Why Free-Market Capitalism Will Follow Communism Into the Trash-Heap of History, Part II

02/04/2009 01:39 pm ET | Updated May 25, 2011

Last week I said free market capitalism rested on three fatal flaws: (1) the premise that greed is good; (2) the legal concept of corporate personhood; and (3) the necessity of infinite growth. This week I'll deal with the second.

When corporate law first evolved a few centuries ago no one envisioned the monstrous entities that dominate the world today. The legal fiction that a corporation is an individual, with all the rights and privileges pertaining thereto, may have offered some legal conveniences when a corporation was a small number of investors with a common goal, but is the depth of absurdity today, when the majority of the world's largest economic entities are corporations rather than nations. This legal fiction assumes that Exxon-Mobil and a single mother working at a minimum wage job have equal power in the marketplace, the legislature, and the courts, and should have the same right to privacy and freedom from government supervision.

But does that single mother have the power to finance a course in right-wing economics for a hundred federal judges? Or the power to get award-winning journalists fired from Fox news for exposing the dangers of hormone-polluted milk? Or the power to get nuclear-energy propaganda made part of the public-school curriculum? Or the power to mount multi-million dollar advertising campaigns against popular ecological initiatives?

Multinationals today account for a fourth of the world's total production. A third of the world's trade is actually between different branches of the same corporation. Over half of the world's largest economic entities are multinationals rather than nations.

Such giant organizations can dominate governments with the economic power they wield. Through campaign contributions they determine who gets elected (they outspend unions fifteen to one). Through powerful political action committees they determine public policy -- often writing legislation that Congress merely rubber-stamps. Through their ability to buy space and airtime they determine what ideas and images appear in the media. Through their ability to hire high-powered legal teams they determine the outcome of trials, and are able to effectively outman federal officials when the government attempts to bring them to book. Yet these giants have all the legal protections, rights, and privileges of private individuals. They seek utter immunity from any obligation to the general public. "We're a person! We have rights! Leave us alone!"

Until they get themselves in trouble. Then these clever shape-shifters suddenly morph into vital public institutions. "We're too big to fail! We provide jobs!" (Yet if they want to cut costs by laying off workers or outsourcing them it's none of the government's business).

This is not to demonize corporations. They're only doing their job as they define it -- making money for their stockholders. The problem is in the definition, which is faulty. Stockholders are only a small minority of those who have a major stake in the decisions a mega-corporation makes.

Major corporations can ravage and pollute the environment at will until a specific law is passed forbidding a specific act. And if their products are found to endanger the American consumer they can "phase them out" gradually or peddle them abroad.

But as 'persons', corporations are innocent until proven guilty, which means they can continue destroying the earth, mistreating their workers, or poisoning consumers for years, while their case gradually makes its way all the way to the Supreme Court -- by which time whoever had the temerity to challenge their right to commit crimes has run out of funds.

Small wonder a study found that among Fortune 500 companies, the larger the corporation the more likely it is to engage in illegal activity, and the less likely it is to stop when caught.

It used to be that only Third World nations were dominated by international corporations. But today even major powers have lost much of their ability to set tax rates, maintain pollution controls, or institute social programs. Two hundred of our nation's wealthiest corporations pay no taxes at all.

Only multinational entities have had any success in policing the corporate world -- compare the EU's ability to crack down on Microsoft's anti-trust violations with the United States' abject helplessness.

The problem is not with the corporations, it is with the absurdity of the legal fiction. A corporation with over 1000 employees is no longer private. It has become a semi-public institution, whose actions are the concern of the whole society. Far from needing de-regulation, we need a system that goes beyond regulation but stops short of nationalization. A system in which society's representatives are embedded in the organization with power comparable to that of the shareholders, for taxpayers as well as shareholders have a stake in corporate decisions.

We've seen the catastrophe that free-market fanaticism has wrought: what happens when compulsive gamblers are in charge of our financial system; what happens when hucksters are in charge of our health care; what happens when the pathologically greedy are in charge of our energy system. (Enron executives actually wrote Bush's energy policy, while paying no corporate income tax). We need to do some hard re-thinking about what a corporation really is.

(In his inauguration speech, Obama talked of a whole new way of doing things. To understand the cultural paradigm shift that engendered this change--the shift that both Bush and the Taliban have resisted so fiercely, see my website for information on THE CHRYSALIS EFFECT: THE METAMORPHOSIS OF GLOBAL CULTURE).