The Gadfly Bytes --
September 12, 2006
The Scorpion, the Frog, and the Corporation
“The public be damned, I work for my stockholders.”
William H. Vanderbilt
A scorpion, eager to get to the other side of a
stream and unable to swim, pleads with a frog to allow him to ride
on the frog’s back, across the stream.
“Certainly not,” said the frog. “You would kill me.”
“Preposterous!,” replied the scorpion. “If I stung you, it would
kill the both of us.”
Thus assured, the frog invited the scorpion to climb aboard, and
halfway across, sure enough, the scorpion delivered the fatal sting.
“Now why did you do that,” said the frog, “you’ve killed us both.”
“I am a scorpion,” he replied, “this is what I do.”
What corporations do is strive to maximize the returns on the
investments of their stockholders. As Milton Friedman put it, “The
social responsibility of business is to increase profits.”
Unfortunately, if corporations are unconstrained by law or
regulation, they can, by simply “doing what they do,” suck the life
out of the economy that sustains them. Like cancer cells, lethal
parasites, and the scorpion, unconstrained corporations can destroy
their “hosts,” without which they cannot survive, much less
By saying as much, I might appear to be favoring the abolition of
corporations, like some far-out Commie nut case.
On the contrary, I approve of corporations. I have seen, in the
former Soviet Union, the results of an alternative system, the
It isn’t a
How can I disapprove of corporations when I am surrounded by devices
and conveniences that were developed and marketed by corporations?
The computer with which I write this essay and the internet that
publishes it would be impossible without the corporate structuring
of our economy. (However, let us not forget, they would likewise be
impossible without government sponsored research and development).
So here’s Two Cheers for Capitalism. Thank God for Thomas Edison,
Henry Ford and Bill Gates, and the millions of others who have, by
exercising free enterprise, immeasurably improved our lives, as they
proceed to improve their own.
But I withhold that third cheer as I view with foreboding, the
dangers of capitalism and corporatism unconstrained and running
My message is a simple one, if familiar: corporations are invaluable
servants that can become ruthless masters, to prevent which:
“Governments are instituted among men [and women], deriving their
just powers from the consent of the governed.” This means that laws
and regulations, which implement limitations and constraints, are
enacted and enforced in behalf of “the public good.”
Remove these constraints, and the servant soon becomes the master,
as well as the parasite which consumes its host, thus destroying
both the parasite and the host on which it feeds.
Put simply, when the corporation is subordinate to government and
the rule of law, prosperity throughout society is possible. But when
government and the rule of law are subordinated to corporations, the
result is ruin for all.
Bold pronouncements, all. Now to the supporting arguments.
The Corporation vs. Society.
The stakeholder problem. It is an article of faith among
libertarians and regressives, a faith undiminished by the historical
record or practical experience, that the unregulated free market of
self-serving buyers and sellers will, “as if by an invisible hand,”
yield the optimum social benefits.
This reassuring dogma conveniently neglects the “third parties” to
economic transactions: the “stakeholders” – individuals affected by
the transactions without their informed consent. These include
individuals residing downwind and downstream from polluting
industries, taxpayers who must pay for the medical costs of smoking,
citizens at risk of injury or death from toxic chemical releases,
and homeowners near airports. Add to these, the customers who are
not informed of the consequences of their purchases: teen-agers
induced to take up smoking, consumers of insufficiently tested
drugs, etc. The costs of these third-party “externalities” do not
figure into the profit-maximizing plans of corporations, unless
those costs are imposed by force of law and regulation, which is to
say, by government.
There is another remedy, say the libertarians: the threat of law
suits by individuals harmed by corporate irresponsibility.
Unfortunately, the regressive Republican Congress has pulled the
teeth from this watchdog by enacting so-called “tort reform” –
limitations on awards to plaintiffs. So today, damage claims by
customers and stakeholders are simply regarded by large
corporations, as “the cost of doing business.” (For more reasons why
“the courts and torts” solution doesn’t work, see my
“Privatization and Public Goods.”).
The Stock Market is geared for the short term. In contrast,
wise and just social policy plans for the long term. Imagine two
competing lumber companies: the first clear-cuts, moves on and
leaves a ruined landscape. The other employs sustainable forestry,
leaving ground cover and seed trees, and replanting seedlings, in
the expectation of harvesting trees fifty years hence. As a result,
the first company, free of the costs of sustainability, has twice
the return on investment for the first two years than its
competitor, and sells lumber at 80% of the price of the other.
