[For comment on Senator Warren’s response to the President on the issues discussed in this post, click here.
The Trans-Pacific Partnership (TPP)
Elizabeth Warren’s response to the President
The term “corporate governance” is in quotation marks because it has a delicious ambiguity. In law and business schools, it connotes how shareholders, directors and managers run business corporations. This essay deals with something entirely different: how business corporations are coming to rule the world.
Take Apple, for instance. It now has bigger cash reserves than France
France itself is nothing to sneeze at. It’s one of the five permanent members of the UN Security Council. It’s one of the five national governments that are trying to get Iran to renounce nuclear weapons. It was among the victorious allies in the two greatest wars in human history.
Today France leads the world in the percentage of electricity that it gets from non-global-warming sources, in its case nuclear energy. It showed the world how not
to achieve “liberté, egalité, fraternité
” in its bloody 1789 Revolution. And if you study any achievement of the human mind or spirit—whether in math, science, philosophy, literature or music (but government not so much)— you will encounter lots of French names.
So despite incessant derogation by the ignoramuses at Fox
, France is still a minor heavyweight in the global arena, as it has been for several centuries. But Apple, a corporation less than forty years old, is now significantly richer than France. And if we take Apple’s “population” to be its 80,000 full-time-equivalent employees in 2013, and compare them to France’s 66 million people in the same year, then Apple is approximately one thousand times richer than France on a per-capita basis. Apple’s 2014 revenue per employee was nineteen times France’s 2014 GDP per capita.
I mention these figures not to exalt Apple or belittle France. They’re just a small part of a global trend. In a not-too-recent essay
, I noted two interesting facts. First, in 2010 any two
of the top eight Fortune-500 corporations could have retired all of California’s then-much-maligned state debt in a single year. They could have done so out of their annual profits alone, with money left over. And California has the world’s eighth largest economy.
Second, all of our Yankee corporations together could have have paid down our entire 2010 national debt, again out of profits alone (assuming they didn’t decline), in less than nine years. If we ever get to a balanced federal budget again, it’s going to take our federal government a lot longer than that to reduce debt to zero.
These facts and figures are just the tip of a big but little-known iceberg. Grover Norquist and his ilk already have won. Business people and so-called “conservatives” have accomplished an amazing feat. They are drowning governments worldwide in a bathtub and replacing them, in large measure, with business corporations. This is not just “privatization.” It’s something bigger, more consequential, and much less examined.
Actually, the bathtub is full of debt, not water. Money is not just the mother’s milk of politics; it’s also a vital prerequisite for doing anything good or new. A long, cold bath of debt immobilizes government and eventually will make it partly, if not wholly, irrelevant, whether or not it actually drowns.
In the respect, we Yanks are not unusual. Most of the developed world is in the same fix. We Yanks are just in the vanguard of a growing global trend.
I know, I know. Governments are still around. So is the Catholic Church. But it’s not quite the same behemoth it was about a millennium ago when it ruled the Western World, or later when King Henry VIII had to seek its head’s royal dispensation to annul his marriages and remarry.
Like old soldiers, great human institutions seldom die. They just fade away. Ask Pope Francis, who can no longer rule or even influence
anything outside the Church, or much inside it, except by the force of his extraordinary personality.
So eventually it may be with government, at least as we know it today. Already the vast bulk of the economic activity that makes us humans modern, drives our technology-based culture, and constitutes “progress” now occurs under the aegis of corporations, not government.
Corporations make our cars, trucks, buses, planes, trains, computers, mobile devices, clothes, houses, the materials in them, and the tools to make and maintain them. Corporations produce nearly all of the food we eat; the family farm is nearly extinct, at least in the OECD. Corporations organize, maintain, run and repair the Internet, our record-keeping devices (now largely in the “cloud”), our air and rail traffic systems and our highways. They deliver our rail, truck, ship and air freight, maintain our health care, and provide our entertainment and leisure travel, including pleasure cruises. They even make nearly all of the weapons and weapons systems that our armed forces use.
Governments today retain only a handful of key functions. They provide social safety nets. Through police and courts, they keep public order and enforce the rules under which businesses operate; they also propagate those rules abroad, creating a cooperative international order. Through regulation, they avoid the most extreme harms that corporate greed or stupidity might cause, including financial panics. They also educate us, at least insofar as we have not already privatized education. And (except for tiny Costa Rica, which maintains no standing army) they maintain the grossly overinflated and exorbitantly expensive military forces that protect us all but also pose serious and continuing threats of war.
Recall those nuclear arsenals, which reach thousands of city-destroying weapons in Russia and the US? Recall the millions-strong standing armies, and the vast air forces and navies, mostly waiting around or spoiling for a fight? They represent the most notable power that governments still command: the power to coerce and destroy. Except for educating us, regulating business, keeping order and providing a social safety net, the power to do good and to improve our daily lives
now resides mostly with corporations, which have all the money.
After saving the global economy from the Crash of 2008 and bailing out the bankers who caused it, governments worldwide are wallowing in debt. Greece is just more in debt than most. The Reagan Revolution, which most developed countries have emulated, has put taxpayers worldwide in no mood to give governments more money and more power. Corporations, on the other hand, enjoy a huge surplus: a collective $2 trillion cash hoard. And that’s just corporations headquartered in the United States.
