Friday, March 12, 2010

The Soul of Capitalism

Excerpts from William Greider's 2003 book:

P. 29

(On reforming capitalism)

The Federal Government cannot do this for the people. That is hard for many to digest, but anyone who takes seriously the possibility of reforming capitalism in fundamental ways has to start by abandoning some inherited political reflexes. The government has the power to articulate society’s larger aspirations, but it is not equipped to execute this deeper kind of economic transformation or, at this point, even lead the way...If an activist president set out with good intentions to rewire the engine of capitalism - to alter its operating values or reorganize the terms of employment or investment or tamper with other important features – the initiative would very likely be chewed to pieces by the politics. Given the standard legislature habits of modern government, not to mention its close attachments to the powerful interests defending the status quo, the results would be marginal adjustments at best and might even make things worse.

P. 52

Elaine Bernard of Harvard’s trade union program explained the connection: “As power is presently distributed, workplaces are factories of authoritarianism polluting our democracy. Citizens cannot spend eight hours a day obeying orders and being shut out of the important decisions affecting them, and then be expected to engage in a robust, critical dialogue about the structure of our society. Indeed, in the latter part of this [past] century, instead of the workplace becoming more democratic, the hierarchical corporate workplace model [came] to dominate the rest of society.”

P. 61

(On what exactly makes the modern system so different from serfdom?)

“Workers may not be bought and sold, only rented and hired,” Alfred Marshall, a preeminent economist in his time, wrote in 1920. Paul Samuelson, author of a standard textbook for present-day Economics 101, sticks to the same distinction, “Since slavery was abolished, human earning power is forbidden by law to be capitalized [bought and sold as property],” he wrote. “A man is not even free to sell himself; he must rent himself at a wage.” The “rented” worker is certainly much better off than the “owned” worker, no question. Yet, as their language suggests, the distinction between slavery and freedom is narrower than supposed, and aspects of property still heavily influence the transaction. Human labor is treated as an input of production no different from other inputs – machines, raw materials, buildings, capital itself - and these inputs are interchanged routinely in organizing the elements of production. Employees are now described as “human resources,” the oddly dehumanizing usage adopted by modern corporations.

The trouble is, people are not things. They are autonomous human actors, not mere “resources.” They cannot be reduced to physical inputs, even if they assent, because they are conscious, responsible agents of self, endowed with inalienable rights and inescapably liable for their behavior, legally and otherwise.

P. 64

The real basis for the insiders’ power and their legal claim to the profits is their acceptance of responsibility for the firm, their contractual commitments to pay the costs of production and to absorb the negative consequences of losses and liabilities as well as the positive results. Employees, in a sense, are awarded the opposite status: irresponsibility in the fortunes of the company and, thus, no share in its success unless management decides to grant one. In exchange for this privileged irresponsibility, workers are rendered powerless. They accept the master-servant status, are subject to the command of others, and have no voice in the company’s management or any claim to its returns.

P. 185-6

Industrial capitalism, notwithstanding the great accomplishments of human invention, has never approached the functional efficiency of nature – not even close. To the contrary, the wastefulness is prodigious and often deliberate, especially in American capitalism. Waste is designed into many products to create an allure of luxurious excess. Witness the tanklike sports utility vehicle that intimidates the other human-scale cars or a restaurant’s overflowing servings of food intended to gratify rather than nourish (the uneaten heapings wind up in the Dumpster). Less visible to consumers but more fundamental to the ecological problem are the systems of production where things get made. These processes are also massively inefficient and neglectful of long-term costs, despite management’s suppose obsession with efficiency.

Only 6 percent of the materials that flow through the U.S. production system actually wind up in products, as (Paul) Hawken and coauthors Amory Lovins and L. Hunter Lovins noted in Natural Capitalism. The daily physical inputs consumed by the metabolism of industry amount to twenty times the body weight of every American citizen. The automobile, ostensibly modernized with its computer controls and other electronic charms, actually loses 80 percent of the energy it consumes, mainly through engine heat loss and exhaust. The other 20 percent moves the car.

