Michael A. Santoro
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’Trickle in’ economics: How Dems should talk about infrastructure investment

The Republicans won a big victory by cutting corporate taxes and reconfiguring individual tax rates to favor rich donors and red state voters. Majority House Leader Paul Ryan (R-Wis.), not fully sated by his conservative legerdemain, now openly longs for so-called “entitlement reform,” a euphemistic phrase for cutting the Medicare, Medicaid, and Social Security systems that ordinary citizens rely upon.

Sensing that there is a political, if not moral, limit to how much one Congress can take away from the poor and their high tax-paying blue state allies, Senate Majority Leader Mitch McConnell (R-Ky.) has dampened Ryan’s ardor for more fiscal blue blood. Republicans have turned attention instead to infrastructure investment. Facing economic facts, for America to invest in infrastructure, it will need to increase its national debt. Facing political facts, the debt can only be increased with the cooperation of the Democrats.

No problem, the Republicans must be thinking. One congressman’s infrastructure is another’s pork. And even after we are done spreading the pork around red states there will be just enough pork to spread around enough blue states to get the needed votes. So how should Democrats respond to the overtures, nudges, and (inevitably) bullying for bipartisanism that will rain down upon them from Twitter and yon? Two key pillars, both based on bedrock free market economic principles, should comprise the Democratic stance on infrastructure spending.

First, infrastructure spending should be paid for by increases in the corporate tax rate. In a sane and responsible world, Congress would have debated how it was going to pay for infrastructure before cutting taxes. Basic economic reasoning teaches us that government infrastructure investment is intended to boost corporate performance and profits. Bridges, tunnels, airports and public transport all reduce transportation, manufacturing, shipping and labor costs and thereby lift the value of private sector investment.

In September 2011, then-Harvard Law School Professor and Senate candidate Elizabeth Warren explained the logic behind charging corporations for infrastructure investment with broadly appealing moral clarity when she said:

“There is nobody in this country who got rich on his own. Nobody. You built a factory out there — good for you! But I want to be clear. You moved your goods to market on the roads the rest of us paid for.”

A second and equally important economic principle Democrats should insist on is that infrastructure investment be directed to the places and projects where the return for the economy is the greatest. We should build roads and bridges, modernize train tracks, and upgrade airports in the geographic locations where the boost to the economy will produce the greatest productivity gains.

That means investing in blue states like New York and California where jobs and wealth are growing. The New York and New Jersey economies could use that third tunnel connection that Gov. Chris Christie scuttled in 2010. The economic dynamo that is Silicon Valley, where I live, could be even more productive and entrepreneurial by electrifying and upgrading the Caltrain system and other local train systems.  Another project that could unleash enormous value for the U.S. economy would be to build a faster train system linking San Francisco with Los Angeles, which, along with New York, is one of the twin pillars of artistic creativity effectively driving the U.S. economy.

New York is the financial capital of the world. Silicon Valley is the technological capital of the world. Democrats should emphasize that the benefits of growth in these and other blue state economic strongholds will “trickle in” to the red and purple states whose economies get spillover effects when New York and California grow.

When the tech community in Silicon Valley prospers so too does Austin. Autonomous vehicle development creates new jobs for Midwestern auto suppliers. Similarly, vibrancy in the New York and Chicago financial markets only make financial institutions in Charlotte and St. Louis stronger. And Mississippi, Kentucky, Alabama and other red states that rely so much on federal funding will have surer flow of financial support from Washington if the economy as a whole is flourishing and globally competitive.

Republicans well understand the fundamental economic principle that if we are going to take a dollar out of private hands for public purposes then it should be put into the most productive public use. For Democrats, it is merely a happy coincidence of Republican economic logic that infrastructure investment will likely yield the highest economic benefits in blue states.

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Lessons of COVID-19 Vaccines for Progressive Utopians

This is an abridged version of remarks delivered by Professor Michael A. Santoro to the Bonavero Institute of Human Rights, University of Oxford Faculty of Law, on 10 February 2021.

I would venture to say that just about everyone working in the business and human rights field, myself included, is a Progressive Utopian. I define Progressive Utopians as people who work within the political and economic system to achieve progress on climate change, human rights, systemic racism, food security, immigration reform, and other worthy goals.

In this blog I want to consider two questions:

  1. What are the broader goals of Progressive Utopians?
  2. What has the COVID-19 vaccine development and distribution process taught us about these goals?

There are two big dreams Progressive Utopians share. The first is Economic Progressivism—changing the economic system by replacing free markets and private property with government investment and government intervention in deciding what to produce and how to allocate scarce resources. We will eliminate the profit motive; bring down the prices of essential goods (such as medicines and vaccines); and make better decisions about what products to produce so as to be kinder to the environment and healthier and more wholesome for our citizens.

A second dream of Progressive Utopians is Globalism. In its most raw, unalloyed form this means Global Government. We imagine a borderless world governed by the United Nations instead of the United States and Europe and China. And we imagine it together with economic progressivism—Political Globalism and a global, state-run economy.

Consider what just happened. The pharmaceutical industry delivered nothing short of a miracle. In less than a year (when the normal time for vaccine development can take up to a decade) they discovered and produced COVID-19 vaccines that have extraordinary safety and efficacy profiles. The private pharmaceutical companies—well-established giants like Pfizer, Johnson & Johnson, and AstraZeneca, and relative newcomers like Moderna and Novovax—produced miracles and delivered us from our despair.

