It’s the Economy Stupid! The Five Myths of Capitalism – Part 5 of 5

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I stated in parts 1-4, that unless we change our attitudes and policies regarding Corporate Capitalism, it will destroy our country, our way of life, our freedoms, and our environment.  Furthermore, we will undoubtedly take some of the rest of the world along with us.  This is a serious accusation and one I do not take lightly.

I have already described four of the five myths that are largely responsible for the mistaken policies and laws that have allowed Corporate Capitalism to become a dangerous disease.  A disease that is infecting our government and policies in myriad ways and causing untold damage to our country and the world.

In this blog, I will describe Myth #5 and how it contributes to the problems we are now facing.  Myth #5 is:

What’s Good for Corporate America is Good for the USA:

shanghai-gm-monoply-guy-720x340 (1)A version of this myth is the “Too big too fail idea” widely heard during the “Great Recession” and now during the Coronavirus epidemic.  General Motors was one of the first giant corporations in America and even as late as 2019, it was ranked 13th on the Fortune 500 rankings of the largest United States corporations by total revenue.  In 1952 during his nomination hearing for Secretary of Defense, Charles Wilson (former CEO of General Motors) was asked if he could make a decision as Secretary of Defense that ran contrary to the interests of his former company.  He replied with the now infamous remark YES but that he could not conceive of such a situation: “because for years I thought what was good for our country was good for General Motors, and vice versa.” — Wikipedia

220px-23_Things_They_Don't_Tell_You_About_Capitalism_cover_artThe foregoing belief in the common interests that corporations shared with America came to epitomize the ideology of Corporate America.  American corporations then used the media and astute public relations to convince the majority of US citizens that they are indispensable, and that the welfare of the average person depended on the welfare of the corporation.  To put it another way, the interests of a giant corporation are claimed to be synonymous with the interests of the average person. “What is good for America’s Corporations is good for You.”  “What is good for Microsoft, Google, Amazon, Exxon, Facebook and Pfizer is good for you.

This belief system, that corporate welfare is synonymous with our country’s welfare, is inevitably betrayed by at least two major factors.  These include: Externalities and Short-Term Thinking.

  1. Externalities (Lack of responsibility)

imagesWhen a company makes and sells a product, it is no longer responsible for the effects of that product on either the buyer or the environment.  Unless evidence can be shown that somehow the corporation either lied or had some kind of criminal intent in the sales process, the consumer and society are responsible for the negative effects that a product or service might have.  For instance, oil companies sell gasoline but are not responsible for the effects of polluting the atmosphere by burning gasoline.  Another example is the packaging that many companies use for their products.  Amazon is notorious for over boxing even the smallest products.  The boxes must then be thrown away or recycled in a landfill.  However, the cost of this recycling is not born by Amazon but ultimately by the taxpayer who must pay for the recycling through taxes or direct payments.  Meanwhile, Amazon makes a great profit by being able to take advantage of tax loopholes and escaping any costs.  These costs are called in economic terms: “Externalities.”

“In economics, an externality is the cost or benefit that affects a third party who did not choose to incur that cost or benefit.”  Wikipedia

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  1. Short-term thinking

Corporations will tell you that consumers benefit from the aforementioned transfers of costs.  The consumer pays a cheaper price for the product than he/she would if the total costs to the environment were factored in.  However, this is only considering short-term costs.  In the long term, the consumer/taxpayer pays a much greater cost.  For instance, the pollution in the atmosphere has caused the overall temperature of the earth to rise resulting in global warming.  This warming has destabilized weather patterns all over the earth resulting in extremes of weather:  more frequent tornadoes, stronger hurricanes, longer droughts, greater rain in many areas resulting in flooding.

The impacts of these weather changes have already cost the world billions of dollars.  One study found that: “Climate change could directly cost the world economy $7.9 trillion by mid-century as increased drought, flooding and crop failures hamper growth and threaten infrastructure.”Climate impacts ‘to cost world $7.9 trillion’ by 2050.  This study does not measure the misery to human beings all over the earth in terms of famine, pestilence and the impact of more and more “natural” disasters.

