By Lenore Palladino, Photo: Unsplash, Roosevelt Institute, March 16, 2022
Chairman Beyer, Ranking Member Lee, Members of the Joint Economic Committee, thank you so much for the invitation. I am honored to be here today.
My name is Lenore Palladino, and I am an Assistant Professor of Economics and Public Policy at the University of Massachusetts Amherst. My research focuses on large corporations and their critical role in generating innovation, as well as how public policy can enable sustainable prosperity.
I see shareholder primacy as a flawed theory of the corporation because it makes incorrect assumptions about the role of both shareholders and other corporate stakeholders in the process of production. The arguments from scholars of law and economics that shareholders are “residual claimants” and thus the only group who should have power in corporate governance is silent on how companies actually produce better-quality products over time (i.e., how they make use of their inputs to produce better outputs). The theory of shareholder primacy misunderstands the role of shareholders trading on secondary markets and assumes that employees and other stakeholders take less risk than such shareholders, even though most of us have only one job, and if we’re lucky enough to hold corporate equity, we hold it in completely diversified portfolios—our risk comes from the stressors the entire economy faces, not just one company. My work is rooted in the economics of innovation as developed by economists like Schumpeter and Chandler, and today, William Lazonick.
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