Tuesday, November 9, 2010

Corporations vs People

Corporations are not immoral. But neither are they moral. They are amoral. If doing good is profitable, they will. If doing evil is profitable, they will. They can do tremendous good. But they can also do tremendous evil.

Would a corporation assassinate people that attempt to organize resistance to environmentally destructive policies? Ask Shell Oil. The evidence is that they'll hire militias, provide the weaponry, and pay additional monies in gratitude for the destruction. After all, it's profitable.

Cutting costs associated with safety measures can boost short term profits. Union Carbide's cost cutting measures probably were good for stockholders. Not so good though for the thousands killed when toxic gases were leaked into the slums surrounding the factory.

Monsanto made decent coin selling Agent Orange to the US government. This defoliated trees and then worked it's way into the food and water supply, leaving probably a million people with major health problems.

You could go on and on. You could look into IBM making the holocaust possible, you could look at British Petroleum in Iran. Why should it be any different? Corporations are designed to maximize profits. All else is secondary.

Today they are working to reduce costs associated with lawsuits that stem from their evil actions. Right now they are fighting to eliminate class action lawsuits. That will boost profits, so it's what we should expect.

The problem is that in free market economics the actors usually don't consider what are called externalities. So for instance, if I buy a car I consider what I want and how much I can afford. A car manufacturer considers the costs required to produce the car, and we arrive at a price. What we don't consider are the externalities. What is the cost that will be paid by the public at large due to things like pollution, noise, or traffic congestion. Those costs aren't paid by either the buyer or seller, but they are real costs that will be paid. They'll be paid by the public at large.

The same is true for other industries. So Goldman Sachs engages in transactions and attempts to maximize their returns. Like any good salesman they talk up a product they are trying to sell, trying to make it appear valuable, even if it isn't, just like a used car salesman would. They sell it, but then take out insurance on it's failure because they know really it's a poor product. When it does fail and they go to collect, the insurance company (AIG) can't pay because the bet is too large. But AIG's failure puts the whole financial system at risk. That cost is an externality that GS knows it won't pay. The taxpayer will. So bailouts come, the taxpayer props up AIG, who simply funnels that money straight to GS, who already has made enormous money selling a crappy product. What else should they do? They're here to maximize profits. As the taxpayer money was funneled to GS, GS decided to reward it's employees, who had done such a good job producing huge profits. The bonuses were at an average of $500K/employee. Today they pursue the same actions, extrenalizing the huge costs that they know must be endured by the taxpayer in the form of a bailout. So we wait for the next crash of the financial sector.

Corporations are designed to do whatever it takes to maximize profits. That may mean imposing risks on the entire financial system that must be repaired by the public at great cost. But it could be worse than that. It may mean assassination. It may mean spewing toxic gases in to your home. It may mean overthrowing your democratically elected government. Or it may mean taking control of your government, since government is the only possible check on their behavior.

What if the externality is the fate of the species? What if 98% of scientists are right and global warming due to emission of greenhouse gases is really a serious problem, despite fossil fuel funded propaganda? If continuation of the present path is profitable should we expect CEO's to consider the externality or will they instead be compelled to maximize the stock price?

To stop this pending train wreck we need to wrestle control of our government away from corporations and move it back into the hands of the public. I think the fate of the species is in the balance. Our world is not about the left vs the right or Republicans vs Democrats. It's corporations vs the people.


Darf Ferrara said...

The free market has the same issue of externalities whether or not corporations exist. How does that that change when management is separated from ownership? Is your claim that separating management from ownership makes things worse on balance? How do you think that happens?

Jon said...

Whoops. This was supposed to be saved as a draft, but I guess I published it. Need to finish.

Darf Ferrara said...

A giant corporation wouldn't have made that kind of mistake.

Vinny said...

It is a combination of separating management from ownership as well as separating enjoyment of profits from liability from losses. The people who stand to profit from causing harm bear little of the liability for that harm.

Jon said...

That's not what I'm claiming in this post, but it may be true. The heart of socialism is the workers own the factory. Perhaps there are reasons to think this would be better. I'm not arguing that here though.