Wednesday, January 28, 2015

Of the Corporation, by the Corporation, for the Corporation: A Short History Lesson (Part 1)

In recent years, cries of “socialism” have rung out from Republicans whenever government has meddled at all in the affairs of business. Such cries reveal an unfortunate lack of understanding not only of what socialism is, but more especially of the history of the modern corporation. I keep tabs on the opinion pages of the two major Salt Lake City newspapers, including the online comments, and I am amazed at how many people are willing to defend the corporate system to their dying breath. I assume they are in some way attempting to defend what they think is “free agency” (more on that particular bit of confusion another day), but I don’t think they understand exactly what it is they are defending. It certainly isn’t freedom and democracy. But if I criticize the Republicans, I must pass judgment on most Democrats as well. Both parties appear to be controlled largely by corporate interests without comprehending the corporate system, its history, its values, or its agenda.
In his book When Corporations Rule the World, David Korten claims that “corporations have emerged as the dominant governance institutions on the planet. . . . Increasingly, it is the corporate interest more than the human interest that defines the policy agendas of states and international bodies, although this reality and its implications have gone largely unnoticed and unaddressed.”1 Even though I recognized the economic necessity of the government’s bailout of Wall Street after the meltdown of 2008, I was certainly not happy about this necessity. Unfortunately, it served as just another proof of Korten’s point. And if we need further evidence of how dominant corporations have become, all we need to do is compare the revenues of the largest companies with the gross domestic product of various nations in the world. In its fiscal year that ended on January 31, 2014, Wal-Mart Stores, which has been the world’s largest corporation (but now ranks second to a Chinese conglomerate), had sales of almost $473.1 billion. In other words, if Wal-Mart were a country, it would rank 28th or 29th, depending on which list you choose,2 just behind Taiwan and ahead of Austria. To put it another way, Wal-Mart is larger and more powerful economically than 200 countries for which the CIA keeps statistics. This is insanity on a large scale.
So, how did corporate capitalism reach this level of dominance? How did corporations become so powerful that even governments seem to be in their service?

