Who is “Accountable” to Whom?

– January 17, 2023 Reading Time: 4 minutes

“Accountability” matters a lot. It’s a mistake to think people and organizations are only accountable when there is some kind of government (a group of people with guns, just so we’re clear) looking over their shoulders. I hear the “accountability” objection to school choice pretty regularly, whether choice takes the form of vouchers that fund students instead of systems or charter schools that play by their own rules.

Free markets already have multiple layers of accountability, however. First, a firm is accountable to its owners. A corporation’s employees are fiduciaries of shareholders who entrusted workers with the fruits of their labor because they expect the well-sown, well-tended fruits of those labors to generate even more fruit. Maybe they have wholly wretched motives and seek only to indulge their appetites. Maybe they want to retire comfortably. Perhaps they want to use the income to fund a hospital or a university. Their reasons are their own, and the people who run and work for corporations are already legally accountable to them.

A firm is also accountable to its customers. If a business stops providing value for its customers, the customers stop coming. In Albert Hirschman’s framework, customers exercise exit regularly, and significantly, they don’t have to justify themselves to anyone. Maybe they want to boycott Starbucks because of its owners’ stance on same-sex relationships. Perhaps they want to boycott Chick-fil-A because of its owners’ contrasting stance on same-sex relationships. Maybe they just don’t go to Starbucks or Chick-fil-A because they don’t like coffee or chicken. They vote with their dollars for or against venti frappuccinos and spicy chicken sandwiches, and hold producers accountable for their performance by rewarding them with profits or punishing them with losses.

Consider periodic food scandals. I can think of one fast food chain that was ground zero for an e. coli outbreak when I was in sixth grade. I’ve never been there, and I’ve associated the brand name with stomach sickness every time I’ve seen it advertised. Some people might look at the fact that Botulism Burger still exists and claim that the company has suffered no consequences for its actions. The company did suffer, though. Botulism Burger likely would have expanded more widely and rapidly had it not sickened its customers. Maybe there’s still a Botulism Burger in every city. Without the scandal, maybe there would have been one in every neighborhood.

Every dollar someone earns gives them a vote about how to use the means of production. I have seen it objected that this privileges the rich, but think about places the political class disdains. Walmart. Dollar General. McDonald’s. They don’t have locations on Rodeo Drive. These companies succeed not because they have pleased elites, but because the hoi polloi and bourgeoisie vote for them, regularly if not always enthusiastically, with the fruit of their labor. Their commercial votes, I think, should count a lot more than observers’ political votes. The observers and elites might mean well, but they simply don’t know the particular circumstances of time and place on which customers at Walmart, Dollar General, and McDonald’s base their decisions. I don’t visit these places nearly as often as I once did, but that’s because, as a tenured college professor, I make a solidly upper-middle-class income that allows me much greater scope. If we care about the plight of the poor, we will work to make them richer, to expand their options instead of limiting them.

When people talk about “holding corporations accountable,” they usually mean “accountable to observers with no serious stake in what they are doing and who bear no meaningful personal cost if their calls for accountability are misplaced.” Consider wages. To whom is a firm ultimately “accountable?” A firm is accountable to its shareholders, its creditors, its workers, and its customers. It is not meaningfully “accountable” to anyone looking on and saying, “I disapprove.”

People hold companies accountable by accepting or refusing what they offer. Don’t like the wages at Walmart? Work elsewhere. Costco and Buc-ee’s both pay pretty well. Don’t like the food at Olive Garden? Don’t eat there. Don’t think Amazon is a good stock to buy? Don’t buy it. Worried that Amazon is a bad credit risk? Don’t lend to them. Easy-peasy.

Many criticisms of bourgeois society implicitly assume the profit-obsessed are leaving money on the table to indulge their “tastes for discrimination.” Compare high-wage Costco and low-wage Walmart, but think especially about what is implied in arguments that Walmart (or Sam’s Club specifically) should be more like Costco. Suppose Costco genuinely offers a better business model. In that case, I can’t imagine a profit-obsessed corporation like Walmart failing to take notice of that and failing to imitate everything Costco does. Otherwise, we should probably think it possible that the people managing Walmart know more about what works for their company than professional chin-strokers daydreaming about what the world should look like and tapping on a laptop somewhere.

The fact that it isn’t as easy as we might think for someone to simply switch from one job (at Walmart or Sam’s Club) and go to Costco or elsewhere for higher pay should lead us to two conclusions. Either 1) there’s something we’re not accounting for when we’re just looking at wages, or 2) there are some hidden transaction costs preventing firms from hiring away the best talent. Suppose the Costco strategy scaled as well as Walmart’s has, and Walmart is systematically underpaying workers. In that case, we should see them raiding Walmart for talent and opening stores right in Walmart’s shadow. If there are regulatory barriers that prevent it, then it is the regulatory barriers and not the Big Box business model that are to blame.

It’s a mistake to think corporations need to be more accountable. They already are, to their owners, creditors, customers, and employees. Suppose they’re making systematic, predictable errors and not serving one of these constituencies as well as they could, subject to the constraints they face. In that case, there are practically unlimited piles of money to be picked up by the critics and dreamers, if only they would stop criticizing and put together a business plan.

Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama and a Research Fellow at the Independent Institute.