This article first appeared on The Globalist.
Hillary Clinton needs to become an advocate of German-style codetermination in order to break with the Obama legacy of stagnant wages.
On economic issues in particular, Hillary Clinton will need to become more visionary in the coming months to best Donald Trump.
Her campaign took an important step in that direction, by emphasizing – via the rollout of running mate Tim Kaine (video) – a previously obscure pledge to “rewrite the rules so that companies share their profits with workers rather than ship jobs overseas.”
Details are scant. But this agenda zeros in on the correct target as it seeks to modify the prevailing rationale that underpins decisions reached in corporate executive suites around the United States.
Improving corporate governance requires more than marginal tinkering and a zero-sum mentality.
Achieving steady real wage growth and stemming job offshoring can only occur through a genuine reformation in U.S. corporate governance.
If Clinton intends to improve on the dismaying wage record during the Obama administration to which she is tied, the new rules she propose must reflect a visionary agenda.
It’s all about the battleground states
Moreover, if Clinton is to successfully compete with Donald Trump for middle-class voters in vital battleground states such as Pennsylvania, a more visionary agenda is a necessity.
Other rich democracies are in the midst of reforming how their corporations are governed. They often draw on the German codetermination model that underpins the world’s most potent capitalist economy.
Real wages there in the capstone manufacturing sector are $10.71 per hour higher now than in the U.S., reports the Conference Board. Offshoring is rare.
Germany’s neighbors have noticed, which is why 19 nations in the EU 28 now mandate that employee representatives sit on corporate boards.
They covet the long-term focus of German firms. There, R&D, employee innovation, wages and investment are prioritized rather than stock options.
An unlikely Tory ally on co-determination
Even British Prime Minister Theresa May has joined the chorus, urging UK firms to add a number of employee representatives to their boards of directors.
Clinton has plenty of backup to pursue that course. American economists have, for example, documented that stock markets reward firms adopting codetermination with higher Tobin Q’s, a boon to shareholders.
Firms with high Tobin Q’s carry a share market value above asset replacement cost, a stature rewarded by investors to firms with extraordinarily capable management.
Getting serious about this seminal economic reform is not just a matter of political expediency for Clinton.
It is also a vital matter to avoid a predicament where the wage and job gains sought by Clinton come at the expense of profits. By expanding corporate performance, codetermination avoids a profit-wage tradeoff.
With Donald Trump’s popularity rising, Hillary Clinton finds herself in the fight of her lifetime. To succeed, she needs to bring the most effective and powerful reform on offer to upgrade American corporate governance.