So, what we have here is the typical example of “Short-Term” thinking on the part of our Corporate Capitalistic economic system.  From worrying about the daily price of their stocks, the quarterly dividend, the monthly financial statements and the quarterly financial reports, corporations are guided by short-term thinking.  They will compete for short-term profits at the cost of destroying our environment, our way of living and ultimately our world.  This is the nature of the beast as it is bred and chartered.

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When I was a store manager at the now defunct W.T. Grant Company, we used to get a report each month which showed us our store ranking in relation to the 200 or so other stores in our division.  Our regional management would send these out every month to motivate us to raise our ranking.  Thus, if we were ranked 76th out of 200 in sales and profits, it would behoove us to try to improve.  However, these rankings were more or less random since some stores would always be in the top rank because of their size or other demographics.  Even without changing a single factor in our operation, the next month might see our ranking go up to 50th.  This could simply mean that our seasonal sales had kicked in before some other store areas.  The following month we might drop to 125th out of 200.

Each month brought a great deal of shifting between stores.  One soon learned that these reports were worthless.  We regarded them as a big joke.  They told us nothing except that management was focused on the short-term and that it could not look longer ahead than a month.  I worked for W.T. Grant for two years and left 4 years before they went bankrupt.  At the time of their bankruptcy, they were the largest American corporation to ever declare bankruptcy.

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A number of years ago, the average lifespan of an American corporation was 60 years.  The first list of Fortune 100 companies published in 1954 showed that less than fifty years later more than ½ of these companies no longer existed.  A corporation which is regarded as a person by such ridiculous decisions as “Citizens United” lives considerably less than the lifespan of an average person.  Even that limited a lifespan for a corporation has dropped.  The average age of an S&P 500 company is now under 20 years, down from 60 years in the 1950s, according to Credit Suisse.

Why? You may well ask.  The answer is simple.  For two reasons:  Greed and Stupidity.  Hardly a corporation in America does not create a “strategic plan.”  I have helped formulate and facilitate many a strategic planning session.  The most difficult part of planning is to get companies to think long-term.  Partially, this is due to the extremely volatile nature of business and the competition that companies face.  An even bigger part of the problem is the nature of management thinking.  There are some notable exceptions to this prevalent thinking:

“In Warren Buffett’s 2010 annual letter to shareholders he mentions the advantage Berkshire Hathaway has because it doesn’t focus on short term results”:

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“At GEICO, for example, we enthusiastically spent $900 million last year on advertising to obtain policyholders who deliver us no immediate profits.  If we could spend twice that amount productively, we would happily do so though short-term results would be further penalized. Many large investments at our railroad and utility operations are also made with an eye to payoffs well down the road.  At Berkshire, managers can focus on running their businesses: They are not subjected to meetings at headquarters nor financing worries nor Wall Street harassment. They simply get a letter from me every two years and call me when they wish.”  — Dr. Deming’s 7 deadly diseases by John Hunter

downloadDr. Deming wrote reams about the failure of management to balance what he called the “Problems of Today” with the “Problems of Tomorrow.”  I would typically hear when beginning a consulting engagement numerous reasons why “it could not be done.”  One of the most common excuses was expressed colloquially as “We are up to our ass in alligators.”  Another excuse was “We have too many fires to put out.”  I was fond of reciting Dr. Deming’s comment that, “Putting out fires is not improvement.  Finding a point out of control, finding the special cause and removing it, is only putting the process back to where it was in the first place. It is not improvement of the process.” — Out of the Crisis,  W. E. Deming

I have already mentioned in Part 2 on the Efficiency Myth that most corporations never really understood the idea of continuous improvement.  The focus of management is for the most part, a focus on quick fixes and short-term thinking that can bring quick profits regardless of the hidden costs and externalities.  Thus, the belief that what is good for a corporation is good for its citizens is not just false but dangerous.  To hold this belief is like trusting a rattlesnake not to bite you.  You might think that the rattlesnake is your friend until the day it bites you.  You are no more a friend to an American corporation than you are a friend to a rattlesnake.

