Large corporations are dangerous. And beneficial.

corporations

In trying to find common ground for conservatives and liberals, I find myself making statements that seem utterly obvious, yet no one seems to be saying them. Or rather people are saying half of these truisms and leaving out the counterbalancing factor. For instance, when Democratic Presidential candidates discussed “big business” in recent Presidential primary debates, they focused largely on the damage that large corporations cause to our environment and to our social and economic well-being. On the other side, I hear Republicans lauding the growth in “the economy” as an unquestioned good.

Both rhetorics seem off-balance to me, and thus I assert an inanely simple corrective: large corporations are both dangerous and beneficial.

First, let’s talk about the slipperiness of words, as I so often do in this blog. In politics there’s a lot of talk about “business,” a term that applies to both hot dog stands and hotel chains. But it’s easy for talk about “a climate favorable to business ” to shift meaning toward “policies that favor large corporations.” Small businesses do not have the same interests as multinational corporations, but without the resources to advocate for themselves, their interests can easily get shoved aside by larger players.

The most common indicator we use to describe the health of “the economy” is the Dow Jones, a measure of the largest publicly held corporations. When the Dow becomes a stand-in for the economy, then we have reduced the market to its largest forces (Fortune 500 companies directly employ only 17% of the American workforce, though their indirect impact on employment is larger. The Gross Domestic Product is also a problematic indicator of economic health.). Small businesses are an afterthought when it comes to policymaking; they are served after the big boys get a seat at the table. It would be one thing if policymakers described their actions more clearly: “I want a climate that is favorable to large multinational corporations.” But being “pro-business” allows a useful slippage that substitutes a general term to hide its real focus.

Since we liberals tend to be suspicious of large corporations, I’ll start with the positive case: that corporations (to echo a bit of corporate PR) “bring good things to life.” For a demonstration of the benefits of contemporary market practices, you need look no further than your local grocery. I grew up in a world where there were two kinds of mustard (yellow and brown) and four television networks; now there’s an entire mustard section in my grocery, and there’s more good TV than I can possibly watch.

According to the BBC Podcast of the same name, the limited liability corporation is one of the 50 Things That Made the Modern Economy. The corporation makes it possible to pool resources and share risk, both vital forces in a robust economy. And while I don’t think that monetary profit is the only motivator for inventive thinking, a profit motive is one of the most important sources of innovation in history.

The corporation not only creates newer, better products, but it also provides employment. “Employment” is probably a better measure of “the economy,” but it’s harder to determine. For instance, do part-time, underpaid jobs in the gig economy count as “employment” in the same way that full-time positions do? Rising employment numbers and a healthy Dow can still be quite separate from pockets of discontent, as the Democrats discovered in the 2016 election when angry displaced factory workers challenged the narrative of broad economic recovery.

At this point I will call out one of the great lies of politics at the national level: that political action can create jobs. Every politician trumpets his/her ability to create jobs, but the decision by a businessperson to add a new job to the payroll is an extraordinarily complex one. It involves a complicated calculation of risk, confidence, assets, profit, market, prediction, need, taxes, technology, labor costs and availability, liabilities, and access to finances. The government only influences a few of these, and so it has at best an indirect effect on most job creation.

Of course the government can directly create jobs. When George W. Bush created the Department of Homeland Security, he created jobs (and increased the budget). We certainly can create jobs this way if there is political will to do so, but I don’t think this is the kind of job creation that most politicians are talking about. Politics can create a climate that is favorable for job creation, but that’s a much humbler claim. We need to stop the dishonest pretense that creating jobs is a primary function of our national politics.

Nor is it quite right to say that job creation is a primary concern of big business. Creating new jobs is a byproduct (sometimes) of the large corporation’s primary goal: to create profit for its stockholders. The profit goal is often at odds with increased employment. Imagine if a CEO announced that the company was going to decrease profits so that they could keep more people on the payroll. That executive would be instantly fired for fundamentally misunderstanding his/her job.

It is in the corporation’s best interest to employ as few workers as possible. Human (full-time) workers are expensive. Skilled labor costs always go up because of inflation, salary increases, the rising costs of health benefits, etc., which is an enormous problem with any endeavor that is necessarily labor intensive (such as my own worlds of education and the arts). If it is possible to do so, the corporation is best served by firing employees and replacing them with automated processes.

