by David Michael Green
So, um, prolly you've heard by now that we're having this little problem with the economy, eh?
Yeah, as a matter of fact, it's starting to look like more than just a little problem. It's starting to look like 1932 again. And, who knows beyond that? What is there to say that 1932 is the baseline? Just because the Great Depression is the worst scenario we've yet to experience, that sure doesn't mean that it is the worst we could experience. With astonishing amounts of governmental and personal debt sloshing around the world in a hugely globalized economy, who's to say that we aren't now headed for the Even Greater Depression?
Oh, and, let's also not forget that even that isn't necessarily the end of it. Last time the global economy imploded this bad, it got one helluva lot worse before it got better. The only thing that could ever have made the 1930s look good was the 1940s. There's no reason to necessarily believe that that part can't happen again as well. If we're stupid enough to repeat the mistakes of the Gilded Age, surely belligerent, nationalist, chauvinist Americans (and Chinese, and Frenchmen, and Russians) are also stupid enough to launch another world war or two in order to chase down scarce resources like oil or gold. Or food. Or water.
Leaving aside for the moment any threats of world war, the only good news I see in our current economic crisis s that at least we're eighty years down the road from when Franklin Roosevelt broke the psychological barrier previously preventing brainwashed Americans from owning a government that actually helped them, as opposed to allowing themselves to be owned by a government of oligarchs who were helping themselves. This time, if people are hungry because there's no money, and cold because heating oil costs so much, and weathered because they've been tossed out of their homes, and frightened because they've got no job and no healthcare coverage - if we arrive at that state, watch what's left of the psychological barriers crumble like George Bush's job approval ratings or John McCain's lofty principles about running a high-minded campaign. Watch desperate Americans embrace socialism as if they were the lost children of Chairman Mao waking up from a long nightmare of capitalist errancy.
What we're witnessing now is the complete and utter repudiation of Reaganism-Bushism, of course, but it runs even deeper than that. Not just the hyper-kleptocratic version of the American economic system is being left in shreds, but even its more moderate baseline version - the Eisenhower model of nice, gray-suited capitalism - is now also on the chopping block. Even that form of capitalism - quaintly tame by today's standards of astonishing rapaciousness - was never sustainable, and part of what we've been seeing this last decade is all the ruses by which we had greedily squeezed out more than our fair share of the pie now angrily biting back. The wars, the environmental rape, the exploitation of nice little brown people all around the world (and, after all, isn't that why Jesus made them?), the borrowing against our children's future, the tax avoidance free-riding, the credit card economy, the exporting of jobs to explode profits, the gluttony of 300 pound Americans and their SUVs and the giant screens on which they watch ‘reality TV' (a nice euphemism for humiliating degradation) - these are all screaming out to us simultaneously today, in an excruciating cacophonous harmony from Hell, that THIS MUST END NOW.
And, boy, did we ever have it coming. I just want to go on record and say to any historians from the 26th century who might be reading this: "Yes, it does say ‘American' on my birth certificate, but I want you to know I wasn't part of this! I did my best and kept shouting out about our national stupidities. And I always voted for the Green Party!"
Yeah, it's true, I'm afraid. We're going down in history as the stupidist and the shortest-lived of empires (even the Belgians did better than this, plus, they make great beer). And well we should be so considered, too. Do they have Darwin Awards for countries, like they do for individuals, who find uniquely imbecilic (though highly entertaining) ways to remove their DNA from the collective gene pool (you know, like getting really stoned and then playing your electric guitar in the swimming pool)? They should! And who could possibly trump America, we who gluttonously slurp up oil in order to live like global pigs, sending the proceeds to fund terrorists with ideologies from the 13th century and weapons from the 21st to attack us? We who chant "Drill, baby, drill!" when the giant planet-wrecking asteroid of global warming is headed right for us. (Even the real dinosaurs come off looking better than our human imitations of them, since they at least had the excuse of actually having pea-sized brains to explain why they behaved as though they had pea-sized brains.) We whose government's insatiable spending sprees on high priority items, like wars that diminish our national security and corporate welfare for oil companies or giant agri-corporations, we fund by allowing China, our rising rival for global power, to own our debt, and therefore to own us.
And what's that old line about the first time being tragedy and the second folly? The most astonishing thing about the economic nightmare we're now entering is how little we learned from having already gone through this before. We're not even talking about ancient or foreign history here, people. You don't have to force Americans to go watch some History Channel documentary on Charlemagne to figure this one out. It wasn't that long ago that we went through exactly the same process, ourselves, right here in gool ol' ‘Muricah. Christ, there are people still alive today who experienced it first hand. You'd think, having found out in the 1930s precisely what happens when you let monstrously greedy people who have their hands on the levers of the global economy go on unregulated bacchanals of decadent self-aggrandizement, that we'd want to avoid that sort of thing in the future, eh? Perhaps we'd even vow "Never again", just like we did after the Holocaust. (But then, given the mass murderous Soviet and Chinese purges which came after Auschwitz and Treblinka, along with the genocides of Cambodia, Rwanda and now Darfur (not to mention Vietnam or Iraq), maybe that wouldn't be such a great promise to make...)
And even if the American people couldn't make the connection between present circumstances and past analogues, am I the only knucklehead who finds the whole deregulation mania something of an odd idea just at a conceptual level? How is it that the same people who always jump up and down in passionate support of tough crime laws, loads of jails and busy state killing machines, don't seem to apply the same logic to nice, white-collar crimes? I mean, if you need a law to deter people from committing murder, why don't you need regulations to prevent them from committing greed? And, wouldn't it make a lot of sense to have these laws, especially in places where the capacity exists for such tremendous harm to be done? A murder takes a life and wrecks a couple of families. That's horrible, and should be prevented wherever possible, and punished where not. But would it be too much to ask that we also have laws and punishments and regulations to help prevent white-collar crimes that can wreck an entire global economic system, bringing wholesale grief to hundreds of millions of people, and no doubt producing boatloads of deaths in their wake, all in the name of satiating the greed of already fantastically wealthy people? Indeed, we have the first of these victims on the scoreboard already. This week a Los Angeles man who lost all his money in the stock market shot his wife, three sons and his mother-in-law before then killing himself. Get ready for more of the same, and most of them won't be suicides, I can tell you. They'll be homicides. Murder by greed.
And even if America's so-called justice system can't bring itself to punish Wall Street thieves for serial homicide in this case, would it be too much to ask for a little government regulation to prevent a handful of kleptocrats from crashing an entire global economic order and spreading death, destruction and misery across the planet, just so that they could milk the last remaining pennies from the golden goose, its bloodied carcass lying twisted and prostrate across the trading room floor, nothing but lead spilling out of its slashed belly? Ah, but that would not be capitalism, eh, Mr. Graham? That would be fettering innovation, right, Mr. Greenspan? That would limit Holy Growth, no, Mr. McCain? And we can't have that.
I don't really understand the perverse psychology of people like these Wall Street masters of the universe, whose desire for additional wealth seems incapable of being satiated. Personally, I don't think I'd know what to do even with the mere pittance of a million bucks, so it's really hard for me to figure it out when I see them feeling so hyper-compelled in pursuit of throwing tens of millions more on top of their existing piles of hundreds of millions. I mean, you can only sail on one yacht at a time, right? You can only live in one mansion at a time, right? You can only sleep with one gorgeous call girl at a time, right? Oh, um, okay - well, never mind that last part. But you catch my drift here, no?
In truth, when I look around this fine country that calls itself my home, I have to conclude that it's actually me who is the anomaly. I'm not sure what genetic quirk or what massive failure of the educational machine produced a freak like me, but - apart from not wanting to go into debt, and from owning a handful of very modest toys like a computer or guitar - I really don't give a shit about money. Go figure, eh? You know, my car, bought used, is ten years old. I think. I don't really remember for sure what model year it is, though I'm pretty sure I could tell you how many cylinders it has if I stopped to ponder the question long enough. This strange absence of an unending greed for Money! and Things! seems to leave me way out in the bizarro fringe outcast category within what passes for a culture for those 300 million inhabitants in the middle of the North American continent. Just ‘cause I don't constantly seek cash, or measure myself by the size of my wallet, I'm like six standard deviations from the norm in the disaster affectionately known as America.
And just how disastrous is our national disaster? Leave it to Sarah "The Embarrassment" Palin to answer best. She illustrated the other night in her ‘debate' with Joe Biden how deep the country has sunk these last decades into the miasma of a culture of petty selfishness, and an ethos of pathetic greed. She reminded us that in Middle America, where she and "Todd" (hey, you scary monster, I am not on a first-name basis with your First Dude husband, and I don't ever want to be) purport to live, paying taxes is not patriotic. Biden's response should have been to ask whether all the Americans who've paid all the billions in tax increases in every war America has ever fought prior to this one were unpatriotic, or just suckers. He should have asked who she expected would pay for the body armor to protect her son in Iraq (as if they're gonna let that kid anywhere near any real danger), for our roads, our schools, our post offices, our Army and Navy, our Social Security benefits or our police officers. For that matter, he might also have asked who would pay for Air Force One, who would pay for the tens of millions of public campaign funds now being spent by the McCain-Palin campaign, or who would pay for the army of bank regulators we'll need to clean up the economic mess her ideological soul-mates have left us.
Still, I can't help thinking that millions of Americans sat at home watching this, enthusiastically nodding their head in support of her lunacy. Let's face it, after a generation or two of Reaganism-Bushism permeating the culture, no politician can even talk about raising taxes in America anymore without risking career suicide. It has become the new third rail of American politics. And that says so much about us. Because, not only do we want all the benefits of government, but polling data clearly shows that we actually even want the government to do a lot more than it is already doing. And yet, at the same time, selfish, narcissistic Americans have been well trained now by pandering right-wing politicians to expect it all for free. Cutting taxes without simultaneously cutting expenditures (let alone while massively increasing expenditures) is one of the single most recklessly irresponsible acts a government can undertake. Since the only solution to the deficits that must ensue from this simple math is to borrow the difference, the polity in question is simply taking its desire to live large and handing it off in the form of a problem for someone else to deal with, on top of their own problems. Plus interest on the loans, of course. And who is that someone? Faraway foreigners? Some despised underclass? The millions we've incarcerated as criminals, perhaps? Not at all. The crime runs even deeper than that. It's our own children who are getting the bill.
Which is precisely what we've been doing. I saw Californian voters, when I lived there, launch the modern taxpayer revolt movement by passing the infamous Proposition 13, which took a meat-cleaver to property taxes in the state. Never mind that the effect would be the same on California's schools, which are largely funded by property taxes. They went from being the best in the country to nowadays hanging around with Mississippi, down at the bottom of the list. But who fucking cares, anyhow? People got their bloody tax cuts, and they got to buy that nice, shiny new car they wanted with the money. So what about the kids?
And so it has gone these last decades, tax cut after tax cut in America, which really means tax transfer after tax transfer. And now we have a ten trillion dollar debt we are passing along. So that means that the next generation will have to pay enough in taxes to run the government then, plus the share that the current generation didn't really feel like paying to run the government today, plus interest on that borrowed amount. What does that mean, up close and personal? If, right this very moment, we somehow stopped adding to that pile more debt and more interest every day, and just handed out the bill for what is currently owed, it would average out to $67,000 for each and every taxpayer.
I know what you're thinking. That sucks, eh? Well, at least the good news is what you got for it. For instance, a really expensive war in Iraq that diminished American national security. And the chance for really, really rich people to become really, really, really rich people through humongous tax breaks. How about a GOP pork-barrel spending spree - including the Bridge to Nowhere - of unprecedented size in American history? Huge oil and agricultural company subsidies? A giant prescription drug bill which provided corporate socialism for drug and insurance companies? A chance for George W. Bush to frolic in the White House for eight years? I'm sure every American, working some job they're not particularly fond of, won't really mind the extra hours they have to work to pay for all this. Especially since, if you make, say, 15 bucks per hour, that would only translate to 4,467 hours you'd be working to finance your share of this past years' pig-out. Based on a forty-hour work week, that's roughly two-and-a-quarter years worth of your life. When you look at it that way, it doesn't seem so bad, does it? And, again, that's just if we stop deficit spending now, and stop accruing interest now. In fact, we're actually deficit spending about another $400 billion per year, every year, which just gets added to the pile (and lots more, as well, if John McCain is able to slash taxes on the wealthy even further). Moreover - maybe it's just my pessimism kicking in here, but - I don't think the Chinese or our other creditors are going to be much inclined to waive the interest accruals due to them for financing our decadent little party. So, in fact, the above accounting of our national and personal liabilities are actually rather, ahem, conservative. In every way imaginable.
But, of course, America's problem is way deeper than one kleptocratic president or even a generational binge coupled with a three decade long vacation from responsibility, not to mention rationality. We have established a pervasive culture of greed, and that's one angry chicken that has now come home to roost. What's worse, we've lost the capacity as a society to even imagine an alternative ethos to guide us, though the looming economic tsunami may be just the thing - and likely the only thing - big enough to get us thinking once again.
This massive poverty of imagination is what is killing us now, undermining us at the most fundamental levels of societal identity. To grasp the magnitude of our problem, consider how we socialize our citizens and how our culture sets the priority structure of their values and aspirations. Sure, some Americans think it is noble and wonderful to pursue careers which serve the public interest, but most are taught, and simply accept, that one should aspire to making boatloads of money, and that the measure of one's achievement is the size of their bank account and the number of toys parked in the driveways of their McMansions. I am constantly astonished by the quantity of Americans whose expressed goal in life is simply to make lots of money, which I find especially bizarre since they don't seem to have any particular use in mind for all this cash. What this phenomenon has long suggested to me is a country full of sheep so unoriginal in their thinking that they can't even figure out what to aspire to on their own, and a society so bankrupt in its morality that it feeds them the goal of wanton greed to fill that yawning void.
All that's bad enough, but, besides the current economic meltdown and a society populated by moral midgets, there are also other repercussions to this ethical failure and this poverty of imagination. Chief among these is the false choice we are always presented between governance in the public interest, on the one hand, and prosperity, on the other. This bogus diversionary tactic forms the central argument of the economic predators who've been bleeding the country of its wealth (and, in fact, prosperity), as to why we can't have regulation. You know, all that Washington red tape (you can't profit off of pollution, you can't exploit children as factory workers, you have to pay a minimum wage - horrible restrictions like that) will keep innovators from innovating and entrepreneurs from, uh, entrepreneuriating.
And, you know what? They're actually more or less right. They're right if, that is, you accept as a predicate would-be innovators and would-be entrepreneurs who are only motivated by an ethos of personal greed, which has been duly pounded into them through the socialization processes of a society that lost its mind and its moral bearing decades ago. Sure, okay. Under those conditions it's probably true that most people will only work for themselves, and will only be motivated by self-interest. But what if we taught these people something different, right from the get-go when they were toddlers, and reinforced those different values throughout their adult lives? What if we taught the members of this society to value the community's welfare as much as their own? What if we taught them that massive personal wealth was not only not the highest achievement to aspire to, but actually a sort of crass and tacky goal, only to be found amongst the most juvenile and selfish in the society? What if we strongly imprinted the idea among our people that improving the welfare of the country (or, gulp, the world) is an important life aspiration, and that those who do so are considered among our most admired countrymen, rather than those who have acquired the money to purchase bitchin' toys and trophy wives? Is it not possible that our citizens would innovate, and that they would be every bit as motivated as they are today by greed? Maybe even more so?
And, therefore, could we not transcend this false choice of good governance versus prosperity? (Not to mention the fact that whatever prosperity we've experienced of late is not going to the society, anyhow. In the last three decades, while GDP has grown at a handsome clip, the middle class - and, of course, we've long ago now abandoned even talking about those below middle class status, let alone fighting a war on poverty - has not even stood its ground, but rather has actually lost overall purchasing power. That, of course, leaves only one mathematical explanation for what has happened. You guessed it. All that growth in national wealth has gone to the already richest Americans.)
You know, I'm not a subscriber to the prescriptions of communism for constructing the best system of political economy, much as that might come as a shock to any conservative reader of this piece. And I think it's fair to say that the world's experiments in communism to date - to the extent they weren't actually just experiments in totalitarian brownshirtism - failed in large part because they possessed just the opposite flaw as that described above. They attempted to build economic systems on the equally false notion that selfishness can be completely erased from human psychology as a motivating force. It can't. And any system dependant on that proposition for its success will have none. But, by the same token, a system that is built on the premise that people are only motivated by selfish greed, and therefore can only produce prosperity by letting every actor pursue their own self-interest, unfettered by any societal concerns, is an equally disastrous notion.
And such a society is equally bound for the ash heap of history, just as was the Soviet Union or Maoist China.
In fact, I ‘m pretty sure that's just exactly what the cosmos is screaming in our ears, at about 150 decibels worth of volume, right at the moment. The only question is whether we are so deaf we can no longer hear the warning call, even when it's broadcast over a galactic PA system.
But just in case, here it is. Newsflash for America! This just in! Sorry to burst your little bubble, people, but it turns out, after all, that...
Greed is not good.
David Michael Green is a professor of political science at Hofstra University in New York.
Viser opslag med etiketten kapitalismekritik. Vis alle opslag
Viser opslag med etiketten kapitalismekritik. Vis alle opslag
lørdag den 11. oktober 2008
What is the relationship between capitalism and the ecological crisis?
What is the relationship between capitalism and the ecological crisis?
