The new world order, Part I: The age of corporations

The new world order, Part I: The age of corporations

(A version of this article was published in Blogcritics on February, 2009)

I

We’re living in unprecedented times. The meltdown of the markets — or “the slow burn,” as some have called it — has become a fact of life, and there is no indication the process is abating. 

And it’s no different with unemployment. A half a million layoffs every month is no longer an anomaly but something we’ve come to expect, like writing off bad debt on the balance sheet — an accounting gimmick to be employed time and again until further notice.

II

Governments world over are doing their damndest to stop the avalanche and restore a sense of confidence in a system that, until now, had all the makings of bringing prosperity not just to the West but worldwide.

Just consider:

  • a stimulus package approaching a trillion dollars
  • salary caps imposed on executive pay for companies asking for a bailout, and more corporate restrictions certain to come
  • the appeal to buy American and only American 

All these are measures, desperate measures to bring the world economy back on track and reinstate a sense of order and hopefulness. Hopefulness that all’s not lost; that we can still recover from this downward spiral that seems to have gripped us and rendered us impotent and helpless; that good times are still ahead.

Will it work? Who knows!

III

It’s futile to argue about the efficacy of this program or that. Much of the dispute, anyway, over such matters as bailouts or executive pay, has strong emotional undertones. Understandably, a great many don’t want to see America become a second-rate country; naturally, they’re clinging to the past. But, in those rare instances when the economic sense prevails, it’s no longer reliable: the past can no longer guide us or help us understand the unfolding events. The entire spectacle reminds one of a sinking Titanic while the passengers squabble over which compartment should be saved first.

I’d say that saving the ship is a more cogent idea. So let us ask: What are the structural deficiencies which seem to underlie our present condition to make the entire system fall apart at the seams? And here, the first thing that comes to mind s the concept of the corporation.

IV

Not surprisingly, perhaps, the literature of political science or political philosophy is pretty silent on the subject. Indeed, until recently, the relationship between the corporation and the state was, by and large, non-problematic. Even before the advent of corporations, in pre-industrial times, as far back as you’d care to look, the world of business and commerce was never in conflict with, but always augmented, the interests of the State. From Queen Isabella to Elizabeth the Great, the monarchs have always supported and sponsored all commercial and business enterprises. 

V

The mercantile era represented perhaps the pinnacle of that policy whereby trading companies – The East India Trading Company, for one – were virtually the arm of the British Empire bent on colonization and conquest. And what the Portuguese and the Spaniards tried to accomplish by way of missions, the Dutch, the French, and the British did by establishing trading outposts, trading agencies, and trading companies.

Though an essential catalyst in the mushrooming of business ventures in the West, the Industrial Revolution hasn’t altered the fundamental relationship between business and national interests. True, corporate interests may not have been as responsive to the needs of the state as they were during the mercantile era, but they were by no means opposed to them. In the worst-case scenario, many vital industries, such as the railroads or the utilities, could always be nationalized, and, occasionally, they were.

And so, the relationship between the business community and the State was, by and large, one of peaceful coexistence. If anything, it was always the state which held the upper hand, always capable of bringing the world of industry to its knees. 

VI

The rise of the Third Reich, which brought about the subordination of the major industries (Krupp, I. G. Farben) to the will of the state, or the Soviet experiment, which resulted in the thoroughgoing socialization of all economic endeavors under the auspices of a “Five Year Plan,” are some of the examples of the state’s supremacy over the world of business, but they’re rather extreme. A slap on the wrist, anti-trust legislation, even nationalization – not to mention taxation, issuing incentives, or regulatory agencies (such as the FCC or the SEC) — were some of the usual methods of ensuring compliance. And for the most part, they worked — until the eighties at least.

Indeed, even into the late seventies, such terms as “good corporate citizen” or “goodwill,” when applied to corporations, were part of the vernacular, a common currency, and understandably so. It was still considered in the corporations’ best interests to identify their goals with the well-being of the citizens and the nation. Hence the PR campaign! But it all changed with the advent of deregulations, mergers & acquisitions, and the birth of the global conglomerate. 

The rest is history.

VII

I won’t discuss the concept of “corporate morality” or whether some such notion even applies to an entity like the modern corporation. It’s a question that’s only liable to stir the mind and divert the discussion away from cool reasoning by infecting it with passions. So, for better or worse, let’s just say that corporations have the legal status of persons, although the relevant ways in which they might differ from real-life persons is a subject which, in my opinion, has not received adequate attention. 

I’m going to focus instead on some of the detrimental effects of the global conglomerate, detrimental insofar as the State is concerned, and the best interests of its citizens. 

The analysis will presuppose the existence and the desirability of nation-states. It will also presuppose long-term benefits, such as “spreading prosperity around,” of the capitalist system set aright. Take away either of these conditions, and the entire argument is rendered null and void.

Furthermore, I won’t go beyond the much-debated but still unresolved issue of outsourcing. Say what you will, but the practice did not generate as many jobs in the home country as it had lost; and given that our education system is in shambles, it’s unlikely it ever will.

VIII

It’ll serve no purpose to affix blame on any of the “bad actors.” We certainly can’t fault the corporation for maximizing profits and making good on its obligation to stockholders while attracting potential investors. 

The state?  Perhaps lowering corporate taxes and issuing tax credits for manufacturing at home — to say nothing of curbing the unions’ stronghold on some major industries — might be of help.

The consumer? Yes, perhaps we ought to be more “patriotic” and “buy American and only American.” But then again, how can we blame the consumer for not allowing patriotism, however well or poorly conceived, to affect his or her economic decisions? 

