Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

21 June 2017

Lawless Life under “Corporate Governance”

[For comment on our weak Yankee defense against information warfare, click here. For some popular recent posts, click on the links below:
Remember the Korean-American doctor dragged bodily off United Airlines Flight 3411, who suffered a concussion and other serious injuries? Public outrage at his manhandling ultimately caused a change for the better in United’s corporate policy of deliberate overbooking. United decided to “raise the ante” for enticing seated customers off overbooked planes to as much as $10,000, rather than offer a much lower amount ($800) and “volunteer” fliers at random, as it had “volunteered” Dr. Dao.

Dr. Dao’s helpless wife, seated next to him, watching him being dragged off the plane, injured and ejected. Eventually he received an undisclosed settlement to compensate for his mistreatment and injuries. It may have been in the six- or seven-figure range. He might never have to work again.

So all’s well that ends well, right? Wrong.

You probably think you live in a nation bound by the rule of law and constitutional government, where the Bill of Rights applies to everything. If so, think again.

Our Constitution, including our Bill of Rights, simply doesn’t apply to private actors like United Air Lines and other corporations. It only restrains government, both state and federal. And it restrains state government only in a limited way.

Every lawsuit for violating a constitutional norm requires a showing of “state action,” i.e., some involvement by government in the alleged wrong. Ask any constitutional law scholar, or search yourself online for the term “state action and constitution.” You will find many judicial decisions holding that our federal Constitution—and nearly all provisions of our state constitutions—simply don’t apply to corporations and other private actors.

So what happens when a corporation mistreats you as it did Dr. Dao? Do you have the rights to due process, fundamental fairness, and immunity of your person from unwanted touching and assault? In short, do you have all the rights to fundamental liberty that Anglo-American law has evolved to guarantee citizens over the 800 years since Magna Carta?

The simple answer is “no.” None of the rules or norms that our Founders drafted into our federal Constitution, and precious few in our state constitutions (rare parts of which apply to private actors) restrain corporations.

So what rules, if any, govern how a corporation treats you personally as a customer? There are precious few. The most important come from the contract that you sign, in person or on line, when you order a product or service.

Most of us don’t even read these contracts. Online, they can be the equivalent of ten to twenty pages of fine print. And you have no chance whatsoever to negotiate their terms. So why bother to read them? Your only real choice is to reject the product or service or accept it under all the detailed terms the corporation imposes by fiat when you click on “I agree”.

So you knuckle under and accept enter the corporation’s self-designed legal universe. You just check the box saying “I agree”—and sometimes saying “I have read and agree”—and place your order.

Law schools call these so-called agreements “contracts of adhesion.” Why? Because you are the fly and they are the flypaper. You have as much chance to bargain as the fly who lands on flypaper and adheres to it.

If anything goes wrong, you find yourself caught in an intricate web of contractual law created entirely by the corporation’s own lawyers. That web specifies precisely what will happen to you under various circumstances, including your nonpayment, late payment, the breakdown of a product or service, or your causing the corporation any inconvenience. Insofar as your rights to real redress are concerned, the corporation has made the law.

Of course some general laws that apply to everyone (mostly) apply to corporations. They can’t murder or assault you, at least for no reason. They can’t steal from you, except under the strict terms of the contract that you have “agreed” to but haven’t read. And when they screw up, as they so often do, your recourse is strictly limited by the terms and warranty disclaimers they have included in the flypaper.

There are, of course, a number of special laws that restrain corporations’ freedom to harm employees, shareholders and others. The Truth in Lending Act prohibits banks from concealing, obscuring or obfuscating the terms under which they grant credit. The Environmental Protection Act prohibits corporations from unnecessarily polluting our air, water and soil. The Occupational Safety and Health Act prohibits corporations from neglecting workers’ safety and health. The Federal Food and Drug Act protects consumers against adulterated, unsafe and ineffective food, drugs, and medical devices.

But these special laws differ from our Bill of Rights and our old common law (which statutes increasingly supersede) in three ways. First, unlike our Bill of Rights and old common law, these laws are special, limited and specific. Many, such as the Truth in Lending Act, provide no substantive protection at all, but require only accurate disclosure of corporation-imposed terms, leaving consumers to fend for themselves. Others, like environmental and worker-safety laws, are highly specific and riddled with exceptions. Some require cost-benefit analysis and weigh your “rights” and injuries against corporate profit and abstract notions of “economic efficiency.”