Environmental damage has reached alarming proportions. Almost daily there are new upwardly revised estimates of the severity of global warming, ozone destruction, topsoil loss, oxygen depletion from the clearing of rain forests, acid rain, toxic wastes and pesticide residues in food and water, the accelerating extinction rate of natural species, etc., etc. Some scientists now believe that there may be as little as 35 years to act before vital ecosystems are irreparably damaged and massive human die-offs begin [Donella M. Meadows, Dennis L. Meadows, and Jorgen Randers, Beyond the Limits: Confronting Global Collapse, Envisioning a Sustainable Future, Chelsea Green Publishing Company, 1992]. Or, as Kirkpatrick Sale puts it, "the planet is on the road to, perhaps on the verge of, global ecocide" ["Bioregionalism -- A Sense of Place," The Nation 12: 336-339].
Many anarchists see the ecological crisis as rooted in the psychology of domination, which emerged with the rise of patriarchy, slavery, and the first primitive states during the Late Neolithic. Murray Bookchin, one of the pioneers of eco-anarchism (see section E), points out that "[t]he hierarchies, classes, propertied forms, and statist institutions that emerged with social domination were carried over conceptually into humanity's relationship with nature. Nature too became increasingly regarded as a mere resource, an object, a raw material to be exploited as ruthlessly as slaves on a latifundium." [Toward an Ecological Society p. 41]. In his view, without uprooting the psychology of domination, all attempts to stave off ecological catastrophe are likely to be mere palliatives and so doomed to failure.
Bookchin argues that "the conflict between humanity and nature is an extension of the conflict between human and human. Unless the ecology movement encompasses the problem of domination in all its aspects, it will contribute nothing toward eliminating the root causes of the ecological crisis of our time. If the ecology movement stops at mere reformism in pollution and conservation control - at mere 'environmentalism' - without dealing radically with the need for an expanded concept of revolution, it will merely serve as a safety value for the existing system of natural and human exploitation." [Ibid., p. 43]
Since capitalism is the vehicle through which the psychology of domination finds its most ecologically destructive outlet, most eco-anarchists give the highest priority to dismantling capitalism. "Literally, the system in its endless devouring of nature will reduce the entire biosphere to the fragile simplicity of our desert and arctic biomes. We will be reversing the process of organic evolution which has differentiated flora and fauna into increasingly complex forms and relationships, thereby creating a simpler and less stable world of life. The consequences of this appalling regression are predictable enough in the long run -- the biosphere will become so fragile that it will eventually collapse from the standpoint human survival needs and remove the organic preconditions for human life. That this will eventuate from a society based on production for the sake of production is . . .merely a matter of time, although when it will occur is impossible to predict." [Ibid., p. 68]
It's important to stress that capitalism must be eliminated because it cannot reform itself so as to become "environment friendly," contrary to the claims of so-called "green" capitalists. This is because "[c]apitalism not only validates precapitalist notions of the domination of nature, . . . it turns the plunder of nature into society's law of life. To quibble with this kind of system about its values, to try to frighten it with visions about the consequences of growth is to quarrel with its very metabolism. One might more easily persuade a green plant to desist from photosynthesis than to ask the bourgeois economy to desist from capital accumulation." [Ibid., p. 66]
Thus capitalism causes ecological destruction because it is based upon domination (of human over human and so humanity over nature) and continual, endless growth (for without growth, capitalism would die).
D.4.1 Why must capitalist firms "grow or die?"
Industrial production has increased fifty fold since 1950. Obviously such expansion in a finite environment cannot go on indefinitely without disastrous consequences. Yet, as the quotation above suggests, it is impossible in principle for capitalism to kick its addiction to growth. It is important to understand why.
Capitalism is based on production for profit. In order to stay profitable, a firm must be able to produce goods and services cheaply enough to compete with other firms in the same industry. If one firm increases its productivity (as all firms must try to do), it will be able to produce more cheaply, thus undercutting its competition and capturing more market share, until eventually it forces less profitable firms into bankruptcy. Moreover, as companies with higher productivity/profitability expand, they often realise economies of scale (e.g. getting bulk rates on larger quantities of raw materials), thus giving them even more of a competitive advantage over less productive/profitable enterprises. Hence, constantly increasing productivity is essential for survival.
There are two ways to increase productivity, either by increasing the exploitation of workers (e.g. longer hours and/or more intense work for the same amount of pay) or by introducing new technologies that reduce the amount of labour necessary to produce the same product or service. Due to the struggle of workers to prevent increases in the level of their exploitation, new technologies are the main way that productivity is increased under capitalism (though of course capitalists are always looking for ways to increase the exploitation of workers on a given technology by other means as well).
But new technologies are expensive, which means that in order to pay for continuous upgrades, a firm must continually sell more of what it produces, and so must keep expanding its capital (machinery, floor space, workers, etc.). Indeed, to stay in the same place under capitalism is to tempt crisis - thus a firm must always strive for more profits and thus must always expand and invest. In other words, in order to survive, a firm must constantly expand and upgrade its capital and production levels so it can sell enough to keep expanding and upgrading its capital -- i.e. "grow or die," or "production for the sake of production."
Thus it is impossible in principle for capitalism to solve the ecological crisis, because "grow or die" is inherent in its nature:
"To speak of 'limits to growth' under a capitalistic market economy is as meaningless as to speak of limits of warfare under a warrior society. The moral pieties, that are voiced today by many well-meaning environmentalists, are as naive as the moral pieties of multinationals are manipulative. Capitalism can no more be 'persuaded' to limit growth than a human being can be 'persuaded' to stop breathing. Attempts to 'green' capitalism, to make it 'ecological', are doomed by the very nature of the system as a system of endless growth." [Murray Bookchin, Remaking Society, pp. 93-94]
As long as capitalism exists, it will necessarily continue its "endless devouring of nature," until it removes the "organic preconditions for human life." For this reason there can be no compromise with capitalism: We must destroy it before it destroys us. And time is running out.
Capitalists, of course, do not accept this conclusion. Most simply ignore the evidence or view the situation through rose-coloured spectacles, maintaining that ecological problems are not as serious as they seem or that science will find a way to solve them before it's too late. Right libertarians tend to take this approach, but they also argue that a genuinely free market capitalism would provide solutions to the ecological crisis. In section E we will show why these arguments are unsound and why libertarian socialism is our best hope for preventing ecological catastrophe.
Environmental damage has reached alarming proportions. Almost daily there are new upwardly revised estimates of the severity of global warming, ozone destruction, topsoil loss, oxygen depletion from the clearing of rain forests, acid rain, toxic wastes and pesticide residues in food and water, the accelerating extinction rate of natural species, etc., etc. Some scientists now believe that there may be as little as 35 years to act before vital ecosystems are irreparably damaged and massive human die-offs begin [Donella M. Meadows, Dennis L. Meadows, and Jorgen Randers, Beyond the Limits: Confronting Global Collapse, Envisioning a Sustainable Future, Chelsea Green Publishing Company, 1992]. Or, as Kirkpatrick Sale puts it, "the planet is on the road to, perhaps on the verge of, global ecocide" ["Bioregionalism -- A Sense of Place," The Nation 12: 336-339].
Many anarchists see the ecological crisis as rooted in the psychology of domination, which emerged with the rise of patriarchy, slavery, and the first primitive states during the Late Neolithic. Murray Bookchin, one of the pioneers of eco-anarchism (see section E), points out that "[t]he hierarchies, classes, propertied forms, and statist institutions that emerged with social domination were carried over conceptually into humanity's relationship with nature. Nature too became increasingly regarded as a mere resource, an object, a raw material to be exploited as ruthlessly as slaves on a latifundium." [Toward an Ecological Society p. 41]. In his view, without uprooting the psychology of domination, all attempts to stave off ecological catastrophe are likely to be mere palliatives and so doomed to failure.
Bookchin argues that "the conflict between humanity and nature is an extension of the conflict between human and human. Unless the ecology movement encompasses the problem of domination in all its aspects, it will contribute nothing toward eliminating the root causes of the ecological crisis of our time. If the ecology movement stops at mere reformism in pollution and conservation control - at mere 'environmentalism' - without dealing radically with the need for an expanded concept of revolution, it will merely serve as a safety value for the existing system of natural and human exploitation." [Ibid., p. 43]
Since capitalism is the vehicle through which the psychology of domination finds its most ecologically destructive outlet, most eco-anarchists give the highest priority to dismantling capitalism. "Literally, the system in its endless devouring of nature will reduce the entire biosphere to the fragile simplicity of our desert and arctic biomes. We will be reversing the process of organic evolution which has differentiated flora and fauna into increasingly complex forms and relationships, thereby creating a simpler and less stable world of life. The consequences of this appalling regression are predictable enough in the long run -- the biosphere will become so fragile that it will eventually collapse from the standpoint human survival needs and remove the organic preconditions for human life. That this will eventuate from a society based on production for the sake of production is . . .merely a matter of time, although when it will occur is impossible to predict." [Ibid., p. 68]
It's important to stress that capitalism must be eliminated because it cannot reform itself so as to become "environment friendly," contrary to the claims of so-called "green" capitalists. This is because "[c]apitalism not only validates precapitalist notions of the domination of nature, . . . it turns the plunder of nature into society's law of life. To quibble with this kind of system about its values, to try to frighten it with visions about the consequences of growth is to quarrel with its very metabolism. One might more easily persuade a green plant to desist from photosynthesis than to ask the bourgeois economy to desist from capital accumulation." [Ibid., p. 66]
Thus capitalism causes ecological destruction because it is based upon domination (of human over human and so humanity over nature) and continual, endless growth (for without growth, capitalism would die).
D.4.1 Why must capitalist firms "grow or die?"
Industrial production has increased fifty fold since 1950. Obviously such expansion in a finite environment cannot go on indefinitely without disastrous consequences. Yet, as the quotation above suggests, it is impossible in principle for capitalism to kick its addiction to growth. It is important to understand why.
Capitalism is based on production for profit. In order to stay profitable, a firm must be able to produce goods and services cheaply enough to compete with other firms in the same industry. If one firm increases its productivity (as all firms must try to do), it will be able to produce more cheaply, thus undercutting its competition and capturing more market share, until eventually it forces less profitable firms into bankruptcy. Moreover, as companies with higher productivity/profitability expand, they often realise economies of scale (e.g. getting bulk rates on larger quantities of raw materials), thus giving them even more of a competitive advantage over less productive/profitable enterprises. Hence, constantly increasing productivity is essential for survival.
There are two ways to increase productivity, either by increasing the exploitation of workers (e.g. longer hours and/or more intense work for the same amount of pay) or by introducing new technologies that reduce the amount of labour necessary to produce the same product or service. Due to the struggle of workers to prevent increases in the level of their exploitation, new technologies are the main way that productivity is increased under capitalism (though of course capitalists are always looking for ways to increase the exploitation of workers on a given technology by other means as well).
But new technologies are expensive, which means that in order to pay for continuous upgrades, a firm must continually sell more of what it produces, and so must keep expanding its capital (machinery, floor space, workers, etc.). Indeed, to stay in the same place under capitalism is to tempt crisis - thus a firm must always strive for more profits and thus must always expand and invest. In other words, in order to survive, a firm must constantly expand and upgrade its capital and production levels so it can sell enough to keep expanding and upgrading its capital -- i.e. "grow or die," or "production for the sake of production."
Thus it is impossible in principle for capitalism to solve the ecological crisis, because "grow or die" is inherent in its nature:
"To speak of 'limits to growth' under a capitalistic market economy is as meaningless as to speak of limits of warfare under a warrior society. The moral pieties, that are voiced today by many well-meaning environmentalists, are as naive as the moral pieties of multinationals are manipulative. Capitalism can no more be 'persuaded' to limit growth than a human being can be 'persuaded' to stop breathing. Attempts to 'green' capitalism, to make it 'ecological', are doomed by the very nature of the system as a system of endless growth." [Murray Bookchin, Remaking Society, pp. 93-94]
As long as capitalism exists, it will necessarily continue its "endless devouring of nature," until it removes the "organic preconditions for human life." For this reason there can be no compromise with capitalism: We must destroy it before it destroys us. And time is running out.
Capitalists, of course, do not accept this conclusion. Most simply ignore the evidence or view the situation through rose-coloured spectacles, maintaining that ecological problems are not as serious as they seem or that science will find a way to solve them before it's too late. Right libertarians tend to take this approach, but they also argue that a genuinely free market capitalism would provide solutions to the ecological crisis. In section E we will show why these arguments are unsound and why libertarian socialism is our best hope for preventing ecological catastrophe.
The Anti-Democratic Nature of US Capitalism is Being Exposed by Noam Chomksy
Bretton Woods was the system of global financial management set up at the end of the second World War to ensure the interests of capital did not smother wider social concerns in post-war democracies. It was hated by the US neoliberals - the very people who created the banking crisis writes Noam Chomsky
THE SIMULTANEOUS unfolding of the US presidential campaign and unraveling of the financial markets presents one of those occasions where the political and economic systems starkly reveal their nature.
Passion about the campaign may not be universally shared but almost everybody can feel the anxiety from the foreclosure of a million homes, and concerns about jobs, savings and healthcare at risk.
The initial Bush proposals to deal with the crisis so reeked of totalitarianism that they were quickly modified. Under intense lobbyist pressure, they were reshaped as "a clear win for the largest institutions in the system . . . a way of dumping assets without having to fail or close", as described by James Rickards, who negotiated the federal bailout for the hedge fund Long Term Capital Management in 1998, reminding us that we are treading familiar turf. The immediate origins of the current meltdown lie in the collapse of the housing bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained the struggling economy through the Bush years by debt-based consumer spending along with borrowing from abroad. But the roots are deeper. In part they lie in the triumph of financial liberalisation in the past 30 years - that is, freeing the markets as much as possible from government regulation.
These steps predictably increased the frequency and depth of severe reversals, which now threaten to bring about the worst crisis since the Great Depression.
Also predictably, the narrow sectors that reaped enormous profits from liberalisation are calling for massive state intervention to rescue collapsing financial institutions.
Such interventionism is a regular feature of state capitalism, though the scale today is unusual. A study by international economists Winfried Ruigrok and Rob van Tulder 15 years ago found that at least 20 companies in the Fortune 100 would not have survived if they had not been saved by their respective governments, and that many of the rest gained substantially by demanding that governments "socialise their losses," as in today's taxpayer-financed bailout. Such government intervention "has been the rule rather than the exception over the past two centuries", they conclude.
In a functioning democratic society, a political campaign would address such fundamental issues, looking into root causes and cures, and proposing the means by which people suffering the consequences can take effective control.
The financial market "underprices risk" and is "systematically inefficient", as economists John Eatwell and Lance Taylor wrote a decade ago, warning of the extreme dangers of financial liberalisation and reviewing the substantial costs already incurred - and proposing solutions, which have been ignored. One factor is failure to calculate the costs to those who do not participate in transactions. These "externalities" can be huge. Ignoring systemic risk leads to more risk-taking than would take place in an efficient economy, even by the narrowest measures.
The task of financial institutions is to take risks and, if well-managed, to ensure that potential losses to themselves will be covered. The emphasis is on "to themselves". Under state capitalist rules, it is not their business to consider the cost to others - the "externalities" of decent survival - if their practices lead to financial crisis, as they regularly do.
Financial liberalisation has effects well beyond the economy. It has long been understood that it is a powerful weapon against democracy. Free capital movement creates what some have called a "virtual parliament" of investors and lenders, who closely monitor government programmes and "vote" against them if they are considered irrational: for the benefit of people, rather than concentrated private power.
Investors and lenders can "vote" by capital flight, attacks on currencies and other devices offered by financial liberalisation. That is one reason why the Bretton Woods system established by the United States and Britain after the second World War instituted capital controls and regulated currencies.*
The Great Depression and the war had aroused powerful radical democratic currents, ranging from the anti-fascist resistance to working class organisation. These pressures made it necessary to permit social democratic policies. The Bretton Woods system was designed in part to create a space for government action responding to public will - for some measure of democracy.
John Maynard Keynes, the British negotiator, considered the most important achievement of Bretton Woods to be the establishment of the right of governments to restrict capital movement.
In dramatic contrast, in the neoliberal phase after the breakdown of the Bretton Woods system in the 1970s, the US treasury now regards free capital mobility as a "fundamental right", unlike such alleged "rights" as those guaranteed by the Universal Declaration of Human Rights: health, education, decent employment, security and other rights that the Reagan and Bush administrations have dismissed as "letters to Santa Claus", "preposterous", mere "myths".
In earlier years, the public had not been much of a problem. The reasons are reviewed by Barry Eichengreen in his standard scholarly history of the international monetary system. He explains that in the 19th century, governments had not yet been "politicised by universal male suffrage and the rise of trade unionism and parliamentary labour parties". Therefore, the severe costs imposed by the virtual parliament could be transferred to the general population.
But with the radicalisation of the general public during the Great Depression and the anti-fascist war, that luxury was no longer available to private power and wealth. Hence in the Bretton Woods system, "limits on capital mobility substituted for limits on democracy as a source of insulation from market pressures".
The obvious corollary is that after the dismantling of the postwar system, democracy is restricted. It has therefore become necessary to control and marginalise the public in some fashion, processes particularly evident in the more business-run societies like the United States. The management of electoral extravaganzas by the public relations industry is one illustration.