From Humble (Though Hardly Harmless) Beginnings
There are many accounts of the rise of the modern corporation. Although some claim the oldest existing corporation is the Stora Koppaberg mining community in Falun, Sweden, chartered in 1347, Bruce Brown traces the long history of the corporation all the way back to the founding of the Benedictine Order of the Roman Catholic Church in 529 AD.3 But if we wish to look for the wellspring of today’s global corporate economy, we need look no further than New Year’s Eve of the year 1600, when Queen Elizabeth chartered the East India Company. While not the first of the European corporations of that age, the EIC was certainly the most powerful.
European corporations were initially a creation of monarchs. Indeed, the New World was colonized largely through such corporations. That is not to say, however, that these corporations were admirable institutions. David Korten actually traces the genealogy of our current corporate behemoths to the early privateers and buccaneers who often pillaged and plundered under commission from European monarchs. “Some privateers operated powerful naval forces,” explains Korten. “In 1671, Sir Henry Morgan . . . launched an assault on Panama City with thirty-six ships and nearly two thousand brigands, defeating a large Spanish force and looting the city as it burned to the ground.”4
Monarchs eventually forsook chartered pirates in favor of chartered corporations to pursue their goals of colonial expansion and pillage. Korten observes that in England this transition resulted from the monarch’s attempts to sidestep the restrictions of the country’s “incipient step toward democracy.” When Parliament acquired the authority to “supervise the Crown’s collection and expenditure of domestic tax revenues . . . , sovereigns such as Elizabeth I, James I, and Charles I found that by issuing corporate charters that bestowed monopoly rights and other privileges on favored investors, they could establish an orderly and permanent source of income through fees and taxes that circumvented parliamentary oversight.”5
 “In 1580,” writes Thom Hartmann, “Queen Elizabeth became the largest shareholder in The Golden Hind, a ship owned by Sir Francis Drake. The investment worked out well for Queen Elizabeth. . . . After making a fortune on Drake’s expeditions, Elizabeth started looking for a more permanent arrangement [and a way to protect her income stream from Parliamentary oversight]. She authorized a group of 218 London merchants and noblemen to form a corporation. The East India Company was born on December 31, 1600.”6
 “It is difficult for us in 2011,” writes Venkatesh Rao, “with Walmart and Facebook as examples of corporations that significantly control our lives, to understand the sheer power the East India Company exercised during its heyday. Power that makes even the most out-of-control of today’s corporations seem tame by comparison. To a large extent, the history of the first 200 years of corporate evolution is the history of the East India Company.”7 It is incorrect to state that Britain ruled the world with the assistance of the EIC. It is more correct to say that the EIC ruled the world. Rao continues:
 At a broader level, the EIC managed to balance an unbalanced trade equation between Europe and Asia whose solution had eluded even the Roman empire. Massive flows of gold and silver from Europe to Asia via the Silk and Spice routes had been a given in world trade for several thousand years. Asia simply had far more to sell than it wanted to buy. Until the EIC came along.
A very rough sketch of how the EIC solved the equation reveals the structure of value-addition in the mercantilist world economy.
The EIC started out by buying textiles from Bengal and tea from China in exchange for gold and silver.
Then it realized it was playing the same sucker game that had trapped and helped bankrupt Rome.
Next, it figured out that it could take control of the opium industry in Bengal, trade opium for tea in China with a significant surplus, and use the money to buy the textiles it needed in Bengal. Guns would be needed.
As a bonus, along with its partners, it participated in yet another clever trade: textiles for slaves along the coast of Africa, who could be sold in America for gold and silver.
The British East India Company and its contemporaries, Korten asserts, were hardly paragons of virtue. The corporations that colonized the New World for the British Crown, for instance, “populated them with bonded laborers—many involuntarily transported from England—to work their properties. The importation of slaves from Africa followed.”8 As pointed out above, the EIC paid for many of its purchases in China with opium. “At its height, it ruled over a fifth of the world’s population with a private army of a quarter of a million.”9 The Dutch East India Company was no better; it displaced the local Indonesian population from its lands, confiscating them to grow spices coveted in Europe. “It is no exaggeration,” claims Korten, “to characterize these forbears of contemporary publicly traded limited-liability corporations as . . . legally sanctioned and protected crime syndicates with private armies and navies backed by a mandate from their home governments to extort tribute, expropriate land and other wealth, monopolize markets, trade slaves, deal drugs, and profit from financial scams.”10 Such is the sordid paternity of the modern corporation.
For 200 years, the EIC dominated world trade. The Company also settled America. We often mistakenly remember that the Puritans settled the New World, but “the Puritans traveled to America on ships owned by the East India Company, which had already established the first colony in North America, at Jamestown, in the Company-owned Commonwealth of Virginia, stretching from the Atlantic Ocean to the Mississippi. The commonwealth was named after the ‘Virgin Queen,’ Elizabeth, who had chartered the corporation.”11
The EIC exercised immense power in America, so much power, in fact, that it can rightly be claimed that the American Revolution was not just a rebellion against the Crown; it was also a rebellion against British corporations. One of the delicious ironies of the current political landscape is missed by most Americans. Although we are often taught that the Boston Tea Party was a protest against “taxation without representation,” this is technically incorrect. Actually, the Bostonians who dumped over $1 million worth of tea (in today’s currency) into Boston Harbor in 1773 were protesting against the unfair business practices of the East India Company.
