My mother used to have a cat that wasn't declawed. As such, most of the plushier furniture items around the house inevitably ended up shredded. She would take the cat to the veterinarian now and then for the claws to be clipped down, which was effective for a time before they grew back, after which point more evisceration would ensue. Cats do this not as some devious Garfieldian machination (the comic strip, not the president), but rather as a means for sharpening, or upkeep, driven by an irresistible evolutionary compulsion. Thus for the maintenance of their claws, they are beholden to an uncontrollable and sometimes destructive urge.
The same can be said for contemporary finance, and for our legally codified concept of the limited liability, profit-driven corporation more generally. The current financial regulatory reforms being hashed out in Congress seek to clip Wall Street's claws, but it is only a matter of time before those claws grow back in the form of increasingly complex financial innovations. Not all of these will be "bad" ideas. Some will efficiently and effectively connect resources to production. But if history shows anything, it's that eventually a profit-maximizing instrument or nascent investment area will emerge that wrecks the system all over again.
Perhaps the most troubling reality in the 21st Century is that our economics now dictates our cultural values, rather than the reverse, where We the People would decide how resources, production, and mutual prosperity should be systematized to achieve the best society for all. Like the cat's claws, the corporation's profit motive is its only tool for survival. The casino culture of the financial system has spawned an expectation for unrealistic year-to-year growth in investors of all forms, demanding that managers increase profits exponentially and unsustainably, lest they be canned and replaced.
To account for that ever increasing demand -- and constrained by laws that prohibit CEOs to take any action that isn't in the direct fiduciary interest of shareholders -- corporations are forced to externalize costs whenever possible, regardless of social or environmental detriment. This process takes many forms, such as shortcuts and cutting corners (BP), or outsourcing to more unsavory elements (sweat shops), to name just two.
The corporation is the predominant institution in Western society, and there is indeed a yin to its yang. Corporations provide vital jobs, ideas, products, and services. But these are all incidental and secondary to the profit-drive. If a corporation does good for goodness' sake then, by law, it runs the risk of being sued by its shareholders. As its greatest champion, Milton Friedman, told author Joel Bakan: "Its interests are the interests of its stockholders. Now, beyond that should it spend the stockholders' money for purposes which it regards as socially responsible but which it cannot connect to its bottom line? The answer I would say is no."
When Adam Smith introduced the paradigmatic notion of a self-guiding economy through open and free markets, he based it on select, necessary conditions. In order to most efficiently and effectively allocate resources, encourage innovation and production, and provide the widest, most balanced social benefits to all, the market must be comprised of small buyers and sellers that have equal access to information and that operate on a level playing field. And for investing in future production and wealth creation, capital must remain within the borders of the state, with balanced trade and an ample link between savings and future production, rather than speculation.
That vision now looks hopelessly prelapsarian. The oak tree that grew from Smith's acorn has none of those necessary conditions. Instead there are multinational corporations operating between and above national borders with the perverse state-provided ability to stifle competition and with the added advantage of munificent subsidies, tax breaks, contracts and lax regulation -- all of which directly stem from decades of carefully calculated public relations crusades and a collective corporate cannonball into the deep end of moneyed politics.
Rather than capital being invested productively for future creation and innovation, the collective wealth of Western society is instead slowly sucked out and squirreled away through financial speculation by a wealthy minority, who have the means to make money from money. Economic bubbles based on imaginary prosperity inflate and pop with increasing regularity, and the victims are always those with no horse in the race nor any ace up the sleeve. Those with immunity are the cherished wunderkinds who planted the bomb in the first place. In any other society they would be hard at work curing cancer, but in this one they are cultivated and harvested from the top educational institutions to cleverly shift paper around while the great empire that conceived them rots from the inside out.
The mechanism developed to realize Adam Smith's free market vision -- the corporation -- has come quite a ways; from manufacturing and innovating America through the tumultuous early days of the industrial era in the 19th Century to the very top of the world order in the 20th. Our mirage of wealth and affluence has astounded rivals and admirers alike and set the standard for the rest of the globe.
But what was once a boon now feels more like a cancer. A 30,000-foot view shows a system that does not satisfy the ideals of a just society. Corporate brokered state policies and all manner of cynically creative cost-cutting techniques -- amplified during the latter half of the 20th Century -- have left the medium annual earnings for Americans stagnant since the 1970s. Likewise, nothing has been done about poverty in America for four decades. The United States citizenry, as well as its government, is abominably in debt from a decades long barrage of incessant and pervasive commercialization that makes a point of targeting children and afflicts its prey with an insatiable appetite for frivolous material extravagances.