"Politics is the shadow cast on society by big business," concluded America's leading 20th century social philosopher John Dewey, and will remain so as long as power resides in "business for private profit through private control of banking, land, industry, reinforced by command of the press, press agents and other means of publicity and propaganda".
The United States effectively has a one-party system, the business party, with two factions, Republicans and Democrats. There are differences between them. In his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels shows that during the past six decades "real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working-poor families have grown six times as fast under Democrats as they have under Republicans".
Differences can be detected in the current election as well. Voters should consider them, but without illusions about the political parties, and with the recognition that consistently over the centuries, progressive legislation and social welfare have been won by popular struggles, not gifts from above.
Those struggles follow a cycle of success and setback. They must be waged every day, not just once every four years, always with the goal of creating a genuinely responsive democratic society, from the voting booth to the workplace.
* The Bretton Woods system of global financial management was created by 730 delegates from all 44 Allied second World War nations who attended a UN-hosted Monetary and Financial Conference at the Mount Washington Hotel in Bretton Woods in New Hampshire in 1944.
Bretton Woods, which collapsed in 1971, was the system of rules, institutions, and procedures that regulated the international monetary system, under which were set up the International Bank for Reconstruction and Development (IBRD) (now one of five institutions in the World Bank Group) and the International Monetary Fund (IMF), which came into effect in 1945.
The chief feature of Bretton Woods was an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value.
The system collapsed when the US suspended convertibility from dollars to gold. This created the unique situation whereby the US dollar became the "reserve currency" for the other countries within Bretton Woods.
THE SIMULTANEOUS unfolding of the US presidential campaign and unraveling of the financial markets presents one of those occasions where the political and economic systems starkly reveal their nature.
Passion about the campaign may not be universally shared but almost everybody can feel the anxiety from the foreclosure of a million homes, and concerns about jobs, savings and healthcare at risk.
The initial Bush proposals to deal with the crisis so reeked of totalitarianism that they were quickly modified. Under intense lobbyist pressure, they were reshaped as "a clear win for the largest institutions in the system . . . a way of dumping assets without having to fail or close", as described by James Rickards, who negotiated the federal bailout for the hedge fund Long Term Capital Management in 1998, reminding us that we are treading familiar turf. The immediate origins of the current meltdown lie in the collapse of the housing bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained the struggling economy through the Bush years by debt-based consumer spending along with borrowing from abroad. But the roots are deeper. In part they lie in the triumph of financial liberalisation in the past 30 years - that is, freeing the markets as much as possible from government regulation.
These steps predictably increased the frequency and depth of severe reversals, which now threaten to bring about the worst crisis since the Great Depression.
Also predictably, the narrow sectors that reaped enormous profits from liberalisation are calling for massive state intervention to rescue collapsing financial institutions.
Such interventionism is a regular feature of state capitalism, though the scale today is unusual. A study by international economists Winfried Ruigrok and Rob van Tulder 15 years ago found that at least 20 companies in the Fortune 100 would not have survived if they had not been saved by their respective governments, and that many of the rest gained substantially by demanding that governments "socialise their losses," as in today's taxpayer-financed bailout. Such government intervention "has been the rule rather than the exception over the past two centuries", they conclude.
In a functioning democratic society, a political campaign would address such fundamental issues, looking into root causes and cures, and proposing the means by which people suffering the consequences can take effective control.
The financial market "underprices risk" and is "systematically inefficient", as economists John Eatwell and Lance Taylor wrote a decade ago, warning of the extreme dangers of financial liberalisation and reviewing the substantial costs already incurred - and proposing solutions, which have been ignored. One factor is failure to calculate the costs to those who do not participate in transactions. These "externalities" can be huge. Ignoring systemic risk leads to more risk-taking than would take place in an efficient economy, even by the narrowest measures.
The task of financial institutions is to take risks and, if well-managed, to ensure that potential losses to themselves will be covered. The emphasis is on "to themselves". Under state capitalist rules, it is not their business to consider the cost to others - the "externalities" of decent survival - if their practices lead to financial crisis, as they regularly do.
Financial liberalisation has effects well beyond the economy. It has long been understood that it is a powerful weapon against democracy. Free capital movement creates what some have called a "virtual parliament" of investors and lenders, who closely monitor government programmes and "vote" against them if they are considered irrational: for the benefit of people, rather than concentrated private power.
Investors and lenders can "vote" by capital flight, attacks on currencies and other devices offered by financial liberalisation. That is one reason why the Bretton Woods system established by the United States and Britain after the second World War instituted capital controls and regulated currencies.*
The Great Depression and the war had aroused powerful radical democratic currents, ranging from the anti-fascist resistance to working class organisation. These pressures made it necessary to permit social democratic policies. The Bretton Woods system was designed in part to create a space for government action responding to public will - for some measure of democracy.
John Maynard Keynes, the British negotiator, considered the most important achievement of Bretton Woods to be the establishment of the right of governments to restrict capital movement.
In dramatic contrast, in the neoliberal phase after the breakdown of the Bretton Woods system in the 1970s, the US treasury now regards free capital mobility as a "fundamental right", unlike such alleged "rights" as those guaranteed by the Universal Declaration of Human Rights: health, education, decent employment, security and other rights that the Reagan and Bush administrations have dismissed as "letters to Santa Claus", "preposterous", mere "myths".
In earlier years, the public had not been much of a problem. The reasons are reviewed by Barry Eichengreen in his standard scholarly history of the international monetary system. He explains that in the 19th century, governments had not yet been "politicised by universal male suffrage and the rise of trade unionism and parliamentary labour parties". Therefore, the severe costs imposed by the virtual parliament could be transferred to the general population.
But with the radicalisation of the general public during the Great Depression and the anti-fascist war, that luxury was no longer available to private power and wealth. Hence in the Bretton Woods system, "limits on capital mobility substituted for limits on democracy as a source of insulation from market pressures".
The obvious corollary is that after the dismantling of the postwar system, democracy is restricted. It has therefore become necessary to control and marginalise the public in some fashion, processes particularly evident in the more business-run societies like the United States. The management of electoral extravaganzas by the public relations industry is one illustration.
"Politics is the shadow cast on society by big business," concluded America's leading 20th century social philosopher John Dewey, and will remain so as long as power resides in "business for private profit through private control of banking, land, industry, reinforced by command of the press, press agents and other means of publicity and propaganda".
The United States effectively has a one-party system, the business party, with two factions, Republicans and Democrats. There are differences between them. In his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels shows that during the past six decades "real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working-poor families have grown six times as fast under Democrats as they have under Republicans".
Differences can be detected in the current election as well. Voters should consider them, but without illusions about the political parties, and with the recognition that consistently over the centuries, progressive legislation and social welfare have been won by popular struggles, not gifts from above.
Those struggles follow a cycle of success and setback. They must be waged every day, not just once every four years, always with the goal of creating a genuinely responsive democratic society, from the voting booth to the workplace.
* The Bretton Woods system of global financial management was created by 730 delegates from all 44 Allied second World War nations who attended a UN-hosted Monetary and Financial Conference at the Mount Washington Hotel in Bretton Woods in New Hampshire in 1944.
Bretton Woods, which collapsed in 1971, was the system of rules, institutions, and procedures that regulated the international monetary system, under which were set up the International Bank for Reconstruction and Development (IBRD) (now one of five institutions in the World Bank Group) and the International Monetary Fund (IMF), which came into effect in 1945.
The chief feature of Bretton Woods was an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value.
The system collapsed when the US suspended convertibility from dollars to gold. This created the unique situation whereby the US dollar became the "reserve currency" for the other countries within Bretton Woods.
Responsible Capitalism and Democracy by Robert Reich
I admire Bill Gate's attempt to put a human face on capitalism and make it work for the social good. But to the extent the project requires that capitalists sacrifice profits, it's doomed -- as it should be in a democratic society.
In recent years, "corporate social responsibility" has become the supposed answer to the paradox of democratic capitalism. It is now a hot topic in business schools, which proudly avow the importance of it. As of 2006, more than half of all master of business administration curricula required students to take at least one course on it. Over 80 percent of corporate recruiters say business school graduates should display an awareness and knowledge of the subject. Hundreds of corporate conferences are held on it annually. Tens of thousands of corporate executives listen attentively to consultants who specialize in it explain its importance and how companies can evince it. The world's top CEOs and officials, gathering annually at the World Economic Forum in Davos, Switzerland, solemnly discuss it and proclaim their commitment to it.
Most of this is in earnest. Much is sincere. Some of it has had a positive impact. But almost all has occurred outside of the democratic process. To view it as a new form of democratic capitalism is to fail to understand the logic of supercapitalism. As a result, the commitment to corporate social responsibility also diverts attention from the more difficult but more important job of establishing laws that protect and advance the common good.
Since the late 1970s, a fundamental change has occurred in democratic capitalism in America, and that change has rippled outward to the rest of the world. Capitalism has triumphed, and not simply as an ideology. The structure of the American - and much of the world's - economy has shifted toward far more competitive markets. Power has shifted to consumers and investors.
Meanwhile, the democratic aspects of capitalism have declined. The institutions that undertook formal and informal negotiations to spread the wealth, stabilize jobs and communities, and establish equitable rules of the game - giant oligopolies, large labor unions, regulatory agencies, and legislatures responsive to local Main Streets and communities - have been eclipsed. Corporations now have little choice but to relentlessly pursue profits. Corporate statesmen have vanished. In this way, the triumph of capitalism and the decline of democracy have been connected. Democratic capitalism has been replaced by supercapitalism.
1. Cynicism about politics and false hope in the private sector
The upsurge of interest in "corporate social responsibility" is related to the decreasing confidence in democracy. These days, reformers often say they find it easier to lobby corporate executives than to lobby politicians; they contend they can be more effective pushing certain large corporations to change their ways than altering public policy. "Government is failing to provide leadership on environmental concerns, and industry has grown more willing to address them," says Jonathan Lash, president of World Resources Institute.
Cynicism about politics is perfectly understandable, but this is a curious proposition. A major reason why government is failing to provide leadership is because, as we have seen, big corporations have become so effective in recent years at preventing government from doing much about the environment or any other issue that may require corporations to change in ways they'd prefer not to. Why would industry have grown more willing to address the very concerns it has worked to block government from addressing? Of course, the specific people in a corporation most committed to making it more socially responsible are not likely to be the same people who are lobbying effectively against laws and regulations requiring the firm to be so, but this doesn't change the overriding reality: In supercapitalism, the corporation as a whole must, for competitive reasons, resist doing anything that hurts - and will place a very low priority on anything that doesn't help - the bottom line.
It is easy to understand why big business has embraced corporate social responsibility with such verve. It makes for good press and reassures the public. A declaration of corporate commitment to social virtue may also forestall government legislation or regulation in an area of public concern where one or more companies have behaved badly, such as transporting oil carelessly and causing a major spill or flagrantly failing to respect human rights abroad. The soothing promise of responsibility can deflect public attention from the need for stricter laws and regulations or convince the public that there's no real problem to begin with. Corporations that have signed codes of conduct promising good behavior appear to have taken important steps toward social responsibility, but the pressures operating on them to lure and keep consumers and investors haven't eased one bit. In supercapitalism, they cannot be socially responsible, at least not to any significant extent.
Politicians are simultaneously let off the hook. They can applaud some seeming act of corporate virtue - they may even take credit for pushing corporations to sign pledges or promise change - while not having to take any action that might cause negative reaction in board rooms or among corporate fundraisers. They don't have to take sides, or take a stand, while appearing to be in favor of virtuous corporate behavior.
Commitments to corporate social responsibility are also conveniently reassuring to talented or privileged young people who want both the sky-high financial rewards of fast-track executive careers and the psychological rewards of doing some good in the world. They can thereby do well and do good at the same time, or so they tell themselves.
But viewed this way, "corporate social responsibility" is as meaningful as cotton candy. The more you try to bite into it the faster it dissolves. One popular argument is that "socially responsible" companies do better by their consumers and investors. Dow Chemical reduces its carbon emissions so it can lower its energy costs. McDonald's employs more humane slaughtering techniques, which prevent costly worker injuries and yields more meat. Wal-Mart has adopted "green" packaging for its fresh produce - transparent plastics from corn sugars - because it's cheaper than petroleum-based packaging. Starbucks gives its part time employees health insurance because that reduces employee turnover and helps its bottom line. Alcoa estimates annual savings of about $100 million from reduced energy use and related environmental improvements.
All these steps may be worthwhile but they are not undertaken because they are socially responsible. They're done to reduce costs. To credit these corporations with being "socially responsible" is to stretch the term to mean anything a company might do to increase profits if, in doing so, it also happens to have some beneficent impact on the rest of society. Taken to the logical extreme is the textbook economics argument that whenever a company increases its profits it has a positive effect on society because it thereby utilizes assets more efficiently, releasing those that are no longer needed to be used more efficiently elsewhere. In this sense, all profitable companies are socially responsible.
For many years I have preached that social responsibility and profitability converge over the long term. That's because a firm that respects and values employees, the community, and the environment eventually earns the respect and gratitude of employees, the community, and the larger society - which eventually helps the bottom line. But I've never been able to prove this proposition nor find a study that confirms it. More important from the standpoint of the modern firm, the long term may be irrelevant. Under supercapitalism, the "long term" is the present value of future earnings. There is no better measure of this than share price.
Logically, when the extra benefits of some product accrue to consumers individually, they may be willing to pay more for it. This doesn't make the product "socially responsible," either. …. Similarly, companies that pay good wages and offer good benefits in order to attract and retain high-caliber employees are not being "socially responsible"; they are merely practicing good management. … In general, corporate initiatives that improve the quality of products without increasing their price, or increase efficiency and productivity so that prices can be lowered, or otherwise generate higher profits and higher returns for investors, are not socially virtuous. They're just good management practices that should -- and, given the competitive pressures of supercapitalism will -- be undertaken regardless of how much or how little they benefit society.
Economist Milton Friedman argued several decades ago that the business of business is to make a profit, not to engage in socially beneficial acts. Friedman made his argument at a time when many companies still had sufficient discretion to be socially responsible. As noted, big companies tended to be oligopolies with some power over their prices and markets. His point was companies should not seek to accomplish social ends because companies are not the appropriate vehicles for social benevolence. Whether or not you agree with Friedman, companies under supercapitalism no longer have the discretion to be virtuous. Competition is so intense that most corporations cannot accomplish social ends at a cost to their consumers or investors, who will otherwise seek and find better deals elsewhere. Even if individual consumers or investors believed in the virtuousness of a particular sacrifice, absent laws requiring all companies and therefore all other consumers and investors to forebear as well, the individual's action would have to effect.
2. Consumer Indifference
As the economy has moved toward supercapitalism, companies that in Friedman's day were known to be the most socially virtuous have been punished by investors. Cummins Engine, one of the pioneers of the corporate social responsibility movement, had to abandon its paternalistic employment policies and its generous contributions to its communities when its investors demanded higher returns. Dayton-Hudson, another notably socially responsible company, came close to being swallowed up in a hostile takeover during the 1980s, and has since then paid exclusive attention to its customers and investors. Levi Strauss, also once on everyone's list of America's most socially responsible companies in part because of its commitment to source its clothing from domestic manufacturers, faced plummeting sales in the 1990s and had to eliminate its remaining domestic production.
By the same token, investors don't punish profitable companies or industries notably lacking in social virtue. In the early and mid-2000s, Exxon Mobil had the highest return on equity of any oil company. Shareholders flocked to it despite its being named an "outlaw" by environmental groups for its highly visible campaigns against non-fossil-based fuels and the reality of global warming. Wall Street analysts and investment bankers concern themselves only with the bottom line, as do most of those whose retirement savings they manage. "I don't see investors refusing to buy because they think the chief executive is overpaid, and I don't see union members boycotting nonunion stores that sell attractively priced foreign goods," says Anthony M. Maramarco, a managing director at Babson Capital Management.
Social offensiveness is not necessarily financially offputting. … It is of course possible that noxious firms must outperform the norm in order to attract capital. Perhaps there is a sleaze premium analogous to a risk premium. But it seems more likely that investors don't know or care. They have instructed the managers of their pension or mutual funds to maximize the value of their savings, regardless. Insulation from the social effects of our market decisions is, again, an essential aspect of supercapitalism.
Investors deeply concerned about corporate morality can park their savings in what are called "socially responsible investment" funds, which screen out certain offensive industries. But few investors do. In 2004, total shares under the management of such funds comprised less than 2 percent of mutual fund shares outstanding in the U.S. stock market. In Europe, socially responsible mutual funds account for an even lower portion - about a third of one percent. If such funds outperformed regular mutual funds more investors would be drawn to them, but their record is decidedly mixed. Besides, most "socially responsible" fund portfolios include just about every large company featured in a typical mutual fund portfolio. In 2004, thirty-three socially-responsible funds held the stock of Wal-Mart, twenty-three held Halliburton's, forty held Exxon Mobil's, and almost all held Microsoft's, its antitrust peccadillos notwithstanding. At the start of the 2000s, many held Enron, WorldCom, and Adelphia stock, and none of these companies went on to distinguish themselves for public service.
Yes, investors are interested in better corporate governance. But better governance makes a firm more responsive to its investors -- not to its employees, communities, or society as a whole. …. When shareholders have more say in electing company directors, when top executives have to sign off personally on company audits, and when executive compensation is more fully disclosed, executives presumably will have more incentive to do what they have a fiduciary responsibility to do in the first place.