However, after ten years it is bankrupt. The second company,
sustains lower profits and higher prices far into the future. If you
were an “in and out” investor, which stock would you buy? This
admittedly simplistic illustration distorts reality. Some
far-sighted commercial enterprises do flourish, and “ruin and run”
companies can and do fail. Nonetheless short-term planning is
endemic to corporate structures. Fortunately, this corporate myopia
can be mitigated through subsidies and tax incentives -- i.e.,
through government intervention in the market.
In sum: For most investors, the sooner and the greater the return,
the better. But societies flourish when citizens are psychologically
and morally invested in the long-term success of their nation. It’s
Corporate Volunteerism doesn’t work. Corporate officials
often proclaim, in person or through their trade associations, that
government regulation is unnecessary, since voluntary acts of “good
corporate citizenship” will suffice. No company, they argue, can
afford to be ill-thought of by the public.
To be sure, corporations will contribute to civic enterprises and
strive to be “good corporate citizens.” It’s good public relations,
which means a worthwhile return on the modest expenditures involved.
But when public service collides with the bottom line, the results
are all too familiar and predictable.
I found this out when I served for seven years on the Public
Advisory Panel of The Chemical Manufacturers Association (now The
American Chemistry Council). (See
My Seven Years as a Corporate
Following the 1984 disaster at the Union Carbide plant in Bhopal,
India, the CMA established a program of “Responsible Care®” toward
industry workers and toward the public in general. The published
principles of the Responsible Care program are commendable and
uncontroversial, describing just the sort of behavior one would
expect of an industry cognizant of its public responsibilities.
At the three to four yearly meetings of the Panel, we were presented
with various industry
initiatives and programs designed to ensure safety and environmental
quality, and we visited numerous plant
facilities and ecological restoration areas adjacent to the plants.
All quite impressive.
I will credit the chemical industry with fine corporate citizenship,
at least with regard to numerous “small things.”
However, since the advent of the Bush administration and the
relaxing of government regulation and oversight, the industry has
failed spectacularly to meet its civic responsibilities. Immediately
after the Supreme Court decided the outcome of the 2000 election,
the Public Advisory Panel was abolished. Then followed three
responses to public issues by the CMA/ACC which together have undone
the gains of the Responsible Care program. The first was opposition
to efforts to meliorate global warming. The second was an attempt,
in conjunction with the EPA (!) to test the toxicity of insecticides
on human subjects: infants younger than 13 months. This “CHEERS”
program was abolished by congressional action. Finally, the industry
thwarted congressional efforts to require strict security measures
at chemical plants.
As a November, 2003 60 Minutes broadcast dramatically demonstrated
to an audience of millions, the insecurity of chemical plants are
disasters waiting to happen, since it is apparent that a terrorist
with a satchel charge might be able to simply walk into a facility
and set off an explosion that would release chemicals that could
kill hundreds of thousands. The protection of these facilities is a
public imperative, to date still unrealized. It is clear, at last,
that the chemical manufacturers will not volunteer to secure these
facilities. So they must be made to secure them by the only agency
capable of enforcing that security. That would be the government, of
this link for more about these issues and the American Chemistry
Unregulated free markets are self-eliminating. One of the
great myths of regressive politicians is that mega-corporations
support free markets. In fact, they don’t. Competition forces down
prices and compels product and service improvement. That’s good for
consumers, but bad for corporations, which much prefer
monopolization, for themselves at least, and “free markets” for
their competitors. Witness Microsoft and the media conglomerates.
Once a corporation (or a consortium of corporations) takes control
of a market, they can set their own prices and make their own rules.
If they control the market on some insignificant widgets, consumer
demand will keep the prices down. But if they control essential and
indispensable commodities, such as food, water, prescription drugs,
gasoline, heating fuel, or electricity, they are free to set prices
that will impoverish their customers.
The remedy is obvious, and has worked well in the past: the
enactment and enforcement of anti-trust legislation. And in the case
of “natural monopolies” such as electricity, the remedy is
regulation. And that means, of course, government.
The Great Experiments.
Libertarians and regressives of the Republican right insist that
once government regulation of business is abolished and the free
market is allowed to function without constraint, prosperity for all
That’s the theory and the promise. However,
history has proven otherwise. For example, in the twenties,
under successive Republican administrations, business was given free
reign, unconstrained by “government interference.” And that led to
the Great Depression. After the fall of Soviet Communism in August,
1991, Russia was overrun with right-wing, free-market economists
from the West, bearing advice, which was, unfortunately, all too
often taken. The Russian economy collapsed as enterprising former
industrial managers seized control of these resources and became
instant billionaires and almost the entire population was
impoverished. Finally, with the fall of Baghdad in 2002, Bushites,
led by Paul Bremer, saw a fresh opportunity to establish a
free-market utopia. Today, 60% of the Iraqis are unemployed.