One is accustomed to hearing such grim facts from ecological activists, but Hawken and the Lovinses are trying to get people to see the good news. This problem is solvable. Americans can do this.


“Waste equals food.” The world in which we live, (William McDonough and Michael Braungart) explain, has two operating metabolisms – the biological and the industrial – so every substance produced, consumed, and discarded must be able to serve as "food” for one system of the other. Spent materials become either "biological nutrients” fully digestible in the earth or “technical nutrients” that will be fed back into the industrial system.

“To eliminate the concept of waste means to design things – products, packaging, and systems – from the very beginning on the understanding that waste does not exist,” they wrote in Cradle to Cradle.

P. 193

Closing the industrial loop means a system for establishing ultimate responsibility, one that no longer allows random disregard for future consequences.

Take back what you have made and make it into something new. The “technical nutrient” cycles envisioned by ecologists require a disassembly-recovery industry – the missing half of industrial capitalism – that collects the old stuff or spent substances and converts them into new parts or usable materials for new products and processes.

P. 208

The problem is, the system empowers and often demands the opposite behavior, a short-sighted indifference to people and society’s claims.

P. 210

Shareholders, it was said, have at last gained real influence over the companies because “shareholder value" compelled CEOs to pursue the stockholders’ singular objective of earning greater returns (preferably every quarter). The corporation’s competing concerns and priorities were thus subordinated or discarded, even including the long-term viability of the company itself, since conceivably the shareholders could gain more from its sale or breakup.

The supposed alignment of CEOs with shareholders turned out to be a cruel hoax, of course, on unwitting investors. The shareholder logic simply encouraged executives to inflate returns and thus push the stock price ever higher, ostensibly rewarding shareholders but actually exposing their company to ever greater risk, including the risk of financial implosion. CEOs did not personally share in the risk, however, because the artificial gains in stock prices could still be harvested by those who knew when to get out – insiders like themselves.

P. 213

State-issued charters are still required to incorporate (the reason these private organizations are called “public” corporations), but the obligation to fulfill specified public objectives have disappeared. In the 1890s, states were eager for development and began competing in corporate charters – a “race to the bottom” that ended in Delaware which set the least demanding rules for incorporation.

Because citizens are unable to define reliable limits on the corporation’s purposes and performance in advance, people must passively experience the environmental consequences of exotic new industrial substances or production techniques until the harm becomes visible around them. Then citizens must gather elaborate scientific proof and persuade politicians to take their complaint seriously, while the corporation typically scoffs, denies anything is amiss, and mobilizes its own political resources to block any corrective action. Eventually, if the evidence becomes overwhelming, the company may agree to stop dispensing the dangerous materials into air, land and water (though some determined companies, like General Electric, may fight clean-up obligations for a generation or longer.)

P. 214

Biotechnology is only the latest example of these mass-market experiments with nature and human well-being…And history suggests that corporate assurances of harmlessness are quite unreliable, from lead additives in gasoline to DDT, from carcinogenic food dyes to PCBs. We will find truth about biotechnology some years hence when, if there are destructive consequences, the damage already will be widely present in our lives, routinized in commerce and nature.

To ecologists, this approach is dangerously irresponsible, as well as grossly wasteful, since cleaning up environmental mistakes is always far more expensive than preventing them. Public health and environmental leaders advocate a disciplinary concept known as “the precautionary principle” that would require a heavy burden of proof before such experiments are commercialized. If that obligation were written into every corporate charter or state laws governing corporate behavior, it would no doubt slow down the process of introducing new products and production practices that seem to promise cost savings or higher quality. But it would assign the unmeasured risks to the proper party – the people who expect to profit – rather than the unwitting public.