Second, few laws besides disclosure laws protect consumers and customers as such. The Environmental Protection Act protects the environment we all share. OSHA protects consumers as workers, not customers. Usury laws that once protected consumers against unconscionable interest rates and terms have been pre-empted (i.e., effectively nullified) by federal banking laws. That simple fact is one of the underlying causes of the Crash of 2008.

Finally—and perhaps most important—modern statutory protection of consumers, to the extent it exists at all, is a far cry from the generality, easy comprehensibility and common sense of our Bill of Rights. You need a lawyer to understand each specific and narrow protection, let alone to enforce it. So the broad sense of personal security that our simple one-page Bill of Rights has given citizens with respect to government since our Founding simply doesn’t exist for consumers as customers.

Not only is their recourse limited in substance. It’s limited in procedure, too. Under most corporate flypaper, you can’t go to court if something goes wrong. Instead, you must go to private arbitration, where your remedies are strictly limited and most likely any relief you receive will be kept secret. A recent notorious decision of our federal Supreme Court made arbitration clauses with automatic class-action waivers enforceable as written, regardless of contrary state law. That decision leaves consumers who agree to flypaper with automatic-arbitration clauses bereft not only of recourse to state and federal courts, but also to the class actions that make suing over small swindles worth while.

So what happens to our federal Constitution, or your own state’s constitution? What happens to the principles of due process, fundamental fairness and personal liberty that have blessed first Englishmen and later us Yanks since Magna Carta?

They have mostly gone out the window, insofar as concerns your dealings with corporations as a customer. Almost every big corporation has replaced them with substantive law and procedures that it itself has invented and put in the flypaper that you land on when you deal with it. Flapping your little fly wings will do you no good.

For about two generations, the GOP has told us Yanks that “government is the problem, not the solution.” It has waged the most successful distraction campaign in the history of politics. It has made us fear and distrust our own government as the wicked witch of the West. And it has made us forget all about corporations and their flypaper, for which we “citizens” are the flies.

Our Founders were well aware of the danger of overreach by government. They had just gambled their “Lives, Fortunes and sacred Honour” by waging a war of rebellion against the British Crown and Parliament to establish a freer, more just government on our continent. If they had lost that war, all of the leaders who survived, including George Washington, would have been hanged.

These daring Founders had no idea that corporations—including the British East India Company that had helped their forbears discover and populate America—would in two and a half centuries morph into a new and unsuspected threat to personal liberty. So they gave us our Constitution and Bill of Rights to protect us against governmental abuse but left us naked against corporation predation.

As a result of that oversight, corporations today are in many respects more powerful than governments, as I have outlined in another essay. Apple, for example, has bigger cash reserves than France, which, as a bitter enemy of England, once aided our Yankee rebellion against British tyranny. Today, governments worldwide are in deep deficit, while our corporations collectively have amassed a $2.6 trillion hoard of pure profit and have parked it abroad, waiting for government to lower taxes so they can bring it home.

Today, the average, law-abiding Joe or Mary has little direct contact with government except at birth, retirement and death, upon marriage, when on trial for a suspected crime, or on joining the military or police. Yet every week, if not every day, each of us “agrees” to the law of “corporate governance,” ever time we “sign” on flypaper by clicking “I agree.”

So study hard the sad story of Dr. Dao. It may have ended well, assuming his concussion and other injuries caused no permanent damage. But the “happy” ending—if such it was—was far from inevitable. United Airlines changed its policy, but only under the duress of a lawsuit, massive public indignation, a plummeting stock price and diving patronage by fliers.

Think about that. Four major airlines—American, Delta, United and Southwest—control over two-thirds of the United States’ market for air travel. In many markets, a single one of them, or a duopoly, controls 100% of the planes flying between two specified cities.

What recourse would Dr. Dao have had if United had stonewalled, rather than settle, in such a market? Not only would he have faced years of litigation, with an uncertain result. He would also be forced to use the very airline that had manhandled him to fly between the same two cities, as would other fliers for years to come. This is liberty?

The protections of our personal liberty that our Founders bequeathed us include not only our federal and state constitutions. Today they include such things as the Federal Administrative Procedure Act, which explicitly outlaws “arbitrary and capricious” acts by federal regulators—those “villains” so oft maligned by the right.

But few of these protections apply to corporations and their flypaper. So slowly and subtly, almost unnoticed, they have taken over many aspects of our personal lives.