According to George R. T. Hewes, a participant in the crime, who left an account of the drowning of the tea, the “Company received permission to transport tea, free of all duty, from Great Britain to America.”12 Local tea wholesalers and retailers could not compete with the Company and its favored tax status. In other words, the Boston rebels were engaging in an act of sabotage against the Walmart or Exxon of their day. This was a rebellion against unchecked corporate power, not against government taxation. Ironically, today’s misnamed Tea Party is promoting the most corporate-friendly agenda America has seen in decades. What a difference a little historical perspective brings.
Because of their unsavory encounter with European corporations, early Americans distrusted these organizations and chartered very few of them. In 1816, Thomas Jefferson wrote, “I hope we shall . . . crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.”13 Ralph Estes observed in 1996 that 150 years ago there were no large corporations in America, and those corporations that did exist were chartered for a very different reason than we see in corporate America today. “For more than two hundred years after Plymouth Rock, corporations were chartered [in America] to serve society. They were created for a specific public purpose, to perform a task that individual citizens or the established but limited governments could not do better. Even then they were usually limited to twenty or fewer years of life.”14
The Revolutionary War liberated American citizens not just from the British monarch but also from the oppression of British corporations. Consequently, for a century after the founding of the United States, American citizens were justifiably suspicious of corporations, and their representatives in government chartered these businesses cautiously and kept them on a very short leash, dissolving them if they violated the restrictions specified in their charters.
These corporations were created specifically to serve the public interest, perhaps to build bridges or canals or to provide banking services. In other words, corporations were an extension of government, created by the people to serve the needs of the people.15 This bit of history makes today’s conservative cries of “socialism” sound rather silly, not to mention un-American. One of the original functions of government was not just to create corporations, but to control them and to channel their activities into avenues that would serve public purposes. According to Lee Drutman,
Post-Revolution America developed largely along the ideals of Jefferson’s yeoman farmer, with American industrialism lagging behind its European counterparts. Corporations remained small institutions, chartered at the state level for specific purposes, such as banking or seafaring. Corporations could only exist for a limited time, could not make any political contributions, and could not own stock in other companies. Their owners were responsible for criminal acts committed by the corporation and the doctrine of limited liability (shielding investors from responsibility for harm and loss caused by the corporation) did not yet exist. . . . Governments kept a close watch on how these corporations were being run, regularly revoking charters if corporations were not serving the public interest. For example, in 1832, President Andrew Jackson refused to extend the charter of the Second Bank of the United States and the State of Pennsylvania revoked 10 banks’ charters.16
In the mid-1800s, perhaps because of Americans’ native distrust of corporations and also because of the corporate tendency toward corruption and abuse, government’s chartering of these institutions began to fall out of favor. Consequently, laws were passed to protect public instead of shareholder interests, and most states tightly regulated corporate charters. Because of these laws, many industrialists simply avoided incorporating their business interests. For instance, Andrew Carnegie set up his steel enterprise as a limited partnership, and John D. Rockefeller organized Standard Oil as a trust.17 In America, both citizens and legislators viewed corporations as dangerous, and for good reason. Legislative restrictions included limits on duration, full liability of stockholders for corporate debts, and even reserve clauses that allowed government to amend corporate charters “at any time for any reason.”18
Next post: how corporations turned the tables on us. Stay tuned . . .
1. David C. Korten, When Corporations Rule the World (West Hartford, Conn.: Kumarian Press and San Francisco: Berrett-Koehler, 1995), 54.
2. For calendar year 2013, according to the United Nations, Wal-Mart would be 29th; according to the International Monetary Fund, World Bank, and the CIA Factbook, Wal-Mart would rank 28th. See Wikipedia, “List of Countries by GDP,”
3. Bruce Brown, The History of the Corporation,
4. David Korten, Agenda for a New Economy: From Phantom Wealth to Real Wealth (San Francisco: Berrett-Koehler Publishers, 2009), 60–61.
5. Korten, Agenda for a New Economy, 61–62.
6. Thom Hartmann, “The Real Boston Tea Party was an Anti-Corporate Revolt,” April 15, 2009,
7. Venkatesh Rao, “A Brief History of the Corporation: 1600 to 2100,”
8. Korten, Agenda for a New Economy, 62.
9. “A Short History of Corporations,”
10. Korten, Agenda for a New Economy, 63.
11. Hartman, “The Real Boston Tea Party.”
12. Quoted in Hartman, “The Real Boston Tea Party.”
13. Thomas Jefferson to George Logan, 1816,
14. Ralph Estes, Tyranny of the Bottom Line: Why Corporations Make Good People Do Bad Things (San Francisco: Berrett-Koehler, 1996), 22.
15. This especially true of banks. Before the Civil War, there was no national currency. Paper “money” in America consisted of banknotes issued by local banks. These notes were useful in a local economy but less so in distant communities. A truly national economy was not feasible under such a monetary system. And this should help us understand that the Constitution was written to govern a nation far different from the corporation-dominated country we now inhabit. If the Founders had foreseen what was coming, they certainly would have written provisions into the Constitution to better control these organizations.
16. Lee Drutman, “The History of the Corporation,”
17. “Corporation,” Wikipedia,
18. Estes, Tyranny of the Bottom Line, 25.