But no matter. History be damned. So once again, thanks to the Bush
administration and a compliant Congress, cowboy capitalism is on the
loose, and the American economy is careening straight toward a
precipice. Parasitic capitalism has poisoned its host and, absent
prompt and radical treatment, both are doomed.
In the past six years, the
incomes of almost all middle and low income Americans has
stagnated or fallen, while the incomes of the top 1% have
Consumer credit has increased
to the point that the national credit card is about “maxed-out”.
Add this to the increasing interest rates, and the inevitable
result must be a sharp drop in consumer spending and an increase
in personal bankruptcies.
Corporations, driven to reduce
labor costs and thus increase profits, and heedless of the
social and economic consequences, have shipped (“outsourced”)
millions of industrial and now service jobs overseas, further
reducing the consumer base in the United States.
Similarly, corporations and
the super-wealthy have sought, and found in a compliant
Congress, “tax relief” through numerous tax loopholes and
overseas tax shelters. Thus, government revenues have plummeted
while deficits have soared.
As a result, domestic spending
for social services, education, scientific research and
development, and physical infrastructure has been cut
No modern economy can survive
without an educated work force or an operating physical
infrastructure or a population of consumers with disposable incomes.
And yet, in their misguided pursuit of “corporate self-interest,”
the corporations starve those very institutions that sustain them.
Unconstrained corporatism, through its control of the media and the
federal government, has brought this about.
The inevitability of governance.
The anarchism of the libertarians and the regressive right is a
delusion, and a dangerous one at that. For just as no organized game
can continue without referees, no civilized nation can endure
without a government. In competitive sports, it is the objective of
each team to win the game. Referees have a separate function: to
protect the integrity of the game by enforcing the rules, without
which there can be no game. So too with governments and their laws
and regulations. They exist to enact and enforce the rules that make
an enduring market possible. They enforce traffic laws, without
which travel would be impossible; they assign frequencies to
commercial radio and TV stations (originally, in 1934, at the
request of the broadcast industry). Governments enact and enforce
regulations that protect the public from contaminated food and
dangerous drugs, from unscrupulous investment schemes, from fraud,
libel and slander, and do not forget, governments exist to protect
corporations from unscrupulous competition and monopolization by
competitors. (See my
Corporations, as William Vanderbilt emphatically asserted, exist for
the benefit of their stockholders. Ideally, governments exist to
represent and act in the interests of all the people, and that
ongoing entity: the nation. And if a government fails in these
duties to the people and to the future, then the people have the
right to improve it or, failing that, abolish it and replace it with
a new government. (Read
Declaration of Independence. It’s all there).
For example, although I have a stake in clean air and water, I can’t
vote out the governing board of a polluting corporation; not unless
I am a stockholder, and a wealthy one at that. However, I can elect
representatives that will enact laws and regulations that protect me
and other stakeholders from the abuses of the corporation. In short,
if corporations, in the proper pursuit of profits for their
stockholders, are also to operate to the benefit of society at
large, they must be regulated by the only agency legitimately
qualified to act in behalf of the general population, and that would
be a democratically-elected government.
So we come to an unspectacular conclusion: capitalism and
corporations are good things, but it is possible to have too much of
a good thing. For these worthy and indispensable servants of the
body politic can become cruel and insufferable masters, to prevent
which, we establish laws and regulations – i.e., government.
Today, in Bush’s America, we have way too much of these “good
things,” as they now undermine and destroy the institutions, the
economic foundations, and the political structures that sustain us –
and the corporations as well.
The solution is also compellingly obvious: let’s return to the
system of regulated capitalism, of checks and balances, of the rule
of law, and of a government of, by, and for the people, that has
served us so well for over two-hundred years.
In the previous administration, under such a regime, the American
economy enjoyed unparalleled prosperity, the country was at peace,
and the United States of America and its political traditions were
respected throughout the world.
Let’s bring back that which was proven to work in the recent past.
If it ain’t broke, don’t fix it.
(Author’s note: This essay is a brief statement of an argument
developed at length in my book-in-progress,
of a Progressive.).
Copyright 2006 by Ernest Partridge