Those extravagances are made in China, or so the cliché goes. Unlike the halcyon days of manufacturative and innovative corporations creating prosperity we now have an economy driven almost entirely by the service sector -- around 80 percent. Of that 80 percent, 41 percent of corporate service sector profits just before the 2008 financial collapse went to the financial industry, which distorts, destroys, and rearranges wealth notably more than it creates it. This methodical rearrangement is hardly a two-way street: the richest 25th percentile of society holds over 80 percent of the wealth -- and the very top 1 percent holds the combined total of the bottom 90 percent. The wealth inequality in America today is unprecedented, approaching that of a banana republic or petrostate.
It is in light of this reality that we must reappraise where we've been, where we are, and where we are going as a culture and as a people. The modern corporate economy's innate predilection for rapid growth is based unsustainably on finite environmental and human resources. Economists boil down a society's wealth and economic gains with single figures, such as the Gross Domestic Product (the measure of all transacted goods and services), but fail to emphasize that GDP can increase as much from destruction as from production. A state's GDP can rise just as much from using more fossil fuels, guns and cigarettes as from new clean energy technologies, life-saving medical devices, and higher education. As David C. Korten pointed out over a decade ago, "It is thus quite possible by an economist's measure for a country's economy to be growing briskly even as it is suffering rapid erosion of its future productive potential and the well-being of its citizens."
Regardless of how far it goes, financial reform in Congress won't fix any of this, and the figures of wealth disparity, poverty, and middle-class decline are just the tip of the iceberg if the oligarchic trend continues unimpeded. Corporations will always be driven by profit; and if the benefit of externalizing expenses in the form of environmental or humanitarian defilement outweighs the cost of the punishment imposed by the state, then nothing will change (don't bother buying any new plushy sofas).
We're now at a fork in the road for our "advanced" society -- we can either trim the cat's claws, or we can try to conceive of a way to blunt them for good (or remove them altogether). Financial reform -- less some kind of corporation reform -- won't alter Western capitalism's Icarus trajectory.
Such further reaching reform would fundamentally alter the cost-benefit analysis in which any corporation is required to engage. Penalties for social and environmental depravity would be increased to the degree of becoming an existential deterrent -- only then will corporations think twice before cutting corners. Ideal measures include but are not limited to policies that institutionalize the act of revoking an abusive corporation's charter (right now this is just an empty threat that nobody takes seriously); or that prosecute and incarcerate criminal executives with greater severity. We won't see any of this anytime soon, but it doesn't mean it's not an option.
Related Readings:
The Capitalist Hagiography Has Little Room for Saints
Citizens United, the Roberts Court, and the Future of American Electioneering
Obama's State of the Union Falls Short on Correcting Citizens United
American Plutocracy: Corruption Is In the Eyes of the Beholder
Obama's Agenda: Hope, Change, and Lobby-Cencricity
Follow Stuart Whatley on Twitter: www.twitter.com/stuwhat84
Simon Johnson: Focus on This: Merkley-Levin Did Not Get a Vote
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There is an axiom: "As above, so below." Therefore, one place for us to start is understanding that despite our notions that we live in advanced culture of complexed systems, etc, if we operate merely in a pathological way, unconscious of anything except the will to consume, and the will to power, then we are no different than a collection of vying microbes on a Petri dish, Therefore, making our presumptuous assessment as being "civilized", a mere pretension.
Our "inner selves" know what is right; the ego in us (misinterpreted as the "devil") out of self interest, drives us to operate contrary to the very thing that will ultimately save our way of life-Natural Law!
But I believe it simply cannot be stopped, and the inevitable will happen. I don't believe there is any power in any branch of government left that has the singular ability to thwart it, and I believe those responsible know this too, and they will now, as they have been for quite a while, take as much money out of the private sector as possible while they can and consolidate their wealth outside of harms way -- away from the US citizenry and it's representative government.
NEW YORK -- Some of the nation's biggest financial firms have increased the perks and benefits they pay their chief executives, despite the glaring spotlight from a public fed up with handsome bonuses at bailed-out Wall Street banks.
The lavish fringe benefits included country club dues, chauffeured drivers, personal financial planning services, home security systems and parking. Some increases were in perks that Obama administration officials consider among the most egregious, such as corporate aircrafts for personal travel.
J.P. Morgan Chase awarded its chairman and chief executive, Jamie Dimon, $91,000 in personal travel on the company jet in 2009, up from about $54,000 the previous year. His total perks increased 19 percent, to $266,000. Dimon, along with Goldman Sachs chief executive Lloyd Blankfein and McLean-based Capital One chief executive Richard Fairbank, also received sharply higher perks related to personal and home security.
