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.
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.
Nature loss 'dwarfs bank crisis'
Nature loss 'dwarfs bank crisis'
The global economy is losing more money from the disappearance of forests than through the current banking crisis, according to an EU-commissioned study.
It puts the annual cost of forest loss at between $2 trillion and $5 trillion.
The figure comes from adding the value of the various services that forests perform, such as providing clean water and absorbing carbon dioxide.
The study, headed by a Deutsche Bank economist, parallels the Stern Review into the economics of climate change.
It has been discussed during many sessions here at the World Conservation Congress.
Some conservationists see it as a new way of persuading policymakers to fund nature protection rather than allowing the decline in ecosystems and species, highlighted in the release on Monday of the Red List of Threatened Species, to continue.
Capital losses
Speaking to BBC News on the fringes of the congress, study leader Pavan Sukhdev emphasised that the cost of natural decline dwarfs losses on the financial markets.
"It's not only greater but it's also continuous, it's been happening every year, year after year," he told BBC News.
Teeb will... show the risks we run by not valuing [nature] adequately."
Andrew Mitchell
Global Canopy Programme
"So whereas Wall Street by various calculations has to date lost, within the financial sector, $1-$1.5 trillion, the reality is that at today's rate we are losing natural capital at least between $2-$5 trillion every year."
The review that Mr Sukhdev leads, The Economics of Ecosystems and Biodiversity (Teeb), was initiated by Germany under its recent EU presidency, with the European Commission providing funding.
The first phase concluded in May when the team released its finding that forest decline could be costing about 7% of global GDP. The second phase will expand the scope to other natural systems.
Stern message
Key to understanding his conclusions is that as forests decline, nature stops providing services which it used to provide essentially for free.
So the human economy either has to provide them instead, perhaps through building reservoirs, building facilities to sequester carbon dioxide, or farming foods that were once naturally available.
Or we have to do without them; either way, there is a financial cost.
The Teeb calculations show that the cost falls disproportionately on the poor, because a greater part of their livelihood depends directly on the forest, especially in tropical regions.
The greatest cost to western nations would initially come through losing a natural absorber of the most important greenhouse gas.
Just as the Stern Review brought the economics of climate change into the political arena and helped politicians see the consequences of their policy choices, many in the conservation community believe the Teeb review will lay open the economic consequences of halting or not halting the slide in biodiversity.
"The numbers in the Stern Review enabled politicians to wake up to reality," said Andrew Mitchell, director of the Global Canopy Programme, an organisation concerned with directing financial resources into forest preservation.
"Teeb will do the same for the value of nature, and show the risks we run by not valuing it adequately."
A number of nations, businesses and global organisations are beginning to direct funds into forest conservation, and there are signs of a trade in natural ecosystems developing, analogous to the carbon trade, although it is clearly very early days.
Some have ethical concerns over the valuing of nature purely in terms of the services it provides humanity; but the counter-argument is that decades of trying to halt biodiversity decline by arguing for the intrinsic worth of nature have not worked, so something different must be tried.
Whether Mr Sukhdev's arguments will find political traction in an era of financial constraint is an open question, even though many of the governments that would presumably be called on to fund forest protection are the ones directly or indirectly paying for the review.
But, he said, governments and businesses are getting the point.
"Times have changed. Almost three years ago, even two years ago, their eyes would glaze over.
"Today, when I say this, they listen. In fact I get questions asked - so how do you calculate this, how can we monetize it, what can we do about it, why don't you speak with so and so politician or such and such business."
The aim is to complete the Teeb review by the middle of 2010, the date by which governments are committed under the Convention of Biological Diversity to have begun slowing the rate of biodiversity loss.
Richard.Black-INTERNET@bbc.co.uk
http://news.bbc.co.uk/go/pr/fr/-/2/hi/science/nature/7662565.stm
The global economy is losing more money from the disappearance of forests than through the current banking crisis, according to an EU-commissioned study.
It puts the annual cost of forest loss at between $2 trillion and $5 trillion.
The figure comes from adding the value of the various services that forests perform, such as providing clean water and absorbing carbon dioxide.
The study, headed by a Deutsche Bank economist, parallels the Stern Review into the economics of climate change.
It has been discussed during many sessions here at the World Conservation Congress.
Some conservationists see it as a new way of persuading policymakers to fund nature protection rather than allowing the decline in ecosystems and species, highlighted in the release on Monday of the Red List of Threatened Species, to continue.
Capital losses
Speaking to BBC News on the fringes of the congress, study leader Pavan Sukhdev emphasised that the cost of natural decline dwarfs losses on the financial markets.
"It's not only greater but it's also continuous, it's been happening every year, year after year," he told BBC News.
Teeb will... show the risks we run by not valuing [nature] adequately."