These initiatives will not make CEOs more responsible to society, however. To the contrary, as we have seen, the more beholden CEOs and other top executives are to investors, the more likely they are to slash payrolls in pursuit of higher profits, uproot themselves from their traditional communities and rely on global supply chains instead, pander to whatever vulgar desires their customers may harbor, subject workers in developing nations to unsafe or unhealthy conditions, and pillage the environment - if these and other such anti-social techniques increase profits and share prices.
Evidence suggests consumers, like investors, do not care enough about social responsibility to make financial sacrifices for it. After an exhaustive review of the data, my colleague, Professor David Vogel, of the Haas Business School at the University of California at Berkeley, concluded that "the social and environmental practices of the vast majority of companies have not had any demonstrated effects on their sales."
3. “Corporate social responsibility” can mean anything
Social reformers have long exposed abusive corporate practices as means of mobilizing political support for new legislation or regulation aimed at curbing them. Progressive-era muckraker Ida Tarbell's History of the Standard Oil Company, published in 1904, inspired the antitrust case that broke up the company. Upton Sinclair's 1906 classic The Jungle, exposed the meatpacking industry and generated the nation's first health and safety regulations. Ralph Nader's 1966 book Unsafe at Any Speed, revealed the automobile industry's indifference to safety, leading to the creation of the National Highway Safety Administration. The purpose of these and other exposes was not to pressure individual companies to change their ways but to incite political action so all companies would have to. These efforts were not substitutes for political action but preconditions for it.
These campaigns were designed to change the rules of the game. Consumers or investors as a whole may have ended up paying slightly more for, say, gold since it was no longer available from South African mines when Congress imposed economic sanctions, or North Sea oil that had to be disposed of more expensively. But these small price increases were presumably worth the overall social gains, as determined in the democratic process. Labor organizers also pressure large companies to permit votes on whether workers should form a union - but here, too, the goal is specific and political in the sense of altering the balance of power between owners and employees.
Without a specific political goal, "corporate social responsibility" is simply a function of a group's organizing heft relative to a particular company or industry - and therefore can mean anything. Should a socially responsible investment fund screen out companies engaged in nuclear energy, as some anti-nuclear advocates urge? Environmentalists who think nuclear energy is the best alternative to fossil-based fuels would disagree. … Absent any political process for deciding questions like [this], the answers are completely arbitrary. Electoral democracy is messy and difficult at best. As has been noted, it's now so dominated by large companies that citizen values can barely be heard. Yet there is no means for determining the social obligations of the private sector other than through the democratic process. Making companies more "socially responsible" is a worthy goal, but it would be better served by making democracy work better.
Pressuring companies to be more virtuous is an unaccountable mechanism for deciding complex social issues better left to legislators. Consider America's gut-wrenching controversies over gay rights, abortion, and guns. Congress and state legislatures have struggled over them for years; some battles have been waged in state and federal courts over them. But even if no consensus is possible, the democratic process and courts at least provides means for weighing and balancing claims. Not so in the private sector.
In 2006, the American Family Association, a non profit advocacy group based in Tupelo, Mississippi, attacked Wal-Mart for joining the National Gay and Lesbian Chamber of Commerce, and urged a boycott of the company. Wal-Mart apparently held fast and resisted the boycott. But when other religious groups urged Wal-Mart's pharmacies not to sell the emergency contraceptive commonly referred to as the "morning-after" pill, Wal-Mart caved. When several women's groups then demanded the company offer the pill, Wal-Mart partly reversed itself - stocking the pill but excusing any pharmacist who objected for personal reasons to dispense it. Women's groups continued to push Wal-Mart to require its pharmacists to fill prescriptions for the pill. What is the socially responsible position for Wal-Mart to take? It has no means for weighing and balancing claims, except by assessing which hurt Wal-Mart's bottom line least.
In these and many similar instances, companies get caught in a crossfire. Because these battles take place outside normal political channels and are aimed at specific firms, they cast corporate executives in the unenviable roles of politicians seeking to broker compromises among competing visions of the common good. Yet executives have no special expertise for doing this. They were hired to give consumers and investors better deals.
That's why, no matter how intense or irritating the advocates for one side or the other may be, in the end the corporation must do whatever is necessary to minimize its costs. If a company were to cave in to a demand that imposed an extra cost on the firm, a rival that isn't party to the agreement could profitably step into the breach. …
Finally, not only are corporations unfit to decide what is socially virtuous, but under supercapitalism they are often unable to deliver services that are inherently public. Pushing them to do so begs the question of whether the responsibilities would be better undertaken by the public sector. The campaign against Wal-Mart charged in full-page advertisements that "Wal-Mart's low pay and meager employee benefits force tens of thousands of employees to resort to Medicaid, food stamps, and housing assistance. Call it the 'Wal-Mart Tax.'And it costs you $1.5 billion in federal tax dollars every year." The problem with this logic is that America had already decided to provide Medicaid, food stamps, and housing assistance to the poor - even if the poor are also working. It seemed more efficient for these benefits to flow from government, and for employers to alert their low-income employees of the availability of them, than for the private sector to provide them as conditions of employment. If we wish to change the rules and require private employers to pay wages and provide health benefits sufficiently high that no employee has to rely on government largesse, we should seek to do that through the democratic process. But it makes little sense to chastise one employer - even one as large as Wal-Mart - for playing by the rules.
Should the rules be altered as Wal-Mart's critics advocate? That would be a worthy political debate, but we're not having it. I, for one, think the minimum wage should be raised to be about half of the average worker's hourly pay. That was the ratio in the Not Quite Golden Age -- the period when, between 1945 and 1975, America struck a remarkable accommodation between capitalism and democracy by combining a hugely productive economic system with a broadly responsive and widely admired political system -- and it still seems to me a reasonable compromise. But Wal-Mart's critics also want Wal-Mart to provide employees with good health insurance coverage, which, in my opinion, is no longer a responsibility employers should take on.
4. Ersatz politics vs. democratic conflict and deliberation
Although public relations wars over a particular company's virtue may utilize all the paraphernalia of political campaigns, their outcomes are not at all political. No one is elected or deposed, no programs or platforms are put into place, no laws or regulations are changed. The issue in such wars is not what is the best policy overall, but whether a particular company is morally good. It is an ersatz politics - a massive diversion from the real thing.
Participants in the campaign against Wal-Mart have described the battle in lofty terms. "This is an assault on a business model," said Carl Pope, a long-standing leader of the environmental movement who signed on in 2005. "We're not trying to shut Wal-Mart down." Andrew Grossman, executive director of the coalition, explained "[w]e're focusing on Wal-Mart because of the huge impact it has on each of the different parts of American life it touches." Grossman conceded Wal-Mart does provide many goods at the lowest price, but pointed out that this "sometimes comes at a high cost to society." The goal of the campaign was for Wal-Mart to "make more money, but responsibly." What precisely did this mean? What exactly were the organizers seeking?
The campaign has been run by people with direct experience in real politics. Paul Blank, one of its organizers, had been the political director of Howard Dean's presidential campaign…. In response, Wal-Mart has spent millions of dollars on a counter-campaign designed to depict the firm as worker friendly, environmentally conscious, and socially responsible The group was advised by Terry Nelson, who had been national political director of George Bush's 2004 campaign.
It has rolled out commercials showing black, Hispanic, and female employees touting their benefits and career opportunities. It ran Asian-language advertisements targeted to Asian shoppers, others to Hispanics, full-page advertisements in more than a hundred mainstream newspapers, and large ads in select elite media, accusing its critics of distorting its image. "When critics pervert the facts to serve their financial and potential interests, it's our duty to speak up," H. Lee Scott, Jr., is quoted as saying in an advertisement running across two pages of the New York Review of Books. Wal-Mart also ran ads bearing a striking resemblance to Bill Clinton's "A Place Called Hope" message during the 1992 presidential campaign, starting with a homey image of Sam Walton's first five-and-dime store. "It all began with a big dream in a small town," says a sonorous narrator. "Sam Walton's dream."
Has Wal-Mart, as a result of all this, been born again as a socially responsible company? Immediately after the devastation caused by Hurricane Katrina, Wal-Mart pledged $15 million in cash to the Bush-Clinton Katrina Fund, and also gave a million dollars each to the Salvation Army and the American Red Cross. …. The company has also set out to be - or appear to be - a better employer and citizen in the communities where it does business. It has set up an office of diversity, and expanded health insurance to children of part time workers. It has announced a plan to help local businesses near its proposed urban stores. And it has become - or appeared to become - a dedicated environmentalist. It has launched a program to recycle shrink wraps, shopping bags, and other plastic items that its consumers normally sent to landfills; it has begun testing the use of trees and grasses in parking lots to absorb carbon dioxide emissions and tainted water; it has committed itself to wind and solar energy to generate electricity, and recycled materials to make its outdoor pavements. CEO Scott declared in 2006 that the firm would rely on 100 percent renewable energy sources "that sustain our resources and environment."
All these efforts are commendable, but even when added together, their costs still constitute a tiny fraction of Wal-Mart's yearly revenues. Some, like the firm's new-found commitment to renewable energy, have come without a timetable; even Scott admits he is "not sure how to achieve" them. And it remains unclear to what extent the firm will continue to strive for "social responsibility" if and when the heat is off and the anti-Wal-Mart campaign has ended - as, presumably, it will end, someday. …. To the extent the firm has been pushed to be more virtuous, it seems doubtful the tactics for achieving this result are transferable to most other firms.
The fact that a modern corporation can spend its way out of most public relations problems suggests that campaigns to make companies more "socially responsible" are unlikely to establish new norms of corporate conduct. This is true even if the standard they are seeking is precisely drawn, and even if rivals don't jump into whatever lower-cost breach opens up. Political techniques may be employed by both sides, and some candidates for public office may even criticize a company for its irresponsible ways. But in such contests real politics - the stuff of democratic conflict and deliberation - is nowhere to be seen.
5. The preemption of politics
The eagerness with which corporations themselves have embraced social responsibility can dull the public's sense that there exist troublesome issues deserving of public attention. Vivid displays of corporate goodness can mask problems a democracy should grapple with - would grapple with - if the public understood their true dimensions. And because public attention spans are short, such temporary displays can preempt permanent solutions.
In light of rumblings from the Federal Communications Commission and from conservative legislators concerned about the sex and violence cable companies were pumping out to their subscribers, cable operators in early 2006 announced plans to offer packages of family-friendly channels so parents could shield their children. "There's no need for legislation now," said Senator Ted Stevens (R-Alaska), chairman of the Senate Commerce Committee, after being reassured of the cable companies' plans. "We have to give it a chance to work." But cable companies had made similar promises before that had never been fulfilled. Presumably, cable companies will continue to pump out sex and violence until Congress or the FCC stops them, because sex and violence makes money.
Displays of corporate virtue can also obscure conditions that would otherwise generate political heat for reform. Recall the flurry of media attention directed at sweatshop abuses during the mid-1990s. Apparel manufacturers and big retailers avoided any new laws or regulations by promising they would voluntarily clean up their acts. They developed voluntary codes of conduct and began monitoring their overseas factories, especially in China where most were located. But according to an investigation of internal industry documents by Business Week in late 2006, the codes are being widely violated. Many Chinese factories keep double sets of books to fool auditors and distribute scripts for employees to recite if they are questioned. Factory managers in China complained in interviews that pressure from American firms to cut prices creates a powerful incentive to cheat. Yet American companies continue to tout the codes as evidence of their social responsibility. And, according to Business Week, the codes "have been important to maintaining political support in the U.S. for growing trade ties with China."
The preemption of politics often works because the public's memory - and the attention span of the media - is conspicuously short, as I said earlier. The public forgives because it so easily forgets. It can even be persuaded by a clever media campaign that a company once disdained for disregarding the common good is heroically achieving it. Recently, GE has been hailed as an environmental leader for its self-imposed restrictions on greenhouse gases. But the public - and the media - seem to have forgotten GE's role in polluting the Hudson River and its related tributaries with PCB, the company's tenacious fight with federal regulators against cleaning up the mess, and its insistent lobbying against regulation that would force it to foot more of the bill.
The U.S. government has not increased automobile fuel-economy standards in several decades, nor made any major move to increase gas taxes to better reflect the true social cost of oil. Part of the reason is every time the public shows any broad interest in more fuel-efficient cars, major automakers declare themselves born-again environmentalists and commit themselves to fuel efficiency - until the public's interest flags. In 2000, Ford was the largest producer of SUVs and light trucks in North America, and they were among the nation's most notorious gas guzzlers. (When the Sierra Club sponsored a contest to give a name and advertising slogan to Ford's newest SUV - which used one gallon of gas for every twelve miles it traveled - the winner was "The Ford Valdez -- Have You Driven a Tanker Lately?" ) But that year Ford effectively preempted political pressure to force it and other automakers to do more by promising to voluntarily increase the fuel economy of its SUVs by 25 percent. Two years later, when Ford's profits began to drop and consumers still wanted big gas guzzlers that were highly profitable to the company, Ford revoked its pledge. It even went so far as to initiate an intense lobbying and advertising effort that successfully defeated a Senate proposal to raise fuel-economy standards. In 2005, when oil prices shot upward and consumer interest in gas-guzzling SUVs and pickups began to wane, Ford with great fanfare announced its newfound interest in fuel efficiency. It pledged to voluntarily increase production of hybrid vehicles ten-fold by 2010.
6. Disappointments from government
In recent years, politicians have got into something of a habit of publicly shaming companies that have acted badly in some way. Offending executives are typically hauled before congressional committees, where members of Congress berate them. But little legislation emerges to force the companies to behave any differently in the future.
The notion that such public scoldings and the temporarily unflattering publicity that accompany them will alter corporate practices is another diversion from the work of creating rules that balance the interests of consumers and investors with broader interest of the public. It also, conveniently, allows politicians to maintain good relations with the same companies and industries - collecting campaign donations, enjoying rounds of golf with their executives, tapping their corporate lobbyists for miscellaneous favors - while showing the public they're being "tough" on the wrongdoers. Here again, the public is led to believe that democracy is working when all that's really working is public relations.
When oil prices soared in 2005 and early 2006, oil companies reaped extraordinary profits while millions of Americans had to pay more to fuel their cars and heat their homes. This prompted calls for Congress to enact a "windfall profits tax" on the oil companies, but not even a debate took place. Instead, Congress simply scolded oil company executives and publicly berated the companies. As oil prices and profits approached record levels, Senator Charles Grassley, an Iowa Republican, and chairman of the Senate Finance Committee, issued a public letter reprimanding the oil and gas industry and instructing its companies to make charitable donations - 10 percent of that quarter's profits - to help poor people pay their heating bills that winter. "You have a responsibility to help less fortunate Americans cope with the high cost of heating fuels," Grassley said.
Grassley's admonition made the headlines but obviously had no effect. Why would the oil companies voluntarily give away their profits? The only practical effects of the public scolding were to make Grassley and his colleagues seem compassionate, and to reassure some portion of the public that Congress was "doing something" about record oil prices and profits. But because any real debate about a tax on their windfall profits was deflected by Grassley's moves, the public never had an opportunity to decide whether using the resulting revenues to help low-income oil consumers was worth the risk that oil companies, forced to disgorge some of their profits, might do less exploration and development - leading to higher prices in the future.
Corporate executives are not authorized by anyone - least of all by their consumers or investors - to balance profits against the public good. Nor do they have any expertise in making such moral calculations. That's why we live in a democracy, which is supposed to represent the public in drawing such lines.
Consider Yahoo's decision in 2005 when it surrendered to Chinese authorities the names of Chinese dissidents who had used Yahoo email, thinking their email addresses would shield their anonymity. One, a journalist, was sentenced to ten years in prison for sharing with foreigners a message his newspaper had received from Chinese authorities, urging it not to overplay the fifteenth anniversary of the Tiananmen Square disturbances. Another whom Yahoo helped Chinese authorities trace down was sentenced to eight years, and a third, to four years. It remains unclear how many more dissidents are in Chinese prisons because of Yahoo's cooperation with Chinese authorities.
Yahoo's decision ignited a firestorm. Its executives explained the firm had no choice but to comply with Chinese law if it wanted access to China's huge and growing market - and Yahoo said it needed to be in China to move China toward democracy. "I've always taken the attitude that you're better off playing by the government's rules and getting there," Yahoo's chairman told attendees at a Web conference in San Francisco. "Part of our role in any form of media is to get whatever we can into those countries and to show and enable people, slowly, to see the Western way and what our culture is like, and to learn." Yahoo's role? The firm was never anointed the vessel of Western culture, nor the arbiter of how best to present it to China. That's not the business of any global company. Indeed, most global companies do everything in their power to avoid the appearance of representing any particular culture, nationality, or ideology - unless such representation helps them sell their products.
Yahoo is not a moral entity, and no one authorized it to undertake any ethical balancing between sending dissidents to prison and exposing the Chinese to American culture and democracy. Yahoo's executives have only one responsibility under supercapitalism - to make money for their shareholders and, along the way, satisfy their consumers. In this instance, one of Yahoo's key "consumers" was the Chinese government, because it was the gateway to all other Chinese consumers. Unless barred by legislation in the United States, Yahoo will continue to do whatever the Chinese government demands of it because the competitive stakes are too high and the potential profits too great to do otherwise. China is the second-largest Internet market in the world after the United States. As of 2006, more than one hundred million Chinese had already logged on. At the rate Internet usage is growing there, within a few years there will be more Chinese on the Internet than Americans.