41bf5SeawKL._SX331_BO1,204,203,200_I have sat in many boardrooms for many planning meetings, and seldom did I ever hear an executive worrying about the environment or the hidden costs of externalities.  The oft assumed legal mandate of a corporation is to make a profit.  However, corporate law states that a company does not have to pursue profit maximization at all costs.  This is idealistic though since the tendency in the marketplace and short-term thinking push corporations to ignore other considerations and pursue profits at all costs.  It is also much easier to measure profits than it is to measure a “good” to the environment or a “good” to the social system.  Thus, generally profits will trump other considerations in running an effective business.

Conclusion:

What is to be done?  How do we restore the proper balance of power to ensure that Corporations serve the country and not that the country serve the corporations?

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I think it will require the following major actions:

  1. We must overturn the US Supreme Court’s ruling in Citizens United
  2. We must change corporate law to do the following:
    1. Place size limits on corporations
    2. Place limits on the number of companies a corporation may acquire
    3. Regain citizen control by changing the corporate charter
  3. We must place limits on the exercise of lobbying
  4. We must stop corporate donations to political candidates
  5. We must place limits on the hiring of corporate executives to manage and oversee the government agencies that regulate their industry

There are many other things that can be done if we as citizens recognize that we have the power to take control of corporations.  We have the power to insure that they are acting in the public interest and not the other way around.  Madison Avenue has convinced Americans that what is good for Corporate America is good for the USA.  Nothing could be further from the truth.  It is time we take back our power.

“Corporate social responsibility is measured in terms of businesses improving conditions for their employees, shareholders, communities, and environment. But moral responsibility goes further, reflecting the need for corporations to address fundamental ethical issues such as inclusion, dignity, and equality.”Klaus Schwab

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It’s the Economy Stupid! The Five Myths of Capitalism – Part 1 of 5

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There are many theories about what drives progress and change in the world.  Some say Ideology changes the world.  Some say Technology is the main driver of change.  Karl Marx, one of the most famous or infamous men in history, (depending on your beliefs) argued that Economics is the main driver of change in the world.  Much of Marx’s theory is summed up by the term Historical Materialism which can be defined as:

“A theory of history which states that a society’s economic organization fundamentally determines its social institutions and the way that people live and benefit from the means of production in that society.”

marxism-capitalism-1-638Most of what people learn about Marx is far removed from his actual ideas.  Given that Capitalism has been diametrically opposed to the very name of Karl Marx, it is not surprising that he is routinely disparaged.  Even at the University level, it is rare to find anyone studying Marx very deeply.   Many educators and instructors describe Marx’s economic theories as “Totally Discredited.”  Few people in America have any good words for Karl Marx.  Any politician in the USA who might suggest that Marx ever said one good thing or had one good idea would court instant political death.  Marx is the devil in our Capitalistic system.

the economyMarx did of course hate capitalism.  He saw Capitalism as a system that exploited workers and allowed the greedy to benefit at the expense of those less fortunate or less aggressive.

“Capitalism: Teach a man to fish, but the fish he catches aren’t his. They belong to the person paying him to fish, and if he’s lucky, he might get paid enough to buy a few fish for himself.”  — Karl Marx

10665231_470379489743928_2447670465163187643_nThe antipathy directed towards Marx and his critique of Capitalism has discouraged any real in-depth understanding of the limits and myths of Capitalism by most Americans.  Capitalism resides in America on the same level as Mom, God, and Apple Pie.  Woe to anyone who would dare to attack Capitalism.  In the United States, Capitalism is as hallowed an institution as Christianity.  In fact, most Christians think that Capitalism and religion go hand in hand, which to a large extent they sadly do.  Unfortunately, not all Capitalism is the same.  In America, we have a home-grown version that is more appropriately called Corporate Capitalism.  What is the difference you might ask?  Well it gets even more complicated since economists define four types of Capitalism.  These are:  oligarchic capitalism, state-guided capitalism, big-firm capitalism, entrepreneurial capitalism.  The type of Capitalism that I am going to talk about is known as Big Firm Capitalism or Corporate Capitalism.  It has been defined as:

