18. The large corporation

Ch 18

Capitalism’s “first strike” weapon – the psychopathic corporation

This chapter draws freely on my own experience, and on Jane Gleeson-White’s 2014 book, “Six Capitals”.

Corporations are entities established by law to carry on businesses of one sort or another, and legally separated from their owners.  They have been around in one form or another for a long time.  But, with the probable exception of the British and Dutch East India Companies in the 17th and 18th centuries, they have not previously attained the scale and levels of influence and power that they now enjoy.

In 2010, the aggregate revenues of the world’s 1,000 largest companies were about 70% of the GDP of the OECD countries (compared with 30% in 1980), and they employed nearly 67 million people (compared with 21 million in 1980)[i].

Their recent growth is mainly attributable to three factors – the rapidly increasing consumption of the affluent world, the “opening up” of the poor world to investment and production, and, probably to a lesser extent, the privatisation of many functions previously undertaken by governments.  The first two of these are inextricably linked.

And corporate attitudes and behaviour have increasing influence in political and social decision-making, largely because of their increasing size and wealth.  The corporate lobbies in the United States are infamously influential.

This would be fine if we could be confident that corporations were “good citizens”, and had the interests, not just of their senior management and their owners, but of their resource workers, their customers, and wider society, at heart.  And some are.

But many are not, and there are a number of reasons for this.  In the book and documentary “The Corporation”, Joel Bakan and his colleagues  argue – with considerable force – that, if corporations were people, they would be classed as psychopaths:

“That is, corporations break the law if they can, they hide their behaviour, sacrifice long-term welfare for short-term profit, are aggressively litigious, ignore health and safety codes, and cheat their suppliers and workers [and customers – my addition] without remorse.”[ii]

I am sure that, without even invoking Bhopal, the Exxon Valdez, Enron, or Deep Water Horizon, you can think of examples of each of these behaviours by corporations.  And I will return to some more examples later.

The strange thing about all this is – and this is where Bakan and co started from – that, as far as United States law is concerned, corporations are pretty much people.

United States law has gradually shifted corporations from being quite restricted things, with limited lives and objectives, to a situation of many rights and few responsibilities.  For example, in the early 19th century, they were given the power to enter contracts.  At the end of the century, a remark by the Chief Justice led to the application of the Constitution’s Fourteenth Amendment (which was designed to protect the citizenship rights of the recently freed slaves) to corporations, with their rights accordingly protected.

The two key twentieth century changes to corporate law related to the pursuit of profit, and to participation in the electoral process (I will return to this particular change later in the chapter).

Case law has increasingly made profit the primary objective of American corporations.  This has meant that actions which are not in pursuit of profit (eg paying workers a living wage, or ameliorating some of the damage caused by “externalities”) can be, and have increasingly been, challenged.  In the 1970s and 1980s, the Chicago School of Economics and its false prophet Milton Friedman gave the pursuit of profits quasi-religious as well as legal status.

This singlemindedness in the pursuit of profits is one cause of corporate psychopathic behaviour.  It relieves corporations of the need to consider the external and wider consequences of their actions.  Recent moves to incorporate social and environmental objectives into corporate reporting have been largely ineffectual, because they remain subsidiary to the pursuit of profit.

Another important cause is the sheer size of these corporations.  They are so big they exhibit some of the characteristics of complex systems, including small inputs having large effects, and unpredictable and emergent behaviours.

Smaller corporations might be just as much “out to make a buck” as large ones, but they tend to be closer to their workers and customers at a personal level.  As they grow, they become distanced, and driven by more abstract and self-absorbed considerations.

Google, as a start-up, had the admirable motto, “Don’t be evil”, and initially attempted to live up to it.  15 years later, Google is just another tax-avoiding, data-stealing, intrusive, untrustworthy corporation, but with extraordinary reach.  It actually knows far more about its customers than it did as a start-up, but only at a statistical and automated level, and only through using the small print to justify data-capture, along with simple theft.

Walmart employs 2.2 million people, and McDonalds 1.9 million (including in its franchises).  Most of these are paid at minimum wage or near it – which is, by all measures, inadequate to live on with dignity in the local community.  In February 2015, Walmart announced its intention to raise wages for its lowest paid half a million workers in the US to $US9 an hour, a whopping $1.75 (!) above the minimum wage, but still well below the $13-15 an hour estimated as a minimum living wage.  (Walmart also announced “better scheduling” for its workers’ hours – code for treating them less like “zero-hour contractors”, ie having to be on call at all times without any guarantee of work).

In April 2015, McDonalds in the US announced a raise to $10 an hour, but this doesn’t apply to its franchises (ie 90% of its employees).

