Tuesday, January 12, 2016

The Corporate Religion (Part 1: The Worship of Growth)

Corporate capitalism is a religion. You may think this a rather fantastic statement, but it is true nonetheless. Most adherents to the capitalist religion don’t view themselves as religionists, but their behavior belies this view. Corporate capitalism is an organized system with a canon of beliefs, creeds, sacraments, articles of faith, and objects of worship. Marjorie Kelly listed several fundamental beliefs of the corporate system:
• Stockholders must be paid as much as possible and employees as little as possible.
• Stockholders legally claim wealth they do little to create.
• A corporation is piece of property—not a human community—so it can be owned and sold by the propertied class (along with any human resources that belong to the corporation).
• Corporations function with an aristocratic governance structure, in which members of the propertied class alone may vote.
• Corporate capitalism embraces a predemocratic concept of liberty reserved to property holders, which thrives by restricting the liberty of employees and the community.
• Corporations are private, and the free market will self-regulate.1

The God of Corporate Capitalism
The six beliefs listed above are crucial to maintaining order in the Church of Corporate Capitalism, but Kelly overlooked several tenets that are just as important, including one idea that rises above all others. Indeed, this idea is so highly revered that we could very well say it is universally worshipped in corporate capitalism. This one ruling principle is endless economic growth.
How universal is this principle? Consider the simple fact that both major political parties are in complete agreement over this one belief: the economy must grow. The two parties may disagree over how exactly to achieve the heaven of endless growth, but they agree that this is the paradise we must strive for. If the economy does not grow, then it shrivels and begins to die: profits disappear, corporations must shed employees to cut costs, demand withers, and the cycle starts over at a lower level, descending in a downward spiral that may eventually end in depression, or worse. All mainstream economists and all politicians agree on this. This is why governments attack recessions with tax cuts or rebates, direct government investment, and bailouts of failing companies or even whole industries. Growth is not just good; it is god. We must worship it. We must sacrifice whatever is required to appease its volatile anger and fickle demands. Growth is the heart and soul of the corporate economy. Some think money is the god of capitalism, but money is just a tool. Growth is god.
But what if endless growth is a false god? What if it is actually the root of our economic troubles? What if it is a road to nowhere? What if our problem is not really figuring out how to make the current system grow faster? What if our problem is the system itself? This is heresy of the highest order, but in this series of posts we will consider exactly where our blind and perfect faith in the god of endless growth will eventually take us.
Kenneth Lux, an economic heretic, gives us a hint: “We live on a finite planet. If human beings are defined as being made up of infinite wants [the premise behind modern economics and corporate capitalism], and the task of an economic system is to fulfill that infinity, then such a system will go on endlessly churning out goods in an attempt to reach what is from the beginning an impossible goal. When the infinite production of goods meets up with a finite planet there is bound to be a collision.”2 We are experiencing the beginnings of that collision today. The end result of endlessly increasing production and consumption is a bloated system that eventually starves itself to death because it has used up many critical resources.
But there is more than this. We may never reach the physical limits Lux warns of. Are there economic limits we may reach first? The enormous debt America and other countries are accumulating suggests as much. But why can’t the national or global economy just keep on growing forever, without end? That is the question we must answer, but to understand the answer, we must delve into the notion of growth itself: how it works and what its internal limitations are.
First, however, let me make one simple observation that lies at the heart of this issue of endless growth. If we look at a typical small business, perhaps a dry-cleaning establishment, we observe that it can remain roughly the same size for the entire span of its existence without any adverse effects. As long as it is covering its costs, putting away some cash to replace aging equipment, paying its employees a living wage, and providing for the present and future needs of its proprietor, it doesn’t really need to grow.
A large corporation, however, exists in an entirely different universe, operating under different pressures and with different compulsions. If corporations don’t grow, they generally either die or are eaten whole by other businesses. Why is this so? Paul Hawken gives us a clue. He suggests that large corporations compete on a different basis than small businesses.
“They are competing against one another,” Hawken claims, “not only for the sale of products like cars, detergent, or gasoline, but also for money, because their growth is fueled by investment. With regard to both indebtedness and equity, companies attempt to give the best return on investment, securing for themselves the greatest supply of new capital at the lowest cost possible.”3 If corporations don’t provide impressive returns, they can’t access this new capital, and often they don’t survive.
The corporate growth imperative does hinge on the competitive nature of the corporate economy and the fact that corporations must compete not only for sales but also for investment, but other factors also come into play. In fact, economic growth is, ironically, a very poorly understood concept, even though it is the god that is universally worshipped in the corporate capitalist religion. Of course, that is a problem with most gods. The more mysterious they remain, the greater their allure. So let’s unveil this god of corporate capitalism.