“Corporate capitalism is characterized by the dominance of hierarchical and bureaucratic corporations… A large proportion of the economy of the United States and its labor market falls within corporate control.  In the developed world, corporations dominate the marketplace, comprising 50% or more of all businesses.  Those businesses which are not corporations contain the same bureaucratic structure of corporations, but there is usually a sole owner or group of owners who are liable to bankruptcy and criminal charges relating to their business. Corporations have limited liability and remain less regulated and accountable than sole proprietorships.” — Wikipedia

Before we proceed further, you need to understand one thing.  I am not against corporations per se.  We gain many benefits from corporations.  Corporations are a large part of the foundation of our economy which from strictly a monetary perspective has been phenomenally successful.  The USA has perhaps the most successful economy in history.  I have no problems with the monetary contributions of corporations.

globalization

The problems arise however, in that there are Myths of Corporate Capitalism which serve to hide the negative impacts that corporations have on our country and the rest of the world.  Today, corporations are global entities and their excesses are felt not just in this country but all over the globe.  I believe that unless these excesses are reined in by intelligent oversight and a rewriting of corporate law, they will destroy this country.  Each of these excesses is a Deadly Disease that by itself could do the destruction.  Together these five excesses are leading America away from the vision of our founding fathers.  Life, liberty, and the pursuit of happiness were based on the belief in a democratic system of government that was of the people, by the people and for the people.  We are increasingly standing by while our country becomes a government of the corporation, by the corporation and for the corporation.

The Five Myths of Corporate Capitalism that are destroying America:

  1. Corporations are people

supreme court decisionOver the past 40 years, the Supreme Court has radically expanded constitutional rights for corporations.  The original charters for corporations written in the late 19th century, allowed corporations powers never before seen in companies.  The abuse of these powers soon led to a considerable amount of legislation designed to reign in some of the most egregious of these abuses.  Laws such as the Sherman Anti-Trust Act passed in 1890 to stop monopoly practices and the Clayton Antitrust Act passed in 1914 to stop unethical business practices were somewhat successful at ameliorating corporate abuses.  Unfortunately, corporations were still left with considerable power to thwart the goals of democracy and good government.

From the early 20th Century onwards, corporations continued to use their power to bribe, cajole, and persuade policy makers to give them privileges that once again extended their power. They have since more than made up for the power that they lost in the early part of the 20th century.

“Today, the biggest companies have upwards of 100 lobbyists representing them, allowing them to be everywhere, all the time.  For every dollar spent on lobbying by labor unions and public-interest groups together, large corporations and their associations now spend $34.  Of the 100 organizations that spend the most on lobbying, 95 consistently represent business.”  — “How Corporate Lobbyists Conquered American Democracy” — The Atlantic, Lee Drutman, April 20, 2015.  

corporate powerCorporate interests easily dominate the interests of the common person.  The common person has nowhere near the financial clout of corporations.  In 2010, the Supreme Court passed the Citizens United Decision which gave corporations unlimited power to finance and support political candidates running for office as well as to lobby on behalf of any laws that they wanted.  This decision basically upheld the idea that corporations had a right to free speech much like any citizen of the USA and that campaign spending was simply a manifestation of free speech.  Corporations are now being treated as living breathing people despite the fact that corporations can live forever, and corporations are not organic entities.  They are not born, and they do not die like any other creature on the face of the earth.

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Corporations already had almost unlimited power to influence and coerce politicians to do their will.  The Citizens United Decision took all the brakes out of the system.  You have often heard the parody of the Golden Rule “He who has the gold makes the rules.”  This trope is now a fact of life in America.  Many people no longer bother voting because they believe that voting is a waste of time.  Everyone knows that politicians need an exorbitant amount of money to support their campaign and that once elected they immediately start building their money up for their reelection.   They get the lion’s share of this money from big business interests and associations that support big business interests such as the National Rifle Association (NRA).

