The Scorpion, the Frog, and the Corporation
Ernest Partridge, The Crisis Papers
September 12, 2006
“The public be damned, I work for my stockholders.”
William H. Vanderbilt
A scorpion, eager to get to the other side of a stream and unable to
swim, pleads with a frog to allow him to ride on the frog’s back, across
the stream.
“Certainly not,” said the frog. “You would kill me.”
“Preposterous!,” replied the scorpion. “If I stung you, it would kill
the both of us.”
Thus assured, the frog invited the scorpion to climb aboard, and halfway
across, sure enough, the scorpion delivered the fatal sting.
“Now why did you do that,” said the frog, “you’ve killed us both.”
“I am a scorpion,” he replied, “this is what I do.”
What corporations do is strive to maximize the returns on the
investments of their stockholders. As Milton Friedman put it, “The
social responsibility of business is to increase profits.”
Unfortunately, if corporations are unconstrained by law or
regulation, they can, by simply “doing what they do,” suck the life out
of the economy that sustains them. Like cancer cells, lethal parasites,
and the scorpion, unconstrained corporations can destroy their “hosts,” without which
they cannot survive, much less flourish.
By saying as much, I might appear to be favoring the abolition of
corporations, like some far-out Commie nut case.
On the contrary, I approve of corporations. I have seen, in the former
Soviet Union, the results of an alternative system, the “command
economy.” It
isn’t a pretty sight.
How can I disapprove of corporations when I am surrounded by devices and
conveniences that were developed and marketed by corporations? The
computer with which I write this essay and the internet that publishes
it would be impossible without the corporate structuring of our economy.
(However, let us not forget, they would likewise be impossible without
government sponsored research and development).
So here’s Two Cheers for Capitalism. Thank God for Thomas Edison, Henry
Ford and Bill Gates, and the millions of others who have, by exercising
free enterprise, immeasurably improved our lives, as they proceed to
improve their own.
But I withhold that third cheer as I view with foreboding, the dangers
of capitalism and corporatism unconstrained and running wild.
My message is a simple one, if familiar: corporations are invaluable
servants that can become ruthless masters, to prevent which:
“Governments are instituted among men [and women], deriving their just
powers from the consent of the governed.” This means that laws and
regulations, which implement limitations and constraints, are enacted
and enforced in behalf of “the public good.”
Remove these constraints, and the servant soon becomes the master, as
well as the parasite which consumes its host, thus destroying both the
parasite and the host on which it feeds.
Put simply, when the corporation is subordinate to government and the
rule of law, prosperity throughout society is possible. But when
government and the rule of law are subordinated to corporations, the
result is ruin for all.
Bold pronouncements, all. Now to the supporting arguments.
The Corporation vs. Society.
The stakeholder problem. It is an article of faith among
libertarians and regressives, a faith undiminished by the historical
record or practical experience, that the unregulated free market of
self-serving buyers and sellers will, “as if by an invisible hand,”
yield the optimum social benefits.
This reassuring dogma conveniently neglects the “third parties” to
economic transactions: the “stakeholders” – individuals affected by the
transactions without their informed consent. These include individuals
residing downwind and downstream from polluting industries, taxpayers
who must pay for the medical costs of smoking, citizens at risk of
injury or death from toxic chemical releases, and homeowners near
airports. Add to these, the customers who are not informed of the
consequences of their purchases: teen-agers induced to take up smoking,
consumers of insufficiently tested drugs, etc. The costs of these
third-party “externalities” do not figure into the profit-maximizing
plans of corporations, unless those costs are imposed by force of law
and regulation, which is to say, by government.
There is another remedy, say the libertarians: the threat of law suits
by individuals harmed by corporate irresponsibility. Unfortunately, the
regressive Republican Congress has pulled the teeth from this watchdog
by enacting so-called “tort reform” – limitations on awards to
plaintiffs. So today, damage claims by customers and stakeholders are
simply regarded by large corporations, as “the cost of doing business.”
(For more reasons why “the courts and torts” solution doesn’t work, see
my “Privatization and Public Goods.”).
The Stock Market is geared for the short term. In contrast, wise
and just social policy plans for the long term. Imagine two competing
lumber companies: the first clear-cuts, moves on and leaves a ruined
landscape. The other employs sustainable forestry, leaving ground cover
and seed trees, and replanting seedlings, in the expectation of
harvesting trees fifty years hence. As a result, the first company, free
of the costs of sustainability, has twice the return on investment for
the first two years than its competitor, and sells lumber at 80% of the
price of the other. However, after ten years it is bankrupt. The second
company, sustains lower profits and higher prices far into the future.
