast majority of companies, aren’t recipients of these deals. We’re not in an equilibrium where 90 percent of companies are paid off to move to a new location. A relatively small percentage of companies take these sorts of targeted deals.”

Listen to the full conversation on The Overton Window Podcast.

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