The practical implications of this global transformation in human governance are every bit as profound as the tectonic societal transformations of earlier epochs. They match the impacts of the transition from church to state (including the Protestant Reformation), the change from monarchy to parliamentary democracy, and the more recent transition from executive-legislative rule to the modern regulatory state, with all its central banks. But in the long run, the transition from government by states to government by corporations may be the most important.
Complain about it if you like. There’s plenty to complain about
. Just ask people who’ve tried to get a customized product or service, or to fix a billing error, by contacting a large corporation, especially through one of those ghastly telephone queues
. The Kafka-esque dysfunction, disorganization, miscommunication and high-handedness that often emerge rival those of the worst bureaucratic states of yore, even the much-maligned socialist ones.
And if you like personal freedom, consider the corporate airlines that, just a few years ago, kept passengers prisoner for hours at a time, in stinking, overheated planes with overflowing toilets, stalled on the tarmac, simply because they didn’t plan well enough to have landing slots and equipment to debark them. I often wondered why the passengers didn’t sue in droves for false imprisonment. Eventually, the government came to passengers’ assistance with regulations and stiff fines. But for about a year, actual imprisonment (albeit temporary) of paying passengers in corporate aircraft “jails” became routine.
Yet if there’s a lot to complain about, there’s much to inspire wonder, too. If you’re in what remains of the middle class, you can fly across the country or around the world—all in less than a day—for a fraction of a month’s salary. And the risk you incur is so small that no one fears flying anymore. No more seven years of indentured servitude for intercontinental travel! That only comes when you try to go to college
and take a loan from your friendly corporate student loan shark!
You can videophone anyone, anywhere in the world, from a mobile device you can hold in your hand. And if you’re clever, you can do it for zero marginal cost (additional cost per call). Doctors can peer into your innards and your brain, while you’re awake and fully conscious, without harming you. All these things and much more corporations make not just possible, but routine.
Yet this essay is not about the many spectacular achievements of corporations, which we all take for granted. It’s about the implications of corporate governance for our human cultures and our species. It’s about the slow but apparently inexorable transition from church to state to regulatory state to corporate governance. It’s about how corporations rule us, even now, in an odd and non-traditional but nevertheless very real way. It’s about what that rule means for our species’ collective future.
As faithful readers of this blog know, I’m a progressive. If it were up to me alone, I would probably moderate and retard the ascendance of corporations. I would certainly erase Citizens United
and its bizarre underlying philosophy that corporations are “people” or “citizens.”
But it’s a little too late to deny reality. Corporate dominance of our human culture is an accomplished fact, just like global warming. It’s no smarter for progressives to deny the one than it is for so-called “conservatives” to deny the other. We must accept facts, analyze them and try to understand them.
Then, and only then, can we figure out how to bring reality nearer to the heart’s desire. The purpose of this essay is to begin that analysis.
Uncharacteristically for a progressive, I have sung
corporations’ praises on this blog. The primary reason is decentralization. Since corporations formed for trading and exploration “discovered” the so-called “New World,” corporations have been the principal instrument for decentralizing human economic power and activity worldwide.
Decentralization is one of the most important
drivers and effects of human social evolution. As primates on the African savannah, we evolved in small clans, mostly of thirty or fewer individuals. With small clans and simple needs, it was possible to have a single alpha male rule the roost.
The alpha male kept order, organized clan activity and resolved disputes. He was the prototype king. Transitions of power were simple: a short physical contest between a challenger and the ruler. It was quick and easy, except maybe for the loser. The clan and the system went on, and transition costs were minimal.
That was the governmental prototype that our biological
evolution gave us. But it had and still has within it a fatal logical and practical contradiction.
Individually, we humans are small, weak, and (in our naked state) poorly armed. Individually, we are not nearly as smart as we think we are. In fact, most of us are rather stupid; we don’t analyze or reason but learn by rote and react with reflexive ideology or religion, or (worse yet) learned fear and hate.
It’s only when we get together and cooperate that we become anything like smart and effective. At least we become effective enough to out-compete and indeed to dominate other species on our small planet.
But how can we cooperate well if a single alpha male makes all the key decisions? How can we exploit the differing intelligences, strengths, aptitudes and training of all a clan’s individual members? How can we be sure that a stupidity, incapacity or idée fixe
of a clan leader doesn’t impair the benefits of full cooperation, destroy social cohesion, lead to disastrous blunders, and even provoke clan breakup?
Today those questions are much sharper, and the problem much worse. Now our human “clan” is over six billion strong, and it manages an incomparably more complex society of global scope. Just imagine your gifted airline pilot trying to program, let alone design, your computer. Or the brilliant linguist who teaches your child Mandarin trying to excise your bladder cancer. Or either one trying to run a nuclear power plant or plastics factory, or captain a cruise ship.
If a single alpha male tried to make all the decisions that must be made, globally and daily, to run our incredibly complex global economy, the entire system would plunge into chaos. Yet, astoundingly, that’s pretty much what our nation-states try to do today.
Every single developed nation has a single individual as supreme leader. Except for Angela Merkel and a few others, that individual is an alpha male. Biological evolution is hard to shake.
The leader’s title and real power vary. He can be “president” or “prime minister.” Or a single alpha male can switch titles like masks, as in Russia or Turkey. But the fact remains: in most nations today, a single alpha male ultimately makes all the decisions critical to a culture’s day-to-day operation, progress, development and even survival, especially those relating to war and peace. And he makes those decisions regardless of any specialized aptitude, education, training or experience.
