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

13 July 2018

What Can CEOs Do?

[NOTE TO READERS: The essay below and yesterday’s look at two sides of the same coin. It’s best to read both together, but if you read only one, start with the one below.

For a comparison of quality in pols and reasons to recall our recent past, click here. For reasons why Trump’s trade war is headed toward a disastrous defeat, click here. For a brief note on how corporate rule is encroaching on American cities, click here. For our desperate need for voters to focus on good character, click here. For an analysis of facts and Kim’s myth about North Korea, click here. For a second post on training new voters, click here. For links to popular recent posts, click here.]

Several essays on this blog have noted a megatrend of our age: the slow but steady replacement of government power and functions with corporate “rule” and activities. (See this summary, this note on the phenomenon in cities, and this caution about the effect “corporate rule” on human rights.)

For two reasons, the United States is advanced in this trend. The first is the governing philosophy of the Republican Party, now fully in power. For two generations that party has pushed “starving the beast” of government in favor of the “private sector,” meaning primarily corporate activity. The second reason is the extreme ease of starting and financing corporations in the United States, accompanied by general respect among business people and the public. Our laws, banks, and several vibrant stock markets, as well as Internet innovations like “crowd funding,” make starting and funding a business corporation especially easy here. Business corporations are part of our national cultural DNA as Americans.

So we are in the vanguard of the megatrend. But it’s not just a matter of culture or partisan politics. It has deep roots in our entire species’ biological evolution. In the wild, we organized ourselves in small clans of thirty or fewer individuals led by an alpha male. Corporations allow us to mimic that evolutionary scheme of organization, on a larger scale, while accommodating the increasing specialization of knowledge and function that our complex high-tech society requires.

Our species’ organization of economic, technical, and productive activity in specialized corporations is not going away. It’s going to grow and change in our new millennium, often at government’s expense. Eventually, corporations may supplant most of the functions of today’s government, just as the State once replaced the Church (in the West), and legislatures and cabinets replaced monarchs during the last half-millennium. In comparison with governments, which today try to manage impossibly large numbers of people, corporations are more decentralized and diverse, more flexible and adaptable, and potentially more beneficent.

But in its present incipient phase, the megatrend poses a big problem, especially in the United States. Although corporations are really only legal abstractions, they have many of the characteristics of individual organisms. They can—and often do—value their own individual survival, growth and prosperity over everything else.

When that happens, a vacuum of focus and action can arise. No one may be “minding the store” of activities that lie outside the collectivity of corporations’ individual businesses. And no corporation may want to mind that store because there’s little or no profit in doing so. Examples of neglected social enterprises include defense, intelligence and counterintelligence, protecting the environment (and, by doing so, public health), medical and other basic scientific research, and of course the “safety net” for ordinary human individuals.

There may be products and services than can be useful in each of these enterprises, which can be sold for profit. But there is little or no profit in the enterprises themselves: organizing and marshaling defense, conducting intelligence and counterintelligence activities, setting rules and regulations for (or imposing taxes on) pollution, doing basic scientific research that has no real present prospect of producing useful goods or services, and helping people left behind by the system so they don’t beg or die in the streets.

There are no market mechanisms for these enterprises simply because there are no markets for them. In corporate parlance they are “cost centers,” not “profit centers.” Yet they are vital for any healthy society.

Traditionally government has managed these enterprises because there is no financial incentive to do so. They are “collective” enterprises in the largest sense: they benefit and must be financed by the largest societies, which in today’s world means nation-states. (Collections of nation-states like the EU may some day subsume these functions; but today this trend is only a work in progress, in its early stages.)

Today the United States is less a popular democracy and more a corporate oligarchy. (If you want proof, read the abstract or the entirety of the latest academic study, or this summary in a BBC review, or just consider the predominant effect of the Trump Tax Cuts.) So corporations collectively rule the roost. The mechanisms of their rule are not particularly important—PACs, “dark money” political contributions, lobbying, money-burning litigation, etc. What is important is a simple fact: corporations and their rich managers and shareholders collectively set the direction and policy of this nation. The people at large do not.

So what have corporations and their fellow travelers done with their plenary power over these non-market enterprises? They have starved them, just as they have starved government, by lowering taxes again and again. Since its post-war peak, the individual tax rate for the highest-income earners has plummeted from 91% to 39.6% today. And still our corporations use their oligarchical control of Congress to seek greater cuts. Meanwhile, promising researchers in medicine, biology, physics, and chemistry, including the big batteries that will smooth our path to renewable energy, go without government grants to fund their basic research. Corporations and private industry do not fill the gap because the research is too risky and lacking in clear direction to describe in a spreadsheet.

When ancient Rome decayed due to corporate neglect of the common interest, the main field of neglect was defense. Roman businesses drained the state treasury so much that Rome no longer could afford citizen soldiers. Instead, it had to resort to mercenaries and semi-slaves, making its army less invincible and less loyal, and eventually turncoat in part.

But today, in America, the neglected common fields extend far beyond defense. Ancient Rome didn’t have science or basic research. Science as we know it today began during the Renaissance, with Galileo. Rome also didn’t have pollution control. It didn’t even know about pollution. Many historians believe that lead in the drinking water of the elite, who ran lead pipes to their homes, accelerated Rome’s decline by causing mental illness in such people as Emperors Nero and Caligula.

Ancient Rome also didn’t have a safety net, or even a police force. It didn’t have universities. So when the ancient equivalent of our business corporations in effect took over the Roman Senate, there weren’t nearly as many important common “national” enterprises to waste.