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According to campaign finance reports filed with the Federal Election Commission that cover activity from January 1, 2019 through June 30, 2019, congressional candidates collected $389 million and disbursed $172.2 million, political parties received $353.7 million and spent $279.9 million, and political action committees (PACs) raised $958.2 million and spent $818.7 million in the six-month period.  If you total these figures up for money raised in just the first six months of 2019, it equals $1.701 billion dollars.  If there were 100 people in the US Senate and 435 people in the US House of Representatives, this equals approximately $3,179,400 dollars for every one of those politicians in office.  Of course, some will get more, and some will get less, but the majority of this money will be spent helping to support the reelection of each and every one of these honorable men and women.

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Here is a little experiment to show you what this campaign funding could buy.  Consider that the Federal Minimum Wage in the United States as of 2020 is $10 dollars per hour.  A person on minimum wage working full time earns approximately $21,000 dollars a year.  According to the Bureau of Labor Statistics, 1. 8 million Americans work full-time at or below the minimum wage.  If you double the average election campaign fund to equal a full year of collecting money you will get approximately $6.2 million dollars.  Now divide this campaign fund by the average yearly minimum wage of $21 thousand dollars and you get 295.  In other words, one year of campaign funding (an average) would fund a person now working on minimum wage for 295 years.   If you earn the national average of $86,000 dollars a year, it could support you for 72 years.

To say that something is wrong here is an understatement.  We have a sort of self-perpetuating money machine here.  Every year corporations get greedier and seek more profits.  According to Corporate Law that is their primary reason for existence.  Numerous pundits and corporate sympathizers extol the virtue of greed.

Workers Should Be Very Thankful That Corporations Are So Greedy” by Jeffrey Dorfman

greed is goodOne of the most popular movies in the eighties was Wall Street.  In the movie, Michael Douglas gave a “Greed is Good” speech which was actually applauded by audiences all over the United States.  Some corporations have been sued by stockholders for not being greedy enough.

Every year budding politicians need more and more money to get elected.  Corporations are money banks for anyone desiring to run for office.  Corporations provide the funds that politicians need to wage a successful election campaign.  Once elected, elected officials are then beholden to the major corporations and lobbyists whose help they will need to raise the money to get reelected.

Corporations are more than happy to support candidates who will pass bills that help them to make more profits.  Other bills they like are designed to ensure that they can pay less taxes, have fewer environmental regulations, fewer safety and health regulations, pay lower wages, decrease employee pensions and benefits, defeat unions and avoid onerous consumer liability claims.  Any politician who is willing to support the former goals can find numerous corporate lobbyists willing to donate money to help them get elected.  The Citizens United Decision guarantees that corporations can give as much money as they want without breaking any laws.  After all, it is free speech.

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“Warren Buffett worth nearly $80 billion dollars points to the Forbes 400, which lists the wealthiest Americans.  ‘Between the first computation in 1982 and today, the wealth of the 400 increased 29-fold — from $93 billion to $2.7 trillion — while many millions of hardworking citizens remained stuck on an economic treadmill.  During this period, the tsunami of wealth didn’t trickle down.  It surged upward’.”  — Entrepreneurs, January 24th, 2018

In Part 2, I am going to cover the second myth of Corporate Capitalism.  The Myth that laissez faire will somehow result in corporations being self-regulating entities for the common good.

“According to a survey from the Pew Research Center last year, 60 percent of American adults think that three decades from now, the U.S. will be less powerful than it is today. Almost two-thirds say it will be even more divided politically. Fifty-nine percent think the environment will be degraded. Nearly three-quarters say that the gap between the haves and have-nots will be wider. A plurality expects the average family’s standard of living to have declined. Most of us, presumably, have recently become acutely aware of the danger of global plagues.”  — The Atlantic, Kate Julian, April 17, 2020

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