There are a few exceptions. China has a seven-member committee. Its two top leaders are members, but so are five others. And each of the top leaders must have served a five-year (and sometimes a ten-year) “apprenticeship” on that committee before assuming one of the two top jobs. No other nation, to my knowledge, has such an effective way of insuring adequate experience and cooperation among top-level leaders.
Oddly, Iran is also an exception. It has the Ayatollah, and it has a duly-elected president. No one outside Iran can figure out who’s the top dog. Maybe there is
no top dog. Maybe decisions are fluid and negotiable among the two, depending upon subject matter and the views among a wider circle of elite. If so, Iran’s present form of government may be more advanced than the cabinets of most presidents and prime ministers, in which a single alpha male always makes the final decisions and others execute it. Aren’t two heads better than one?
But I digress. The single-alpha-male governance model is nearly universal. It feels so “right” because it’s a product of our biological evolution.
Yet if we humans are to progress much further, and to avoid self-extinction, we’ve got to overcome our physical evolution and abandon that model. The smarter we get, the more technology we discover, the broader our perspectives and our collective capacities become, the less a single supreme leader making all high-level decisions makes sense.
Enter the corporation. It preserves the alpha-male evolutionary model, with an occasional alpha female. It has a CEO. But it does so on a much smaller scale. It accommodates and encourages division of labor and specialization by focusing on a single business or industry. In a competitive capitalist system, it allows competitors, each also run by an alpha leader, to work in the same business or industry. So if one clan’s leader fails, another’s might succeed at the same thing.
Corporations in a competitive environment thus give obeisance
to our biological evolution in the structure of their internal
leadership clans. Yet at the same time they reduce “clan” size down from the monstrous and unmanageable populations of modern nation-states—and from our 535-member dysfunctional Yankee Congress—to a more tractable level. In smaller and many start-up companies clan size actually mimics the small scale (less than thirty members) of our biological-evolutionary tribal clans.
Corporations are thus a vital part of our human social
evolution. They are a logical and practical solution to the dilemma of our biological
evolution: how to run a complex global society of going on seven billion people on the model of a thirty-member-maximum clan with a singe alpha male leader.
Corporations are not the only answer to the contradiction between our biological and social evolution. Another is federalism—creating a number of semi-independent states within a federal governmental structure. Each state has its own alpha leader, but all can develop and compete separately, decentralizing power and encouraging further social evolution. Size of leadership clans decreases, the total number of leaders increases, and the probability of successful experiments in leadership grows.
Our Yankee federalism is one of the most carefully designed versions, but almost every major power has something similar. At least states as diverse as the United States, China, France, Russia and Switzerland do.
Another common answer to the contradiction is the regulatory state. Our Federal Reserve and other central banks are prime examples. Throughout the history of capitalism, our species has endured totally gratuitous financial panics, crashes, recessions and depressions simply because misguided or self-seeking private bankers screwed up. Now, in addition to all those private, self-seeking bankers, we have a few expert bankers, with superb aptitude, training and experience, one of whose jobs is making sure that financial system doesn’t crash. Like air traffic controllers and the Nuclear Regulatory Commission, these experts can do things (and prevent disasters) that no generalist alpha president or prime minister ever could.
The contradiction and conflict between our biological evolution and the needs of our increasingly complex global society will never end. They are literally written into our DNA and our ongoing history. But so is the ability to use our extraordinarily flexible brains to adapt our social environment to current needs.
Today corporations play a major role in managing our evolutionary conflict, perhaps the leading role. In doing so, they decentralize our species’ social organization and help remove it from the corruption and fuzzy certainties of politics.
After decentralization, adaptability is the modern business corporation’s second great advantage. That’s not surprising. Adaptation is the touchstone of all
evolution by natural selection, whether biological or social. An entity that can adapt to new or changing circumstances can survive longer and better than others.
Corporations can adapt in much the same way as living organisms do. Much like natural organisms, they can be born, they can die and they can be “eaten” by other entities. In this limited, metaphorical sense, they are “organic.”
Any small clan of people can give birth to a new corporation. All they have to do is get together, make up their minds, and follow the local rules of the state of formation. If the founding clan doesn’t have all the money required to start a business, it must also convince outsiders to invest it. Today, organized capital markets with electronic assists, such as “crowd funding,” make doing that easier than ever before.
Sixteen years ago, I formed a small corporation called an “LLC” (limited liability company) in about an hour. I did it over the Internet, under the laws of my state. The whole thing cost about $150 because I did my own lawyering.
The process was much simpler and easier than the painful labor that women suffer in giving birth to a real, biological baby, let alone the nine-month gestation period. It was almost as easy as digging a small hole, putting a plant in the ground, covering it with soil, watering it and throwing some compost on.
Eventually my little corporation withered away, due to neglect on my part. It became part of the economic forest undergrowth. But its process of formation wasn’t that different from the one used by the two engineers who formed Tesla, before they got the illustrious Elon Musk to buy control and become CEO.
Once formed, corporations can grow, split (spin off), be “eaten” (in mergers or acquisitions), or die (in bankruptcy or dissolution) much like organisms. They can also grow and prosper. If they prosper and win the game of survival, they can even, like Apple, become the most valuable corporation on Earth, with cash reserves larger then France’s.
Nations and their federal subdivisions are not nearly so flexible or adaptable. Laws, custom and tradition tie them down, as do indigenous populations with all their native cultures and tribalisms.