Walmart’s net profit for the fiscal year 2015 was $16.4 billion ($7,500 per employee), while McDonald’s was a paltry $4.8 billion ($2,500 per employee).

So what happens as corporations get larger?  As indicated above, new behaviours and states emerge simply through complexity.  But my personal belief, drawn from experience, is that the heart of the problem is that the more “senior” people become, the more remote they become from social consequences.  Seniority creates higher income (and, in the case of many Western countries, chief and senior executive incomes now beggar belief – they have become part of the “functional theft” I describe in chapter 19), greater privilege, and a narrower and more abstract perspective.

The Governor of New Zealand’s central bank when I worked there was Don Brash, a reformist and successful central banker, and subsequently an unsuccessful politician.  In the late 1980s he publicly endorsed rental housing, as a more economical form of accommodation than ownership.  He could not be persuaded that people bought their own homes, and if necessary paid premiums to do it, for reasons beyond economics and income.  Ownership, security, control – these were values which he wouldn’t acknowledge.

Perhaps, being who he was, he was just foreshadowing where he thought we should be.  In fact, it is where we are now in urban New Zealand, with wages so depressed and house prices so elevated that the Kiwi dream of home ownership is out of reach for increasing numbers of New Zealanders.

My point is that he operated from a singularly abstract, and, frankly, uninformed, perspective.  Another colleague once said to me in a similar vein, and without apparent irony, “I know what it’s like to be poor – I was a student once”.

The affluent classes run the corporations from lofty towers of abstraction, using economic “rules” of behaviour which are demonstrably both false, and also favouring the wealthy.  Well, why wouldn’t they?  That’s self-interest, I guess.

And this situation is compounded by the nature of corporations.  Corporations are not people, they are legal fictions.  They do not have morals or ethics, they are operated on the basis of “business risk”.  Fines and penalties for illegal activities are simply “business expenses”, to be paid for through product pricing.

The people who work for them are morally and ethically compromised by this.  At the best, they compartmentalise their lives, so that they operate as “business risk managers” for the corporation, and more or less ethical humans outside it.  At the worst, they are either “just following orders” or giving them.

And they are well rewarded.  Both owners and senior executives are protected by the legal devices of limited liability and bankruptcy.  They are able to extract funds from the corporation and use their distance from it, or its demise, to protect their own private positions.  So corporations have quasi-human rights, but limited responsibilities (a person declaring bankruptcy is normally placed under significant post-bankruptcy constraints; the owners and officers of a bankrupted corporation can walk away from it).

A particularly unpleasant recent example of this is the case of Alpha Natural Resources, a coal company which, having filed bankruptcy proceedings, unveiled a plan to pay its top executives $11.9 million in bonuses as a reward for slashing benefits to workers and avoiding environmental clean-up obligations[iii].

So we have the pursuit of profit, combined with size leading to increasing distance and abstraction, and linked to self-interest, as key causes of the psychopathic corporation.

Here are some brief notes on how corporations work, in particular how they manipulate their environment.

Psychopathic manipulation

I referred earlier to a law change in the United States which gave corporations the ability to participate in electoral processes. This is the “Citizens United” decision by the Supreme Court in 2010 to remove the ban on corporations (and unions) spending money on advertising and other election communications.

So corporations in the United States can now turn their wealth not only to influencing existing politicians through the time-honoured means of lobbying and bribery, but also to influencing the political process which selects them.

This is an obscene interference in democratic process, and probably the final necessary step the United States has taken towards “one dollar, one vote”.  To achieve this, the corporations have stepped well beyond their economic role of production and distribution, into political interference, purely in pursuit of their own gain.

Other examples of psychopathic manipulation are legion.  For example:

  • denial of responsibility for damage caused in production (Bhopal, Pike River in New Zealand, numerous other examples) or consumption (tobacco, alcohol, sugar, other addictive substances);
  • use of emotional manipulation and deceptive packaging to advertise and sell products (just watch TV, read a magazine, or open a packet purchased from a supermarket);
  • pricing of goods in relation to the maximum that might be paid for them rather than in relation to the costs of producing them (everywhere – my favourite example is the pricing of 600ml Coca-Cola at over $NZ3.50, while the 2.25l bottles sell for $2.50 or so – at least 5 times cheaper per ml);
  • planned obsolescence or cost/quality or cost/safety trade-offs which aim to maximise sales or profits rather than consumer value (everywhere); and
  • apparent engagement with critics while carrying on with all the above (their history on environmental matters is a classic example of this[iv]).

Corporate deception operates at many levels, including the gathering of information.  Corporations vie with governments in collecting information on citizens, in their case to help with marketing decisions, and mostly without real permission (if sought, the permission tends to be buried at page 36 of a user’s agreement).

