The Chains of Consequences

Corporations have come a long ways from the days when companies such as the British East India Company were creatures of the sovereign, with the mission of spreading empire to faraway places.  Monarchs gave corporations their marching orders, and knew they would be followed.  The East India Company had its own army to speed it along, and succeeded in adding Empress of India to Victoria’s long list of titles.  She had wanted that desperately because her cousin was already an emperor and got to march in first on state occasions.  Actual profits going to anyone were only a secondary concern.

Corporations had started off the same way elsewhere, as arms, sometimes militant, of the nation.  But along the way corporations had begun to be licensed by the monarch indefinitely, with no requirement for renewal. They were immortals!  They soon made their own declarations of independence and dedicated themselves to the pursuit of profits as happiness.  That independence required the evolution of a different kind of social contract; corporations, no longer creatures of the sovereign but not themselves sovereign, still needed the consent of society to function, and that was provided through regulation.  Our policy model for that regulation assumed the mutual interest of the corporation and American society in profit making. Hence the famous declaration that was taken to mean, “What’s good for General Motors is good for America.”  (That’s not what was actually said, but what society in general read into it.)  Howard Meyerson, in the Washington Post this past week, pointed out that the classic American corporate model established was in fact the stakeholder version of capitalism.  In it, profitable business includes value to the shareholders, the employees and to the public.  Companies such as Ford Motor Company are shining   examples of that model.  That model still works in other countries.  A battle royal is currently raging in Tennessee, where Volkswagen seeks to apply it to its new operations there by being friendly to unions in the German style that has made them leaders in adapting to a 21st century high-tech world.  They face stiff opposition in Tennessee, where the Senate president declares such friendliness to be "Un-American." But our social contract with corporations is based on that model, and it is the premise of our corporate regulation policy.  But it was a different kind of profits than we see today.    We have gone astray.

Beginning in the 1970s, an altered ideological stance emerged for corporations.  Libertarian ideologues headed by Milt Friedman argued that the focus of profit making was on shareholder profit as the measure of all things, and that the corporation had no obligation other than to shareholders.  The idea was happily accepted by corporations; it gave them freedom for the kind of global maneuvering we see today.  Now, not only the concerns of the sovereign could be ignored, but the concerns of the people as well.  But acceptance of shareholder capitalism was a major, unrecognized alteration of the social contract.  Corporations no longer needed to include employees in profits, or to spread the benefits of their profits to the communities around them.  Even price gouging and tax evasion become acceptable corporate goals under such ideology.  But the social assumptions underlying corporate regulation had not correspondingly changed.

The consequences have been devastating.  That change in corporate ideology coincides, as Robert Reich has pointed out with the flattening of the wage curve which has resulted in worker earnings remaining flat for the past 35 years while all productivity gains accrued to the top twenty percent, aka the shareholders.  And a consequence of that has been the economic stagnation resulting, again as Reich has pointed out, from lower demand as the public becomes less and less able to afford corporate products.  Regulatory policy that assumes the friendliness, loyalty and community spirit of corporations that have no intent of behaving that way has no chance of success.  We have placed ourselves in economic chains and leg-irons through our own efforts.

We need fundamental restructuring of our corporate regulation policy.   We can no longer assume the corporation as a friendly giant out to help us and our communities along with helping themselves.  No tax breaks should be provided without “poison pills” of very large payments to assure the corporation adheres to its promises and stays around to do so.  Breaks should be provided only with commitments to pay fair wages and benefit the community.  Corporate raids on natural resources like water supplies through things like fracking should be assumed contrary to the public interest unless strongly proved otherwise.  And the burden of proof should be entirely on the corporation.  Corporations have lost the right to public trust, with its consequences for tax breaks and easy regulation. They must work to regain it.