Economy and the corporation

November 21, 2007 § Leave a comment

On the economy and corporations

The problem with “democracy” as a marker of markets is that we barely have any democracies except media based ones of manufactured candidates and issues. Which is too bad because I think the democracy and markets are similar in that it’s free choices in production and consumption. These do not pertain in the corporate dominated ” market” reality because the larger corporations struggle so hard to control the market. Shootouts like between Microsoft, Google, and Amazon are rare, and these industries are so dependent on regulation and arcane legal arrangements that they hardly look like free market activities.

Going back to john Kenneth Galbraith the view has been that basically the large corporations do the major wholesale and allow the risk in retail to be borne by smaller companies. I think there’s a lot of truth to this. It is also true the small companies suffer from the bad reputations of the big ones. If we had tough environmental regulation that drove technical innovation at the regional and local level we would be better off. But the domination of the local level of big energy, big banks, big transportation, big telecom, and, let’s face it, the amount of local manufacturing that is military specific, all go together to make local communities feel impotent in the face of larger economic forces.

Distributing profits does not assume that it can generate a higher return then the company. That logic assumes the higher return is the primary thing we all should be concerned with. It’s clear that a company can have a higher return by refusing to internalize real costs, such as energy, and internalizing community property, such as carbon rights. Why should a corporation that pollutes be able to sell carbon rights when I don’t have the same privilege? Companies should not be the privileged operators in society

Changing the wages of CEOs does in fact affect everybody else. First, the money comes from somewhere. In this economy those higher wages have ended up in the form of far and held debt, and who do you suspect will pay that back? Second the CEO can live in ways that make life harder for everybody else, for example taking large pieces of land for their home close to work pushes everybody else to longer commutes. The wages of free labor are not based on the market for labor, because the market is controlled. We prevent immigration to higher wages and we prevent workers from organizing. We don’t prevent capital from organizing, why should we prevent anybody else?

The proposal of limiting the size is attractive and interesting but we would have to work out the logic of the consequences. It might be the things that should be large like computer operating systems, should operate more like trusts than like corporations. The world might be better off if we had cheaper computers and much smaller operating systems and much simpler software, at least as an option, but the logic of the market leads to a ratcheting up of computer complexity and software complexity so that the price of the computer remains high. There is a lot of detail here in the modeling and I don’t see anyone yet who’s really doing it.

Milton Friedman’s complaint against monopolies goes back to Adam Smith as restraints on markets, but the reality is that monopolies or quasi monopolies dominate the entire market. At least 50% of it, and the percentage is worse in poor countries. The argument from Hayek was that governments fail because they can’t plan properly ’cause they’re too big and a market does a better job. But in fact a small number of corporations are larger than most countries and are dominated by intense planning and control. Hayek never considers this problem. If planning is bad for states why isn’t it bad for corporations?

Healthy competition? Is the Microsoft Google Amazon an example of healthy competition? The aim of all three aims to gain a monopoly position and somebody will win. We call it rationalizing the market. But rational here just means span of control.

I agree with Kip that these issues are ages old. As are empires. And wars. The problem is that the cost in a world of seven billion people is very high because miscalculations have much wider effects. The point is, it is time to change, and that means questioning deep taboos and old assumptions. My fundamental starting point is we need to change the corporations because the way they integrate money and technology and power not only marginalizes too many but steals from them: water, the genetics of food, land use, with low wages and high pollution. The corporate control of governments through money is a key part of this dynamic.

John, I like your comments about no one size fits all. Could you give some examples of what size limitations might look like and for whom?

Carlos’s example can hardly be held as a model for many. There is no family. No dependents. No security. No ability to travel, and probably few health benefits. To call this middle class is to sow confusion. I presume his argument is, “hey the economy works better than we think”. I think his choice of the example is insincere.

I don’t think regional economic differences are quite at large. A factor of two in housing costs covers the great bulk of the country. Food costs vary by perhaps forty percent, but recent travels suggest much less (has anyone noticed how much lower food prices seem to be now in Europe?). Energy, transportation, education and clothes are fairly similar. Part of this is the general homogenizing of the world, and a solid middle class lifestyle is remarkably similar in cost in most of the cities of the world with very few exceptions. Again we are talking about a factor of two or less. It is complicated because in many poor countries the middle class can either servants.

The auto companies undermining mass transit is an example of corporations acting for monopoly control, not playing the honest and the markets.

Since the issue of corporate size has come up again perhaps it is worth focusing on. I consider it an alternative to changing corporate charters but it might come down to the same thing. I’d love further thoughts about this.

I hope it is clear that I am not opposed to corporations, creativity, technology entrepreneurialism, growing economies and a general enthusiasm about the future. I am opposed to environmental degradation, the increasing concentration of wealth and power in the world, the buying of governments, and using the military economy to prime capital markets. Reconciling these two sets of values seems to me to capture the territory where most of us actually are. The question is how to do it.

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