Nations hardly ever die. They continue in name only, even in advanced stages of decay, as do Libya, Somalia, Syria and Yemen today. Unlike corporations, nations and their political subdivisions can’t shed people and lines of business as corporations can, at least not without genocide or other atrocities that the modern world frowns on. For better or for worse, they must accommodate the people who live within their borders. Or they must spin off, like Pakistan from India, or break up, like the former Soviet Union.
So for organizing economic and productive activity, corporations are far more flexible and adaptable than nations. It’s no wonder that the vast bulk of economic activity, including trade, now takes place under their umbrellas. If we had to wait for nations to form and dissolve like corporations, or to goad their bureaucracies to approve and fund our numerous modern innovations, our scientific, technical and economic progress would advance orders of magnitude more slowly than it does today.
Decentralizing and adaptability help explain why we have so many corporations and why they are so important. They solve the dilemma of a species evolved to follow a single alpha-male leader in small clans, but which wants to run an impossibly large, diverse and complex global economy.
Yet for more granular political analysis, corporations’ beneficence (or lack thereof) is the chief question. We know that corporations provide marvelously beneficial products and services in exchange for money. We use them every day.
But are there any side effects? Do things like pollution, abuse of workers, political corruption, and demagoguery in the guise of “public relations” detract from, and perhaps even outweigh, the good that corporations do?
In the abstract, corporations are neither moral nor immoral. They are a
moral. They are simply a means of organizing human activity, especially economic and productive activity. (This essay does not address the many non-profit corporations, including charities and universities, which mostly try to do good, and which sometimes also deliver products or services.) Whatever good or bad they do depends on precisely what they do and how they are run. It also depends on how we view their general purpose, in the abstract, apart from any particular corporation’s goals.
For most of the last century, a relatively new view of corporations’ goals has been in political vogue. It holds that corporations exist only to make money for shareholders; that is their only purpose. If they don’t actually do that, they are violating the ethos of corporate governance, if not the law.
This view arises from a century-old case involving Ford Motor Co
. in its heyday, when it dominated the auto industry and was supremely profitable. After years of making record profits, it had accumulated a large cash hoard. Henry Ford wanted to stop paying special dividends to shareholders so he could invest the money in new plants, decrease costs, increase sales and lower prices. Not-so-patient shareholders, including Dodge (who wanted to start a rival car company) sued to get their dividends, and they won.
In making its decision, the Michigan Supreme Court seemed to characterize Ford’s goals as eleemosynary. It penned the following extraordinary passage:
“[Henry Ford’s] testimony creates the impression . . . that he thinks the Ford Motor Company has made too much money, has had too large profits, and that, although large profits might be still earned, a sharing of them with the public, by reducing the price of the output of the company, ought to be undertaken. We have no doubt that certain sentiments, philanthropic and altruistic, creditable to Mr. Ford, had large influence in determining the policy to be pursued by the Ford Motor Company . . . A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the nondistribution of profits among stockholders in order to devote them to other purposes.”
This decision came down in 1919. The best that can be said for it—if anything good at all can be said about its stilted language and conclusory reasoning—is that the nation and global business have long ago left it behind. If you took the foregoing passage literally, it would have outlawed the “driving for market share” approach that allowed Japanese car makers to penetrate and ultimately dominate the American car market. It would also have outlawed the R & D expenditures that every business corporation, especially those involved in high technology, routinely makes today. If building new plants to increase sales and lower costs and prices is unlawfully stiffing the shareholders, how could investing in research with no known or predictable results not
The Michigan Supreme Court’s decision represented an early apotheosis of short-term thinking. It was an attempt, fortunately unsuccessful, to strangle Henry Ford’s prosperous and egalitarian consumer society
in its crib. It was un
fortunately emblematic of jurists’ frequent inability to understand or appreciate how the physical and social engineers who built this nation
From this case and others like it, later observers concluded that corporations exist only to make money for shareholders. The law has moved on in the last century
, but not nearly as much as routine business practice. So a key question for our era is whether our modern courts will finally inter the ghost of this impossibly impractical and wrong-headed decision.
More modern legal decisions wisely leave the tradeoff between dividends and business investment to corporate directors’ business judgment. This is especially so in Delaware, where most large Yankee business corporations are incorporated today. But there is no universal norm yet, and there may never be, because corporate law is mostly state law, which varies from state to state. Decentralization does have its discontents.
If anything in our Yankee culture might support the sole-purpose myth, it’s Wall Street. Wall Street will, we are told, “punish” a company that doesn’t make money for shareholders by tanking its stock price.
But even that’s
an exaggeration. Until recently, Apple distributed almost nothing to shareholders, despite having one of the largest cash hoards in corporate history. Now it offers shareholders dividends and occasional cash buybacks of shares. But both are miserly compared to those of corporations with a long history of dividends and buybacks.
More to the point is a recent Forbes article
about Apple and its CEO, Tim Cook. Apparently someone at a shareholder’s meeting accused Cook of trying to “do good” instead of maximizing returns on equity and distributing the resulting returns to shareholders.
“Cook replied–with an uncharacteristic display of emotion–that a return on investment (ROI) was not the primary consideration on such issues. ‛When we work on making our devices accessible by the blind,’ he said, ‛I don’t consider the bloody ROI.’ It was the same thing for environmental issues, worker safety, and other areas that don’t have an immediate profit. The company does ‛a lot of things for reasons besides profit motive. We want to leave the world better than we found it.’”
