THE BLOG
09/30/2015 10:27 am ET Updated Sep 30, 2016

The Volkswagen Cheating Scandal Reveals the True Nature of Capitalism

Roy Hsu via Getty Images

Houston? We have a problem.

The extent of the cheating by Volkswagen in the latest corporate scandal is utterly astonishing. This was not a rogue employee. It was not an accidental slip-up. It was not the discovery of a mistake that they tried to paper-over.

No. This was premeditated cheating. In the first degree.

It must have taken months or even years to plan and execute this ploy. Volkswagen created a software program and installed it in their diesel vehicles that was specifically designed to detect when the vehicles were undergoing tests for emission standards, and only during such tests would the emissions-control functions be activated to lower the emissions in order to meet regulatory standards. But when the vehicles were not being tested and were being driven in ordinary conditions, which is effectively all of the time, the vehicles spewed out pollution 40 times worse than the emission standards.

Volkswagen then launched a major advertising campaign centered around the low emissions of these vehicles. Talk about a grand deception. The objective was to overcome the public perception that diesel cars are dirty. In one ad, a lady held her white scarf to the end of an exhaust pipe and then showed the television audience that her scarf had not been discolored.

The whole scam came to light quite accidentally when independent academic researchers studying diesel emissions in general decided to measure emissions of vehicles while they were actually on the road. And it turned out that for Volkswagen vehicles, the road tests registered far higher emissions than the regulatory tests.

When regulators began asking questions, how did Volkswagen respond? Naturally, they lied.

For over a year, Volkswagen waged a cover-up campaign of denial and deception. It was not until the evidence mounted overwhelmingly and Volkswagen knew it would be exposed that it finally confessed to its misdeeds and admitted the entire scheme.

Stunning.

Now the jig is up, the authorities are crawling all over Volkswagen, and investigations are underway. Ah good. The bad guys have been caught and justice is being served. All is well again.

But is all well?

This, indeed, is quite an elaborate scheme. It seems to be part of something larger, as though this incident were more of a symptom and thus the underlying disease remains uncured. In fact, the motivation here was the desire to earn greater profits.

Hm. Profits.

The way our economic system is supposed to work is that profits should be earned only by engaging in activities that benefit people and enhance society. Profits should not flow to activities that are harmful. If corporations could profit by harming people and damaging society then something would be drastically wrong with our entire system.

Of course, even the best possible system could not realistically eliminate every single instance of wrongdoing. A few bad apples do not spoil the entire barrel. Fine. So maybe this situation of Volkswagen earning billions in profits from aggressively cheating is simply the rare exception, and now that we have caught it, everything is fine.

So what do we see when we zoom-out a bit and view the auto industry as a whole? Uh oh, things don't look so good.

As it turns out, this sort of thing has been going on for decades with the automakers. They have a long and sordid history of seeking to earn greater profits by evading regulations, resisting safety measures, and covering-up wrongdoing.

Yikes. This leads us to wonder whether this problem is contained to just the auto industry. So what do we see when we zoom-out a little further and view corporate America overall?

Uh boy.

The problem is rampant. In corporate America, profits are the preeminent objective. The health of our people and the integrity of our society are of no concern.

We see this over and over again, with industry after industry, corporation after corporation.

Just think of the cigarette companies. They knew internally that their products were disastrous, yet they spent decades covering it up, all the while marketing their deadly products as being healthy, including targeting children. And they enjoyed millions of dollars in profits.

The food industry has been pumping our food full of all sorts of chemicals and unhealthy ingredients for decades, and fighting ferociously against labeling and safety measures.

The pharmaceutical industry price-gouges consumers for critical medications, and has effectively lobbied politicians to prevent the sort of price regulation that exists in just about every other major country around the world.

The author Michael Lewis declared that the entire United States stock market is rigged, and he chronicled in his book, "Flash Boys," how high-frequency traders earn billions of dollars in profits by ripping-off unsuspecting investors. (Watch my explanatory video by clicking here.)

Corporate executives and shareholders all across this nation reap enormous profits for themselves by laying-off droves of American workers and relocating their jobs overseas to exploit ultra-cheap labor. There is no concern for the workers or the communities left behind.

It turns out that the $300 billion oil giant Exxon Mobil Corporation discovered decades ago that burning fossil fuels leads to climate change, but instead of doing the right thing for humanity and our planet, Exxon suppressed this information and instead began funding opposition research that denied climate change.

When the National Football League began to realize the extent of brain damage caused by playing football, it did not seek to protect the health and safety of its own players, or of the millions of boys all around the nation who play football, by doing the right thing and disclosing the hazard. Instead, the NFL reportedly engaged in a massive cover-up scheme.

All of this, of course, is just scratching the surface of the surface.

Why in the world would so many corporations behave in ways that are so harmful to people and to society?

It's very simple. Profits.

Roger that, Apollo. Houston acknowledges. We have a problem.

Our economic system has become unmoored. There is no longer an attachment between earning profits and engaging in behavior that benefits people and society. Instead, tremendous profits can be reaped from activities that are harmful, that exploit consumers, that game the system, or that sacrifice long-term stability in favor of short-term gains.

Corporations entrench their harmful activities by kicking-back some of their profits in the form of political contributions to just enough politicians sufficient to block any attempts at reform.

This problem will not be fixed by slapping a big fine on Volkswagen, or even by tossing a few of its executives in the clink. The problem is bigger than that. The problem lies with the system itself.

We must decide whether our system should serve the interests of people, or profits.

Right now, profits are winning.