I am particularly impressed by “Surveillance Barbie”, a Barbie doll recently released by Mattel which records what users (ie mostly children) say, to not only help Barbie respond, but also to send information to Mattel for marketing purposes[v].  This is wrong in so many ways that I won’t start on them.

But I think my favourite example of psychopathic manipulation is corporate “disinformation”, possibly because it is so closely linked to the conservative influence over political discourse in the United States.

“Disinformation” is a euphemism for lying, and corporations are very good at it, from the lies told by the chemical, tobacco, alcohol and automobile industries about the safety or environmental friendliness (think Volkswagen’s recent debacle) of their products, to the concealment of toxic or fatal damage and accidents by chemical and industrial companies, to the smearing of opponents with often outrageous accusations.

Corporations make many of these lies stick over long periods of time.  The tobacco industry on cigarettes and health/cancer is an obvious example.  The junk-food and sugar industries on the health impacts of their products are another.

And the “climate change denial” industry is the most dangerous of them.  Fossil fuel corporations in particular have a history of concealing information, and funding disingenuous research designed to increase uncertainty about both the science of global warming and the economic consequences of addressing its effects.  In November 2015, the New York Attorney-General subpoenaed Exxon to provide material going back to the 1970s to help establish whether the oil firm defrauded the public and shareholders by misleading them about climate change[vi].

Science has long gone past the questions of whether global warming exists, and whether it is caused by human release of greenhouse gases into the atmosphere – it regards these questions as answered as far as science can ever answer them – scientists have no doubt[vii].  Their biggest concerns now are “how much, how fast”.

But fossil fuel industries haven’t given up the cause – “sceptical” articles continue to appear, and a significant minority of people still believe that global warming may not be occurring, if it isn’t actually a hoax perpetrated by scientists and the left wing.

The example of corporate disinformation that stays with me is the lie that Rachel Carson, through her advocacy against DDT, caused the deaths of millions of people by stopping its use in malaria prevention.  This is still being sold to the public[viii], despite the facts that she didn’t advocate this, and that it didn’t happen – DDT has never been banned from use in malaria prevention.  And, in fact, her suggestion that overuse would just build up resistance has proven true, with DDT no longer used in some countries because it is no longer effective in killing malarial mosquitoes.

But why bother with the truth when you’ve got a good story that suits your purposes?  And your purposes are smearing the environmental movement, insinuating that government regulation leads to bad results, and increasing sales of pesticides, whatever their impacts.

“Merchants of Doubt”, by Naomi Oreskes and Erik Conway, is an excellent exposé of these industries’ use of pseudo-science by suborned ex-scientists, ably assisted by “marketing” techniques and immorally obtained wealth, to spread this sort of disinformation.  And very successful it has been.  Millions more have died from smoking than might otherwise have done, action on climate change has been delayed and hampered until it may be too late, and government is increasingly seen as the bogey that interferes with our freedom, rather than a cooperative effort to organise ourselves as societies.

Ambrose Bierce’s definition of the word “black” summarises the corporate approach to truth, although in fairness his main target was politics rather than business.  He defined black as “white”.

You might say that this is only true of some corporate behaviour.  And you would be right.  But it is frequent enough that it is more than just an occasional aberration.  It is an inevitable consequence of a system which gives corporations free rein to pursue profits and growth, using methods which are by-and-large unchecked, and frequently immoral.

The affluent world’s corporate sector has caused a lot of real world damage, through exploitation and pollution.  In fact, in some ways it looks very much like what the centrally planned economy of the USSR did, except it has managed to move a lot of its costs offshore.

But the corporate sector’s overall behaviour pales in comparison with that of the financial sector.  At least the “real” sector produces some real value in exchange for all the damage it causes.  The financial sector doesn’t have this excuse.

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Footnotes
[i] Jane Gleeson-White, “Six Capitals”, location 2666

[ii] Jane Gleeson-White, “Six Capitals”, location 95

[iii] See “In Exchange for Cutting Benefits…”, Climate Progress, 16 Feb 2016

[iv] See for example http://www.businessspectator.com.au/article/2015/9/16/policy-politics/surprise-surprise-corporates-talk-nice-play-dirty-climate?

[v] See http://www.newsweek.com/privacy-advocates-want-take-wifi-connected-hello-barbie-offline-313432

[vi] See http://www.reuters.com/article/2015/11/07/us-exxon-mobil-climatechange-case-idUSKCN0SW01M20151107

[vii] See for example the documentary “Thin Ice”, 2015, directed by Simon Lamb

[viii] See for example “DDT ban remains despite threat from mosquitoes”, Bob Brockie, Wellington DominionPost 15 Feb 2016