It would be hard to conclude that Wall Street (or anyone else) has “punished” Apple for these or any other acts of do-goodery. Apple is the most valuable corporation in the world. It’s also over 60% owned by institutional investors, i.e., by professionals, most of whom work on Wall Street.
Today, many other corporations are experimenting with do-goodery. Some do so by increasing their minimum wages, without government compulsion, as Henry Ford once did in creating our modern consumer economy
. Others spend to reduce pollution, reduce their own carbon footprints, invest in cheap, renewable energy, or offer women benefits like day care and pregnancy leave, which makes it easier for them to hold down the dual jobs of worker and mother. Starbucks is sending its baristas to college
Some of these things, such as investing in renewable energy, can raise the bottom line, at least in the long term. Some may not. It’s hard to see how generous pregnancy leave makes corporations money, except perhaps in the long term (by attracting female customers and female workers and retaining the good ones). Similarly, Starbucks’ college plan has no obvious immediate effect on the bottom line but expenses.
But no intelligent person, whether in court or on Wall Street, ought to say “no” to corporate do-goodery absent clear evidence of management’s abuse of authority or self-interest. In general, modern law agrees. It judges business management’s conduct by a so-called “business judgment rule.” Except in conflict-of-interest cases, that rule doesn’t even require reasonable care, i.e., the absence of negligence. All it requires is good faith, which is to say the absence of a provable corrupt or otherwise bad motive.
In another essay
, I advocated abandoning this lax rule for systemically important bankers, in order to stave off the next financial crash. But for the vast majority of businesses in the real (nonfinancial) economy, there is no crying need to abandon it. It remains the law in most jurisdictions, and it makes sense. Business management must have elbow room to work, and occasionally to fail, as long as the failure doesn’t threaten our whole economy.
As for Wall Street, the general rules for beneficence that it imposes on businesses is, or should be, even laxer. Why? Because doing good can build brand identity and increase the value of a corporation’s goodwill, which is an actual balance-sheet asset. It can also boost the reputation of a corporation and its products, especially in today’s social-media environment. Eventually, more “likes” mean more money, or at least that’s the theory. Everyone wants to “monetize” likes on social media, and the good guys ought to have a better chance. And in the event of bad
corporate behavior, modern social media can crush a business’ reputation overnight.
So the notion that corporations exist only to make money for shareholders, regardless of their impact on larger society and the evil or harm they may do otherwise, is at best a dismal urban myth. At worst, it’s a vicious lie. For shareholders, it’s an excuse to second-guess public-spirited and far-sighted management. For managers, it’s an excuse to be greedy and thoughtless and to think short term. For employees and progressives, it’s an excuse to demonize the corporations that provide virtually all our wealth and creature comforts and that now are in the slow process, collectively, of taking over our world.
Whether corporations work for good or evil depends, of course, on who leads them. The same is true for nations. But there’s a big, big difference. Several orders of magnitude more corporations exist than nations. So CEOs as a group have a lot more opportunities to distinguish themselves by doing good (or doing evil) than presidents and prime ministers have. Because their individual constituencies are much smaller, they have less temptation to pander to zealots and fringe groups. And citizens, aka “consumers” in this context, have a lot more opportunities to redress their grievances through consumer choice, at least when there is competition. All this is a benefit of decentralization, which takes us back to the first advantage of a corporate world.
The Trans-Pacific Partnership (TPP)
The Trans-Pacific Partnership is a small, interim step in the centuries-long process of transitioning from mostly political governance to mostly corporate governance (in the sense of this essay). It’s primarily an extension of international trade—the only traditional and reliable interaction by which differing human cultures have interacted without war
. That’s all to the good.
But controversy has dogged the TPP. It seems to arise from three principal sources. The first is secrecy. Drafts of the proposed treaty are still unavailable to the public. What’s in them is known only to government officials and corporate lawyers and lobbyists. When things this big are secret, it’s hard not to worry.
Second, opponents of TPP fret about the so-called “fast track” approval that Congress is contemplating. By requiring only an up-or-down vote, with no amendments, it gives the executive branch pretty much carte blanche in negotiating the deal.
That might be a bad idea if Congress were sentient and functional. But with Congress in its current puerile ideological and dysfunctional state, it might not
be such a bad idea. At least our executive branch has credible trade experts who know something besides ideological scripture, and it can call on more if need be. Congress today has far fewer clear thinkers, let alone experts, than ideologues and demagogues.
The primary argument against a fast track is that it might downplay the importance of significant flaws in the agreement, as long as it is, on balance, beneficial. Ideally, the people’s representatives ought to be able to see and debate those flaws before the deal becomes law. But the present level of quality of those representatives, plus their impractical and ideological mindsets, significantly weakens this argument.
According to Senators Elizabeth Warren and Bernie Sanders, one of the TPP draft’s significant flaws is the third and final source of controversy. Apparently a murky provision would allow corporations to sue our federal and state governments if their laws governing such things as environmental and worker protection cut corporate profits.
I have heard no one claim that this provision would invalidate such protection or permit injunctive relief, thereby effectively rewriting our laws. The claim is simply that corporations could get compensation for losses of hypothetical profits that such laws cause. Their doing so would put tax-paying voters in the difficult quandary of having to pay more taxes or reduce the government protection they rely on.
Like the President, Elizabeth Warren is a former law professor. Like the President, she is a reliable and trustworthy source of information and a center of genuine empathy for ordinary people. Since the two are at apparent odds on this point, it’s hard to know whom to believe and whom to support.
