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Memo from Davos: Down with Democracy!

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We are familiar with the truism that multinational corporations are too large and powerful and cannot adequately be controlled by democratically elected politicians. MNCs constantly complain about rigid labor regulations; they want the right to fire workers at will, because otherwise they won't survive in a ruthlessly competitive market. Moreover, the pace of technological change has increased exponentially the last few years, and the need for labor flexibility has become ever more pressing. If rigid labor regulations hold up the need for innovation, the MNC will pack up its bags and move to a country that is more "welcoming" to big business. From a democratic perspective, the problem is clear. The ultimately controlling power should lie in the hands of the people and their elected representatives. But here it seems the MNCs have more power; the laws of the country must conform to the dictates of MNCs, rather than to the people's will. In his State of the Union address yesterday, President Obama tried to reassert the people's authority: he said he would change the tax code to punish companies that move jobs overseas, and reward companies that return jobs to the United States.

But what makes sense from a democratic perspective may not make sense from a moral point of view. Or so it was suggested earlier today at the annual meeting of the World Economic Forum at Davos. In two sessions (open to the reporting press) with CEOs of major MNCs, it was surprising (to me) the extent to which the CEOs appealed to moral (rather than strictly economic) arguments to justify their ways.

To address the criticism that they had lost their moral compass, the CEOs tried to deflect responsibility for the suffering caused by the financial crisis and the subsequent "great recession," but these arguments were not very persuasive. Brian T. Moynihan, CEO of Bank of America, claimed that banks tended to reflect the excesses of the economy, but he did not add that some banks exacerbated those excesses by knowingly peddling dubious products to consumers. David M. Rubenstein, managing director of the Carlyle Group, said that wealthy financiers should not be condemned because they pay low tax rates if the law allows it, but he didn't add that those low tax rates may be due to loopholes fought for by well-funded lobbies that effectively skew the political system in the interests of the rich and powerful. What's legal may not be moral.

But the CEOs also put forward some arguments worth pondering. John T. Chambers, the CEO of Cisco, argued that the best performing companies also tend to engage in substantial corporate philanthropy. His own company gave away $299 million last year. He didn't explain the connection between profit-making and philanthropy, but perhaps the point is that being known as a "good" company increases the motivation of employees to be productive; and perhaps the regulatory authorities are more likely to be supportive of "good" companies.

The issue of job creation seemed even more fundamental to the moral outlook of the CEOs. Several CEOs emphasized that they create jobs and they should be given the conditions to do so. But job creation also involves destruction, or, as they put it, disruption. Duncan Niederauer, CEO of NYSE Euronext, pointed out that restructuring of his company required 20,000 job cuts. But he added that such restructuring was done with a vision of more growth, particularly in emerging markets. Put in moral terms, the loss of some jobs is justified because it allows for the creation of more jobs. The problem, from a democratic perspective, is that the jobs are often created in other countries.

But what if the total number of jobs is greater than the number of jobs lost, isn't that a good result? As Patricia A. Woertz, CEO of the agricultural conglemerate Archer Daniels Midland put it, economic growth that adds jobs wherever they happen is a positive. And governments that try to prevent that process -- like President Obama in the name of protecting jobs at home -- should presumably be condemned from a moral point of view (assuming that MNCs do in fact create more jobs than they destroy, globally speaking). That is, they should be condemned from the point of view of theories of universal moral reasoning that value human well-being regardless of national boundaries. Democrats who value nation-based collective self-determination may side with President Obama. But the clash may not be between good guys and bad guys, but rather between competing systems of morality.

This post has been modified since its original publication.

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