Any decision about Yahoo's … "social responsibility" was and is best left to the democratic process in the United States, where the firms are headquartered and whose citizens have a presumed stake in human rights around the world. Hence, one appropriate forum for sorting out these firms' duties is Congress, before whom their executives were summoned to appear. The question that body needed to address was whether American high-tech companies should be barred from cooperating with dictatorial governments to abridge human rights, even if this means losing business. That didn't happen, however.
If the U.S. government wanted to make Chinese human rights a priority, it could pass a law tomorrow barring American companies from helping the Chinese government hobble the free speech of its citizens - just as it once barred trade with South Africa and still bans commerce with countries like Cuba and Burma, and has managed to force most of the world's major banks to eschew business with North Korea. Don't hold your breath. Despite all the self-righteous indignation emanating from Congress, and despite all the talk by the Bush administration about spreading democracy around the world, international human rights don't rank very high in Congress or the White House. First and foremost, American business wants access to China's huge market without interference.
All the while, as expected, consumers and shareholders of these firms remained unconcerned. A consumer boycott was threatened (booyahoo.blogspot.com urged "freedom-loving citizens of the Internet to discontinue their use of Yahoo services as a result of their oppressive policies") but nothing came of it.
None of these companies broke American law when they helped Chinese authorities suppress human rights in China. All obeyed the prevailing rules of the game. In supercapitalism, that's all we can and should expect companies to do. Framing the issue in moral terms -- citing the shameless behavior of these companies and their executives -- diverted attention from the harder but more important question of whether the rules of the game should be altered.
7. “Voluntary” responsibility?
Politics is also diverted when politicians ask corporations to take some action voluntarily in the public interest, as Senator Grassley asked the oil companies to do. Early in the Bush administration, the White House embarked on an initiative dubbed "Climate Leaders," in which the President, with great fanfare, asked the nation's major industrial polluters to commit to reducing their greenhouse gas emissions by at least 10 percent within the decade. The event suggested the Administration was taking action on global warming, but it was doing no such thing. By January 2004, only fifty of the thousands of American firms with major greenhouse gas emissions had agreed to become Climate Leaders and reduce their emissions, and of these only fourteen announced specific goals. Although energy utilities are the nation's major polluters, only six of these fifty were utilities. Within a few years the Climate Leaders initiative had died a quiet death. A 2004 report by the World Economic Forum at Davos applauded the efforts of some forward-looking multinational companies to reduce greenhouse gas emissions but concluded that voluntary actions were inadequate to counter effects of climate change.
Of course they're inadequate. Supercapitalism does not permit acts of corporate virtue that erode the bottom line. No company can "voluntarily" take on an extra cost that its competitors don't also take on - which is why, under supercapitalism, regulations are the only means of getting companies to do things that hurt their bottom lines. As Professor David Vogel concluded after surveying so-called "voluntary" corporate environmental initiatives in the United States and Europe, few companies undertake them in the absence of regulations or the impending threat of them. To suggest that a vast, untapped reservoir of corporate benevolence is available for the asking is to seriously mislead the public - and once again divert attention from the important job of deciding what such regulations should be. In fact, the outpouring of "voluntary" corporate initiatives on global climate change is deflecting public attention from the necessary work of enacting tough laws and regulations to deal with it.
It is much the same with what passes for corporate charity. Companies donate money to the extent - and only to the extent - it has public relations value, and thereby helps the bottom line. Shareholders do not entrust their money to corporate executives for them to give it away, unless the return is greater. When the 2005 tsunami devastated Indonesia and other parts of coastal Southeast Asia, President Bush asked American corporations to come to the aid of victims. After several companies contributed millions of dollars, Bush extolled CEOs for their generosity. "One of the less reported aspects of the U.S. business community is the tremendous amount of good they do, giving back to the communities in which they operate," he said. "[T]he tsunami has presented the private sector here in America with a genuine watershed moment. I believe it's ushered in a new era of corporate social responsibility." His words were greeted with loud applause, but they made no sense. The assembled CEOs had not been generous - they had not contributed their own money. They had donated their shareholders' money. Presumably they had done so in the belief their shareholders would benefit from the public relations value such contributions added to the firms' bottom lines. Otherwise, these CEOs would have violated their fiduciary duties and risked having their shareholders switch to other companies that didn't give away their money. Shareholders did not invest in their firms expecting the money would be used for charitable purposes. They invested to earn high returns. Shareholders who wished to be charitable would, presumably, make donations to charities of their own choosing in amounts they decided for themselves.
The larger danger is that these conspicuous displays of corporate beneficence hoodwink the public into believing corporations have charitable impulses that can be relied on in a pinch. An earthquake that hit Pakistan in October 2005 killed more than 87,000 people and displaced three times as many as those affected by the Indian Ocean tsunami. Yet the Bush administration initially pledged only $500,000 in aid - a sum so small as to be derided by many Pakistanis. Bush then pledged more, and also asked five prominent CEOs to mount a major fundraising effort from American corporations. General Electric contributed more than $5 million in cash and health care and energy equipment; Pfizer, $1 million to relief agencies and $5 million in medicines and health care products; Xerox, $1 million in cash; Citigroup, $3 million. In total, the CEOs raised about $100 million, moving the President to another effusive outpouring of gratitude. "If the international community had not stepped in," he told the assembled executives, "the door might have been opened for more radical Islamic influences."
Actually, the "international community" failed to step in as much as it should have. Pakistan needed billions of dollars, not hundreds of millions - and needed it quickly. While more than $3 billion in aid had been distributed to areas hit by the tsunami within two weeks of that disaster, a total of only $17 million had been distributed to Pakistan as late as six weeks after the quake. And according to the United Nations, total pledges to Pakistan still amounted to only a quarter of what was needed to cope with the devastation. The void was partly filled by radical Islamist groups. The Pakistani interior minister acknowledged that the radicals were "the lifeline of our rescue and relief work."
Corporations are not set up to be public charities. The world's biggest philanthropists, Bill and Melinda Gates, do not draw on Microsoft's profits; they draw on their own vast fortune. The only legitimate reason for a corporation to be generous with its shareholders' money is to burnish its brand image, and such a rationale will go only so far.
Corporations do some good deeds but corporate thank you rituals mislead the public into believing companies do these things out of selflessness - indeed, that there is a "self" there deserving commendation in the first place. But there is no corporate selflessness, and there is no corporate self. In supercapitalism, companies exist only to serve consumers and thereby make money for investors. This is how they serve the public.
8. Faux democracy on two levels
Democracy and capitalism have been turned upside down. As we have seen, capitalism has invaded democracy. Legislation is enacted with public rationales that bear little or no relation to the real motives of the corporations and their lobbyists who pushed for them and legislators who voted for them. Regulations, subsidies, taxes, and tax breaks are justified as being in the public interest but are most often the products of fierce lobbying by businesses or industries seeking competitive advantage. The broader public is not involved. Citizen voices are drowned out. The public rationales mask what's really going on - which companies and industries gain and which lose.
At the same time, a kind of faux democracy has invaded capitalism. Politicians and advocates praise companies for acting responsibly or condemn them for not doing so. Yet the praise and blame are disconnected from any laws and rules defining responsible behavior. The message that companies are moral beings with social responsibilities diverts public attention from the task of establishing such laws and rules in the first place. The praise or blame is soon forgotten, and barely affects the behavior of consumers or investors. Meanwhile, the real democratic process is left to companies and industries seeking competitive advantage.
The first step in turning democracy and capitalism right side up is to understand what's really happening.
http://creativecapitalism.typepad.com/creative_capitalism/2008/06/bill-gates-an-1.html
In recent years, "corporate social responsibility" has become the supposed answer to the paradox of democratic capitalism. It is now a hot topic in business schools, which proudly avow the importance of it. As of 2006, more than half of all master of business administration curricula required students to take at least one course on it. Over 80 percent of corporate recruiters say business school graduates should display an awareness and knowledge of the subject. Hundreds of corporate conferences are held on it annually. Tens of thousands of corporate executives listen attentively to consultants who specialize in it explain its importance and how companies can evince it. The world's top CEOs and officials, gathering annually at the World Economic Forum in Davos, Switzerland, solemnly discuss it and proclaim their commitment to it.
Most of this is in earnest. Much is sincere. Some of it has had a positive impact. But almost all has occurred outside of the democratic process. To view it as a new form of democratic capitalism is to fail to understand the logic of supercapitalism. As a result, the commitment to corporate social responsibility also diverts attention from the more difficult but more important job of establishing laws that protect and advance the common good.
Since the late 1970s, a fundamental change has occurred in democratic capitalism in America, and that change has rippled outward to the rest of the world. Capitalism has triumphed, and not simply as an ideology. The structure of the American - and much of the world's - economy has shifted toward far more competitive markets. Power has shifted to consumers and investors.
Meanwhile, the democratic aspects of capitalism have declined. The institutions that undertook formal and informal negotiations to spread the wealth, stabilize jobs and communities, and establish equitable rules of the game - giant oligopolies, large labor unions, regulatory agencies, and legislatures responsive to local Main Streets and communities - have been eclipsed. Corporations now have little choice but to relentlessly pursue profits. Corporate statesmen have vanished. In this way, the triumph of capitalism and the decline of democracy have been connected. Democratic capitalism has been replaced by supercapitalism.
1. Cynicism about politics and false hope in the private sector
The upsurge of interest in "corporate social responsibility" is related to the decreasing confidence in democracy. These days, reformers often say they find it easier to lobby corporate executives than to lobby politicians; they contend they can be more effective pushing certain large corporations to change their ways than altering public policy. "Government is failing to provide leadership on environmental concerns, and industry has grown more willing to address them," says Jonathan Lash, president of World Resources Institute.
Cynicism about politics is perfectly understandable, but this is a curious proposition. A major reason why government is failing to provide leadership is because, as we have seen, big corporations have become so effective in recent years at preventing government from doing much about the environment or any other issue that may require corporations to change in ways they'd prefer not to. Why would industry have grown more willing to address the very concerns it has worked to block government from addressing? Of course, the specific people in a corporation most committed to making it more socially responsible are not likely to be the same people who are lobbying effectively against laws and regulations requiring the firm to be so, but this doesn't change the overriding reality: In supercapitalism, the corporation as a whole must, for competitive reasons, resist doing anything that hurts - and will place a very low priority on anything that doesn't help - the bottom line.
It is easy to understand why big business has embraced corporate social responsibility with such verve. It makes for good press and reassures the public. A declaration of corporate commitment to social virtue may also forestall government legislation or regulation in an area of public concern where one or more companies have behaved badly, such as transporting oil carelessly and causing a major spill or flagrantly failing to respect human rights abroad. The soothing promise of responsibility can deflect public attention from the need for stricter laws and regulations or convince the public that there's no real problem to begin with. Corporations that have signed codes of conduct promising good behavior appear to have taken important steps toward social responsibility, but the pressures operating on them to lure and keep consumers and investors haven't eased one bit. In supercapitalism, they cannot be socially responsible, at least not to any significant extent.
Politicians are simultaneously let off the hook. They can applaud some seeming act of corporate virtue - they may even take credit for pushing corporations to sign pledges or promise change - while not having to take any action that might cause negative reaction in board rooms or among corporate fundraisers. They don't have to take sides, or take a stand, while appearing to be in favor of virtuous corporate behavior.
Commitments to corporate social responsibility are also conveniently reassuring to talented or privileged young people who want both the sky-high financial rewards of fast-track executive careers and the psychological rewards of doing some good in the world. They can thereby do well and do good at the same time, or so they tell themselves.
But viewed this way, "corporate social responsibility" is as meaningful as cotton candy. The more you try to bite into it the faster it dissolves. One popular argument is that "socially responsible" companies do better by their consumers and investors. Dow Chemical reduces its carbon emissions so it can lower its energy costs. McDonald's employs more humane slaughtering techniques, which prevent costly worker injuries and yields more meat. Wal-Mart has adopted "green" packaging for its fresh produce - transparent plastics from corn sugars - because it's cheaper than petroleum-based packaging. Starbucks gives its part time employees health insurance because that reduces employee turnover and helps its bottom line. Alcoa estimates annual savings of about $100 million from reduced energy use and related environmental improvements.
All these steps may be worthwhile but they are not undertaken because they are socially responsible. They're done to reduce costs. To credit these corporations with being "socially responsible" is to stretch the term to mean anything a company might do to increase profits if, in doing so, it also happens to have some beneficent impact on the rest of society. Taken to the logical extreme is the textbook economics argument that whenever a company increases its profits it has a positive effect on society because it thereby utilizes assets more efficiently, releasing those that are no longer needed to be used more efficiently elsewhere. In this sense, all profitable companies are socially responsible.
For many years I have preached that social responsibility and profitability converge over the long term. That's because a firm that respects and values employees, the community, and the environment eventually earns the respect and gratitude of employees, the community, and the larger society - which eventually helps the bottom line. But I've never been able to prove this proposition nor find a study that confirms it. More important from the standpoint of the modern firm, the long term may be irrelevant. Under supercapitalism, the "long term" is the present value of future earnings. There is no better measure of this than share price.
Logically, when the extra benefits of some product accrue to consumers individually, they may be willing to pay more for it. This doesn't make the product "socially responsible," either. …. Similarly, companies that pay good wages and offer good benefits in order to attract and retain high-caliber employees are not being "socially responsible"; they are merely practicing good management. … In general, corporate initiatives that improve the quality of products without increasing their price, or increase efficiency and productivity so that prices can be lowered, or otherwise generate higher profits and higher returns for investors, are not socially virtuous. They're just good management practices that should -- and, given the competitive pressures of supercapitalism will -- be undertaken regardless of how much or how little they benefit society.
Economist Milton Friedman argued several decades ago that the business of business is to make a profit, not to engage in socially beneficial acts. Friedman made his argument at a time when many companies still had sufficient discretion to be socially responsible. As noted, big companies tended to be oligopolies with some power over their prices and markets. His point was companies should not seek to accomplish social ends because companies are not the appropriate vehicles for social benevolence. Whether or not you agree with Friedman, companies under supercapitalism no longer have the discretion to be virtuous. Competition is so intense that most corporations cannot accomplish social ends at a cost to their consumers or investors, who will otherwise seek and find better deals elsewhere. Even if individual consumers or investors believed in the virtuousness of a particular sacrifice, absent laws requiring all companies and therefore all other consumers and investors to forebear as well, the individual's action would have to effect.
2. Consumer Indifference
As the economy has moved toward supercapitalism, companies that in Friedman's day were known to be the most socially virtuous have been punished by investors. Cummins Engine, one of the pioneers of the corporate social responsibility movement, had to abandon its paternalistic employment policies and its generous contributions to its communities when its investors demanded higher returns. Dayton-Hudson, another notably socially responsible company, came close to being swallowed up in a hostile takeover during the 1980s, and has since then paid exclusive attention to its customers and investors. Levi Strauss, also once on everyone's list of America's most socially responsible companies in part because of its commitment to source its clothing from domestic manufacturers, faced plummeting sales in the 1990s and had to eliminate its remaining domestic production.
By the same token, investors don't punish profitable companies or industries notably lacking in social virtue. In the early and mid-2000s, Exxon Mobil had the highest return on equity of any oil company. Shareholders flocked to it despite its being named an "outlaw" by environmental groups for its highly visible campaigns against non-fossil-based fuels and the reality of global warming. Wall Street analysts and investment bankers concern themselves only with the bottom line, as do most of those whose retirement savings they manage. "I don't see investors refusing to buy because they think the chief executive is overpaid, and I don't see union members boycotting nonunion stores that sell attractively priced foreign goods," says Anthony M. Maramarco, a managing director at Babson Capital Management.
Social offensiveness is not necessarily financially offputting. … It is of course possible that noxious firms must outperform the norm in order to attract capital. Perhaps there is a sleaze premium analogous to a risk premium. But it seems more likely that investors don't know or care. They have instructed the managers of their pension or mutual funds to maximize the value of their savings, regardless. Insulation from the social effects of our market decisions is, again, an essential aspect of supercapitalism.
Investors deeply concerned about corporate morality can park their savings in what are called "socially responsible investment" funds, which screen out certain offensive industries. But few investors do. In 2004, total shares under the management of such funds comprised less than 2 percent of mutual fund shares outstanding in the U.S. stock market. In Europe, socially responsible mutual funds account for an even lower portion - about a third of one percent. If such funds outperformed regular mutual funds more investors would be drawn to them, but their record is decidedly mixed. Besides, most "socially responsible" fund portfolios include just about every large company featured in a typical mutual fund portfolio. In 2004, thirty-three socially-responsible funds held the stock of Wal-Mart, twenty-three held Halliburton's, forty held Exxon Mobil's, and almost all held Microsoft's, its antitrust peccadillos notwithstanding. At the start of the 2000s, many held Enron, WorldCom, and Adelphia stock, and none of these companies went on to distinguish themselves for public service.
Yes, investors are interested in better corporate governance. But better governance makes a firm more responsive to its investors -- not to its employees, communities, or society as a whole. …. When shareholders have more say in electing company directors, when top executives have to sign off personally on company audits, and when executive compensation is more fully disclosed, executives presumably will have more incentive to do what they have a fiduciary responsibility to do in the first place.
These initiatives will not make CEOs more responsible to society, however. To the contrary, as we have seen, the more beholden CEOs and other top executives are to investors, the more likely they are to slash payrolls in pursuit of higher profits, uproot themselves from their traditional communities and rely on global supply chains instead, pander to whatever vulgar desires their customers may harbor, subject workers in developing nations to unsafe or unhealthy conditions, and pillage the environment - if these and other such anti-social techniques increase profits and share prices.