I’m not sure that seeing the language of the provision at issue would be any help. To my knowledge, the President has not questioned that such a provision exists, or that it might operate as Warren suggests.
So I cannot question the knowledge, motivation, sincerity, honesty or empathy of either side in this debate. The only way I can begin to decide is by comparing experience and perspective.
The President has held his office for over six years. Warren has held her senatorial post for over two years. Warren has vastly superior knowledge and expertise in finance, especially the type of finance that confuses, swindles and sometimes defrauds consumers. But the President has handled a much broader portfolio for much longer.
So the President likely has the big picture. Warren may be reacting to a provision that, if in favor of banks, might be disastrous to unprotected consumers. Whether it will be so in favor of industrial companies, which provide the bulk of international trade, is a matter of judgment.
The President, apparently, has made an executive judgment that TPP is worth pursuing. There are several plausible reasons why.
First, TPP might provide a “win” for the US and its allies in commercial competition with China, which has its own regional trade treaty already in place. Second, international corporate governance is coming, willy nilly, and the United States must play a key role in it in order to retain its global leadership position and its number-one economy.
Our multinational corporations are not just economic “ambassadors.” They are the infrastructure of our “soft power.” Having a treaty that helps them keep their leading role in world affairs is important to our economic and political future.
Third, even if the suspect provision works as Warren describes, US corporations might be able to raise
environmental and worker protections in foreign nations as much or more than foreign corporations could lower ours. For example, US corporations might claim compensation abroad for a loss of profits due to an unfair competitive disadvantage that weaker environmental and worker protection abroad gives foreign businesses.
Fourth, given a level playing field, US corporations, with their better educated and more experienced management, might be able to extend their influence abroad, creating more jobs here at home. Next to the Germans and Japanese, no nation has more recent and longer experience managing modern businesses in foreign countries than ours. (The Brits seem to have lost their touch and to be turning inward.)
Fifth, foreign corporations may have an intrinsic disadvantage in using the suspect provision because foreigners (especially in Asia) are considerably less litigious than we Yanks. Many, if not most, would rather compete than sue.
Sixth, protecting workers and the environment is good long-term policy for any nation. Developing nations will be unlikely to promote short-sighted corporations rather than cleaning up their act, if only because of domestic worker and public pushback. Seventh and finally, what corporations do, whether at home or abroad, depends on their management and the strength of its foresight. It seems rash to torpedo an otherwise good deal just because a few
might be evil.
Of course the foregoing paragraphs are speculation. I have no inside information as to why the President supports the proposed pact so strongly. But I trust his judgment. He never fails to see the big picture. He’s a superb political chess player who doesn’t mind sacrificing a pawn or knight to save his queen. Sometimes that’s what you have to do to win.
Corporate governance, in the sense used in this essay, not only exists. It’s also growing steadily, as anyone with eyes can see.
To verify this point, just consider your own personal interactions. For most Americans, interactions with government are confined to tax time and retirement (or preparation for it), unless they are suspected of a crime or employed in government or the military. Yet every
American deals with corporations—and must obey or suffer their non-negotiable contract terms and policies—at least once a month, as well as whenever flying, using a cell phone or the Internet, watching cable or satellite TV, buying, building or renting a home, banking, or questioning or paying a related bill.
Today big business is far more a ubiquitous and intrusive presence in the lives of ordinary citizens than government is or ever will be. The only reason most of us don’t notice this fact is that big business has many heads and hats, as befits its decentralization.
Yet collectively the corporate hydra is by far the dominant presence in our modern lives. This is so today, and the trend will only grow for at least the rest of this century. Likely it will continue to grow until some other human institution than the corporation provides a better solution to the dilemma of our biological evolution.
Any change so large and sweeping as the transition to corporate rule can be scary. But is corporate governance, on balance and in general, self-evidently a bad thing?
I think not. The most catastrophic forces in human history—and the motivation for the bloodiest and most senseless wars—have been religion and ideology, religion’s political cousin. Individual corporate managers may have both, but corporations themselves have neither, for two reasons. Despite our Supreme Court’s fuzzy musings, they are not really sentient. They are abstractions that must act through real people. And no successful business can afford to alienate potential customers for abstract reasons of religion or ideology.
Although making money is not corporations’ only
purpose, it is probably their primary purpose. That makes them, and their CEOs, much easier to influence, on average, than the political, national and religious leaders whom they are replacing have been throughout human history. Try to bribe the Taliban, an anti-abortion extremist, or a Tea Party zealot, and see how far you get!
Citizens and movements are beginning to understand this point. Protests and boycotts have made large corporations raise their minimum wages, often before governments have done so. Social media have pushed corporations to change and improve their products. Corporate pressure has forced two states—Indiana and Arkansas—to reconsider laws that would permit, if not encourage, businesses there to discriminate against gays. Boycotts have almost forced the Wretched Apostle of Fear and Hate Rush off the air.
Corporations are amenable to economic pressure, while governments are not. If you don’t pay your taxes, you go to jail. Yet you are free to shun a particular corporation’s goods or services, and to organize others to do so, whether to protest a corporate action or policy, to patronize a competitor (except to squelch competition itself), or just to do without.