Thursday, January 22, 2015

Greed Is Not Good (Part 3)

In the final segment of this three-part post, we will consider benevolence, which is the driving force behind Adam Smith’s “optimal” economy, and then look at the practical necessity of restrained competition, since, as discussed in the previous segment, unrestrained competition tends to decompose on its own.

In “The Sympathetic Organization,” Kirk Hart points out that “human nature [has] not one, but two, primordial aspects: the need to love self (self-love) and the need to love others (benevolence).”1 A major problem with corporate capitalism, as we’ve already discussed, is that it has enthroned self-love and abandoned benevolence (or sympathy). “The fundamental question of management theory is ‘What links individuals together in cooperative endeavor? The answer, according to the contemporary management orthodoxy, is self-interest—the raw egoism of Hobbes and Mandeville, refurbished in chic, modern, linguistic garb. . . . All organizational behavior is summarized in the inelegant phrase, ‘What’s in it for me?’”2
I’ve already mentioned the striking juxtaposition of the two news stories that unfolded together in September 2008—the Wall Street meltdown and Paul Newman’s death. Another contrasting pair of stories that aired on NBC’s Nightly News on March 16, 2009, perfectly illustrate what Kirk Hart is trying to say. The first story involved government beneficiary AIG, which had received over $170 billion in government bailout money but still handed out $165 million in executive bonuses. This story comes from the heartland of greed and excess, and I could waste a lot of words railing against the selfishness and absolutely unthinkable narcissism of the culture in our out-of-control financial sector, but a story that aired on the same news program is much more effective at painting the AIG story in the correct light.
Joe Works, owner of a trailer hitch factory in Humboldt, Kansas, and employer of 180 people, had lost about half his business to the economic downturn. But he couldn’t bring himself to lay anyone off. His employees were his friends. So Works paid his people full wages to do work around the community: fixing up a playground, pruning trees, repairing a church roof, refurbishing a baseball diamond, painting houses, giving back to his small community. This labor accounted for about 10 percent of his losses, but money wasn’t the issue. “Because I’ve been blessed by a business that’s been successful and have made some money,” said Works, “I don’t want to hang onto that with a greedy attitude. I want to share.”3 This is a perfect example of the benevolence Hart is pointing to. It is there, all around us in the small businesses and local companies we often refer to as Main Street. And it is virtually if not completely absent on Wall Street and in the executive offices of the multinational corporations.
Hart insists that this organizational philosophy of self-love that dominates corporate capitalism has created a society that alienates individuals not only from each other but from themselves and from their work. “Alienation results when an individual is separated from something essential to the development of his or her full human potential. It is not, then, just a minor psychological dyspepsia, but rather the spiritual sickness that comes with the ruination of one’s life possibilities. Our modern age experiences it through the soul-entanglements of modern organizational life.”4 In a later post, I’ll explore this concept in great detail, but suffice it to say here that organizations dehumanize people by treating them as functions, as commodities, as human resources, linking them to each other “in artificial relationships defined solely by the organizational mission.”5 Work becomes what Hart calls an “instrumental activity valuable only for what it contributes to organizational goals. It has no intrinsic meaning.”6 This is the value system that prevails in most large corporations, particularly those tied to the myopic, money-centered culture of Wall Street. It stands in stark contrast to the culture developed by Joe Works and others who comprehend and practice benevolence.
Part of what I am trying to establish with Kirk Hart’s argument about the connection between self-interest and alienation is that self-interest does not just create an unsustainable economy. It also exacts immense individual human costs. It creates a society in which community is ravaged in order to create malleable, functional human resources. This is a far cry from what Adam Smith was trying to implant in early capitalist society with his moral theory of economic benevolence.