In 1886, the Supreme Court held, with no public argument and little explanation, that the corporation shall henceforth be treated as a “person” for purposes of law, and be entitled to the same constitutional protections previously accorded only to the citizens who are human beings. In particular, corporations could invoke the Fourteenth Amendment’s right to “due process,” which was adopted after the Civil War to protect the newly emancipated slaves. Personhood was legal fiction, obviously, but it became a most powerful tool for corporate lawyers fending off the demands of citizens and governments.

P. 215

Over the next fifty years, the Supreme Court made numerous decisions involving Fourteenth Amendment rights, and half of these were devoted to protecting corporations, with less than 1 percent to the rights of African-Americans. The corporate power relationship with citizens was thus shifted to a startling level of inequality, since the corporate organization already has inherent advantages over individuals. Unlike real people, a corporation may exist in many places at once. Or it can reconfigure its body parts and re-create itself in an entirely new form. Unlike real people, a corporation can live forever.

The ascendant corporations, eager to expand in scope and scale, also moved to seize power (and property rights) from their putative owners – the shareholders. Shareholders were a major obstacle to reorganizing the American industrial base, the grand project of acquiring scores of competing firms and amassing them in giant holding companies (conglomerates, we would call them now.) Common law at the time still treated each shareholder like a true partner in the firm, and thus unanimous approval was required from the shareholders before a corporation could acquire another company or sell its own assets entirely or make other major structural changes. Led by New York in 1890, states began enacting a remedy for ambitious empire builders: Henceforth, a company could execute its mergers and acquisitions with only majority approval from the shareholders. This change effectively alienated shareholders from their property and secured control of the firm for the insiders, including the largest stakeholders. This alteration also ignited the first great wave of consolidations and takeovers that led to the gargantuan scale of the largest corporate organizations. That was the objective.

P. 217

…the modern era of consolidations has created a new galaxy of oligopolies dominating a dozen or more sectors in which a few companies own most of the marketplace and can intimidate or crush minor competition (all of these new formations passed legal muster with the federal government.)

P. 218

In the early 1900s, as the broad ranks of shareholders were separated from corporate control, the insiders were rewarded with greater rights to be irresponsible through introduction of the “limited liability” corporation...It meant that if the company went bankrupt investors would lose the value of their shares, but no more.

“Limited liability basically shifts the risk of enterprise from the owners to the creditors, including construction companies, suppliers, lenders and laborers,” William G. Roy wrote in his social history of the large corporation. The full costs of failure (whether from stupidity or fraud) are thus “socialized,” as Roy put it. That is, the costs are spread across many other parties in society – including wrecked communities – while the architects of the disaster are excused.

Doubtless, this doctrine does encourage a more adventurous capitalism, but it also assigns the losses to people and interests who typically have already been victimized by the failure. We can observe the injustices of “limited liability” in the laborious legal cleanups following the debacles of Enron, WorldCom, Global Crossing, and many other bankruptees. The insiders held onto their mansions and personal fortunes. The losers – creditors, suppliers, shareholders, employees – fought over the scraps, with their claims stacked in descending order of priority – bankers first, employees last. In bankruptcy court, employees always come in last. Indeed, they may have no standing at all unless they can prove fraud or they have an enforceable union contract.

P. 219

The concept of ‘limited liability” has also slyly damaged American culture by diluting the ideal of personal responsibility for one’s actions.

…the corporation functions as a principal source of American inequality, concentrating both power and wealth at the top. It does this by aggregating the surplus value produced from what employees contribute to the firm through their labor and knowledge, then redistributes that value upward and outward. Naturally, the insiders do not grant employees a voice in this distribution if they can avoid it. The steep pyramid in incomes – CEOs making more than 500 times what their company’s workaday employees earn – would be inconceivable if control of how the surplus returns are distributed was not closely held.