Andrew Mitchell
Global Canopy Programme
"So whereas Wall Street by various calculations has to date lost, within the financial sector, $1-$1.5 trillion, the reality is that at today's rate we are losing natural capital at least between $2-$5 trillion every year."
The review that Mr Sukhdev leads, The Economics of Ecosystems and Biodiversity (Teeb), was initiated by Germany under its recent EU presidency, with the European Commission providing funding.
The first phase concluded in May when the team released its finding that forest decline could be costing about 7% of global GDP. The second phase will expand the scope to other natural systems.
Stern message
Key to understanding his conclusions is that as forests decline, nature stops providing services which it used to provide essentially for free.
So the human economy either has to provide them instead, perhaps through building reservoirs, building facilities to sequester carbon dioxide, or farming foods that were once naturally available.
Or we have to do without them; either way, there is a financial cost.
The Teeb calculations show that the cost falls disproportionately on the poor, because a greater part of their livelihood depends directly on the forest, especially in tropical regions.
The greatest cost to western nations would initially come through losing a natural absorber of the most important greenhouse gas.
Just as the Stern Review brought the economics of climate change into the political arena and helped politicians see the consequences of their policy choices, many in the conservation community believe the Teeb review will lay open the economic consequences of halting or not halting the slide in biodiversity.
"The numbers in the Stern Review enabled politicians to wake up to reality," said Andrew Mitchell, director of the Global Canopy Programme, an organisation concerned with directing financial resources into forest preservation.
"Teeb will do the same for the value of nature, and show the risks we run by not valuing it adequately."
A number of nations, businesses and global organisations are beginning to direct funds into forest conservation, and there are signs of a trade in natural ecosystems developing, analogous to the carbon trade, although it is clearly very early days.
Some have ethical concerns over the valuing of nature purely in terms of the services it provides humanity; but the counter-argument is that decades of trying to halt biodiversity decline by arguing for the intrinsic worth of nature have not worked, so something different must be tried.
Whether Mr Sukhdev's arguments will find political traction in an era of financial constraint is an open question, even though many of the governments that would presumably be called on to fund forest protection are the ones directly or indirectly paying for the review.
But, he said, governments and businesses are getting the point.
"Times have changed. Almost three years ago, even two years ago, their eyes would glaze over.
"Today, when I say this, they listen. In fact I get questions asked - so how do you calculate this, how can we monetize it, what can we do about it, why don't you speak with so and so politician or such and such business."
The aim is to complete the Teeb review by the middle of 2010, the date by which governments are committed under the Convention of Biological Diversity to have begun slowing the rate of biodiversity loss.
Richard.Black-INTERNET@bbc.co.uk
http://news.bbc.co.uk/go/pr/fr/-/2/hi/science/nature/7662565.stm
BBC News: The layman's finance crisis glossary
"The current financial crisis has thrown terminology from the business pages onto the front page of newspapers, with jargon now abounding everywhere from the watercooler to the back of a taxi.
Here is a guide to many of the business terms currently cropping up regularly, as well as some of the more exotic words coined to describe some of the social effects of the credit crunch."
The layman's finance crisis glossary
Here is a guide to many of the business terms currently cropping up regularly, as well as some of the more exotic words coined to describe some of the social effects of the credit crunch."
The layman's finance crisis glossary
Center for Economic and Policy Research: Statement on the Need for Coor
WASHINGTON - October 10 - The current economic crisis is the result of an extraordinary period of extreme economic mismanagement. The world's central banks, most importantly the Federal Reserve Board in the United States, made the decision to ignore, if not actively cultivate, the growth of asset bubbles. This was the case with stock market bubbles in the 90s and housing bubbles in the current decade.
They compounded this mistake by ignoring the explosive growth of credit and new complex derivative instruments. They allowed financial institutions to become hugely over-leveraged, ensuring that the collapse of the bubble would lead to major financial disruptions.
Finally, they failed to recognize the seriousness of the problem, understating the size of the problem at every step. This has slowed efforts to muster an adequate response to the situation. President Bush and other political leaders markedly worsened the situation when they raised the specter of the Great Depression and otherwise sought to raise fears in order to gain public support for the bank bailout package.
The meeting this weekend of the G-7 provides an extraordinary opportunity to begin the reversal of this dismal record. First, it is necessary to have a coordinated financial and monetary policy to stem the immediate financial crisis. This will require bank bailouts that focus on the direct injection of capital into the banking system, following the example of the United Kingdom earlier this week.
The financial system will also benefit from further cuts in overnight lending rates, especially by the European Central Bank (ECB). The ECB's focus on concerns over inflation at this economic junction is almost as foolish and potentially more harmful than the decision to ignore the growth of the housing bubble.
The other key component of an economic recovery package should be a coordinated fiscal stimulus. In the United States, this stimulus should be on the order of $300 billion to $400 billion (2.0-2.7 percent of GDP). This stimulus is essential for counteracting the sharp falloff in consumption that is following the loss of $5 trillion in housing wealth and President Bush's scare tactics for promoting his bank bailout.