Of late our Supreme Court has refused to curtail their growing economic and coercive power. Instead, it has assisted their economic empire-building by relaxing our antitrust laws. It has allowed them to write their own law on flypaper. And it has even approved their substituting arbitration, under rules they write, for careful and methodical legal action in our courts, which took most of a millennium of Anglo-American history to evolve.

Government still matters. It owns the jails and the nuclear weapons. It still executes and imprisons convicted criminals. It controls the army and our over-militarized police. So the protection of our constitutions and general laws are still important.

But in our daily lives, most of what happens to us now—the things that make us happy, annoy us, inconvenience us or torture us (like Dr. Dao)—are the products of corporations. And they, for the most part, are free from the restraints on government that secure the freedom of citizens of advanced democracies. Today corporations mostly make their own rules, writing on flypaper and working in the closed chambers of their boardrooms and secret arbitral tribunals.

And that’s not all. Today the reach of corporations and their “corporate governance” extends far beyond mere business. What corporations do affects our national and personal security.

Preliminary assessments of Vladimir Putin’s meddling in our recent elections suggest that social media, including Facebook’s, may have been his primary means of disseminating “fake news.” Facebook’s once lax and repeatedly repaired privacy settings allowed Putin’s trolls and bots to probe voters’ minds and preferences and to tailor fake news to their individual personalities by the thousands.

Thus decisions made in Facebook’s corporate boardroom ultimately assisted historic subversion of our democratic process at the highest level. And we all know how much social media have aided and abetted the radicalization of our youth by terrorists.

Unfortunately, the future looks even worse. What happens to consumers’ “rights” when four private corporations control the vast majority of air travel? What happens to the “rights” of online searchers and search subjects when a single corporation (Google) controls virtually all online searches? What happens to online buyers when a single corporation (Amazon) controls the vast majority of online purchases, including (by virtue of its recent acquisition of Whole Foods) groceries? Who will guard the guardians when they are more powerful than government and self-evidently self-interested parties to every transaction?

I am no corporation basher. Uncharacteristically for a progressive, I have sung the praises of corporations on this blog repeatedly (See 1 and 2). By freeing economic and business activity from the patronage, intrigue and restraints of government and politics, they have vastly accelerated our species’ economic and technological progress. I love Amazon, have invested in it, patronize it almost weekly, and have lauded Jeff Bezos’ marketing “breakthrough” in allowing buyers to criticize what it sells.

But today corporations have become laws unto themselves. They, not government, directly control almost every aspect of our daily lives. Among other things, they control our air travel, cars, computers, cruises, e-mail, Internet service, rail travel, radios, social media, smart phones, tablets and televisions. And today there are few effective restraints on their interactions with customers, on how they corrupt and control our pols, or on whether and how they expose our public life to such existential threats as fake news, extremism and recruitment for terrorism.

Increasingly, insofar as concerns our daily lives, individual happiness and collective security, we live in a world governed by corporations, not the state, if only because corporations have vastly more power and more money and offer us vastly more important and useful products and services for daily life. At the moment, this corporate world is mostly in a state of anarchy. We are still less than a decade away from rogue bankers having trashed our global economy with virtual impunity.

This problem has no easy or quick solution. Corporations provide almost all of our creature comforts and many economic benefits. But today they do so in a virtually lawless world, constrained only by the false god of “The Markets.” What happens when a single firm—or a handful with the same goals and methods—controls each relevant market? Isn’t what the eight biggest banks did to our economy in 2008 clear enough writing on the wall?

Among the many results of these circumstances are the manhandling of Dr. Dao and the vulnerability of our presidential elections to hijacking by Russian trolls and fake news. Someone, indeed many of us, had better start thinking deeply about how to change this dismal picture, lest our comfortable economy and way of life begin to run off the rails, and our much-vaunted personal liberty vis-à-vis government disappear into secret boardroom deliberations, secret arbitral tribunals, corporate flypaper, and draconian measures to fight terrorism spread unwittingly but for profit by corporate social media.

Footnote 1: A glaring counterexample is California’s constitutional protection of privacy in Article 1, Section 1 of the state’s constitution. Unlike the guarantees of rights in most state constitutions, it was added by popular initiative in the modern era (1972), when visionaries could foresee that corporations might eventually threaten individual rights as much or more than governments. Accordingly, its protection constrains corporations and other private parties as much as government.



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