If you want a good example of the impotence of government and the power of pressure on corporations, consider so-called “superbugs.” For at least four decades, science has known
that factory-farm corporations, especially chicken farms, create multiple-antibiotic-resistant bacteria that can kill people. They do so by using antibiotics routinely in animals that are not sick. This practice converts the animals, collectively, into a vast, living, accelerated-evolution factory for antibiotic-resistant bacteria.
Today some 23,000 of us Yanks die from these bugs every year
. Yet in four decades, government, in the form of the FDA, has been powerless to take the simple and essential step of banning routine use of antibiotics—even those used to cure humans—in animal husbandry.
Why? Because pols in hock to factory-farm businesses have hamstrung the scientist-regulators at the FDA. In the 1970s, the culprits included a Southern Democrat. Now they’re mostly Southern Republicans. Party doesn’t matter. Only money does.
Enter “corporate governance.” Recently two major corporations (MacDonald’s
and Tyson Foods
, the world’s biggest factory chicken farmer) have promised, respectively, not to buy and not to produce chicken raised on routine use of human-useful antibiotics in animals not sick. Their chief self-confessed reason: customers demanded the change.
So after government had failed for four decades, pressure on corporations succeeded. Maybe a decade or two more down the road, seniors will no longer have to die from ordinary urinary-tract infections, and people breathing and eating the dust near factory farms, which is laden with multiple-antiobiotic-resistant bugs, will no longer get infected. Better late than never.
Amenability to pressure is not the only apparent advantage of corporate governance over what passes for democracy in America these days. Pols pander to extremists relentlessly because extremists vote more often than reasonable people and are overrepresented in our national legislature, because extremists and other zealots control primary elections, and because we no longer have majority rule in Congress
. With few exceptions, corporations don’t pander to anyone, let alone extremists, at least not on an ideological or religious basis. They understand that pandering to some
customers on non-business-related issues can alienate others, so they go strictly by the numbers—their sales revenue. Hence their protective attitude toward gays.
Finally, look at the general quality of leaders. How many national pols, let alone state or local ones, can match the average big-company CEO in brains, education and experience, let alone diplomacy, “people skills” and practicality? How many pols have a fraction of the experience in elective office that the average corporate CEO has in managing his or her business, or in his or her industry? The transition from rule by government to rule by corporation might simply bring us higher quality, more focused, and more experienced leadership, as well as more diversity and decentralization.
So cheer up, my fellow progressives! The government that we relied on for our safety net and personal protections is drowning in a bathtub of debt. At least it’s gasping for breath. The Grover Norquists and the selfish among us
are winning, if they haven’t already won.
But the advice “Be careful what you wish for!" may apply with special force to these avid fans of greed. Corporate rule may bring us less fuzzy and vapid ideology and religion, more vigorous competition
, more practical solutions based on facts and evidence, and better, smarter leaders, albeit more widely dispersed.
For the most part, corporate CEOs are reasonable, practical people, if only because no CEO who managed by a “Little Red Book” of ideological dogma could survive in business very long. At least most CEOs don’t repeatedly demonstrate, in their public statements, the extreme stupidity that our pols often do, especially when talking about gender, rape or abortion. Remember the absurd comments about “legitimate” rape and the spontaneous abortions that “illegitimate” rape supposedly causes to occur naturally? Few or no people stupid enough to have made those comments could make CEO of a major corporation, unless perhaps they were majority stockholders’ siblings.
Not only are corporations amenable to simple commercial and social pressure. They are subject to civil lawsuits, as well as to reason. In contrast, government and government officials are immune from suit for official actions, under a doctrine known as “sovereign immunity.” In addition, corporate shareholders’ and directors’ meetings, unlike our Congress, still operate on the principle of majority rule, so shareholder activism and independent directors can make a difference.
No doubt many people wailed and quaked in fear as noisy and disputatious parliaments replaced royal rule. But in the long run, democracy proved to be much more resilient and much better for the people than monarchy.
Now democracy is showing its age and infirmities. Fighting the fuzzy thinking and fuzzier ideology driven by negative TV ads and vast propaganda empires like Fox’ may be a losing game, especially when only 30%, mostly zealots, vote in primaries. It may be easier to address pleas for constructive change to well-educated, largely ideology-free business leaders, especially when appeals to do good also suggest increasing the bottom line simultaneously. The explosion of corporate investment in solar energy
is just one beckoning example.
Imagine a world in which key decisions on the economy, energy, industry, banking, science and infrastructure were made by men and women without reference to ideology or religion, without pandering to plutocrats, extremists and morons, and without relying on demagogic negative attack ads. Instead, imagine a world of such decisions made on the basis of data and proven expertise, as one might expect of a rational society.
Imagine a nation ruled by a large number of truly elite people with superior intelligence and education and vast practical experience, rather than 535 mostly inexperienced money grubbers, many of whom are also demagogues. Imagine a world in which the awesome propaganda power of so-called “public relations” is used just to sell defective products
, not defective leaders and defective ideologies, let alone fear and hate.
Imagine a world, in short, in which every government is more like China’s, with its new Mandarins and technocratic majority rule at the top, but without its over-centralization and ritual references to a long-vanished “Communism.”
Don’t fight too hard against the coming of that world. It’s never a good idea to fight evolution, whether biological or social. For whether you fight it or not, evolution is bound to prevail, at least as long as our species itself survives.
The probable “blessings” of corporate rule depend heavily on free, fair and vigorous competition. If businesses collude or combine to avoid competition, as they often do, the result will be bullying and tyranny, but without due process or other legal constraint. (Our Constitution limits only “state action,” not private action.)
