Sustainable Finance Quiz #3

Shareholder value

The idea that a corporation's primary obligation is to operate profitably and protect the capital of its owners.

Leland L. Doan

Dow Chemical president who argued in 1957 that businesses should judge social responsibility according to whether it benefits the company.

Corporate attitude toward civil rights in the Golden Age

Many firms resisted changing discriminatory practices until public pressure and federal legislation forced them to do so.

Andrew Hacker

Academic who argued in 1963 that corporations should focus on profits while government and citizens handled civil rights and public welfare.

Civil Rights Act of 1964

Federal legislation after which corporate discrimination against minorities began to decline more materially.

Jim Crow

A system of racial discrimination against Black Americans that had existed since the end of Reconstruction.

Arie Haagen-Smit

Researcher hired by Los Angeles who determined that automobile exhaust reacting with sunlight was the main cause of the city's severe smog.

Harold Johnston

Scientist hired by the petroleum industry to challenge research on smog but instead concluded that the original research was correct.

American Petroleum Institute and smog

The industry organization concealed research supporting the link between automobile exhaust and pollution while publicly criticizing that research.

Clean Air Act of 1963

Federal law restricting automotive emissions despite opposition from the oil and automobile industries.

1973 oil shock

A major increase in energy prices triggered by an OPEC embargo following U.S. support for Israel during the Arab-Israeli War.

1973 Arab-Israeli War

Event associated with the OPEC embargo and conventionally treated in the slides as the end of the Golden Age of Capitalism.

1979 oil disruption

A second major energy shock caused by interruptions to Iranian oil supplies during the Iranian Revolution.

Economic effects of the 1970s oil shocks

Higher energy costs spread through the economy, increasing inflation, producing shortages, slowing growth, and contributing to recessions.

1974 recession

Economic downturn following the first major oil shock and described in the slides as the worst recession since World War II at that time.

1980 and 1981 recessions

Downturns that were partly associated with the disruption of global oil supplies following the Iranian Revolution.

Supply shock

A sudden reduction or disruption in the availability of an important input that raises prices while reducing economic output.

Stagflation

The unusual combination of high inflation, weak economic growth, and high unemployment.

Why traditional anti-inflation policy struggled in the 1970s

Raising interest rates was poorly suited to the problem because inflation came from restricted supply rather than an overheating economy.

Ronald Reagan

President elected in 1980 whose economic program represented a major shift away from the earlier political and economic consensus.

Reagan Revolution

The broad political and economic transformation beginning in the 1980s that emphasized markets, lower taxes, weaker unions, and reduced government intervention.

Milton Friedman

Nobel Prize-winning economist and major intellectual influence behind the market-oriented policies adopted during the Reagan era.

Neoliberalism

A political-economic philosophy favoring weaker unions, lower taxes, limited social benefits, less market regulation, and generally freer international trade.

Neoliberal view of government benefits

The belief that extensive public assistance can create dependency and weaken entrepreneurialism and competitive incentives.

Reagan and the air traffic controllers

He fired roughly 11,000 striking federal workers, establishing a much harder government position toward organized labor.

National Labor Relations Board

Federal agency responsible for mediating labor disputes and enforcing workers' rights.

Right-to-Work laws

State laws allowing employees represented by a union to avoid paying union dues, reducing union revenue and bargaining power.

Free rider problem in unions

A situation where workers receive the benefits of collective bargaining without financially supporting the organization providing those benefits.

Systemic causes of union decline

The shift away from manufacturing, fewer low- and semiskilled jobs, difficulties organizing service workers, and greater ability to move jobs overseas.

Union decline and the middle class

The slides argue that weakening organized labor reduces wage standards and is associated with shrinking middle-class income.

Reagan tax policy

Large reductions in marginal tax rates that became a model for later administrations.

Reagan and government size

Despite advocating smaller government, spending pressures and increased military expenditures meant the federal government did not actually shrink overall.

National debt under Reagan

It increased from roughly $907 billion in 1980 to about $2.6 trillion in 1988.

Federal debt and lower taxes

The slides argue that persistent tax reductions have contributed to rapidly rising government borrowing relative to the economy.

Reagan-era social safety net reductions

Cuts and tighter eligibility affected food assistance, family cash assistance, housing subsidies, and other federal benefits.

Antitrust policy under Reagan

The federal government sharply reduced the number of cases brought against large companies and concentrated industries.

Corporate concentration

A market condition in which a small number of firms control a large share of an industry.

Examples of highly concentrated industries

Four firms control about 85% of beef meatpacking, four airlines about 73% of domestic travel, three firms about 70% of internet service, and three about 60% of digital advertising.

Effects of concentrated industries

Greater corporate power can be associated with higher profit margins, slower wage growth, weaker economic growth, lower productivity, and increased political influence.

New Gilded Age

The slides' description of the modern U.S. economy because of extreme inequality, corporate concentration, and increasing economic and political power at the top.

Income growth since 1980

The slides argue that the gains in household income have overwhelmingly gone to the highest-income groups, especially the top 10%.

Bottom 50% share of national wealth

About 3% today, compared with roughly 12% around 1890 according to the slides.

Top 10% share of national wealth

About 67% today, a level described as similar to the distribution during the late nineteenth century.

Productivity and wages, 1950-1973

Both worker productivity and average real wages increased by approximately 97%, so gains were broadly shared.

Productivity and wages, 1974-2013

Productivity rose about 74%, while average real wages increased only about 9%.

Minimum wage in real terms

The slides state that its purchasing power has fallen by roughly 40% from its historical peak.

CEO-to-worker pay ratio

It increased from approximately 23-to-1 in 1973 to around 350-to-1 today according to the slides.

After-tax corporate profit margins

They average about 9% today compared with roughly 6% during the Golden Age.

Why the slides connect profits to GDP distribution

Shareholders are described as spending a smaller portion of additional income than workers, so shifting income toward labor may create more consumer spending.

Growth in mergers

Completed mergers increased from about 2,308 in 1985 to 15,361 in 2017, roughly a sevenfold increase.

ESG and sustainability

Modern terms for efforts to encourage businesses to consider broader environmental and social responsibilities beyond immediate shareholder returns.

Business Roundtable Statement on the Purpose of a Corporation

A 2019 declaration in which major companies committed to customers, employees, suppliers, communities, and long-term shareholder value.

Stakeholder capitalism

The idea that corporations should consider the interests of workers, customers, suppliers, communities, and owners rather than focusing solely on investors.

Jamie Dimon's argument for stakeholder investment

The claim that companies need to invest in workers and communities in order to remain successful over the long term.

Public reaction to the 2019 Business Roundtable statement

It was widely praised by nonprofit leaders, politicians, and the press as a move toward a fairer and more inclusive economic model.

Performance of companies that signed the 2019 statement

A later study found they had more environmental and labor violations, greater industry-adjusted CO2 emissions, more resistance to social shareholder proposals, and higher lobbying spending than non-signers.

ESG scores of Business Roundtable signers

Despite weak performance on several measured social and environmental outcomes, the companies that signed received higher ratings on these measures.

Main lesson of the New Gilded Age slides

The earlier balance among business, government, and labor weakened after the 1970s, contributing to reduced union power, less regulation, greater corporate influence, and increased inequality.