Problems With U.S. Capitalism
“In a world where anything or anyone can be owned, manipulated, and exploited for profit, everything and everyone eventually will.” — Joel Bakan
Selfish Profit
Unlike public institutions, whose only legitimate mandate is to serve the public good, private corporations are legally required to put their interests above everyone else’s — i.e. profit above everything.
Under the excuse of ‘costs of doing business’, some corporations advance injustice and inequality. Some workers are currently helpless to exercise their contract and protect their labor.
Externalizing Costs
In this quest to increase profits, some corporation “externalizing costs” without regard for the harm it cause people, communities and the environment. Milton Friedman described this as “the effect of a transaction…on a third party who hasn’t consented to or played a role in carrying out that transaction.”
Limited Liability & Fines
For-profit corporation’s limited liability law allows shareholders to own and directors and managers to control and manage. In this way, shareholders can’t be held liable for the mistakes and crimes committed by directors and managers. This protects shareholders and makes it easy for them to invest. Directors and managers are also protected if it can be proven that they had no direct involvement in the prohibited acts.
Fines, on the other hand, are just additional costs of doing business. As long as the profits outweigh the fine, fines don’t prohibit illegal acts. What’s the penalty, what’s the probability of being caught, how much does it cost to comply and which is bigger? On top of that, when convicted and fined, corporations simply learn how to better cover their tracks next time. As Edward Thurlow, lord chancellor of England in the 18th century said because corporations have “no soul to be damned and no body to be kicked,” punishing them often has little impact.”
Corporations More Powerful Than The Government
Over the last 300 years, we constructed a remarkably efficient wealth-creating machine, but it’s now out of control. Without wars or fascist strongmen, and using dollars instead of bullets, corporations are now gaining more freedom — freedom from democracy and the government. When some corporations become as powerful as governments, we have a problem.
A people’s government needs to be more powerful than private organizations. Capitalists try to get us to hate our government to push low regulations. Ira Jackson, former director of the Center for Business and Government at Harvard’s Kennedy School of Government said corporations and their leaders have “displaced politics and politicians as…the new high priests and reigning oligarchs of our system.” CEOs have become “princes of industry,” and their companies feudal fiefdoms.
Government is the only official institution we have to control and constrain unaccountable, tyrannical, private, corporate power.
Corporations looks for states with the least tax and regulations. This way it makes the highest profit. To bring in jobs and investments, governments the world over, compete to persuade corporations that they provide the most business-friendly policies. Some dissolve work and environment regulation, reduce taxes, roll back social programs and change or repeal laws designed to protect consumer and public interests to attract business. This is the low route.
Sociologists Caroline Hanley and Michael T. Douglass have found that there are 2 road:
A “low road” strategy: Union bans, lower wages, corporate tax rebates, and loose implementation of environmental regulations are used as lures to get industry that exists somewhere else to move to one’s own state.
For the Tea Party, the answer is to circle the wagons around family and church, and to get on bended knee to multinational companies to lure them to you from wherever they are. This is the strategy Southern governors have used to lure textile firms from New England or car manufacturers from New Jersey and California, offering lower wages, anti-union legislation, low corporate taxes, and big financial incentives.
The “high road” is to stimulate new jobs by creating an attractive public sector, as California did in Silicon Valley and Washington State did in Seattle. For the left, the best approach is to nurture new business through a world-class public infrastructure and excellent schools.
A 1992 study by the MIT political scientist Stephen Meyer, who rated the fifty states according to the strictness of their environmental protection. Meyer then matched regulatory strictness to economic growth over a twenty-year period and found that the tougher the regulation, the more jobs were available in the economy.
*Money goes where knowledge is. iPhones are manufactured mostly outside the United States, but the majority of value added is captured by Apple, Inc. in California. Apple made a gross profit margin of nearly 70% on each iPhone sold. Chinese manufacturers, by contrast, have margins of a few percent on their products.
https://academic.oup.com/qje/article-abstract/110/2/353/1826336
A 2016 survey of the world’s major economies also found that strict environmental policies improved, rather than handicapped, competitiveness in the international market.
The Solution: Regulations
In the 17-century, the British Crown chartered the Hudson’s Bay Company and the East India Company. In the 18th and 19th century, corporations in England and the United States were formed primarily for public purposes to serve national interests — water, canals and buildings.