The stimulus should be designed to quickly boost demand. In the United States, this can best be done by aiding state and local governments, extending unemployment benefits, tax rebates to low income individuals, accelerating infrastructure spending and support for energy conserving retrofits of homes and businesses. It is also essential that the dollar fall against other major currencies in order to bring the trade deficit back to a manageable level.
It is possible that even larger boosts to spending may be necessary to restore normal economic activity. The federal government must be prepared to spend whatever amount is needed to keep the economy creating jobs. This was the main lesson that we learned from the Great Depression. Concerns over deficits prevented the government from taking sufficient measures to boost the economy out of its slump until World War II left the government no choice. It would be an enormous tragedy for the country and the world if the United States were to repeat the same mistakes almost 80 years later.
[The Center for Economic and Policy Research is an independent, nonpartisan think tank that was established to promote democratic debate on the most important economic and social issues that affect people's lives. CEPR's Advisory Board of Economists includes Nobel Laureate economists Robert Solow and Joseph Stiglitz; Richard Freeman, Professor of Economics at Harvard University; and Eileen Appelbaum, Professor and Director of the Center for Women and Work at Rutgers University.]
They compounded this mistake by ignoring the explosive growth of credit and new complex derivative instruments. They allowed financial institutions to become hugely over-leveraged, ensuring that the collapse of the bubble would lead to major financial disruptions.
Finally, they failed to recognize the seriousness of the problem, understating the size of the problem at every step. This has slowed efforts to muster an adequate response to the situation. President Bush and other political leaders markedly worsened the situation when they raised the specter of the Great Depression and otherwise sought to raise fears in order to gain public support for the bank bailout package.
The meeting this weekend of the G-7 provides an extraordinary opportunity to begin the reversal of this dismal record. First, it is necessary to have a coordinated financial and monetary policy to stem the immediate financial crisis. This will require bank bailouts that focus on the direct injection of capital into the banking system, following the example of the United Kingdom earlier this week.
The financial system will also benefit from further cuts in overnight lending rates, especially by the European Central Bank (ECB). The ECB's focus on concerns over inflation at this economic junction is almost as foolish and potentially more harmful than the decision to ignore the growth of the housing bubble.
The other key component of an economic recovery package should be a coordinated fiscal stimulus. In the United States, this stimulus should be on the order of $300 billion to $400 billion (2.0-2.7 percent of GDP). This stimulus is essential for counteracting the sharp falloff in consumption that is following the loss of $5 trillion in housing wealth and President Bush's scare tactics for promoting his bank bailout.
The stimulus should be designed to quickly boost demand. In the United States, this can best be done by aiding state and local governments, extending unemployment benefits, tax rebates to low income individuals, accelerating infrastructure spending and support for energy conserving retrofits of homes and businesses. It is also essential that the dollar fall against other major currencies in order to bring the trade deficit back to a manageable level.
It is possible that even larger boosts to spending may be necessary to restore normal economic activity. The federal government must be prepared to spend whatever amount is needed to keep the economy creating jobs. This was the main lesson that we learned from the Great Depression. Concerns over deficits prevented the government from taking sufficient measures to boost the economy out of its slump until World War II left the government no choice. It would be an enormous tragedy for the country and the world if the United States were to repeat the same mistakes almost 80 years later.
[The Center for Economic and Policy Research is an independent, nonpartisan think tank that was established to promote democratic debate on the most important economic and social issues that affect people's lives. CEPR's Advisory Board of Economists includes Nobel Laureate economists Robert Solow and Joseph Stiglitz; Richard Freeman, Professor of Economics at Harvard University; and Eileen Appelbaum, Professor and Director of the Center for Women and Work at Rutgers University.]
The Threat Lying Off-Shore
Tax Havens Will Sabotage Attempts to Re-Regulate Global Finance. Democracy Demands We Tackle Them
by Richard Murphy and John Christensen
[Richard Murphy is a chartered accountant and founder of Tax Research LLP and Tax Justice Network; John Christensen is an economist and director of Tax Justice Network taxjustice.net]
The global economic crisis means financial re-regulation is, finally, on the agenda. Most agree it is needed on a global level. Some say this is impossible in a world of self-interested sovereign states, but we disagree: it is possible if we look at the context in which regulation is embedded. There we find the essence of the problem: tax havens. The offshore world created the conditions that led to this crisis, and unless the offshore world is tackled, it will undermine all efforts to deal with it.
What do tax havens do? In truth, the term is a misnomer, and we prefer the term "secrecy jurisdictions". This is because they offer not one thing but three: low or zero taxes, secrecy, and lax regulation. In doing so they "compete" against reputable countries, trying to outdo them on ever lower corporate taxes and laxer regulation. As we said in our June submission to the Treasury committee on offshore financial centres, tax havens set out deliberately to "undermine the impact of legislation passed in other jurisdictions". This is their core business, and this is the threat they pose to the world.