Evidence suggests consumers, like investors, do not care enough about social responsibility to make financial sacrifices for it. After an exhaustive review of the data, my colleague, Professor David Vogel, of the Haas Business School at the University of California at Berkeley, concluded that "the social and environmental practices of the vast majority of companies have not had any demonstrated effects on their sales."
3. “Corporate social responsibility” can mean anything
Social reformers have long exposed abusive corporate practices as means of mobilizing political support for new legislation or regulation aimed at curbing them. Progressive-era muckraker Ida Tarbell's History of the Standard Oil Company, published in 1904, inspired the antitrust case that broke up the company. Upton Sinclair's 1906 classic The Jungle, exposed the meatpacking industry and generated the nation's first health and safety regulations. Ralph Nader's 1966 book Unsafe at Any Speed, revealed the automobile industry's indifference to safety, leading to the creation of the National Highway Safety Administration. The purpose of these and other exposes was not to pressure individual companies to change their ways but to incite political action so all companies would have to. These efforts were not substitutes for political action but preconditions for it.
These campaigns were designed to change the rules of the game. Consumers or investors as a whole may have ended up paying slightly more for, say, gold since it was no longer available from South African mines when Congress imposed economic sanctions, or North Sea oil that had to be disposed of more expensively. But these small price increases were presumably worth the overall social gains, as determined in the democratic process. Labor organizers also pressure large companies to permit votes on whether workers should form a union - but here, too, the goal is specific and political in the sense of altering the balance of power between owners and employees.
Without a specific political goal, "corporate social responsibility" is simply a function of a group's organizing heft relative to a particular company or industry - and therefore can mean anything. Should a socially responsible investment fund screen out companies engaged in nuclear energy, as some anti-nuclear advocates urge? Environmentalists who think nuclear energy is the best alternative to fossil-based fuels would disagree. … Absent any political process for deciding questions like [this], the answers are completely arbitrary. Electoral democracy is messy and difficult at best. As has been noted, it's now so dominated by large companies that citizen values can barely be heard. Yet there is no means for determining the social obligations of the private sector other than through the democratic process. Making companies more "socially responsible" is a worthy goal, but it would be better served by making democracy work better.
Pressuring companies to be more virtuous is an unaccountable mechanism for deciding complex social issues better left to legislators. Consider America's gut-wrenching controversies over gay rights, abortion, and guns. Congress and state legislatures have struggled over them for years; some battles have been waged in state and federal courts over them. But even if no consensus is possible, the democratic process and courts at least provides means for weighing and balancing claims. Not so in the private sector.
In 2006, the American Family Association, a non profit advocacy group based in Tupelo, Mississippi, attacked Wal-Mart for joining the National Gay and Lesbian Chamber of Commerce, and urged a boycott of the company. Wal-Mart apparently held fast and resisted the boycott. But when other religious groups urged Wal-Mart's pharmacies not to sell the emergency contraceptive commonly referred to as the "morning-after" pill, Wal-Mart caved. When several women's groups then demanded the company offer the pill, Wal-Mart partly reversed itself - stocking the pill but excusing any pharmacist who objected for personal reasons to dispense it. Women's groups continued to push Wal-Mart to require its pharmacists to fill prescriptions for the pill. What is the socially responsible position for Wal-Mart to take? It has no means for weighing and balancing claims, except by assessing which hurt Wal-Mart's bottom line least.
In these and many similar instances, companies get caught in a crossfire. Because these battles take place outside normal political channels and are aimed at specific firms, they cast corporate executives in the unenviable roles of politicians seeking to broker compromises among competing visions of the common good. Yet executives have no special expertise for doing this. They were hired to give consumers and investors better deals.
That's why, no matter how intense or irritating the advocates for one side or the other may be, in the end the corporation must do whatever is necessary to minimize its costs. If a company were to cave in to a demand that imposed an extra cost on the firm, a rival that isn't party to the agreement could profitably step into the breach. …
Finally, not only are corporations unfit to decide what is socially virtuous, but under supercapitalism they are often unable to deliver services that are inherently public. Pushing them to do so begs the question of whether the responsibilities would be better undertaken by the public sector. The campaign against Wal-Mart charged in full-page advertisements that "Wal-Mart's low pay and meager employee benefits force tens of thousands of employees to resort to Medicaid, food stamps, and housing assistance. Call it the 'Wal-Mart Tax.'And it costs you $1.5 billion in federal tax dollars every year." The problem with this logic is that America had already decided to provide Medicaid, food stamps, and housing assistance to the poor - even if the poor are also working. It seemed more efficient for these benefits to flow from government, and for employers to alert their low-income employees of the availability of them, than for the private sector to provide them as conditions of employment. If we wish to change the rules and require private employers to pay wages and provide health benefits sufficiently high that no employee has to rely on government largesse, we should seek to do that through the democratic process. But it makes little sense to chastise one employer - even one as large as Wal-Mart - for playing by the rules.
Should the rules be altered as Wal-Mart's critics advocate? That would be a worthy political debate, but we're not having it. I, for one, think the minimum wage should be raised to be about half of the average worker's hourly pay. That was the ratio in the Not Quite Golden Age -- the period when, between 1945 and 1975, America struck a remarkable accommodation between capitalism and democracy by combining a hugely productive economic system with a broadly responsive and widely admired political system -- and it still seems to me a reasonable compromise. But Wal-Mart's critics also want Wal-Mart to provide employees with good health insurance coverage, which, in my opinion, is no longer a responsibility employers should take on.
4. Ersatz politics vs. democratic conflict and deliberation
Although public relations wars over a particular company's virtue may utilize all the paraphernalia of political campaigns, their outcomes are not at all political. No one is elected or deposed, no programs or platforms are put into place, no laws or regulations are changed. The issue in such wars is not what is the best policy overall, but whether a particular company is morally good. It is an ersatz politics - a massive diversion from the real thing.
Participants in the campaign against Wal-Mart have described the battle in lofty terms. "This is an assault on a business model," said Carl Pope, a long-standing leader of the environmental movement who signed on in 2005. "We're not trying to shut Wal-Mart down." Andrew Grossman, executive director of the coalition, explained "[w]e're focusing on Wal-Mart because of the huge impact it has on each of the different parts of American life it touches." Grossman conceded Wal-Mart does provide many goods at the lowest price, but pointed out that this "sometimes comes at a high cost to society." The goal of the campaign was for Wal-Mart to "make more money, but responsibly." What precisely did this mean? What exactly were the organizers seeking?
The campaign has been run by people with direct experience in real politics. Paul Blank, one of its organizers, had been the political director of Howard Dean's presidential campaign…. In response, Wal-Mart has spent millions of dollars on a counter-campaign designed to depict the firm as worker friendly, environmentally conscious, and socially responsible The group was advised by Terry Nelson, who had been national political director of George Bush's 2004 campaign.
It has rolled out commercials showing black, Hispanic, and female employees touting their benefits and career opportunities. It ran Asian-language advertisements targeted to Asian shoppers, others to Hispanics, full-page advertisements in more than a hundred mainstream newspapers, and large ads in select elite media, accusing its critics of distorting its image. "When critics pervert the facts to serve their financial and potential interests, it's our duty to speak up," H. Lee Scott, Jr., is quoted as saying in an advertisement running across two pages of the New York Review of Books. Wal-Mart also ran ads bearing a striking resemblance to Bill Clinton's "A Place Called Hope" message during the 1992 presidential campaign, starting with a homey image of Sam Walton's first five-and-dime store. "It all began with a big dream in a small town," says a sonorous narrator. "Sam Walton's dream."
Has Wal-Mart, as a result of all this, been born again as a socially responsible company? Immediately after the devastation caused by Hurricane Katrina, Wal-Mart pledged $15 million in cash to the Bush-Clinton Katrina Fund, and also gave a million dollars each to the Salvation Army and the American Red Cross. …. The company has also set out to be - or appear to be - a better employer and citizen in the communities where it does business. It has set up an office of diversity, and expanded health insurance to children of part time workers. It has announced a plan to help local businesses near its proposed urban stores. And it has become - or appeared to become - a dedicated environmentalist. It has launched a program to recycle shrink wraps, shopping bags, and other plastic items that its consumers normally sent to landfills; it has begun testing the use of trees and grasses in parking lots to absorb carbon dioxide emissions and tainted water; it has committed itself to wind and solar energy to generate electricity, and recycled materials to make its outdoor pavements. CEO Scott declared in 2006 that the firm would rely on 100 percent renewable energy sources "that sustain our resources and environment."
All these efforts are commendable, but even when added together, their costs still constitute a tiny fraction of Wal-Mart's yearly revenues. Some, like the firm's new-found commitment to renewable energy, have come without a timetable; even Scott admits he is "not sure how to achieve" them. And it remains unclear to what extent the firm will continue to strive for "social responsibility" if and when the heat is off and the anti-Wal-Mart campaign has ended - as, presumably, it will end, someday. …. To the extent the firm has been pushed to be more virtuous, it seems doubtful the tactics for achieving this result are transferable to most other firms.
The fact that a modern corporation can spend its way out of most public relations problems suggests that campaigns to make companies more "socially responsible" are unlikely to establish new norms of corporate conduct. This is true even if the standard they are seeking is precisely drawn, and even if rivals don't jump into whatever lower-cost breach opens up. Political techniques may be employed by both sides, and some candidates for public office may even criticize a company for its irresponsible ways. But in such contests real politics - the stuff of democratic conflict and deliberation - is nowhere to be seen.
5. The preemption of politics
The eagerness with which corporations themselves have embraced social responsibility can dull the public's sense that there exist troublesome issues deserving of public attention. Vivid displays of corporate goodness can mask problems a democracy should grapple with - would grapple with - if the public understood their true dimensions. And because public attention spans are short, such temporary displays can preempt permanent solutions.
In light of rumblings from the Federal Communications Commission and from conservative legislators concerned about the sex and violence cable companies were pumping out to their subscribers, cable operators in early 2006 announced plans to offer packages of family-friendly channels so parents could shield their children. "There's no need for legislation now," said Senator Ted Stevens (R-Alaska), chairman of the Senate Commerce Committee, after being reassured of the cable companies' plans. "We have to give it a chance to work." But cable companies had made similar promises before that had never been fulfilled. Presumably, cable companies will continue to pump out sex and violence until Congress or the FCC stops them, because sex and violence makes money.
Displays of corporate virtue can also obscure conditions that would otherwise generate political heat for reform. Recall the flurry of media attention directed at sweatshop abuses during the mid-1990s. Apparel manufacturers and big retailers avoided any new laws or regulations by promising they would voluntarily clean up their acts. They developed voluntary codes of conduct and began monitoring their overseas factories, especially in China where most were located. But according to an investigation of internal industry documents by Business Week in late 2006, the codes are being widely violated. Many Chinese factories keep double sets of books to fool auditors and distribute scripts for employees to recite if they are questioned. Factory managers in China complained in interviews that pressure from American firms to cut prices creates a powerful incentive to cheat. Yet American companies continue to tout the codes as evidence of their social responsibility. And, according to Business Week, the codes "have been important to maintaining political support in the U.S. for growing trade ties with China."
The preemption of politics often works because the public's memory - and the attention span of the media - is conspicuously short, as I said earlier. The public forgives because it so easily forgets. It can even be persuaded by a clever media campaign that a company once disdained for disregarding the common good is heroically achieving it. Recently, GE has been hailed as an environmental leader for its self-imposed restrictions on greenhouse gases. But the public - and the media - seem to have forgotten GE's role in polluting the Hudson River and its related tributaries with PCB, the company's tenacious fight with federal regulators against cleaning up the mess, and its insistent lobbying against regulation that would force it to foot more of the bill.
The U.S. government has not increased automobile fuel-economy standards in several decades, nor made any major move to increase gas taxes to better reflect the true social cost of oil. Part of the reason is every time the public shows any broad interest in more fuel-efficient cars, major automakers declare themselves born-again environmentalists and commit themselves to fuel efficiency - until the public's interest flags. In 2000, Ford was the largest producer of SUVs and light trucks in North America, and they were among the nation's most notorious gas guzzlers. (When the Sierra Club sponsored a contest to give a name and advertising slogan to Ford's newest SUV - which used one gallon of gas for every twelve miles it traveled - the winner was "The Ford Valdez -- Have You Driven a Tanker Lately?" ) But that year Ford effectively preempted political pressure to force it and other automakers to do more by promising to voluntarily increase the fuel economy of its SUVs by 25 percent. Two years later, when Ford's profits began to drop and consumers still wanted big gas guzzlers that were highly profitable to the company, Ford revoked its pledge. It even went so far as to initiate an intense lobbying and advertising effort that successfully defeated a Senate proposal to raise fuel-economy standards. In 2005, when oil prices shot upward and consumer interest in gas-guzzling SUVs and pickups began to wane, Ford with great fanfare announced its newfound interest in fuel efficiency. It pledged to voluntarily increase production of hybrid vehicles ten-fold by 2010.
6. Disappointments from government
In recent years, politicians have got into something of a habit of publicly shaming companies that have acted badly in some way. Offending executives are typically hauled before congressional committees, where members of Congress berate them. But little legislation emerges to force the companies to behave any differently in the future.
The notion that such public scoldings and the temporarily unflattering publicity that accompany them will alter corporate practices is another diversion from the work of creating rules that balance the interests of consumers and investors with broader interest of the public. It also, conveniently, allows politicians to maintain good relations with the same companies and industries - collecting campaign donations, enjoying rounds of golf with their executives, tapping their corporate lobbyists for miscellaneous favors - while showing the public they're being "tough" on the wrongdoers. Here again, the public is led to believe that democracy is working when all that's really working is public relations.
When oil prices soared in 2005 and early 2006, oil companies reaped extraordinary profits while millions of Americans had to pay more to fuel their cars and heat their homes. This prompted calls for Congress to enact a "windfall profits tax" on the oil companies, but not even a debate took place. Instead, Congress simply scolded oil company executives and publicly berated the companies. As oil prices and profits approached record levels, Senator Charles Grassley, an Iowa Republican, and chairman of the Senate Finance Committee, issued a public letter reprimanding the oil and gas industry and instructing its companies to make charitable donations - 10 percent of that quarter's profits - to help poor people pay their heating bills that winter. "You have a responsibility to help less fortunate Americans cope with the high cost of heating fuels," Grassley said.
Grassley's admonition made the headlines but obviously had no effect. Why would the oil companies voluntarily give away their profits? The only practical effects of the public scolding were to make Grassley and his colleagues seem compassionate, and to reassure some portion of the public that Congress was "doing something" about record oil prices and profits. But because any real debate about a tax on their windfall profits was deflected by Grassley's moves, the public never had an opportunity to decide whether using the resulting revenues to help low-income oil consumers was worth the risk that oil companies, forced to disgorge some of their profits, might do less exploration and development - leading to higher prices in the future.
Corporate executives are not authorized by anyone - least of all by their consumers or investors - to balance profits against the public good. Nor do they have any expertise in making such moral calculations. That's why we live in a democracy, which is supposed to represent the public in drawing such lines.
Consider Yahoo's decision in 2005 when it surrendered to Chinese authorities the names of Chinese dissidents who had used Yahoo email, thinking their email addresses would shield their anonymity. One, a journalist, was sentenced to ten years in prison for sharing with foreigners a message his newspaper had received from Chinese authorities, urging it not to overplay the fifteenth anniversary of the Tiananmen Square disturbances. Another whom Yahoo helped Chinese authorities trace down was sentenced to eight years, and a third, to four years. It remains unclear how many more dissidents are in Chinese prisons because of Yahoo's cooperation with Chinese authorities.
Yahoo's decision ignited a firestorm. Its executives explained the firm had no choice but to comply with Chinese law if it wanted access to China's huge and growing market - and Yahoo said it needed to be in China to move China toward democracy. "I've always taken the attitude that you're better off playing by the government's rules and getting there," Yahoo's chairman told attendees at a Web conference in San Francisco. "Part of our role in any form of media is to get whatever we can into those countries and to show and enable people, slowly, to see the Western way and what our culture is like, and to learn." Yahoo's role? The firm was never anointed the vessel of Western culture, nor the arbiter of how best to present it to China. That's not the business of any global company. Indeed, most global companies do everything in their power to avoid the appearance of representing any particular culture, nationality, or ideology - unless such representation helps them sell their products.
Yahoo is not a moral entity, and no one authorized it to undertake any ethical balancing between sending dissidents to prison and exposing the Chinese to American culture and democracy. Yahoo's executives have only one responsibility under supercapitalism - to make money for their shareholders and, along the way, satisfy their consumers. In this instance, one of Yahoo's key "consumers" was the Chinese government, because it was the gateway to all other Chinese consumers. Unless barred by legislation in the United States, Yahoo will continue to do whatever the Chinese government demands of it because the competitive stakes are too high and the potential profits too great to do otherwise. China is the second-largest Internet market in the world after the United States. As of 2006, more than one hundred million Chinese had already logged on. At the rate Internet usage is growing there, within a few years there will be more Chinese on the Internet than Americans.