In 1886, the Supreme Court decided that corporations are like free individuals. In the 1890s, New Jersey and Delaware abandoned restrictions in their corporate laws to attract incorporation business. (Delaware now has more than 60% of the Fortune 500 companies.)
Yes, I want corporations to earn a return. Yes, capitalism is the best economic theory we have to organize talent and capital. But in our search for wealth and prosperity, the United States is going down a wrong path with it’s extremely free-market corporate law.
I want them to do it right and in a responsible way. Don’t abuse the environment, don’t abuse ethics and don’t abuse people. We all want a safe, equitable, just, and compassionate world.
Effective and enforced regulations —like those that protect the environment, workers from death and injury, and consumers from faulty and dangerous products and exploitative advertising, require corporations via law to be publicly and socially responsible.
But, due to lack of funding, regulatory agencies tend to be undercapitalized, understaffed, and peopled by bureaucrats from the very industries being regulated — the revolving door. These regulators see themselves as partners with the industry instead of its overseers. On top of that, regulations are often reactive instead of preventive.
Capitalism For Public Interest
The ultimate measure of a corporation’s worth and legitimacy is the concept of public good. Our justification for private property rights — for free-market capitalism—is the fact that it serves and maximize the common good. But if it can’t do that, we need to change.
The question is never whether a state regulates corporations — it’s always been a creation of the state — its how and in whose interests.
Most corporate law statutes include provisions —called ‘charter revocation laws’ — that permit governments to dissolve a corporation if the government believes that the corporation has grossly violated public interest. These have always been part of corporate law. They allow an attorney general to go to court to dissolve a corporation for wrongdoing and sell its assets to others who will operate in the public interest. As New York’s ex-Attorney General Eliot Spitzer said, if
a corporation is convicted of repeated felonies that harm or endanger the lives of human beings or destroy our environment, the corporation should be put to death, its corporate existence ended, and its assets taken and sold at public auction.
U.S. corporate law should reform to make some corporations serve, promote, and be accountable to broader domains of society than just the bottom line and shareholders. To encourage corporations to give money, the government made charitable donations a tax write-off — like giving drugs to poorer countries is a tax-write off. These exist and we deal with them all the time.
The U.S. Postal Service (USPS) is a self-supporting corporation wholly owned by the U.S. federal government with the obligation to provide postal services to bind the Nation together. (This was allowed by some founders so that everyone had access to communicate and share information). Other public-purpose corporations are transport, utilities, broadcasting, security and rescue services.
Social groups and interests judged to be important for the public good or too precious, too vulnerable, or too morally sacred to be subjected to corporate exploitation, should also be governed and protected by public regimes. Such as:
1. Water and power utilities
2. Schools, universities and our children’s minds
3. Police, courts, prisons, firefighters
4. Parks, nature reserves and cultural institutions
5. Public spaces,
6. Health and welfare services
7. And — especially right now — genes and other biological materials
Important solutions:
1. Staffing enforcement agencies at realistic levels
2. Setting fines sufficiently high to deter corporations from committing crimes
3. Increasing the liability of top directors and managers for their illegal behaviors
4. Tighter restrictions on acquisitions and mergers
5. Representation of stakeholder interests(such as union representatives) on boards — called constituency statutes.
6. Corporations’ influence on government should be scaled back to a degree more commensurate with that of other organizations, such as unions, environmental and consumer groups, and human rights advocates.
7. Barring repeat offending corporations from getting government contracts
8. Suspending the charters of corporations that flagrantly and persistently violate public interest
Nike and Apple stopped thinking of themselves primarily as companies that make physical products, and started thinking of themselves first and foremost as manufacturers of brands. #somecapitalism
*These were the Nikes and Apples and, later, the Tommy Hilfigers and Starbucks and so on. These pioneers had a different model: Create a transcendent idea or brand surrounding your company. Use it to connect with consumers who share the same values. Then charge a steep premium for products that are less about the objects themselves than about the profound human desire to be part of a tribe, a circle of belonging
*Brands like Nike and Adidas competed fiercely in the marketing sphere, and yet they manufactured their products in some of the same factories, with the same workers stitching their shoes. And why not? Making stuff was no longer considered a “core competency.
To your success,
Nikhil Mahadea