What we Yanks call “antitrust law” and the rest of the world calls “competition law” therefore is and will be absolutely vital in assuring that the theoretical advantages of decentralization, adaptability and beneficence become real. It’s encouraging to see the Comcast-Time Warner merger dead and European competition-law authorities working vigorously to contain online bullying. As government grows weak, it must prevent corporate
bullying and tyranny from replacing the last century’s dismal governmental tyrannies, if only in a particular industry or segment. Vigorous competition—and breaking up any entities too big to fail
—can do that.
Elizabeth Warren’s response to the President
Last night (5/13/15), the PBS News Hour
gave Senator Elizabeth Warren a chance to explain her views on the TPP and respond to the President’s criticism.
And what a response it was! Anyone who thinks she is not presidential material should watch it
Warren made two points, both of which are valid. First, she noted that 85% of the people “in the know” about the treaty and involved in its drafting are high-level corporate executives or their lobbyists. From this fact, she concluded that the drafts are necessarily slanted toward corporations’ interests, and away from working people’s. I agree.
Second, Warren noted that the “fast track” authority now before Congress would last six years, apply to succeeding administrations, and reduce the Senate voting margin required to approve TPP and future
treaties from 60 to 51 votes. In other words, for six years, future
corporate forces will able to pass corporation-friendly trade treaties by a simple majority vote, without having to worry about filibusters—although perhaps Senate holds might still apply.
Every aspect of Warren’s appearance was exemplary: her manner, her near-perfect elocution, her clear diction, the pacing of her speech, and her pleasant but determined mien. She practically stared the camera down. Her simple language—including repeated use of the phrase “grease the skids” for fast-tracking—exemplified the kind of “Great Communicator” that the President sometimes can be, and that Bill Clinton was in his best moments.
So it was easy for me to feel inspiration and admiration for Warren approaching awe. In four or eight years, after she acquires necessary expertise in foreign and military affairs, I can imagine supporting her campaign for president with my money, my voice and my primary and general-election votes. I can imagine cheering my lungs raw for her.
But in our sad reality of today, I reluctantly adhere to the views expressed in the foregoing post. As talented as Warren is, and as right as she may be in the abstract, the corporate juggernaut simply has too much momentum. Today its momentum is too great for any
single senator to stop, let alone one from Massachusetts—the state universally acknowledged for decades as being our most consistently liberal and progressive.
There are two other reasons why I view Warren’s present crusade against fast-track and the TPP (at this moment only) as making her something of a Doña Quixote. First, I am firmly on record, on this blog
and on another dedicated to that purpose alone
, as adamantly opposing filibusters and other departures from majority rule in Congress.
If everyone who saw a temporary and transient advantage from filibusters pursued it, we would never get rid of them. Because so many have done just that, we still have them, despite their gross overuse
on an historical basis. Consistency and practicality require me and like-minded thinkers to oppose filibusters even when they might support our own ideological agenda.
Second, corporate power seems most bad when it “goes political.” When owners or executives of corporations, like the Koch Brothers, get the odd notion that they can use their great wealth to become de-facto rulers, they act execrably. They buy fuzzy and simplistic general mantras like “lower taxes,” “less regulation,” “more freedom,” mostly without coherent thought. Then they try to make the public dupes and the pols they buy shameless lackeys.
The odd thing is that good CEOS don’t do that in running their own businesses. They hire professionals and listen to them. The live by facts, math, logic and science, not wishful thinking or simplistic mantras. Above all, they are realists and pragmatists.
So what makes them, or at least some of them, such atrocious excuses for leaders when they think they can rule the land with their cash? God only knows.
When they are not trying to do that
, owners and managers of corporations apply their often superior intelligence and usually superior education and experience to specific, practical problems of policy. Then they act much as they would in running their own businesses. They are focused, practical and realistic. They push forward such beneficial things as building and using windmills and solar arrays, fighting disease, better policing, and ending discrimination against gays.
This history perfectly fits my theory of decentralization
. The primary social-evolutionary purpose of corporations is decentralizing human leadership: slicing it up into smaller pieces defined by industry, business, field of technology, area of learning and type of expertise.
Corporate business is the organizational side of individual specialization and division of labor. That’s why the era of corporate conglomeration now receding was so retrograde to human evolution, and such a gigantic business mistake. Today GE is showing the way back from that blunder, as it divests its lines of finance, at least those unrelated to purchasing its advanced industrial gear. GE now knows, better than most, that “sticking to your knitting” is not just a recipe for success, but the fundamental rationale for humans having invented corporations in the first place.
So like the President, I believe Senator Warren is wrong on this one. Her wrongness on this single initiative doesn’t belie her tremendous talent, her awe-inspiring and growing political skill, her dedication to improving the lot of working people, or her potential as a future president. I think the President understands all this.
But to get to the world that Warren, I and millions of others would like to see, she and we will have to find a smarter, better path. We’ll have to find a way not to fight corporations for general governance of society—a battle we are ill-equipped to fight and are likely to lose. Instead, we’ll have to enlist their better angels (including Apple) to help us solve societal problems, as enlightened CEOs come to understand their modern leadership roles and their responsibility to do more than just make money for shareholders. We’ll also have to find more effective ways to persuade voters, policy makers and other
corporate leaders that what the Koch Brothers are doing is a perversion not just of democratic governance, but of business’ role in it.