If you were an “in and out” investor, which stock would you buy? This
admittedly simplistic illustration distorts reality. Some far-sighted
commercial enterprises do flourish, and “ruin and run” companies can and
do fail. Nonetheless short-term planning is endemic to corporate
structures. Fortunately, this corporate myopia can be mitigated
through subsidies and tax incentives -- i.e., through government
intervention in the market.
In sum: For most investors, the sooner and the greater the return, the
better. But societies flourish when citizens are psychologically and
morally invested in the long-term success of their nation. It’s called
“patriotism.”
Corporate Volunteerism doesn’t work. Corporate officials often
proclaim, in person or through their trade associations, that government
regulation is unnecessary, since voluntary acts of “good corporate
citizenship” will suffice. No company, they argue, can afford to be
ill-thought of by the public.
To be sure, corporations will contribute to civic enterprises and strive
to be “good corporate citizens.” It’s good public relations, which means
a worthwhile return on the modest expenditures involved. But when public
service collides with the bottom line, the results are all too familiar
and predictable.
I found this out when I served for seven years on the Public Advisory
Panel of The Chemical Manufacturers Association (now The American
Chemistry Council). (See
My Seven Years as a Corporate Token).
Following the 1984 disaster at the Union Carbide plant in Bhopal, India,
the CMA established a program of “Responsible Care®” toward industry
workers and toward the public in general. The published principles of
the Responsible Care program are commendable and uncontroversial,
describing just the sort of behavior one would expect of an industry
cognizant of its public responsibilities.
At the three to four yearly meetings of the Panel, various industry
initiatives and programs designed to ensure safety and environmental
quality were presented to us, and we visited numerous plant facilities
and ecological restoration areas adjacent to the plants. All quite
impressive.
I will credit the chemical industry with fine corporate citizenship, at
least with regard to numerous “small things.”
However, since the advent of the Bush administration and the relaxing of
government regulation and oversight, the industry has failed
spectacularly to meet its civic responsibilities. Immediately after the
Supreme Court decided the outcome of the 2000 election, the Public
Advisory Panel was abolished. Then followed three responses to public
issues by the CMA/ACC which together have undone the gains of the
Responsible Care program. The first was opposition to efforts to
meliorate global warming. The second was an attempt, in conjunction with
the EPA (!) to test the toxicity of insecticides on human subjects:
infants younger than 13 months. This “CHEERS” program was abolished by
congressional action. Finally, the industry thwarted congressional
efforts to require strict security measures at chemical plants.
As a November, 2003 60 Minutes broadcast dramatically demonstrated to an
audience of millions, the insecurity of chemical plants are disasters
waiting to happen, since it is apparent that a terrorist with a satchel
charge might be able to simply walk into a facility and set off an
explosion that would release chemicals that could kill hundreds of
thousands. The protection of these facilities is a public imperative, to
date still unrealized. It is clear, at last, that the chemical
manufacturers will not volunteer to secure these facilities. So they
must be made to secure them by the only agency capable of enforcing that
security. That would be the government, of course. (Follow
this link for more about these issues and the American Chemistry
Council).
Unregulated free markets are self-eliminating. One of the great
myths of regressive politicians is that mega-corporations support free
markets. In fact, they don’t. Competition forces down prices and compels
product and service improvement. That’s good for consumers, but bad for
corporations, which much prefer monopolization, for themselves at least,
and “free markets” for their competitors. Witness Microsoft and the
media conglomerates.
Once a corporation (or a consortium of corporations) takes control of a
market, they can set their own prices and make their own rules. If they
control the market on some insignificant widgets, consumer demand will
keep the prices down. But if they control essential and indispensable
commodities, such as food, water, prescription drugs, gasoline, heating
fuel, or electricity, they are free to set prices that will impoverish
their customers.
The remedy is obvious, and has worked well in the past: the enactment
and enforcement of anti-trust legislation. And in the case of “natural
monopolies” such as electricity, the remedy is regulation. And that
means, of course, government.
The Great Experiments.
Libertarians and regressives of the Republican right insist that once
government regulation of business is abolished and the free market is
allowed to function without constraint, prosperity for all will follow.
That’s the theory and the promise. However,
history has proven
otherwise. For example, in the twenties, under successive Republican
administrations, business was given free reign, unconstrained by
“government interference.” And that led to the Great Depression. After
the fall of Soviet Communism in August, 1991, Russia was overrun with
right-wing, free-market economists from the West, bearing advice, which
was, unfortunately, all too often taken. The Russian economy collapsed
as enterprising former industrial managers seized control of these
resources and became instant billionaires and almost the entire
population was impoverished. Finally, with the fall of Baghdad in 2002, Bushites, led by Paul Bremer, saw a fresh opportunity to establish a
free-market utopia. Today, 60% of the Iraqis are unemployed.
