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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This is an excellent report by the Roosevelt Institute.  If you are interested in details on how Corporate power can be reigned in.  You need to read this report.  

https://rooseveltinstitute.org/publications/untamed-corporate-financial-monopoly-power/

 

It’s the Economy Stupid! The Five Myths of Capitalism – Part 3 of 5

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I have stated in my two previous blogs 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 been a business educator in higher education and a management consultant to some of the top corporations in the world.  My opinion is not based just on theory or observations.  It is based on the in-depth work that I did with over 32 companies during the time I was actively consulting.  There are many good people working in corporate America but as Dr. Deming once said “You put a good person in a bad system and the system will win every time.  There are Five Myths of Capitalism that are largely responsible for the mistaken policies and laws that have allowed Corporate Capitalism to become a dangerous disease infecting our way of life and causing untold damage to our country.

In my previous blogs, I described the first two myths.  In this blog, I will describe Myth #3 and how it contributes to the destruction of our country.  Myth #3 is:

  1. People Run Corporations

It is natural to believe that because people, managers and employees run corporations that they will act as humans might act.  It is supposed that corporations will be or at least should be humane, compassionate, and guided by responsibilities to its employees.  Nothing could be farther from the truth.  Nothing could be a bigger lie or myth.  People DO NOT run corporations.  I think I can illustrate the point I am trying to make with a few short stories from my own experiences with large corporations.  I am sure that as you read my stories, you will think of many similar experiences you have had.  That is what I want you to remember.

"Before we discuss destroying the competition, screwing our customers, and laughing all the way to the bank, let's begin this meeting with a prayer."

Best Buy Story:

Several years ago I bought a new desk top computer from Best Buy Corporation.  I also purchased a two-year extended warranty.  No sooner had I got the computer set up in my home office when problems started.  The computer would shut down without warning, most of the time right smack in the middle of a paper or presentation that I was preparing.  I was always very diligent at backing up my work, but I would still lose up to 15 minutes’ worth of work which was very annoying.  This happened a number of times and I called their customer service and got to talk to the Geek Squad.  This was originally a group of computer nerds who had their own company and Best Buy bought them up.

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I got a service rep on the line after the usual wait and switching of phone lines. He had me run a series of diagnostics and wanted to know if I had a virus protector.  I told him no, I had not yet installed one.  He informed me that this was my problem.  I had a virus and would need to install a virus protector.  I jotted down the incident number for this report and the date I called Best Buy.  I purchased a McAfee Virus software and installed it.  I was hopeful.  However, even after installing the new software, the same thing happened again and again.  The computer screen would go blank and the computer would shut off.  I called Best Buy tech support again.  I gave them my former incident number, but they opened a new number and gave it to me.  I talked to a tech rep.  He took me through the SAME series of diagnostics as before but could not find any problems.  Then he asked me if I had a virus protector.  I told him “Yes, I had purchased and installed McAfee Anti-Virus software.  He suggested I should switch to Norton Anti-Virus as he was sure that I had an undetected virus.  I said thanks and hung up.  I then went out and purchased a copy of Norton’s software.  I installed the software and you probably have already guessed it.  The computer had the same problem and kept logging off.  I was fed up.

I disconnected the computer.  Took my purchase receipt and took my incident numbers and notes and told Karen that I was taking the damn thing back to Best Buy.  She cautioned me to “Be nice”.  “You catch more flies with sugar than vinegar.”  I promised I would.  When I arrived at the store, with box and computer in tow, I was referred to the Customer Service manager.  He wanted to know the problem and I gave him my history.  He then asked me if I had called the tech group for support.  I said I had.  He requested proof.  I showed him my notes and both incident numbers.  He then said “Well, since you did not purchase this at our store, there is nothing I can do.”  Bingo! I had him, I thought.  I showed him my receipt of purchase at this very same store.  “Well,” he said “We would need an extended warranty for a refund since it has been over six months since you purchased this computer.  I pulled out my 2-year extended warranty and showed it to him.

At this point, he said he would have to go talk to the store manager.

Mr. Customer Service manager came back about fifteen minutes later.  He looked me straight in the eye and said “how sorry he was” but it was “against policy” to take back merchandise.  I had had enough with “being nice.”  I told him I would never shop at Best Buy again and since I was a business education teacher at a local college, I would warn my students about shopping at Best Buy.  He looked blank and said not a word as I left his store.  It has now been over ten years.  I have never entered Best Buy again.  I would not buy a battery there if it were the last place on earth.

