A One-Sided Imaginary Conversation: How We Should Conceptualize Corporations

Greetings!

Nice to see you again! How's your mother? What's new? That's great to hear, great to hear...

Oh, me? Well, thanks for asking! Lately I've been interested in economics and economic theory. Yeah, it can get pretty dry, but it's fascinating stuff. Since the world operates based on an economic theory (or an amalgam of many), it makes a lot of sense to view historical trends in light of the theory that the civilization operated from. It's kind of like looking at a great piece of art after looking at the artist's notes. It just makes more sense that way.

What have I learned from it? Good question! Lots of things, but one idea in particular stands out. I'll start it off with a question... what is your perception of corporate America?

I don't blame you, mine isn't very good either. And there's plenty of good evidence to support that perception. From Enron and insidious book-cooking practices to price gauging and obvious collusion by major oil companies to greedy investment firms and sub-prime securities and derivatives, the list goes on and on. When a corporation is seen taking steps to clean up its act, whether in terms of ethics or the environment, slack-jawed observers can't help but applaud, at least once the initial period of astonishment wanes.

I agree with you, it shouldn't be that way. But like I was saying, there's an economic theory that makes sense of all of this (or at least some of it). In this case, I'll point to an article printed in the New York Times in 1970 by one of history's most influential economists, Milton Friedman.

Haha, no not the board game. I wish! What's that? Yeah, I've heard that joke a few times before.

Anyway, what Friedman says is this: corporations are "artificial people" designed to act exclusively in their shareholders self-interest. Basically, a corporation's sole pursuit is to maximize profit within the bounds of law and society. Makes sense, right?

An explanation like that frees corporations from having to care about anything else. When you look through that lens, anything goes as long as it helps make a profit and it doesn't break a law. This sets a corporation up to act freely as a free radical on the free market, taking the path of least resistance and maximum profits.

You say you don't see where there's a problem yet? That's fine! There isn't any yet. The corporation is now this amoral, artificial person, totally devoted to its self-interest. Kind of like a computer virus out on the Internet, except while this computer virus gobbles up some resources, it also creates much more in terms of value and new resources. Along the way, the corporation creates a lot of paying jobs too.

The problem comes in with setting up a framework to let corporations operate in. Just like real people, "artificial people" (corporations) need rules to keep them driving on the right side of the road, throwing their trash in a litter bin, and refraining from shouting "Fire!" in crowded theatres. We need to restrict a corporation's ability to do certain things because we've set them up to only act in their self-interest. Remember, there's other corporations out there, and this imaginary world that corporations exist in isn't actually all that imaginary. Corporations may not take form in the real world, but the people they employ act upon on our world and our environment by providing our food, water, electricity, cars, eyeglasses, toy cars, and everything else. Also, our employment.

How do we restrain these corporations? Well there's a variety of approaches. Government regulation and oversight is the most common one. Government can set fines, enforce laws, and shut down a corporation if it doesn't play by the rules. Responsible media and journalism help too. They can keep corporations from acting in ways that most people would reject, but that wouldn't necessarily break a law. Finally, third party NGO's and citizen advocacy groups play a role too. They help draw media, consumer, and government attention to corporations that are being sneaky about breaking rules, or help government develop better rules in a constantly changing world.

This balance works well until you run into free-market ideologues. Beginning in the 1970's and running up until a few months ago, removing the rules was all the rage. Now in some cases that made sense: government had set up some stupid, unnecessary rules. However, a lot of the rules that were chopped, edited, or softened played an important role in making corporations behave in a complex world. Some corporations, no longer restrained by these rules, did things in their short-sighted self-interest that made big messes of things, like the stuff we talked about earlier.

This happened because people started to include government in the operation of the business. Kind of like when criminals get a few dirty cops in the act. Prominent businessmen and women convinced enough people that what was in the best interest of business WAS the best interest for everyone else.

Now while this is presumptuous enough on the surface, it's also ridiculous. Corporations are artificial people, remember? They are only concerned about what is in their perceived self-interest. Not yours or mine.

Imagine if we set up this world such that your self-interest ran everything. Yeah, you get the fancy cars, the fine cuisine, the beautiful women on your arm. Looks pretty good, huh? Now picture the world set up in my self-interest. Sucks for you now, huh!

That's what's happened here. The rich and powerful have convinced us that what's good for them is good for all of us. Except it's not. For example, they've convinced us that it's good for all of us that corporate officers are indemnified when their corporations screw up bad. That IS good for them, but not for everybody else! That's like me saying you're responsible if you drive your car into mine, but I'm indemnified if I do the same to you. I agree, that doesn't make any sense at all!

While the corporations and the people who benefit from them the most have done well, average people haven't. Did you know that corporate executive pay has increased at a rate ten times that of the average worker since the early 1980's? We've taken away so many rules that corporations are destroying and littering all over our economy for profit, like barracudas in a public pool.

The most ironic part of it all is that corporations actually operate the best when they operate in a framework that protects consumers, employees, the environment and everything else too. It increases efficiency, builds trust, and provides for economic stability. These factors are the keys to sustained conomic growth, a pattern that hepls everybody win.

To ensure sustained growth, we need to restore the balance of rules constraining corporations so they remember to drive on the right side of the road and throw away their trash again. In order to do that, we need a major paradigm shift in our politics. Corporations don't vote for a reason... government is not supposed to represent them! Government represents the people and needs to protect the people from self-interested corporations. This means removing corporate money from politics and retooling government regulations and regulatory bodies to keep corporations from ruining everything.

Now that doesn't mean stifling corporations by putting up rules just for the sake of putting up rules. But the metronome is certainly not pointing in that direction at the moment, and we need some momentum behind smart regulatory policies a lot more than we need to free corporations up to cause more trouble.

What's that? Sorry, I didn't realize you had fallen asleep. I guess that did go longer than I expected.

Please comment if you're still reading. I'd love to hear what you think!

Eruditely,

The Conscientious Observer

"Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power." - Benito Mussolini