"Marie Antoinette could fit into this crowd without missing a beat," said Nell Minow, co-founder of the Corporate Library, which found in recent studies of several thousand U.S. companies that more chief executives received club memberships than a year earlier, and companies paid more to cover executives' personal use of corporate planes. "Many people would think the solution would be not to be so provocative of unrest and unhappiness, but no, they're saying, 'Go ahead and do that, just build bigger walls around your house.' "
http://www.washingtonpost.com/wp-dyn/content/article/2010/05/22/AR2010052200331.html?hpid=topnews
The Right encourages this framing because the kind of economic system they support is actually laissez faire capitalism with NO regulations, and they have to denigrate any attempt at effective regulation as the territory of "evil socialists." That wins points with their base.
As for the Left...stop falling into those framings that benefit the Right in the court of public opinion! When the average person sees a lede foretelling the fall of capitalism, they see RED! They don't think you are suggesting that free and open markets are good as long as there is common sense regulation...they think you are a hardline socialist. Words must be carefully chosen. Instead of foretelling the fall of capitalism, preach SAVING Capitalism from itself through sensible, productive, and fair regulations that keep the system from flying apart in an irresponsible orgy of bottom line greed!
"Capitalism" as rule of the rich needs to end. The United States is a democracy and I don't think I'm alone in demanding our country back from the corporatists.
So what is the answer? During Republican administrations, Reagan, Bush 1, Bush 2, etc, and even with Clinton/Gingrich, there is always a "declawing" and "setting the dogs loose" with market and legislative deregulatoin.
At least, the Obama administration is in it for the long haul. They went after Massy with a criminal investigation.
http://www.bloomberg.com/apps/news?pid=20601127&sid=ag6zx9NHI07s
And when it came to the health insurance industry, they just didn't turn their back and walk away after the vote. They went after the industry on their practices.
http://www.reuters.com/article/idUSTRE62G2DO20100317
http://krugman.blogs.nytimes.com/2010/03/17/demons-and-demonization/
So "eternal vigilance" might be the only way to fight back.
I agree with Lord Acton that "power tends to corrupt . . . " Since the corporations have bought much of the government, their power has resulted in massive corruption of the economic system to the point I say we have "Corruptionism" and not Capitalism.
Under corruptionism, any way one can gather money is OK. No longer does one have to design a better mouse trap. Now you can design a worse mouse trap and make more money. Fraud is inherent in the way America does business. That is what Wall Street did. It took bundle mortgages, which used to be a very sound investment as almost everyone paid their mortgage, and created a market for bad mortgages.
Wall Street discovered that it could make more money with bad mortgages than with good ones -- yes by making a worse mouse trap, the Wall Street made more money.
(1) Wall Street paid countrywide and other direct lenders to sell them bad mortgages
(2) Wall Street split and re-bundled the mortgages
(3) Wall Street got crooked rating agencies to say that the bad mortgages were Triple AA mortgages
(4) Wall Street then knowingly sold these bad mortgages around the world
see below
Yes, Whately is 100% right. We have to reappraise where we are going as a culture when no law enforcement official can find any fraud in that Corruptionism.
The subset of society which might be doing something about its own corruption is the Kosher food industry after the scandal at Agriprocessor. They are revising the Koshering laws to include treating workers and animals humanely. In contrast Congress just passed a financial reform act whose very essence is Corruption. It is not reform; it is the green light that business as usual may proceed.
Eventually cheaper is going to even destroy a majority of the jobs on Wall Street making $200,000 + in the USA. The jobs will be in Singapore and Hong Kong and India, while a few high paid computer experts and board of directors remain in the USA to make more money than imaginable by today's Wall Street executives.
(1) the notion that shareholder value maximization is the sole maxim of business is very strongly dependent on side-conditions and assumptions without which it is NOT even a principle that free market fundamentalists could meaningfully adhere to - Neutron Jack has made that perfectly clear beyond doubt.
(2) the idea that external effects would be a necessary bitter pill to be swallowed by the 'definition' and purpose of a corporation is equally meaningless crap.
I am NOT criticizing you with this. I am calling the bluff of the conservative free market ideologues.
If their publicly stated views do not stand the test of (1) and (2) then those publicly stated views are worth less than a fart.
This is the new reality they need to wake up to. Where 'new' means it's what they could have known in the 1980s if only they had taken the time to add 2+2=4 or alternatively, had spend enough time and resources to read the scholarly papers in which these things have been clarified and demonstrated.
It's important to keep these things in mind.