Governments certainly were a big part of producing this miracle, providing the capital to enable vaccine discovery and development by prepaying for dosages. Vaccine development, even when there is an important medical need, is fraught with too much uncertainty to develop optimally with only private capital investment. And academic scientists and universities certainly provided much of the basic research. But the pharmaceutical industry did the hardest bits. The ability to design and conduct rigorous testing protocols involving tens of thousands of patients across multiple global regions required a vast reservoir of institutional knowledge and capacity.

It might seem like a bitter pill, but Progressive Utopians need to concede that one big lesson of COVID-19 vaccine discovery is that free markets and private enterprise worked. I, for one, am not ready to jettison the innovative and technical capabilities of the pharmaceutical industry, when, as is inevitable, the next pandemic, perhaps even scarier than this one, rears its ugly head.

While the COVID-19 vaccine experience should work to temper the enthusiasm of Progressive Utopians to rein in free markets, it is a stark reminder that we need to redouble our other dream—Global Governance. What we have learned from the rollout of COVID-19 vaccines is that vaccine nationalism and our own desperation thwarts our better angels who would act with greater equity and justice for the rest of the world, especially for billions of poor citizens in the global south.

People in poor countries, however, do not have any chance of equality of access to COVID-19 vaccines because we in rich countries, in our fear and desperation, are hoarding vaccine supply. The European Union attempted to impose export restrictions on vaccines produced within its borders. The United States has locked up 1.5 billion doses while the European Union has locked up 2 billion, both far more than necessary to vaccinate their entire populations approximately twice over. Canada has reserved nearly five doses per capita and the UK and Australia nearly three per capita.

Apart from hoarding, rich countries have been stingy with financial aid that would support drug manufacturing and distribution to the global south. The United States and Europe have made but meager contributions to COVAX, the World Health Organization initiative to ensure rapid and equitable global access to COVID-19 vaccines. (Overall, COVAX has received less than a third of the $38 billion it targeted for relief efforts.)

The stark reality is that countries in the global south, to the extent they will receive any COVID-19 vaccines at all, will receive vaccines that are easier to transport and store, which makes sense given the capabilities of their healthcare delivery systems. However, they will get only the cheaper, less effective and often-unproven vaccines developed in India, China, and Russia.

It is our tribalism and sense of entitlement that stand in the way of acknowledging our global moral responsibilities. Because we are in our nation-state silos, we will never act morally in distributing essential medicines. Only a global government would offer the possibility of doing so.

The COVID-19 vaccine experience has shown us the nation-state system will never consider the rights of citizens in the global south on an equal footing with the rights of citizens in rich countries. This is a monumental moral and human rights failure.

In conclusion, I would argue that what we have learned from the COVID-19 vaccine discovery process is that as distant and unattainable, as utopian as a system of global governance may seem, this is where Progressive Utopians need to devote our efforts. The pharmaceutical industry produced the miracles we desperately needed. They have enabled privileged people in rich countries to emerge from basements and Zoom meetings, drink in pubs, eat in restaurants, and enjoy live entertainment. Our lives will start to return to normal. But it will be years before the same can be said of our fellow human beings in the global south. Free markets did not fail us morally. Private enterprise did not fail us. Tribal nationalist governments failed us.

We can and should change our economic system to make it more just and accountable, but the most important lesson of COVID-19 vaccine development is that our primary emphasis should be on moving toward a global government that can equitably and sustainably oversee and manage the abundant fruits that free markets and private enterprise make possible.

Michael A. Santoro is Professor of Management and Entrepreneurship at Santa Clara University in Silicon Valley, California. He is Co-Founder and Co-Editor in Chief of the Business and Human Rights Journal as well as the Co-Founder and Past President of the Business and Human Rights Scholars Association. His latest book is, A China Business Primer: Ethics, Culture, and Respect (Routledge, 2021).

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Corporate Governance: Hardware and Software Failures

I firmly believe that the link between good ethics and good business is ever tightening in the modern business environment. Companies have two mechanisms for successfully managing ethics that are akin to the way your computer works.  There’s the hardware – the policies and processes that a company institutionalizes, e.g., its corporate governance documents, code of ethics, and board committees and charges to those committees. Then there’s the software – the company culture, the leadership and “tone at the top”.  Either or both can fail and cause a company to fall below the ethical and legal standards society expects business to maintain.

Both hardware and software need to work well for a company to succeed.  However, the focus of many ethics programs is excessively focused on culture – software.

Without the right hardware in place, companies are not prepared to meet complex ethical challenges. It’s crucial that companies design their hardware to be effective within their industry, and it’s equally crucial that they regularly update their hardware.

Failing to address hardware problems in a timely fashion creates a governance gap that potentially exposes the company and in some cases individual Board members to large financial liabilities. Regrettably, many companies don’t appreciate the importance of good governance until after they have been sued and suffer financial liabilities.

Setting up appropriate hardware governance structure avoids damage to reputation and profitability. Not only does well designed hardware protect companies by helping to assure the company meets its legal and ethical obligations, but the right hardware also guides people to make choices that are both principled and profitable.

In some instances, corporate governance failures consist of “software” problems. A company may fail to properly monitor, prevent, and manage corporate risk of ethical behavior because of a general “corporate culture” pervasive in an organization , referring to the seriousness (or lack thereof) with which the top executives of a company communicate about ethical and compliance issues.

For a case study on hardware/software failures, read my assessment of the rationale and impact behind the reforms at Merck as part of the settlement of the Fagin case: Corporate Governance Reform At Merck: A Pharmaceutical Industry Standard for the 21st Century.

Another example of the hardware/software issue happening today is the Wells Fargo settlement with shareholders as a result of their fake-account scandal. For an in-depth look at the impact of corporate governance failure, read my Declaration of Approval for the Derivative Settlement.