No worker is surprised by a pink slip when a corporation replaces them with a machine. They understand that this is just a corporation acting like a corporation with no loyalty to individual persons other than their stockholders. While machines tend to be expensive on the front end (with development costs), they require significantly less money to maintain (health care costs for machines are much less than for people, and automated processes don’t take paid vacation). Many big businesses did exactly what they were expected to do with Trump’s recent cut in corporate taxes. Instead of creating jobs, they largely engaged in stock buyback programs (artificially boosting the value of their own stock) and invested in automating their businesses.

Of course those words “corporation” and “stockholders” have changed over time as well. At the birth of the American Republic, the formation of a corporation required an act of Congress, a system that has major advantages and disadvantages. Under that system, forming a corporation is an insider’s game only available to those with considerable political influence. This constrains economic growth since only a few businesses can amass the needed money for a large industrial effort. On the positive side, Congress could require that private business serve a public good before it entrusted them with the benefits of incorporating (digging a canal, for instance).

In the 19th century, America opened up the incorporation process so that now virtually anyone can create a corporation with a little bit of paperwork and money. That’s beneficial, but at the same time we lost the idea that incorporation is a conferred advantage that should be repaid by a reciprocal contribution to the public good.

Thus freed from its broader responsibilities, the corporation took its modern shape as envisioned by Friedrich Hayek and Milton Friedman. The corporation’s primary purpose is to provide profit for its shareholders; nothing more, nothing less. Who those stockholders are has changed as well. Stock buy-in programs for employees and investments from retirement funds mean that the distinction between stockholder and rank-and-file worker has blurred. But perhaps the more important change has come through technology.

The computer bypasses the individual human stockbroker and thus allows stock trades with incredible rapidity. We live in a world in which investment houses seek shorter physical cable routes so that their computerized transactions can arrive at the stock exchange a millisecond earlier than mine, and the modern corporation reshapes to that reality. A “stockholder” may be someone who holds onto a share for seconds, and pursuing that investor encourages the publicly held corporation more than ever to focus on quarterly reports and short-term profits rather than long term economic health. Add to this the modern tendency to fire and hire top corporate executives when profits falter, which produces leadership that has little continuity and loyalty to the corporation. In this environment, neither stockholder nor executive is in the game for the long haul; success is defined as the short-term appearance of economic health.

Pursuing short-term profit boosts the corporation’s tendency to participate in the “tragedy of the commons.” Economists have long recognized that a common resource (the environment, for instance) can be depleted by those who are acting solely for their own self-interest. The tragedy is that by pursuing their individualized short-term goals, the players actually work against their own long-term interest. The resource that made their activity possible in the first place can be destroyed by their own short-sighted actions. We shouldn’t be surprised when large modern publicly held corporations ravage the environment. We shouldn’t be surprised when corporations cheat, lie, or break laws; if they can get away with it, there’s a profit incentive to do so.

Although some corporate leaders have publicly announced that shareholder value is no longer their main concern and although public relations was created to soften the image of the corporation’s profit-focused activities, the large modern corporation remains rewarded for delivering short term return on stockholder investment and not for addressing its public responsibilities. Large corporations cannot be trusted to do anything other than what they are fundamentally designed to do. We shouldn’t pretend that such corporate activity will naturally benefit the society as whole.

Large modern corporations have used their deep pockets to expand their influence. One important way to do this is in the writing of laws. Congress holds hearings about an array of highly technical issues (such as collateralized debt obligations) that are boring and complicated as hell but that can have significant bearing on people’s lives (as we discovered in the 2008 recession. See Matt Taibbi’s Griftopia for a vividly written indictment of how technical expertise paid for by corporate deep pockets can produce disastrously self-interested results). The primary voices in many of these hearings are those that can afford to weigh in with expertise on these matters: large corporations.

Corporate lobbyists “help” understaffed legislators by drafting legislation that can be adapted by representatives but that still begin with language favorable to the industry’s interest. We may rail at politicians for creating unreadable 1000-page laws, but much of this complexity comes from big business using their influence to tuck exceptions into the statutes. Needless to say, few private citizens have the time and money to devote to monitoring such technical matters (the outcry about net neutrality is a rare exception), so the seemingly democratic process of public hearings gets warped.

Large corporations have also extended their reach in the courtroom. Most people recognize the power that a “cease and desist” letter from corporate lawyers can have. Even if the company is in the wrong, private citizens know that corporations can simply outspend them in legal fees, making it difficult to challenge the corporation’s will.