But no matter. History be damned. So once again, thanks to the Bush
administration and a compliant Congress, cowboy capitalism is on the
loose, and the American economy is careening straight toward a
precipice. Parasitic capitalism has poisoned its host and, absent prompt
and radical treatment, both are doomed.
For consider:
-
In the past six years, the incomes of almost all
middle and low income Americans has stagnated or fallen, while the
incomes of the top 1% have skyrocketed. (For specifics, see
Paul Krugman’s latest column).
-
Consumer credit has increased to the point that the
national credit card is about “maxed-out”. Add this to the increasing
interest rates, and the inevitable result must be a sharp drop in
consumer spending and an increase in personal bankruptcies.
-
Corporations, driven to reduce labor costs and thus
increase profits, and heedless of the social and economic
consequences, have shipped (“outsourced”) millions of industrial and
now service jobs overseas, further reducing the consumer base in the
United States.
-
Similarly, corporations and the super-wealthy have
sought, and found in a compliant Congress, “tax relief” through
numerous tax loopholes and overseas tax shelters. Thus, government
revenues have plummeted while deficits have soared.
-
As a result, domestic spending for social services,
education, scientific research and development, and physical
infrastructure has been cut dramatically.
No modern economy can survive without an educated work
force or an operating physical infrastructure or a population of
consumers with disposable incomes. And yet, in their misguided pursuit
of “corporate self-interest,” the corporations starve those very
institutions that sustain them.
Unconstrained corporatism, through its control of the media and the
federal government, has brought this about.
The inevitability of governance.
The anarchism of the libertarians and the regressive right is a
delusion, and a dangerous one at that. For just as no organized game can
continue without referees, no civilized nation can endure without a
government. In competitive sports, it is the objective of each team to
win the game. Referees have a separate function: to protect the
integrity of the game by enforcing the rules, without which there can be
no game. So too with governments and their laws and regulations. They
exist to enact and enforce the rules that make an enduring market
possible. They enforce traffic laws, without which travel would be
impossible; they assign frequencies to commercial radio and TV stations
(originally, in 1934, at the request of the broadcast industry).
Governments enact and enforce regulations that protect the public from
contaminated food and dangerous drugs, from unscrupulous investment
schemes, from fraud, libel and slander, and do not forget, governments
exist to protect corporations from unscrupulous competition and
monopolization by competitors. (See my
“Kill the
Umpire”).
Corporations, as William Vanderbilt emphatically asserted, exist for the
benefit of their stockholders. Ideally, governments exist to represent
and act in the interests of all the people, and that ongoing entity: the
nation. And if a government fails in these duties to the people and to
the future, then the people have the right to improve it or, failing
that, abolish it and replace it with a new government. (Read
The
Declaration of Independence. It’s all there).
For example, although I have a stake in clean air and water, I can’t
vote out the governing board of a polluting corporation; not unless I am
a stockholder, and a wealthy one at that. However, I can elect
representatives that will enact laws and regulations that protect me and
other stakeholders from the abuses of the corporation. In short, if
corporations, in the proper pursuit of profits for their stockholders,
are also to operate to the benefit of society at large, they must be
regulated by the only agency legitimately qualified to act in behalf of
the general population, and that would be a democratically-elected
government.
So we come to an unspectacular conclusion: capitalism and corporations
are good things, but it is possible to have too much of a good thing.
For these worthy and indispensable servants of the body politic can
become cruel and insufferable masters, to prevent which, we establish
laws and regulations – i.e., government.
Today, in Bush’s America, we have way too much of these “good things,”
as they now undermine and destroy the institutions, the economic
foundations, and the political structures that sustain us – and the
corporations as well.
The solution is also compellingly obvious: let’s return to the system of
regulated capitalism, of checks and balances, of the rule of law, and of
a government of, by, and for the people, that has served us so well for
over two-hundred years.
In the previous administration, under such a regime, the American
economy enjoyed unparalleled prosperity, the country was at peace, and
the United States of America and its political traditions were respected
throughout the world.
Let’s bring back that which was proven to work in the recent past.
If it ain’t broke, don’t fix it.
(Author’s note: This essay is a brief statement of an argument developed
at length in my book-in-progress,
Conscience of a
Progressive.).
Copyright 2006 by Ernest Partridge
Ernest Partridge's Internet Publications
Conscience of a Progressive:
A book
in progress.
Partridge's Scholarly Publications. (The Online Gadfly)
Dr. Ernest Partridge is a consultant, writer and lecturer in the field
of Environmental Ethics and Public Policy. He has taught Philosophy at
the University of California, and in Utah, Colorado and Wisconsin. He
publishes the website, "The Online
Gadfly" and co-edits the progressive website,
"The Crisis Papers".
His e-mail is: gadfly@igc.org .