IX

It would seem thus that from the very beginning, the entire practice of “outsourcing,” was a foregone conclusion and that only the most fortuitous set of circumstances could have averted its full-scale development. But as I said, it’s all water under the bridge, and finger-pointing serves no discernible purpose. I’m after the aftereffects, the unintended consequences.

But what are those consequences? The loss of jobs, the lowering of morale, creating the impression that America has become a two-tier society of haves and have-nots, ever-increasing numbers on welfare rolls, and the added costs of providing essential medical services to all.  Shall we go on?

One way or another, it all adds up to a bigger government having to provide a safety net for the growing many, the increasingly heavy burden on the steadily shrinking base of taxpayers, the necessity for borrowing and falling deeper and deeper into debt, and so forth. 

X

Say what you will, but it doesn’t bode well for our national interests to be creating a large underclass composed of all those who are increasingly dependent on their government for their subsistence and other needs. Couple these trends with the fact that the global conglomerate has effectively divorced itself from any allegiance to the home country, that it can change its headquarters or base of operations at will, that it can function thus with nearly total impunity, and it’s pretty obvious we have a problem on our hands. Is it any wonder the government gets bigger and more socialistic in its outreach? 

And yet, the most vehement opponents of these, perhaps less-than-desirable responses fail to see them as the unintended consequences of the process at work. Instead, they’ll do anything – rant, cast the first stone, resort to abusive language and ad hominem attacks – anything but connect the dots.

It’s only a sketch, but I think the meaning is clear: we’re coming to a peak. Sooner or later, there will be a showdown between national interests and those of the business community, as their goals and objectives continue to grow more disparate by the minute – to the point of becoming inimical. And when that happens, something will have to give.

XI

Let me restate the underlying thesis: 

If we must choose between the corporation and the State, we must choose the latter. There can be only one ultimate authority in civil society, and that authority must reside in the political realm. Political institutions must trump all other institutions and concerns because they’re the ultimate guarantors of any legitimate activity within the polity – including economic pursuits. Only in political institutions, properly cherished and nurtured, can there be any hope of attaining justice in a civil society. If you have any doubts, just ask yourself what it would be like if the global conglomerate were to run the world. Unless you were one of the stockholders, the chances are your future would be very dim indeed.

XII

A while back, I made an innocent suggestion on the pages of Blogcritics: “I think what we need is something analogous to Caesar crossing the Rubicon. Drastic times call for drastic measures.” In no time, I was shouted down just for entertaining the very possibility of a physical confrontation.

Fortunately, I’ve come to another realization since — a possible response on the part of a polity to accommodate the fact of thoroughgoing globalization. It’s a response that’s apt to be “more legitimate” and less violent than the one I had initially envisioned. 

In conclusion — see Part II — I’ll start with Jason J. Campbell’s recent article, “Why There Should Be A Global Minimum Wage,” as our point of departure.

Notes

  1. “Corporation” is a modern entity, and its very existence was made possible by the will and the authority of the State, through a “corporate charter.” (See “A Short History of Corporations.”) In theory, therefore, the corporate charter is always subject to revocation, and the corporation itself, to dissolution — the ultimate penalty at the state’s disposal, or so it seems. In the US, however, things aren’t as clear-cut. See, for example, “The Case for a Federal Corporate Charter Revocation Penalty,” a paper by Kyle Noonan in The George Washington Law Review.  Here is the full abstract:   Though American corporations are creations of state law, the federal government predominantly regulates their behavior. This mismatch helps explain both the inadequate deterrence that the current system of criminal sanctions imposes on corporations as well as the unmet social need for retribution. This Note argues that Congress should authorize a federal corporate charter revocation penalty for corporations that are repeatedly convicted of certain crimes. Congress, exercising its power to preempt states from fields in which the states and Congress share authority, could authorize federal courts to impose such a penalty. Charter revocation would improve both general and specific deterrence against corporate crime and better meet the public’s need for retribution. Congress should apply the charter revocation penalties to the type of morally laden, socially damaging crimes that meet the US Sentencing Commission’s factors for increasing the severity of a sentence. The charter revocation penalty should be structured to protect innocent parties, such as employees, while preventing the morally culpable, such as officers and directors, from reconstituting the condemned corporation.
  2. “Outsourcing” is a relatively modern term, but the idea is anything but. Problems associated with some such practice – i.e., exporting production to the colonies — were long anticipated by the classical economists, Adam Smith and David Ricardo, most notably. Both sought a remedy in what they called “home bias.” Simply put, it amounted to extending a vote of confidence to local manufacturers to keep on producing at home because of “home bias” – despite whatever advantages that might accrue from doing otherwise. According to Chomsky, Adam Smith’s very concept of the “invisible hand “refers to none other than “home bias,” and there’s evidence to support this claim. (The only mention of “invisible hand” in The Wealth of Nations, says Chomsky, is in Book IV, Chapter II, “Of Restraints upon the Importation from Foreign Countries of such Goods as can be produced at Home.”)  Adam Smith [he continuesrecognized and discussed what would happen to Britain if the masters adhered to the rules of sound economics . . . He warned that if British manufacturers, merchants, and investors turned abroad, they might profit but England would suffer. However, he felt that this wouldn’t happen because the masters would be guided by a home bias. So as if by an invisible hand England would be spared the ravages of economic rationality. That passage is pretty hard to miss. It’s the only occurrence of the famous phrase “invisible hand” in Wealth of Nations.  As an aside, the concept of the “invisible hand” had come to be generalized beyond Smith’s original uses, to cover “the unintended greater social benefits and public good brought about by individuals acting in their own self-interests,” but that’s another story.

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