Any decision about Yahoo's … "social responsibility" was and is best left to the democratic process in the United States, where the firms are headquartered and whose citizens have a presumed stake in human rights around the world. Hence, one appropriate forum for sorting out these firms' duties is Congress, before whom their executives were summoned to appear. The question that body needed to address was whether American high-tech companies should be barred from cooperating with dictatorial governments to abridge human rights, even if this means losing business. That didn't happen, however.
If the U.S. government wanted to make Chinese human rights a priority, it could pass a law tomorrow barring American companies from helping the Chinese government hobble the free speech of its citizens - just as it once barred trade with South Africa and still bans commerce with countries like Cuba and Burma, and has managed to force most of the world's major banks to eschew business with North Korea. Don't hold your breath. Despite all the self-righteous indignation emanating from Congress, and despite all the talk by the Bush administration about spreading democracy around the world, international human rights don't rank very high in Congress or the White House. First and foremost, American business wants access to China's huge market without interference.
All the while, as expected, consumers and shareholders of these firms remained unconcerned. A consumer boycott was threatened (booyahoo.blogspot.com urged "freedom-loving citizens of the Internet to discontinue their use of Yahoo services as a result of their oppressive policies") but nothing came of it.
None of these companies broke American law when they helped Chinese authorities suppress human rights in China. All obeyed the prevailing rules of the game. In supercapitalism, that's all we can and should expect companies to do. Framing the issue in moral terms -- citing the shameless behavior of these companies and their executives -- diverted attention from the harder but more important question of whether the rules of the game should be altered.
7. “Voluntary” responsibility?
Politics is also diverted when politicians ask corporations to take some action voluntarily in the public interest, as Senator Grassley asked the oil companies to do. Early in the Bush administration, the White House embarked on an initiative dubbed "Climate Leaders," in which the President, with great fanfare, asked the nation's major industrial polluters to commit to reducing their greenhouse gas emissions by at least 10 percent within the decade. The event suggested the Administration was taking action on global warming, but it was doing no such thing. By January 2004, only fifty of the thousands of American firms with major greenhouse gas emissions had agreed to become Climate Leaders and reduce their emissions, and of these only fourteen announced specific goals. Although energy utilities are the nation's major polluters, only six of these fifty were utilities. Within a few years the Climate Leaders initiative had died a quiet death. A 2004 report by the World Economic Forum at Davos applauded the efforts of some forward-looking multinational companies to reduce greenhouse gas emissions but concluded that voluntary actions were inadequate to counter effects of climate change.
Of course they're inadequate. Supercapitalism does not permit acts of corporate virtue that erode the bottom line. No company can "voluntarily" take on an extra cost that its competitors don't also take on - which is why, under supercapitalism, regulations are the only means of getting companies to do things that hurt their bottom lines. As Professor David Vogel concluded after surveying so-called "voluntary" corporate environmental initiatives in the United States and Europe, few companies undertake them in the absence of regulations or the impending threat of them. To suggest that a vast, untapped reservoir of corporate benevolence is available for the asking is to seriously mislead the public - and once again divert attention from the important job of deciding what such regulations should be. In fact, the outpouring of "voluntary" corporate initiatives on global climate change is deflecting public attention from the necessary work of enacting tough laws and regulations to deal with it.
It is much the same with what passes for corporate charity. Companies donate money to the extent - and only to the extent - it has public relations value, and thereby helps the bottom line. Shareholders do not entrust their money to corporate executives for them to give it away, unless the return is greater. When the 2005 tsunami devastated Indonesia and other parts of coastal Southeast Asia, President Bush asked American corporations to come to the aid of victims. After several companies contributed millions of dollars, Bush extolled CEOs for their generosity. "One of the less reported aspects of the U.S. business community is the tremendous amount of good they do, giving back to the communities in which they operate," he said. "[T]he tsunami has presented the private sector here in America with a genuine watershed moment. I believe it's ushered in a new era of corporate social responsibility." His words were greeted with loud applause, but they made no sense. The assembled CEOs had not been generous - they had not contributed their own money. They had donated their shareholders' money. Presumably they had done so in the belief their shareholders would benefit from the public relations value such contributions added to the firms' bottom lines. Otherwise, these CEOs would have violated their fiduciary duties and risked having their shareholders switch to other companies that didn't give away their money. Shareholders did not invest in their firms expecting the money would be used for charitable purposes. They invested to earn high returns. Shareholders who wished to be charitable would, presumably, make donations to charities of their own choosing in amounts they decided for themselves.
The larger danger is that these conspicuous displays of corporate beneficence hoodwink the public into believing corporations have charitable impulses that can be relied on in a pinch. An earthquake that hit Pakistan in October 2005 killed more than 87,000 people and displaced three times as many as those affected by the Indian Ocean tsunami. Yet the Bush administration initially pledged only $500,000 in aid - a sum so small as to be derided by many Pakistanis. Bush then pledged more, and also asked five prominent CEOs to mount a major fundraising effort from American corporations. General Electric contributed more than $5 million in cash and health care and energy equipment; Pfizer, $1 million to relief agencies and $5 million in medicines and health care products; Xerox, $1 million in cash; Citigroup, $3 million. In total, the CEOs raised about $100 million, moving the President to another effusive outpouring of gratitude. "If the international community had not stepped in," he told the assembled executives, "the door might have been opened for more radical Islamic influences."
Actually, the "international community" failed to step in as much as it should have. Pakistan needed billions of dollars, not hundreds of millions - and needed it quickly. While more than $3 billion in aid had been distributed to areas hit by the tsunami within two weeks of that disaster, a total of only $17 million had been distributed to Pakistan as late as six weeks after the quake. And according to the United Nations, total pledges to Pakistan still amounted to only a quarter of what was needed to cope with the devastation. The void was partly filled by radical Islamist groups. The Pakistani interior minister acknowledged that the radicals were "the lifeline of our rescue and relief work."
Corporations are not set up to be public charities. The world's biggest philanthropists, Bill and Melinda Gates, do not draw on Microsoft's profits; they draw on their own vast fortune. The only legitimate reason for a corporation to be generous with its shareholders' money is to burnish its brand image, and such a rationale will go only so far.
Corporations do some good deeds but corporate thank you rituals mislead the public into believing companies do these things out of selflessness - indeed, that there is a "self" there deserving commendation in the first place. But there is no corporate selflessness, and there is no corporate self. In supercapitalism, companies exist only to serve consumers and thereby make money for investors. This is how they serve the public.
8. Faux democracy on two levels
Democracy and capitalism have been turned upside down. As we have seen, capitalism has invaded democracy. Legislation is enacted with public rationales that bear little or no relation to the real motives of the corporations and their lobbyists who pushed for them and legislators who voted for them. Regulations, subsidies, taxes, and tax breaks are justified as being in the public interest but are most often the products of fierce lobbying by businesses or industries seeking competitive advantage. The broader public is not involved. Citizen voices are drowned out. The public rationales mask what's really going on - which companies and industries gain and which lose.
At the same time, a kind of faux democracy has invaded capitalism. Politicians and advocates praise companies for acting responsibly or condemn them for not doing so. Yet the praise and blame are disconnected from any laws and rules defining responsible behavior. The message that companies are moral beings with social responsibilities diverts public attention from the task of establishing such laws and rules in the first place. The praise or blame is soon forgotten, and barely affects the behavior of consumers or investors. Meanwhile, the real democratic process is left to companies and industries seeking competitive advantage.
The first step in turning democracy and capitalism right side up is to understand what's really happening.
http://creativecapitalism.typepad.com/creative_capitalism/2008/06/bill-gates-an-1.html
tirsdag den 7. oktober 2008
Capitalism Reaches a Crossroads
'Even now, someone somewhere is penning a book with a snappy title The End of Capitalism,' columnist Philip Stephens, associate editor of the Financial Times wrote recently. Not to worry, he continued, that's not about to happen. However, eight days earlier Martin Wolf, associate editor and chief economics commentator at the same paper observed that what was 'until recently, the brave new financial system is melting away before our eyes.' On the night of September 18 members of Congress were summoned to a Capitol Hill conference room where they were told that if they did not act quickly to approve a radical revamp of how the government deals with the economy, capitalism might indeed collapse. That's before President George W. Bush said, 'If money isn't loosened up, this sucker could go down.'
Not to worry, cautioned the editor of the conservative German newspaper Die Weit. 'These are all trials and crises, but they will not spell the end of America's distinctiveness.'
'The country will never convert to socialism, nor will it become a mega-state. Faced with similar circumstances, that might be the response of the pessimistic Europeans. America's culture of optimism - which all too often gets on the Europeans' nerves because they consider it to be naïve and superficial - also has the power to identify a setback as exactly that and not the end of the world,' the paper editorialized. That was a few days before the U.S. Treasury took responsibility for the well-being of distressed financial institutions all over the world.
No, the U.S. is not about to become socialist any time too soon. That alternative has not been placed before the public in a way that could be considered preferable to what we've got. Besides, a system ceases to be when it is replaced by something else. But with each passing day, as the crisis has deepened, it has become more and more obvious that 'unfettered' capitalism and 'market fundamentalism' and the neo-liberal policies they produce are discredited. Indeed, most of the world had rejected them before the current crisis began.
'The globalization agenda has been closely linked with the market fundamentalists - the ideology of free markets and financial liberalization,' economist Joseph Stiglitz told Nathan Gardels on the Huffington Post recently. 'In this crisis, we see the most market- oriented institutions in the most market-oriented economy failing and running to the government for help.' Everyone in the world will say now that this is the end of market fundamentalism.
'In this sense, the fall of Wall Street is for market fundamentalism what the fall of the Berlin Wall was for communism - it tells the world that this way of economic organization turns out not to be sustainable,' said Stiglitz. 'In the end, everyone says, that model doesn't work. This moment is a marker that the claims of financial market liberalization were bogus.'
Conservative commentator and political operative, Newt Gingrich, has come up with the terms 'crony capitalism' and 'bureaucratic capitalism,' both of which he says will be the outcome of the Bush Administration's bailout scheme. The former will mean 'a welfare state for rich investors,' he says, the latter 'salary caps and other government regulatory requirements which would drive the `private' out of `private enterprise'.'
There's a lot of talk out there about the bailout being 'socialism for the rich.' That's all so much seemingly clever rhetoric designed to make a political point, but of no substance. Nothing the Bush Administration is pushing (with the help of a Democratic Congress) bears any resemblance to anything that could remotely be called socialism. In fact, it looks far more like Italy under Mussolini than the USSR under Brezhnev. As truthdig.com columnist Robert Sheer noted last week, 'what is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as `financial fascism'.'
The new Treasury Department fund 'will share many characteristics of the expanding government-sponsored pools known as sovereign funds,' wrote Landon Thomas, Jr. in the New York Times September 23.
'The new fund, assuming it is approved by Congress, could pull the United States deeper into a form of capitalism in which the most powerful financial entities are not risk-happy investment banks, but more cautious state-sponsored entities,' wrote Thomas. 'While not necessarily a third economic way, this general approach presumes that the government - in addition to the private sector - plays a crucial role in deciding how best to deploy a nation's investment capital.'
'This gets to the point of state capitalism and defining what the role of the government is in a free- market economy,' Douglas Rediker, a former investment banker at the New America Foundation in Washington, told Thomas.
'The result of the bailout would be that the government would virtually control many of the largest financial institutions in the country,' wrote Dan La Botz in Monthly Review online. 'The U.S. government and the banks of the country would suddenly be fused - or perhaps entangled would be a better word - into one extremely powerful political-economic entity. While the proposal does not envision state control of the economy as a long-term proposition, merely long enough to save the bankers, still the impact of the current proposals now being debated in Congress will be far-reaching. The American government and the people have suddenly found themselves at a turning point which was not foreseen and for which no one was prepared.'
'If you wanted to devise a name for this approach, you might pick the phrase economist Arnold Kling has used: Progressive Corporatism.,' wrote Times columnist David Brooks the same day. 'We're not entering a phase in which government stands back and lets the chips fall. We're not entering an era when the government pounds the powerful on behalf of the people. We're entering an era of the educated establishment, in which government acts to create a stable - and often oligarchic - framework for capitalist endeavor.'
'After a liberal era and then a conservative era, we're getting a glimpse of what comes next,' wrote Brooks
I can hardy wait.
An inevitable consequence of globalization is that many of the critical problems facing the planet today can only be solved through international cooperation and coordination. These include: climate change and other threats to the biosphere, aids and other infectious diseases, human migration and international finance.
The current economic crisis is an international one yet the recourse chosen by Washington to deal with it globally is to 'press' other countries to adopt measures similar to those adopted in the U.S. Under such circumstances the chance of a collective effort to restructure world capitalism would seem remote, if possible. But the demand for such is out there and how our country responds will go a long way in determining the contours of international affairs for decades to come. One has only to grasp the nature of the remarks at the recent opening of the United National General Assembly to appreciate the seriousness of the challenge.
Last week in New York, one after another, heads-of- state rose to the Assembly rostrum to drive home the message: the 'credit crunch' in the U.S. is much more than a crisis in U.S. banking; it reflects a problem threatening economic devastation across the globe. It requires an international cooperative effort in which diktat, posing as 'leadership', cannot be tolerated. Don't even think about handing the problem to the World Bank or the International Monetary Fund. The UN itself should be the arena for countries to discuss a solution for the global financial crisis, said Brazil's President, Luiz Inacio Lula da Silva: 'The global nature of this crisis means that the solutions we adopt must also be global, and decided upon within legitimate, trusted multilateral forum, with no impositions.'
Arguably some of the strongest remarks to the UN came from the leaders of Latin American countries but the most fundamental challenges came from traditional U.S. allies such as France and Germany. These are capitalist countries and for the foreseeable future will remain so. But they have a strikingly different view of how the international economy should function.
German chancellor, Angela Merkel, even revealed that an attempt had been made to enlist Washington in a collective effort to head off the crisis. At last year's meeting of the major industrial powers, she said, she had - in the world of the New York Times - 'strongly urged both the United States and Britain to be more rigorous in supervising financial activities, and even offered specific proposals to be applied to banks and other institutions.' But the U.S. was unresponsive, she said, while seeming 'to express a certain exasperation that the United States was now asking Europe for help, after inflicting damage on the rest of the world that could have been avoided.'
'At the moment, I don't think Japan needs to launch a program similar to that of the United States,' Japanese Vice Finance Minister Kazuyuki Sugimoto told reporters in Tokyo, while the European Union let it be known that its members would not be putting up money to rescue banks. 'This crisis originated in the
US and is mainly hitting the US,' German Finance Minister Steinbeck said last week. In Europe and Germany, such a package would be 'neither sensible nor necessary.'
The U.S. 'has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, but it has also probably undercut future American efforts to promote such policies abroad,' wrote the New York Times' Nelson Schwartz from Paris September 18. And most of the other governments are none to happy about it. Japanese commentators were quick to note that the Treasury bailout is precisely what Washington told them not to try when that country faced an economic crisis only a few years ago. (A condition of help for South Korea when it faced an economic crisis in the 90s was that Seoul not bail out banks and other failing enterprises.)
Last Friday, editors of the center-right German newspaper Allegemeine Zeitung compared the U.S. financial crisis to 911 saying 'this time, the attack on all-American doctrines is not the work of some foreign enemy. It comes from within, from the depths of the system. Largely unobstructed by its own state controls, American capitalism has created its own suicide bomber whose explosives - derivatives - have had an even greater effect than the flying bombs of the jihadists. The whole world - and not just New York - has a new ground zero now - Wall Street.'
French political leaders immediately seized on the latest bailout moves to trumpet their own version of 'economic patriotism.' 'We're not going to accept to pay for the broken dishes of a failed regulation' and a 'corruption of capitalism,' said French Prime Minister Francois Fillon. Nicolas Sarkozy has called for a world to 'learn the lessons of the worst financial crisis since the 1930s.' He proposed to 'moralize' capitalism, freeing it from speculators whom he labeled 'the new terrorists.' Last week, as President Bush went on television to admit the crisis is grave, Sarkozy stoutly defended capitalism but observed that 'A certain idea of globalization is drawing to a close with the end of a financial capitalism that had imposed its logic on the whole economy and contributed to perverting it.'
'The crisis is not a crisis of capitalism,' said Sarkozy. 'It is the crisis of a system that is far from the values of capitalism and betrayed capitalism.'
In 2006, long before there was any acknowledgement of the chaos to come (I put it that way because working people in the U.S. were already facing home foreclosures),when the world's elite gathered at Davos, Switzerland, chancellor Merkel had observed that 'What we have is a completely new balance of power in the world today.'
That too was evident in the General Assembly debate. In prior years no one would have expected Latin American governments to openly challenge Washington and Wall Street's conduct in the international economy. However, over a brief recent period, left-leaning political forces have taken power electorally in a number of countries, having in common a rejection of the exploitative policies of the World Bank and IMF, and the influence of the same 'market fundamentalists' that the Asians are repulsing and who have led the U.S., itself, into the present economic cul-de-sac.
No one was surprised that Cuban first vice-president Jose Ramon Machado Ventura would tell the UN that the drive for profits was increasing poverty and that the current crisis threatened the 'existence of mankind.' 'Fabulous fortunes cannot be wasted while millions are starving and dying of curable diseases,' he said. 'For a large part of the non-aligned nations, the situation is becoming unsustainable. Our nations have paid and will continue to pay the cost and consequences of the irrationality, wastefulness and speculation of a few countries in the...north.'
'The prevailing world order, unjust and uncontained, must be replaced,' Machado Ventura said.