Restrained Competition
So, the first step we must take if we wish to “take back” our economy, is to return to Adam Smith’s original ideal: economic transactions governed by sympathy. This is a philosophical shift that must occur one individual and one business at a time. We cannot legislate it, although, as I will discuss in a later post, we can pass laws that will make sympathetic economic relationships much more probable. Some cynics, of course, will toss this whole argument aside as na├»ve idealism, but doing so will bring us only more of what we already have: a dysfunctional and broken and ultimately suicidal economy.
If we really do want change, if we really do want an equitable and healthy economy, we must first change our basic assumptions and beliefs. This will require a tremendous educational effort not only among the business community but also among consumers. And only when we complete this shift in thinking will we be in a position to change systems and structures.
One significant reason for both restructuring the parameters of capital accumulation and educating individuals in the theories of benevolence is actually to curb the competitive nature of our economy. The most compelling traditional argument for a highly competitive economy is that competition is responsible for all the things that make our lives comfortable, secure, and healthy. Fortunately, the fruits of corporate capitalism are finally proving this argument to be sheer myth. Our competitive economy cannot endlessly produce the fruits it promises except by stealing from future generations both their wealth and the healthy environment they deserve.
While I admit that competition does spur technological growth (which we generally mislabel progress) and that the by-products of corporate warfare have benefited society in certain ways, I have come to espouse two other beliefs: first, that competition has also brought us the waste and inefficiency of planned obsolescence, the curse of a decimated environment, artificial growth that shows itself to be nothing more than a financial Ponzi scheme, and an economy based on adversarial relationships rather than cooperative ones; and second, that competition is not the only impetus for improving the human condition.
Indeed, I submit that a noncompetitive environment would actually liberate people to be more innovative, more creative, and more directly motivated to make life better for one another. In short, if we removed the reward for self-interested innovation, I believe more people would be inclined to share Ben Franklin’s attitude and motives for bettering the lives of their neighbors.
To avoid or overcome the perpetual problems caused by miscalculations of self-interest, Benjamin Franklin chose the course of modesty and disinterestedness as a means for progressing. True, Franklin wanted to succeed in his business and he worked hard to do so. . . . But in all his endeavors, his objectives were to do good and to be useful as opposed to getting rich or gathering honors. His emphasis was on contributing rather than obtaining; on giving rather than receiving. Strange as it may seem, it was Franklin’s “indifference to the things of this world” that unleashed his full creative powers. . . .
Benjamin Franklin was one of those rare individuals who had it within his power to become immensely wealthy, but who declined the opportunity to do so. To his mother he had written that he would rather have it said of him that he had lived usefully than that he had died rich. When his business attained a level to assure him of financial independence he turned his interests to science and government. Believing “that, as we enjoy great advantages from the inventions of others, we should be glad of an opportunity to serve others by any invention of ours; and this we should do freely and generously,” he made no effort to patent or profit from any of his inventions. The Franklin stove alone could have made him a fortune, but he chose not to patent it, and printed the plans for it in his own newspaper.7
If people were freed from the desperate craving to secure their future and the perceived necessity of acquiring more than they actually need, they might be surprisingly inclined, even eager, to focus their energies on assisting their fellow men and women—and find great happiness in doing so. In such a society, “What’s in it for me?” becomes obsolete thinking.
We must finally come to grips with the fact that Ivan Boesky was wrong. Greed is not good. Benjamin Franklin was right. So was Paul Newman. And Joe Works. And Adam Smith.
1. David K. Hart, “The Sympathetic Organization,” in Papers on the Ethics of Administration, N. Dale Wright ed. (Provo, Utah: Brigham Young University, 1988), 68.
2. Hart, “Sympathetic Organization,” 67–68.
3. NBC Nightly News, March 16, 2009; story viewable online at
4. Hart, “Sympathetic Organization,” 71.
5. Hart, “Sympathetic Organization,” 77.
6. Hart, “Sympathetic Organization,” 87.
7. Benjamin Franklin, Benjamin Franklin’s The Art of Virtue, ed. George L. Rogers (Eden Prairie, Minn.: Acorn Publishing, 1990), 115, 158–59.