The Moral of This Story: 

We are not human beings to the people that work in large corporations.  We are dollar signs.  They have no empathy for us.  They switch off empathy when they join the corporation and aspire to climb the corporate ladder.  They become automatons who obey policy, follow procedures, and screw the customer if it means saving a dime for the corporation.  They will look you right in the face while screwing you and have no pity or compassion.  Remember, “we are only following procedures.”  By the way, this is about as true in large Government bureaucracies as in private for-profit corporations.  Caveat:  There are always decent people out there who are “exceptions”, I repeat “exceptions” to the rule.  However, they are not the norm.

Delta Airlines Story:

A few years ago, my wife and I bought tickets to go to Rhode Island to visit my sister.  We bought the tickets well in advance and looked forward to the visit.  A week or so before our scheduled departure, my brother in law called me up.  “John, I know Jeanine would never ask you to cancel your trip, but she has really not been feeling good.  We had to take her to the clinic, and I think it would be best if you came some other time.”  I told him “no problem”, we would cancel the trip and reschedule at a later date when she felt better.

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I called the airlines up to see about a refund.  I was told that “they were deeply sorry, but sickness was not a reason for a refund.  I said “seriously, you mean if I get sick and cannot make a trip, I cannot get a refund.”  The clerk replied, “If you were sick, it would not be a problem, but you were not sick, it was your sister.”  I could have bit a steel spike in half, but I replied civilly.  “Okay, but what about another booking at a later date?”  “We can manage that he said.  We will put a voucher in for you, but you will have to pay a restocking fee.”  “How the fuck do you restock an e-ticket I asked?”  “Its standard policy”, he replied.  The restocking fees cost about a third of the ticket prices and I remember being out of pocket about $300 dollars.  Three hundred dollars to restock an e-ticket?

The Moral of This Story:

Same as the moral for the Best Buy Story.  You customer.  Me corporate man.  We make billions by screwing people like you.  Sorry, its nothing personal, just business.

Travel Insurance Company Story:

Here we are in the middle of a Global Pandemic.  Karen and I had planned a trip to Paris and Moscow.  We purchased trip insurance to cover a number of costs over nine months ago.  Our two flights there and two flights back have all been cancelled due to the pandemic.  I am confident (Perhaps an unwarranted assumption on my part) that the airlines will either give me a voucher or refund.  Thus, the trip insurance company has not had to shell out one penny yet.  I decided to call the insurance company to see if I could get reimbursed for our Visas to Russia and Belarus that cost us a total of $1000 dollars.  I had already called both embassies and was informed that I would have to reapply for new visas.  The trip insurance agent informed me that Visas are not covered under “Miscellaneous Trip Cancellations” because as the agent said, “Does it say Visas?”  A short time later they sent the following notice by email to all insurance recipients:

If your travel insurance contains Trip Cancellation or Trip Interruption coverage:

Unless you purchased Trip Cancellation for Any Reason coverage, our insurance does not cover fear of travel.

Many of our plans exclude losses due to “any issue or event that could have been reasonably foreseen or expected when you purchased the coverage.” The COVID-19 outbreak is considered a foreseeable event under any plans containing this exclusion purchased on or after January 29, 2020.

I want to make three quick points. 

  1. Do you know anyone in their right mind who would not be afraid of traveling at this time?
  2. How in the name of anything you believe can the Covid-19 outbreak be considered a “foreseeable event” as early as January 29th?
  3. Have you ever seen the fine print and the number of pages on any insurance policy?

The Moral of This Story:

By now, you should know what the moral of this story is.  But just in case.  It is simply this.  If a large corporation can find any way to screw you, give you the shaft or take your money and give you nothing in return, rest assured many if not most of them will.

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Now, I want to return to my main point.  Corporations have no heart.  They have no feelings.  They have no emotions.  They are not sympathy machines or compassionate entities.  The people who are hired by these large corporations soon learn that if push comes to shove, they had better side with the corporation rather than the customer.

Unless, we change the character of corporate law, what it takes for articles of incorporation to be issued and the entire governance structure designed to provide oversight for companies, the stories that I have told above and your own sad tales will continue to reflect the reality of how corporations deal with people.

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Should it be this wayAre profits more important than people?  I fear that we have developed a system where too many people would say yes to both questions.

“How people themselves perceive what they are doing is not a question that interests me. I mean, there are very few people who are going to look into the mirror and say, ‘That person I see is a savage monster’; instead, they make up some construction that justifies what they do. If you ask the CEO of some major corporation what he does he will say, in all honesty, that he is slaving 20 hours a day to provide his customers with the best goods or services he can and creating the best possible working conditions for his employees. But then you take a look at what the corporation does, the effect of its legal structure, the vast inequalities in pay and conditions, and you see the reality is something far different.”  ― Noam Chomsky

Carnival Knew It Had a Problem, but Kept the Party Going

More than 1,500 people on the company’s cruise ships have been diagnosed with COVID-19, and dozens have died.  What were the executives thinking?  BLOOMBERG BUSINESSWEEK

 

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