P. 239

What (Charles) Perrow, (Mary A. ) O’Sullivan, and the other critical voices are suggesting is that the well-being of the corporation as a business enterprise cannot be separated from its qualities as a social organization. If one dimension is dysfunctional, then the other cannot be unaffected. That seems so elementary, it should hardly need to be said. Yet the ethos of the modern corporation promotes the contrary view – that the organization exists above and apart from the people who come and go within it.

P. 241

Above a certain size, getting bigger and bigger does not deliver new economies of scale; it simply walls off the threat of innovative competition. Companies use their size to guard their turf against intruders and, because they have greater financial resources and technological and marketing skills, they can literally smother the new guys who come along with a better idea…this does not describe the market competition Adam Smith had in mind as the “invisible hand.”

P. 246

“Analysts – have you ever seen an analyst who didn’t want you to do more than you did?” (Herman Miller Inc.) CEO Michael Volkema remarks. “but you’ve got to decide whether the analysts are going to run the company or are the leaders going to run the company. Surely, if I wanted to maximize the profits of this corporation, I could stop investing in the future. But I don’t know whether that would be a good thing long term for all the different constituents, whether it’s customers or employees or shareholders.

Above all, the Herman Miller story demonstrates how the social organization within a company can reinforce – and guide – its business enterprise.

It is repeatedly rated by academics and media as one of the “most admired” and “best managed” and “most ethical” companies. Fortune magazine put it on its original list of the “100 Best Companies to Work for in America.”

P. 250

“Going public” – issuing stock shares for the first time – is usually the point when the founding values are dissipated, even destroyed.

P. 258

The founding principles of the new social corporation…

The corporation must produce real new wealth, profit in the narrow meaning but also genuine value added to the material basis for sustaining a civilized society.

The active objective of the corporation is to achieve harmony with nature, instead of borrowing assets from the future, with the understanding that disturbing nature is inescapable, but destroying it is neither required nor free.

The system of internal governance reflects a democratic understanding that one way or another all of the company’s insiders “own” it and together accept the risks and responsibilities for its behavior, and that the governance mechanisms ensure participatory decision making and the equitable adjudication of inevitable differences.

The corporation, in addition to its standard obligations to investors or creditors, undertakes concrete covenants with the communities that also support it in different ways…

The company’s mission includes promoting unbounded horizons for every individual within it, whatever their personal potential and ambitions might be.

The corporation commits to defending the bedrock institutions of the society, from the viability of family life to the integrity of representative democracy.

P. 276

The libertarian Cato Institute compiled a list of 125 programs of direct subsidies for business, totaling $85 billion, that it labeled “corporate welfare.” Notwithstanding “free trade” rhetoric, government still does protect many industries, not for national security or economic necessity, but simply because they are politically well-connected. Sugar is one of the most notorious examples. American consumers pay $2 or $3 billion extra each year because import quotas block cheaper sugar from abroad (typically produced by impoverished nations in the Caribbean and Latin America). The domestic price supports provided to American sugar growers cost another $1.4 billion, and nearly half that money goes to the largest 1 percent of the farms (much like the federal subsidies for other agricultural crops). Sugar plantations are, meanwhile, notorious polluters from their chemical runoffs that threaten the Florida Everglades, among other places.

P. 277

Similar subsidy systems or defensive legal arrangements are in place for a long list of other sectors, from timber to nuclear power, in which producers are excused from the full costs of their operations or from various legal obligations they find burdensome. The federal government has paid to build some 340,000 miles of logging roads in the publicly owned national forests so timber companies can harvest the trees. Then the government authorizes money-losing timber commodity sales that cost the taxpayers another half billion a year.

P. 278

“One can easily calculate that personal and corporate tax rates are about 2o percent higher than they’d need to be if these tax preferences for business and investment did not exist,” (Robert S.) McIntyre testified.