Saturday, January 17, 2015

Greed Is Not Good (Part 2)

Part 1 of this three-part series explored how we have misinterpreted Adam Smith and consequently enthroned the notion of self-interest as the central motor of capitalism. Part 2 will examine the opposite of self-interest—republican disinterest—and identify the true purpose of business.

Republican Disinterest
Self-interest is very much a moral question, not just a value-neutral economic engine that is supposed to drive the mindless machinery of the free market. Indeed, self-interest is a very troubling moral question, for an economic system based on this principle creates almost irresistible incentives for people to behave in patently immoral ways.
Who would argue that we must be a moral people if self-government is to work? This is what some would call a no-brainer. The freer we are, the greater burden we as individual citizens must bear in creating a society of order and justice. Republicanism, succeeding monarchy as the dominant political system, “put an enormous burden on individuals,” says Gordon Wood. “They were expected to suppress their private wants and interests and develop disinterestedness—the term the eighteenth century most often used as a synonym for civic virtue. . . . Dr. Johnson defined disinterest as being ‘superior to regard of private advantage; not influenced by private profit.’ We today have lost most of this older meaning. Even some educated people now use ‘disinterested’ as a synonym for ‘uninterested,’ meaning indifferent or unconcerned.”1 Disinterest, however, is actually the exact opposite of self-interest.
“Republics,” Wood continues, “demanded far more morally from their citizens than monarchies did of their subjects. In monarchies each man’s desire to do what was right in his own eyes could be restrained by fear or force.” In republics, by contrast, the only effective restraint on self-interest is the sense among citizens that they must often sacrifice personal advantage for the public welfare. Today, among conservative Republicans, this attitude has been mislabeled “socialism.” It is indeed ironic that self-interest—the one force that Wood identifies as needing to be restrained if a republic is to hold itself together—is the only force that conventional economic theory proposes as a social adhesive. This is not only a highly illogical thesis; it is also a disturbingly immoral philosophy.
What we have in modern America, then, is a form of government that requires a disinterested citizenry and an economic system founded upon the principle of self-interest: a perfect mismatch. And, unfortunately, the economy has been in control for a long time now. To correct this problem, however, we cannot merely tell people to become disinterested. All the incentives in the present system encourage the exact opposite behavior. What we need is a fundamental change in the structure of the economy, so that our economic relationships actually encourage disinterested action. But we also need a higher ideal than self-interest to bind us together, for self-interest, even though it does cause us to “do business” with one another, also creates too many impediments to true economic and societal health.