The irony of the present-day America is that a “defense” product of the twentieth century, nuclear weapons, makes us far more secure than Rome ever was. No one is going to attack us at home while we have the world’s most accurate and fearsome nuclear arsenal, or even the second best. But just as happened to ancient Rome, neglect of our defense can cause “barbarians” to nibble around the edges of our “empire,” as they are doing right now in Ukraine, the Baltics, Eastern Europe, and the South China Sea.

Just days ago, news reports lauded Apple’s commitment to spend $300 million in China developing renewable energy sources for Apple’s own operations. That’s a prime example of a corporate CEO taking a broader view than immediate profit and making his enterprise a better corporate citizen. (Renewable energy is actually cheaper than other kinds, but making it cheaper requires taking a long view.)

But that’s far from enough. Apple is a leading member of the corporate oligarchy that rules this nation. It leads by virtue of its advanced products and services, and simply by the fact that it’s the world’s most valuable corporation.

So Apple—like its lesser colleagues—must take responsibility for making that rule effective and beneficial in the long run. Its wise rule must extend far beyond direct effect on its own operations. That means addressing those vital but neglected spheres of common activity that “starving the beast” has deprived of money, energy and expertise for nearly two generations.

The corporations that rule this nation cannot collectively decide just to lower taxes and repeal regulations, while neglecting our national defense, our intelligence, the purity of our air, water and land, our basic research and our safety net. They can, but they oughtn’t. If they do, our society will surely decline much faster than Rome’s, because it has many more dimensions in which to fail. And today other nations, especially China, Germany and Japan, will beat us in those dimensions if we falter and will take over the leadership of our species.

So what can forward-looking CEOs like Apple’s Tim Cook do? First, they can resign from and disband narrowly-focused influence organizations like ALEC, which are fixated on lowering taxes and repealing regulations willy nilly. Second, they can create new, more enlightened organizations dedicated to resurrecting government management of these neglected common enterprises, or to creating new, private or semi-private organizations to advise and assist government or even to take over some government functions. Third, they can “volunteer” their experts, part-time or for limited time, to help government manage the neglected enterprises more efficiently. Fourth, they can volunteer themselves, to work on committees to advise government on how best to spend money on matters involving their corporation’s expertise, for example, how to attract investment in new factories and new jobs that can take advantage of the price umbrellas of Trump’s new tariffs. Or they can form and invest in such new factories themselves. (For a company like Apple, doing this sort thing in the neglected fields of cyber-security and cyber counter-intelligence ought to come naturally.)

Finally—and most important—our ruling CEOs can use all their power and influence over their propaganda organs (such as Fox and Sinclair) and their bought pols to stop dividing us as a routine political tactic. In the long run, this may be CEOs’ most important contribution of all.

In 1991, an “accidental” economist called Ronald Coase won the Nobel Prize in economics, in part for his theory of regulation. He theorized that an entirely private system of regulation, through voluntary contractual arrangements, could work to get private property owners to address so-called “externalities” (problems external to markets, like defense, intelligence, pollution, basic research and safety nets.)

But there’s a catch, Coase reasoned. In order for arrangements based on private property rights to work, so-called “transaction costs”—the cost and difficulty of bargaining over those rights—have to be low.

Today, the oligarchy of CEOs who collectively rule this nation have accomplished precisely the opposite. They have raised transaction costs through the roof by deliberately dividing us into warring camps. They have done so through all their means of ruling: their propaganda organs (Fox, Sinclair and Rush), their PACs, their bought pols, and their controlled media.

And they have succeeded spectacularly. Our nation is now split down the middle between red and blue, “liberal” or “progressive” and “conservative,” white and black, white and brown, Christian and Muslim, pro-choice and pro-life, and immigrants and citizens. What’s more, these groups are not just political rivals. Our rulers have coaxed them into seeing themselves as separate tribes, and they are beginning to hate each other.

This is precisely what Vladimir Putin set out to do with his cyber-propaganda-warfare in 2016. He never imagined that he could help elect Trump president. But he knew that he could use Internet propaganda to split us. Little did Putin know that, in so doing, the propaganda organs that our own CEOs, who run this country, manage and fund would help him.

If our CEOs are to make their rule of this nation enlightened, this must stop. Instead of dividing us just to lower their taxes and decrease their regulatory burden, they must accept deep responsibility for the de facto rule that their oligarchy now has. They must rule wisely, for the whole nation. They must find real solutions to the problems of our neglected common enterprises, including immigration, and they must unite us around those solutions, political party and ideology be damned.

There is absolutely no doubt that our CEOs, collectively, are smarter than our pols and used to solving real problems more efficiently, better and quicker. For them to starve our existing common institutions into neglect, let alone to divide and conquer us as our enemies wish to do, is a gross violation of the responsibility that comes with the practical power they collectively hold. It would be hard to imagine a quicker or better way to push our nation into decline.

Make no mistake about it. The predominance of corporations in daily human life will continue and increase, worldwide. Corporations are consistent with our biological evolution, and they work. The questions before history are whether they can foster our common enterprises to deal with “externalities” to markets, and whether they can do so in democratic societies like ours, Germany’s, France’s and England’s, or whether those common enterprises require a strong central government like China’s, Hungary’s, Russia’s, and Turkey’s.

On that question, the jury is still out. If the CEOs who increasingly rule the West don’t step up to their human and practical responsibilities as our de facto collective leaders, not just this nation’s future but the very survival of democracy could be at stake.

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