The Profit Paradox
A few years ago, I happened upon a website called Democratic Underground. It presented the following hypothetical scenario:
Imagine a world with 2 “owners” & 20 “workers.”
Imagine each of the owners has $100 to “invest.”
Each buys $25 worth of raw materials from the other ($15 “rent” cost, $10 labor cost).
Then each one pays their 10 workers $75 to produce 20 widgets.
Imagine everyone needs some access to a widget to sustain their life.
So, at the end of the production cycle, we have:
20 workers with $170 dollars.
2 owners with $30 in cash & 40 widgets that cost $200 to produce, that they’ll now attempt to sell at a profit.
Where does the profit come from?
Serious question.4
This little scenario, like others I’ve seen, was really asking where profit comes from in an economy. A two-company economy is just a way of simplifying things so that we can see how transactions unfold in a large and complex economy. But the question is still valid. The ensuing back-and-forth on Democratic Underground was most entertaining. The person who presented the scenario, “Hannah Bell,” was obviously playing the devil’s advocate, but most of the people posting answers didn’t understand at all what she was asking. They were stuck on the idea that profit is simply revenue minus expenses. That’s how an individual company makes a profit. But Hannah was looking at the entire economy, where, on the surface, the numbers just don’t add up.
If we look at one company—say, Ford—its employees can never earn enough money in any particular year to buy all the products they produce in that year. Their total wages represent just a fraction of the total cost of Ford vehicles produced in that year. Above and beyond Ford’s wage expense, the company must also pay for parts, raw materials, various services, and overhead, and still have enough left over to pay executive salaries and, in theory, put away a little profit. So, even if you add in executive salaries, Ford’s employees don’t make anywhere near enough money in a year to buy all the products they produce. This is rather obvious.
But if we look at all companies in an economy as if they were one giant corporation producing millions of products and employing millions of people, they would be in the same boat as Ford. The collective group of employees simply cannot earn enough money in any given time period to buy all the products they produce. It is mathematically impossible. If, however, we add in the all the profits earned by all businesses, then perhaps there is enough money available to buy all the products produced. In such a closed economy, every dollar received by any company for the sale of its products has to come from somewhere. On the surface, it appears that every dollar of revenue, directly or indirectly, comes from either another organization’s expense or from its profits. In a closed economy, then, revenues and expenses should exactly cancel each other out. This idea has been embraced by the great worldly philosophers for centuries. If this is true, however, then how do the majority of businesses make a profit? And how do some reap enormous profits? Interestingly, no one has ever satisfactorily answered this question. Yet.
But one thing about capitalism is certain: it does grow. It does produce a collective profit. As illogical as it might seem on the surface, the market economy not only does grow over time, but it must grow. If the economy does not expand, it shrivels and begins to die, as we discover anew every time we dip into recession, a period in which we experience what economists oxymoronically call “negative growth.” Endless growth is thus a requirement for the survival of the capitalist market system. But, as Kenneth Lux pointed out, and as we will explore in greater detail in a later post, endless growth is an impossibility. We live on a finite planet with finite resources. Sooner or later the endlessly growing economy will bump into physical constraints. But long before that happens, the system, at least as we have imagined it, will smother itself with debt because of certain internal conflicts.
1. Marjorie Kelly, The Divine Right of Capital: Dethroning the Corporate Aristocracy (San Francisco: Berrett-Koehler, 2001), 14.
2. Kenneth Lux, Adam Smith’s Mistake: How a Moral Philosopher Invented Economics and Ended Morality (Boston: Shambhala, 1990), 9.
3. Paul Hawken, The Ecology of Commerce: A Declaration of Sustainability (New York: HarperBusiness, 1993), 92–93.
4. Democratic Underground, http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x3607862.


  1. As always, I'm looking forward to your thoughts. Have you read 'The Market as God' by Harvey Cox: http://www.theatlantic.com/past/issues/99mar/marketgod.htm

    It's over 15 years old now but seems more relevant than ever. The last paragraph ties in pretty nicely with what you're saying here.

  2. Economic growth must happen. If you assume population growth and the economy doesn't grow, then the overall standard of living goes down, which will disproportionately do more harm to those on the lower end of the income bracket.

  3. Roger, I've enjoyed your posts over the past half year or so. However, I'm worried here that you're really tackling a strawman, when you write the following:

    "In a closed economy, then, revenues and expenses should exactly cancel each other out. This idea has been embraced by the great worldly philosophers for centuries. If this is true, however, then how do the majority of businesses make a profit? And how do some reap enormous profits? Interestingly, no one has ever satisfactorily answered this question."

    In modern macroeconomics, I think this issue has been rigorously analyzed. It's a part of the so-called "balance of payments." Also, I'm not an expert on this issue, but I think the question you're getting at can also be framd in terms of reconciling the expenditure vs. the income method of measuring GDP and national income, respectively.

    The short answer in this framework is that what you call "expenditures" should include not just material costs but also labor AND CAPITAL costs, and it's the these capital costs that are usually referred to as "profit" (net income, roughly--or cash flow to equity holders, more specifically).

    Anyway, here's the basic story according to modern macro: if we ignore government and consider a closed economy, then GDP = C + I and C and I can be basically translated into revenue for firms. But this revenue then flows to households in the form of capital and labor income and then is used to either consume (C) or invest (I). (It gets more complicated because firms can also invest, but these details can and have been worked out--I'm just trying to paint a simple story here.)

    Again, I like where I think you're going with this, I just think if you are able to get the economics right your point will be more convincing. (Perhaps I'm just misunderstanding you. Unfortunately, many social critics that have a similar viewpoint as you have a rather poor understanding of economics and I'm just hoping you don't make the same mistake!)

  4. (Instead of just thinking about firms investing, it's probably easier to think of households taking their capital and labor income and either consuming or saving, and saving is basically what finances investment. So, again, K + L = C + I. Or, in words, capital and labor income equal consumption and investment expenditures. And capital income is what you are calling profit, but here profit should be understood as being closer to what operating profit is trying to capture, not net income--that is, profit here is before interest expense is subtracted, since capital income includes cash flow to both equity and debt investors. I'm not trying to be difficult, just trying to help explain!)

  5. (Oh, and regarding growth: if growth occurs, from greater productivity, let's say, then this just leads to more income--with a disproportionate increase in capital income relative to labor income, most recently--and, in turn, more expenditures in either consumption or investment. The description of national income accounting above, or what I sloppily referred to as balance of payments earlier, works with or without growth.)

    1. Thanks, Robert. I'll cover some of these ideas in future posts, but the whole growth system is troublesome in certain ways. How far it can go before it runs aground is still an open question, but we're starting to see some restrictions popping up here and there, global warming being perhaps the most troubling at present.

    2. Yes, I agree re the dangers of running aground, etc. - which is why I wanna see the critique be as accurate as possible!