The Purpose of Business
The escalating height and frequency of the hurdles corporate capitalism requires businesses to jump if they want to stay in business put immense pressure on them to increase their productivity and develop innovative new technologies. What this means, within a system that enshrines self-interest, is that companies must become increasingly and hostilely competitive. Their investors require ever-higher returns, and this creates a myopic focus on the short-term bottom line. Quarterly profits, not long-term excellence and service, determine company policy and culture. Especially in tough economic times, such as those we are just emerging from, this short-term focus creates incredible pressure on managers and employees alike to beat their competitors. In our mercenary marketplace, you either eat or get eaten. There is no leisure for focusing on such trivial matters as providing a service to society. The bottom line is everything.
I used to ask students in my operations management classes at the university what the purpose of a business is. I always asked this out of the blue, without any sort of preamble to bias their replies. And without exception, their first answer was always, “To make a profit.” Rarely, even when I dug a little deeper, did they bring up the radical notion that businesses exist to provide two things for society: a valuable good or service and employment opportunities. These were juniors and seniors in the business curriculum, and they had learned their lessons well. They were prepared for life in corporate America or, as they liked to call it, “the real world.”
I remember reading the account of one business consultant who asked a group of high-level executives the same question I asked my students. They too claimed their business existed to make a profit. This consultant then asked them about their drug and prostitution operations. The executives were aghast at the question. “I just assumed,” he answered, “if you were in business to make money, that you’d be involved in the most profitable kinds of business.” Shortly before 2008, he might have asked about their subprime mortgages and credit default swaps. Regardless, the executives suddenly had an “Aha!” experience. They realized their business activities were indeed restricted by deeper purposes that they had not even fathomed. And so it is with almost all companies. If investment banks had figured this out a decade or two ago, we could have avoided the mess we found ourselves facing in 2008.
The problem with this acute management myopia is that on the practical, everyday side of the ledger, the larger question of economics is ignored, thus focusing all the attention and resources of corporate America on the grand ideal of making a buck. The direct consequences of corporate America’s self-interest and misdirected energies are not trivial.
Because businesses and individuals are not knit together in our economy by a common purpose and an openly acknowledged concern for the greater good of society, but operate instead on the principles of self-interest and self-perpetuation, the competitive climate in America has become one of hostility and aggression and dishonesty rather than cooperation and fair play. It is economic Darwinism of the highest order—“survival of the fittest,” as Spencer phrased it.
Indeed, survival is what twenty-first-century corporate capitalism is all about, especially now, as our overall economic health gradually disintegrates. Survival—not service, not quality, not human development—is the driving force behind every element in the current system. And this is not surprising, for it is the system itself that has created this state of affairs. What we are experiencing are systemic dysfunctions.
Self-interest leads inexorably to competition, and competition leads eventually and inevitably to the mercenary mess we are now witnessing. But who ever really believed in unfettered competition in the first place? On the surface, conservatives and even some liberals claim to believe in it. Market triumphalism was all the rage not so very long ago. But did anyone really believe? The economic meltdown of 2008 was very effective at stripping away what we now see were mere dogmatic pretenses. Even Alan Greenspan had to admit that deregulation was a huge mistake (although Republicans, ever deficient in economic memory, are now betting their political future on this very mistaken notion).
In the past, conservatives could always point to communism to prove that unfettered competition was necessary in order to achieve quality, efficiency, and variety. But they were setting up a straw man, because communism never quite was the opposite of corporate capitalism. And unfettered competition never was what conservatives were really after.
All we have to do is look at AIG, Merrill Lynch, CitiBank, General Motors, and a host of other troubled companies. They never really wanted unfettered competition. What corporations have always wanted is “corporate socialism.” They have always lobbied for special benefits and tax breaks. And when things get really bad, they want a bailout because they consider themselves too important to die. They want to survive. Self-interest at its most visceral level.
Interestingly, however, unfettered competition does not lead to greater freedom; it leads to authoritarianism. The freely competitive market becomes less competitive over time, the inevitable result being an increase in inequality. David Korten explains that “a competitive market is competitive only when there are enough buyers and sellers that each has many alternatives. However, by its very nature, untempered competition creates winners and losers. Winners tend to grow in economic power while losers disappear. The bigger the winners, the more difficult it is for new entrants to gain a foothold. Market control tends to concentrate in a few firms, so that the conditions for competition are eroded.”2 In other words, unfettered competition is an unsustainable condition. So much for the mythical free market all conservatives and many liberals worship.
At least this is the case in an economy that enthrones endless growth and unlimited accumulation of capital. Even Adam Smith’s suboptimal society was based on the assumption of limited, universal ownership, where no individual was able to control so much property and power and wealth that he was able to take unfair advantage of others. The invisible hand metaphor never allowed for the accumulation of wealth and power that we see in corporations today. Smith would have been appalled at the inequality we have permitted in the name of free enterprise. He would point out that our free enterprise today may exist to some degree between businesses, but it does not exist between corporations and individual consumers, nor does it exist within corporations, those unashamed bastions of authoritarianism.
Of course, Smith never intended for us to create even a suboptimal society. He wanted us to embrace the moral quality he called sympathy, thus opening the door to a higher order of economic intercourse. He hoped for an optimal society, one that could produce economic health and prosperity for all. Stay tuned.
1. Gordon S. Wood, The Radicalism of the American Revolution (New York: Knopf, 1991), 104–5.
2. David C. Korten, “A Deeper Look at ‘Sustainable Development,’” World Business Academy Perspectives 6, no. 2: 26–27, adapted by Willis Harman from “Sustainable Development,” World Policy Journal, Winter 1991–1992.