Toomey: Big Banks’ Embrace of ‘Stakeholder Capitalism’ Undermines Economic Growth and Prosperity
Washington, D.C. – In his opening statement at today’s U.S. Senate Banking Committee hearing, Ranking Member Pat Toomey (R-Pa.) raised concerns about the increasing pressure on U.S. banks to embrace “stakeholder capitalism” as a substitute for democratic capitalism.
Ranking
Member Toomey’s remarks, as prepared for delivery:
Thank
you, Mr. Chairman.
Today’s
hearing is about the U.S. financial system. The financial system proved to be
remarkably resilient during COVID, but I am concerned about increasing pressure
on banks to embrace “wokeism” and appease the far Left’s attacks on capitalism.
I worry that continuing down this path may lead to distorted credit allocation,
activists seeking to make political change through the financial system instead
of the democratic process, and ultimately, diminished prosperity for Americans.
First,
let’s observe that the banking system proved to be extremely resilient during
COVID. Last year, we had the worst pandemic in more than 100 years, the
government shutting down almost the entire economy, and the most severe
recession since the Great Depression. Despite all this, banks remained stable
and responded to their customers’ needs for credit, because they were so well
capitalized.
In
fact, one of the best decisions we made during COVID was administering the
Paycheck Protection Program (PPP) through the banking system. No other system
had the scale or agility to run this program, and banks leveraged their
relationships to deliver hundreds of billions of PPP dollars to millions of
small businesses so they could keep their workers employed.
The
financial system’s contributions to America’s economic growth—before and during
the pandemic—are part of the larger success story of capitalism. No economic
system has lifted more people out of poverty, created more opportunity, and
produced a higher standard of living than democratic capitalism.
Thanks
to capitalism, life is better for the vast majority of Americans today than
it’s ever been. In fact, before COVID, we had the best economy of my
lifetime—as measured by the very metrics that my Democratic friends say are
important. We had the lowest unemployment rate in 50 years for all Americans,
record low unemployment rates for blacks and Hispanics, more jobs than people
looking for work, and a record low poverty rate.
Contrary
to the mischaracterizations of some of my Democratic colleagues, we saw
across-the-board wage growth, and growing fastest for the lowest income
earners, and a narrowing of the income gap. In fact, the very system of
economic freedom that my colleagues condemn was creating unprecedented and
shared prosperity across America.
That’s
why I’ve been surprised and troubled to see some banks taking actions that
undermine the property rights at the heart of our system and politicize
lending. Some bank leaders have embraced so-called “stakeholder
capitalism”—which diminishes the primacy of shareholders in our economy and
enables corporations to pursue a liberal social agenda rather than prioritize
its responsibilities to its owners.
Well-run
businesses always benefit their stakeholders, but management’s responsibility
is to do so in service to shareholders, who own the company. The people who own
a company—through shares in their retirement accounts, pensions, college
savings accounts, or otherwise—rely on a firm’s officers to look out for their
financial interests.
Making
decisions based on social policy objectives—rather than profit
maximization—deprives these shareholders of their rightful property. Worse yet,
once the shareholders’ rights are reduced to the level of all other
stakeholders, how does a company’s management decide whose interest to
prioritize?
Some
would invite the government to step in and make those decisions—for example,
those who would favor a prohibition on stock buybacks. After all, if the
shareholders’ interest is no longer paramount, the government may determine
that this capital would be more appropriately allocated to employees or the
environment or other special interest groups.
It
is a fallacy to think that if you are seeking profits, you are not serving
people. In fact it’s the exact opposite. Business can only profit when they
satisfy customers and that can only be achieved with a satisfied workforce and
good relationships with the community.
Finally,
let me suggest a word of unsolicited advice. If there is an issue in the
political realm that affects your bank, like taxes or regulatory policy, I
would hope you would articulate your views on behalf of your shareholders. But,
if there is a highly charged social or political issue that involves balancing
competing values, such as balancing access to voting with election security:
leave that to elected lawmakers. They were elected to make these difficult
policy decisions and are directly accountable to the people who hire and fire
them: the voters in their jurisdictions.
###
Next Article Previous Article