P. 288

Across the fifty states, corporations have turned “economic development” into what can only be called a racket. They siphon off some $50 billion every year from state and local treasuries in the name of creating new jobs and enterprise. Like most rackets, this one operates largely in secrecy, privately negotiating deals with political leaders on tax abatements and other forms of aid, with little public disclosure or accountability. The corporations have developed great acumen at pitting the states against one another and employ deep squads of consultants to lend a scientific aura to their search for public handouts. They dangle the prospect of a new industrial plant before several localities and ratchet up the bidding war among anxious public officials. They game the tax codes in a similar fashion so that a substantial chunk of corporate income escapes state taxation anywhere. They make exciting promises that are frequently not kept, whether they are promising to build a new factory or threatening to close an existing one. Both methods succeed in diverting public resources to private gain.

P. 290

Greg Leroy (of Good Jobs First) recites some of the new questions being asked:
“Should subsidies keep going to companies that pay poverty wages and thereby stick the taxpayers with hidden costs like Medicare and food stamps? Should subsidies keep going to companies that fail to provide health care or deny workers the right to organize a voice at work? Should subsidies keep taking money from our schools, while the school boards have no say? Should subsidies keep going to polluters who fail to comply with emissions standards? Should subsidies keep paying companies to flee inner cities and older suburbs and fuel suburban sprawl? Should subsidies keep paving wetlands and plowing up cornfields for Wal-Mart and Home Depot? Should subsidies keep going to factory farms?”

The broader conversation about the social consequences has greatly expanded the ranks of groups joining the fight and enlarged their political goals. The corporate pork barrel, federal as well as local, routinely subsidizes destructive, antisocial behavior by private enterprise while government then spends taxpayers’ money to ameliorate the consequences for society. This contradiction is illogical and wasteful, but it also garbles the meaning of public purpose. Is the government on society’s side in these matters or pushing in the opposite direction? At the local level, more and more citizens have figured out that public works in the modern sense may act as an engine of social destruction, not progress.

P. 295

New Principles for “public works”:

First principle: Do no harm.

Second principle: If government does not get what it paid for, then the corporate beneficiaries must return the money.

Third principle: When public resources are deployed to rescue or enhance particular profit-making firms, the public is entitled to a quid pro quo of comparable value.

Fourth principle: The goal of public works investment must be long-term improvement, directed at life in the next generation…

Do no harm to the public with the public’s own money. Get what you paid for or take the money back. Collect a quid pro quo for the public’s investment. Invest only in the distant future, not in somebody’s quarterly returns.

P. 304

Economics counts any and every economic activity or exchange as a positive contribution to GDP, regardless of the negative impact it may have for people and society. Crime is therefore understood as an important generator of economic growth; the more crime, the more market demand for hiring cops and security guards, for building more prisons. Disease and illness are positive factors for the same reason (and the health industry works hard to discover new ailments to heal). So are car crashes, train wrecks, or other events society understands as major disasters. Less visible disasters like pollution, work stress, poverty, or family dissolution are not deducted from growth. However the cost of cleaning up social consequences afterward has a plus value for GDP.

These crude examples greatly oversimplify (Herman) Daly’s analysis (for enlightenment, read For the Common Good, coauthored with theologian John B. Cobb, Jr.) But the point is fairly straightforward: Economics makes no distinction among positive and negative economic activities on the grounds that objective objective scientific analysis cannot consider such social values. After all, one man’s disaster may be another’s source of income. Yet, by refusing to make any distinctions, economics is effectively making a profoundly influential value choice for the unwitting society. The choice is an economic system bereft of values. When society accepts statistical growth as its shared measure of progress, the society has effectively surrendered its own values to capitalism’s.

P. 327

“Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it’s the only thing that ever has.” That remark has been attributed to Margaret Mead but, whoever said it, the observation resonates down through our history. In democracy, the deep politics originates in social reality, not in legislative halls. People everywhere have the ability to alter social reality, at least in their own surroundings. When they decide to act on their convictions, sooner or later the politics will follow.</!-- more -->

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