At a larger level, modern corporations understand that it is a good investment to argue cases in front of the Supreme Court where rulings can shape national laws and regulations. Although technically any court case could be heard by the Supreme Court, the process of rising through the system is an expensive one, and so cases with corporate backing have much more likelihood it to that level. It costs a lot of money to hire one of the select group of lawyers who argue before the high court, and large corporations are much more able to foot that bill.

Supreme Court rulings have significantly enlarged corporate rights over the years, culminating in the Citizens United decision to give  corporate “persons” the right to engage in political speech. This corporate right (operating in conjunction with the ruling that money may be considered a form of speech) distorts the political process even further away from democracy in favor of moneyed interests.

I became outraged by the fact that the 14th Amendment –  passed in 1868 to grant the rights of citizenship to former enslaved people  — has been used more often to protect the rights of corporations than for its original purpose (again, the distorting power of money and privileged access to our higher courts. See also Mark Achbar’s and Jennifer Abbott’s The Corporation.) This led me to favor a Constitutional amendment stating that “A corporation is not a person,” thus denying the corporation the freedoms conferred on individual citizens.

Adam Winkler’s quite readable history of major judicial decisions about corporations (We the Corporations: How American Businesses Won Their Civil Rights) has helped me nuance that position. The corporation is a legal but non-human “person;” it can own property and it can be sued. The separation between the human owners and the corporation is a fundamental advantage of incorporating; it prevents the owners from losing their personal property when a corporation is sued. But while the corporation once possessed only property rights, the Supreme Court has given the corporation “liberty rights” that once belonged only to human citizens (such as the right to “speak” using money).

Adding to my collection of obvious statements here: the more money you have, the more influence you have. I’m not naïve enough to think that this basic principle will change anytime soon. I do believe that the expansion of corporate influence can and should be rolled back (through, say, a constitutional amendment limiting corporate rights to property rights). And I understand that such measures will necessarily be imperfect. Capital is liquid; it probes for crevices and cracks in the system. But as I have said elsewhere in this blog, the perfect is the enemy of the good. We must monitor the modern corporation as it seeks new forms of influence. The price of the corporate innovation in our society is eternal vigilance.

Dealing with such corporations is like handling fire, a force that can lay waste to the landscape when it’s out of control. As I learned in scouting, you never leave an active fire untended; to do so is to invite disaster. But fire has a constructive energy as well. The internal combustion engine in your car is essentially a highly coordinated series of fiery explosions. If you put the right amount of gas in contact with the right amount of fire and you time those explosions correctly, you create propulsive force. If any of those elements get out of whack, then the car either runs badly or not at all. An internal combustion engine balances explosion and regulation. There’s even a part explicitly called a “regulator” which is designed to keep the fire from getting out of control. Regulation is not the enemy; it’s part of the necessary functioning of a healthy system.

Admittedly, no one likes being regulated, whether they’re a private citizen or a business owner. Conservativism channels small business owners’ frustrations with financial reporting laws and building codes into a politically advantageous “we’ve got too many regulations” position. But regulations have very different consequences for large and small businesses. Dealing with regulations is an ongoing cost for many corporations, and so they are willing to devote significant short-term money (in the form of lobbying and lawyers) to rolling those rules back. If they can link their efforts to ordinary frustrations with bureaucracy, they can turn that energy into political support of corporate self-interest.

I’m not arguing that all regulation is good. That’s as extreme a position as the right wing “no-more-regulations-we-have-too-many” rhetoric. We can have too many regulations and still need more. Again, my apologies for saying something utterly obvious, but we need to eliminate bad regulations and create good ones (particularly for newly developed enterprises such as the circulation of political rhetoric on social media). A central (and totally unsexy) job of politics is to evaluate how effective regulations are, to add new regulations where needed, and to reduce or eliminate ones that aren’t working well. We need to reaffirm the noble and necessary function of regulation, just as we need reinvigorate the discussion of social responsibility that comes with the rights and privileges of incorporation.

To cite another basic principle of this blog’s politics, we need to pay the full cost for what we receive. We need to be able to weigh (as Robert Greenwald puts it) the high cost of low prices. The modern corporation brings a blend of variety, quality, and reduced cost to our lives; is that worth the hidden human and environmental cost? If we are to have this conversation, we need to see both the benefits and the dangers that are built into the basic structures of the modern corporation.

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