'We don't want to conceive of the idea that the rescue of the dignity of the world's poor does not have the same priority or the same urgency of saving the institutions that operate the most powerful financial centre in the world,' said Dominican Republic president Leonel Fernandez. 'We need an international financial plan that is as urgent and as bold as the one to save Freddie Mac, Fannie Mae, Bear Stearns, Merrill Lynch and American International Group.' Fernandez added that while $700 billion is being set aside to rescue U.S. financial institutions, for something like $50 billion millions around the world could be spared a miserable existence.
'We're not going to accept to pay for the broken dishes of a failed regulation' and a 'corruption of capitalism,' said French Prime Minister Francois Fillon. Sarkozy called for a world to 'learn the lessons of the worst financial crisis since the 1930s.' 'Let's create a regulated capitalism,' he said.
On September 24 in Berlin, German Finance Steinbruck repeated Merkel's charge that Washington had, last year, resisted specific calls for regulations in the financial marketplace. 'Crisis management alone will not rebuild the lost confidence,' he said. 'We must civilize financial markets, and not just through moral appeals against excess and speculation. Self-regulation is no longer sufficient.' The US belief in 'laisser- faire capitalism; the notion that markets should be as free as possible from regulation; these arguments were wrong and dangerous,' he said. 'This largely under- regulated system is collapsing today.'
Steinbeck went on to propose new regulations and said that amid the current economic crisis the US is poised to lose its role as a global financial 'superpower.' The new world will become 'multipolar' with the emergence of stronger, better capitalized centers in Asia and Europe, he said.
Meanwhile, Oskar Lafontaine, leader of Germany's fast growing and increasingly influential Left Party, said the world is confronted with more than a banking or economic crisis and - in the words of Der Spiegel - 'but rather one of the entire intellectual and moral direction of Western society.' 'We no longer have a social market economy because of the regimes of the international financial markets,' Lafontaine said the consequence of which is increased privatization of the social services and a threat to the retirement security of millions of people. Lafontaine said the Left party wants the re-creation of a Bretton Woods-style system of foreign exchange controls with fixed trading bands, controls on international capital flows and on financial products.
'We believe that financial products should be forced to get official stamps of approval just like pharmaceutical products,' Lafontaine, the former head of the country's Social Democratic Party, said. 'Because the bitter truth is that many extremely greedy bankers don't even understand themselves what they've done. These are people who started something without knowing what they were doing and it's ended in disaster.'
'When enough banks have been nationalized or gone bust, when the last reputations have been properly shredded, and when prices of Fifth Avenue apartments and Mayfair town houses have fallen finally to earth, politicians are going to have to think hard about the lessons of the financial crash of 2008,' wrote Stephens of the Financial Times. 'Even now, someone somewhere is penning The End of Capitalism. Experience tells us snappy book titles should be treated with caution. The global financial system will never be the same again. But just as history survived the collapse of communism, so the market economy will weather the demise of Bear Stearns, Lehman, Merrill Lynch and HBOS.'
'The credit crunch and the financial firestorm have also provided a neat metaphor for the big shift in economic power in the world,' writes Stephens. He goes on to endorse the call for 'more global governance: credible international rules.'
'Capitalism will survive these financial shocks,' said Stephens. Probably it will; in any case it's good to have faith.
On Monday, the House of Representatives voted down the final draft of the bailout plan hurriedly crafted by the Administration and Congressional leaders from the two major parties. This set the stage for what was certain to be desperate attempts to put together a compromise that could win legislative approval. This takes place against a backdrop of widespread public opposition to the original plan and ever greater turmoil in the foreign money markets and on Wall Street.
Meanwhile, the dangers and challenges over the next few weeks and months are enormous. On the world scene, the U.S. could join in an international - and more democratic - effort at reconstructing capitalism in an effort to save it, or the White House - whoever lives there - and the Congress could lead us along a path of international isolation in which the rest of the world goes about its business, leaving us in economic mire. On the home front, the policymakers could enshrine a new form of corporate and more authoritarian capitalism or enact policies bent toward greater equality, solidarity and social and economic justice (things real socialists have never ceased advocating). The latter is what we should be insisting upon.
Not to worry, cautioned the editor of the conservative German newspaper Die Weit. 'These are all trials and crises, but they will not spell the end of America's distinctiveness.'
'The country will never convert to socialism, nor will it become a mega-state. Faced with similar circumstances, that might be the response of the pessimistic Europeans. America's culture of optimism - which all too often gets on the Europeans' nerves because they consider it to be naïve and superficial - also has the power to identify a setback as exactly that and not the end of the world,' the paper editorialized. That was a few days before the U.S. Treasury took responsibility for the well-being of distressed financial institutions all over the world.
No, the U.S. is not about to become socialist any time too soon. That alternative has not been placed before the public in a way that could be considered preferable to what we've got. Besides, a system ceases to be when it is replaced by something else. But with each passing day, as the crisis has deepened, it has become more and more obvious that 'unfettered' capitalism and 'market fundamentalism' and the neo-liberal policies they produce are discredited. Indeed, most of the world had rejected them before the current crisis began.
'The globalization agenda has been closely linked with the market fundamentalists - the ideology of free markets and financial liberalization,' economist Joseph Stiglitz told Nathan Gardels on the Huffington Post recently. 'In this crisis, we see the most market- oriented institutions in the most market-oriented economy failing and running to the government for help.' Everyone in the world will say now that this is the end of market fundamentalism.
'In this sense, the fall of Wall Street is for market fundamentalism what the fall of the Berlin Wall was for communism - it tells the world that this way of economic organization turns out not to be sustainable,' said Stiglitz. 'In the end, everyone says, that model doesn't work. This moment is a marker that the claims of financial market liberalization were bogus.'
Conservative commentator and political operative, Newt Gingrich, has come up with the terms 'crony capitalism' and 'bureaucratic capitalism,' both of which he says will be the outcome of the Bush Administration's bailout scheme. The former will mean 'a welfare state for rich investors,' he says, the latter 'salary caps and other government regulatory requirements which would drive the `private' out of `private enterprise'.'
There's a lot of talk out there about the bailout being 'socialism for the rich.' That's all so much seemingly clever rhetoric designed to make a political point, but of no substance. Nothing the Bush Administration is pushing (with the help of a Democratic Congress) bears any resemblance to anything that could remotely be called socialism. In fact, it looks far more like Italy under Mussolini than the USSR under Brezhnev. As truthdig.com columnist Robert Sheer noted last week, 'what is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as `financial fascism'.'
The new Treasury Department fund 'will share many characteristics of the expanding government-sponsored pools known as sovereign funds,' wrote Landon Thomas, Jr. in the New York Times September 23.
'The new fund, assuming it is approved by Congress, could pull the United States deeper into a form of capitalism in which the most powerful financial entities are not risk-happy investment banks, but more cautious state-sponsored entities,' wrote Thomas. 'While not necessarily a third economic way, this general approach presumes that the government - in addition to the private sector - plays a crucial role in deciding how best to deploy a nation's investment capital.'
'This gets to the point of state capitalism and defining what the role of the government is in a free- market economy,' Douglas Rediker, a former investment banker at the New America Foundation in Washington, told Thomas.
'The result of the bailout would be that the government would virtually control many of the largest financial institutions in the country,' wrote Dan La Botz in Monthly Review online. 'The U.S. government and the banks of the country would suddenly be fused - or perhaps entangled would be a better word - into one extremely powerful political-economic entity. While the proposal does not envision state control of the economy as a long-term proposition, merely long enough to save the bankers, still the impact of the current proposals now being debated in Congress will be far-reaching. The American government and the people have suddenly found themselves at a turning point which was not foreseen and for which no one was prepared.'
'If you wanted to devise a name for this approach, you might pick the phrase economist Arnold Kling has used: Progressive Corporatism.,' wrote Times columnist David Brooks the same day. 'We're not entering a phase in which government stands back and lets the chips fall. We're not entering an era when the government pounds the powerful on behalf of the people. We're entering an era of the educated establishment, in which government acts to create a stable - and often oligarchic - framework for capitalist endeavor.'
'After a liberal era and then a conservative era, we're getting a glimpse of what comes next,' wrote Brooks
I can hardy wait.
An inevitable consequence of globalization is that many of the critical problems facing the planet today can only be solved through international cooperation and coordination. These include: climate change and other threats to the biosphere, aids and other infectious diseases, human migration and international finance.
The current economic crisis is an international one yet the recourse chosen by Washington to deal with it globally is to 'press' other countries to adopt measures similar to those adopted in the U.S. Under such circumstances the chance of a collective effort to restructure world capitalism would seem remote, if possible. But the demand for such is out there and how our country responds will go a long way in determining the contours of international affairs for decades to come. One has only to grasp the nature of the remarks at the recent opening of the United National General Assembly to appreciate the seriousness of the challenge.
Last week in New York, one after another, heads-of- state rose to the Assembly rostrum to drive home the message: the 'credit crunch' in the U.S. is much more than a crisis in U.S. banking; it reflects a problem threatening economic devastation across the globe. It requires an international cooperative effort in which diktat, posing as 'leadership', cannot be tolerated. Don't even think about handing the problem to the World Bank or the International Monetary Fund. The UN itself should be the arena for countries to discuss a solution for the global financial crisis, said Brazil's President, Luiz Inacio Lula da Silva: 'The global nature of this crisis means that the solutions we adopt must also be global, and decided upon within legitimate, trusted multilateral forum, with no impositions.'
Arguably some of the strongest remarks to the UN came from the leaders of Latin American countries but the most fundamental challenges came from traditional U.S. allies such as France and Germany. These are capitalist countries and for the foreseeable future will remain so. But they have a strikingly different view of how the international economy should function.
German chancellor, Angela Merkel, even revealed that an attempt had been made to enlist Washington in a collective effort to head off the crisis. At last year's meeting of the major industrial powers, she said, she had - in the world of the New York Times - 'strongly urged both the United States and Britain to be more rigorous in supervising financial activities, and even offered specific proposals to be applied to banks and other institutions.' But the U.S. was unresponsive, she said, while seeming 'to express a certain exasperation that the United States was now asking Europe for help, after inflicting damage on the rest of the world that could have been avoided.'
'At the moment, I don't think Japan needs to launch a program similar to that of the United States,' Japanese Vice Finance Minister Kazuyuki Sugimoto told reporters in Tokyo, while the European Union let it be known that its members would not be putting up money to rescue banks. 'This crisis originated in the
US and is mainly hitting the US,' German Finance Minister Steinbeck said last week. In Europe and Germany, such a package would be 'neither sensible nor necessary.'
The U.S. 'has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, but it has also probably undercut future American efforts to promote such policies abroad,' wrote the New York Times' Nelson Schwartz from Paris September 18. And most of the other governments are none to happy about it. Japanese commentators were quick to note that the Treasury bailout is precisely what Washington told them not to try when that country faced an economic crisis only a few years ago. (A condition of help for South Korea when it faced an economic crisis in the 90s was that Seoul not bail out banks and other failing enterprises.)
Last Friday, editors of the center-right German newspaper Allegemeine Zeitung compared the U.S. financial crisis to 911 saying 'this time, the attack on all-American doctrines is not the work of some foreign enemy. It comes from within, from the depths of the system. Largely unobstructed by its own state controls, American capitalism has created its own suicide bomber whose explosives - derivatives - have had an even greater effect than the flying bombs of the jihadists. The whole world - and not just New York - has a new ground zero now - Wall Street.'
French political leaders immediately seized on the latest bailout moves to trumpet their own version of 'economic patriotism.' 'We're not going to accept to pay for the broken dishes of a failed regulation' and a 'corruption of capitalism,' said French Prime Minister Francois Fillon. Nicolas Sarkozy has called for a world to 'learn the lessons of the worst financial crisis since the 1930s.' He proposed to 'moralize' capitalism, freeing it from speculators whom he labeled 'the new terrorists.' Last week, as President Bush went on television to admit the crisis is grave, Sarkozy stoutly defended capitalism but observed that 'A certain idea of globalization is drawing to a close with the end of a financial capitalism that had imposed its logic on the whole economy and contributed to perverting it.'
'The crisis is not a crisis of capitalism,' said Sarkozy. 'It is the crisis of a system that is far from the values of capitalism and betrayed capitalism.'
In 2006, long before there was any acknowledgement of the chaos to come (I put it that way because working people in the U.S. were already facing home foreclosures),when the world's elite gathered at Davos, Switzerland, chancellor Merkel had observed that 'What we have is a completely new balance of power in the world today.'
That too was evident in the General Assembly debate. In prior years no one would have expected Latin American governments to openly challenge Washington and Wall Street's conduct in the international economy. However, over a brief recent period, left-leaning political forces have taken power electorally in a number of countries, having in common a rejection of the exploitative policies of the World Bank and IMF, and the influence of the same 'market fundamentalists' that the Asians are repulsing and who have led the U.S., itself, into the present economic cul-de-sac.
No one was surprised that Cuban first vice-president Jose Ramon Machado Ventura would tell the UN that the drive for profits was increasing poverty and that the current crisis threatened the 'existence of mankind.' 'Fabulous fortunes cannot be wasted while millions are starving and dying of curable diseases,' he said. 'For a large part of the non-aligned nations, the situation is becoming unsustainable. Our nations have paid and will continue to pay the cost and consequences of the irrationality, wastefulness and speculation of a few countries in the...north.'
'The prevailing world order, unjust and uncontained, must be replaced,' Machado Ventura said.
'We don't want to conceive of the idea that the rescue of the dignity of the world's poor does not have the same priority or the same urgency of saving the institutions that operate the most powerful financial centre in the world,' said Dominican Republic president Leonel Fernandez. 'We need an international financial plan that is as urgent and as bold as the one to save Freddie Mac, Fannie Mae, Bear Stearns, Merrill Lynch and American International Group.' Fernandez added that while $700 billion is being set aside to rescue U.S. financial institutions, for something like $50 billion millions around the world could be spared a miserable existence.
'We're not going to accept to pay for the broken dishes of a failed regulation' and a 'corruption of capitalism,' said French Prime Minister Francois Fillon. Sarkozy called for a world to 'learn the lessons of the worst financial crisis since the 1930s.' 'Let's create a regulated capitalism,' he said.
On September 24 in Berlin, German Finance Steinbruck repeated Merkel's charge that Washington had, last year, resisted specific calls for regulations in the financial marketplace. 'Crisis management alone will not rebuild the lost confidence,' he said. 'We must civilize financial markets, and not just through moral appeals against excess and speculation. Self-regulation is no longer sufficient.' The US belief in 'laisser- faire capitalism; the notion that markets should be as free as possible from regulation; these arguments were wrong and dangerous,' he said. 'This largely under- regulated system is collapsing today.'
Steinbeck went on to propose new regulations and said that amid the current economic crisis the US is poised to lose its role as a global financial 'superpower.' The new world will become 'multipolar' with the emergence of stronger, better capitalized centers in Asia and Europe, he said.
Meanwhile, Oskar Lafontaine, leader of Germany's fast growing and increasingly influential Left Party, said the world is confronted with more than a banking or economic crisis and - in the words of Der Spiegel - 'but rather one of the entire intellectual and moral direction of Western society.' 'We no longer have a social market economy because of the regimes of the international financial markets,' Lafontaine said the consequence of which is increased privatization of the social services and a threat to the retirement security of millions of people. Lafontaine said the Left party wants the re-creation of a Bretton Woods-style system of foreign exchange controls with fixed trading bands, controls on international capital flows and on financial products.
'We believe that financial products should be forced to get official stamps of approval just like pharmaceutical products,' Lafontaine, the former head of the country's Social Democratic Party, said. 'Because the bitter truth is that many extremely greedy bankers don't even understand themselves what they've done. These are people who started something without knowing what they were doing and it's ended in disaster.'
'When enough banks have been nationalized or gone bust, when the last reputations have been properly shredded, and when prices of Fifth Avenue apartments and Mayfair town houses have fallen finally to earth, politicians are going to have to think hard about the lessons of the financial crash of 2008,' wrote Stephens of the Financial Times. 'Even now, someone somewhere is penning The End of Capitalism. Experience tells us snappy book titles should be treated with caution. The global financial system will never be the same again. But just as history survived the collapse of communism, so the market economy will weather the demise of Bear Stearns, Lehman, Merrill Lynch and HBOS.'
'The credit crunch and the financial firestorm have also provided a neat metaphor for the big shift in economic power in the world,' writes Stephens. He goes on to endorse the call for 'more global governance: credible international rules.'
'Capitalism will survive these financial shocks,' said Stephens. Probably it will; in any case it's good to have faith.
On Monday, the House of Representatives voted down the final draft of the bailout plan hurriedly crafted by the Administration and Congressional leaders from the two major parties. This set the stage for what was certain to be desperate attempts to put together a compromise that could win legislative approval. This takes place against a backdrop of widespread public opposition to the original plan and ever greater turmoil in the foreign money markets and on Wall Street.
Meanwhile, the dangers and challenges over the next few weeks and months are enormous. On the world scene, the U.S. could join in an international - and more democratic - effort at reconstructing capitalism in an effort to save it, or the White House - whoever lives there - and the Congress could lead us along a path of international isolation in which the rest of the world goes about its business, leaving us in economic mire. On the home front, the policymakers could enshrine a new form of corporate and more authoritarian capitalism or enact policies bent toward greater equality, solidarity and social and economic justice (things real socialists have never ceased advocating). The latter is what we should be insisting upon.
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