The impact of this is now visible in the economic crisis. The banking system has ceased to function because banks do not trust their peers' finances, structures and accounting disclosure. Opacity has been at the heart of the matter, and it is secrecy jurisdictions that create this opacity. First, they offer secrecy. All major banks have taken advantage of this, assisted by the "big four" firms of accountants who operate in all the world's significant tax havens.
Second, they create uncertainty about who owns what. Offshore entities were used to isolate ownership of financial vehicles from onshore parents to secure higher credit ratings. The arrangements are often abusive, involving trusts and supposed charities. The result was, for instance, that when Northern Rock was nationalised, the Commons did not know whether this meant its Jersey-based shadow, Granite, was too. Its £40bn of assets apparently existed in limbo. In consequence it is often the case that nobody knows who will honour the debts of what are, legally, separate entities. All of the victims of the current crisis had plunged very deep into this style of offshore operation.
Third, they generate complexity, a form of opacity. Complexity has without doubt been used to shift risk from big institutions to society. Companies have spread complex structures across jurisdictions to exploit regulatory gaps. Even if each haven's claim to be properly regulated were true, the regulation of such firms falls between stools, since each jurisdiction only accepts responsibility for what happens in its domain. Regulation cannot function in such a world - a fact the failing banks exploited. And tax havens will enable many beneficiaries of the years of exuberance to protect their winnings in offshore black boxes, even if law courts wish otherwise.
These havens are not just the palm-fringed islands of popular imagination. They are also places at the heart of the global economy. In particular the City has many offshore features. The IMF thinks London is offshore. When coupled with links to satellite havens like Jersey and Cayman, it becomes clear that Britain must be central to a global response to this problem. Gordon Brown and his predecessors have ignored this. As a result they have knowingly permitted the harm which secrecy jurisdictions wreak on the poor at home and abroad. Unless they are tackled, tax havens will sabotage any efforts to build global governance and international cooperation.
That is why we must gear up for a global fight against tax havens. In the long term this push must stop regulation being embedded in a context riddled with powerful actors deliberately aiming to undermine it. More immediately, it must help policymakers address the crisis's fallout by giving them back powers to tax wealth and capital properly, and constrain what is a hothouse for cross-border crime.
Tackling the increasing tension between global integration and a lack of credible international governance is impossible while these jurisdictions and their financial and criminal communities thwart attempts to deploy democratic controls. We emphasise, the secrecy jurisdictions' role in this is generic. Undermining democratic accountability is what they do for a living.
Politicians can, and must, be braver now - public interest demands it.
by Richard Murphy and John Christensen
[Richard Murphy is a chartered accountant and founder of Tax Research LLP and Tax Justice Network; John Christensen is an economist and director of Tax Justice Network taxjustice.net]
The global economic crisis means financial re-regulation is, finally, on the agenda. Most agree it is needed on a global level. Some say this is impossible in a world of self-interested sovereign states, but we disagree: it is possible if we look at the context in which regulation is embedded. There we find the essence of the problem: tax havens. The offshore world created the conditions that led to this crisis, and unless the offshore world is tackled, it will undermine all efforts to deal with it.
What do tax havens do? In truth, the term is a misnomer, and we prefer the term "secrecy jurisdictions". This is because they offer not one thing but three: low or zero taxes, secrecy, and lax regulation. In doing so they "compete" against reputable countries, trying to outdo them on ever lower corporate taxes and laxer regulation. As we said in our June submission to the Treasury committee on offshore financial centres, tax havens set out deliberately to "undermine the impact of legislation passed in other jurisdictions". This is their core business, and this is the threat they pose to the world.
The impact of this is now visible in the economic crisis. The banking system has ceased to function because banks do not trust their peers' finances, structures and accounting disclosure. Opacity has been at the heart of the matter, and it is secrecy jurisdictions that create this opacity. First, they offer secrecy. All major banks have taken advantage of this, assisted by the "big four" firms of accountants who operate in all the world's significant tax havens.
Second, they create uncertainty about who owns what. Offshore entities were used to isolate ownership of financial vehicles from onshore parents to secure higher credit ratings. The arrangements are often abusive, involving trusts and supposed charities. The result was, for instance, that when Northern Rock was nationalised, the Commons did not know whether this meant its Jersey-based shadow, Granite, was too. Its £40bn of assets apparently existed in limbo. In consequence it is often the case that nobody knows who will honour the debts of what are, legally, separate entities. All of the victims of the current crisis had plunged very deep into this style of offshore operation.
Third, they generate complexity, a form of opacity. Complexity has without doubt been used to shift risk from big institutions to society. Companies have spread complex structures across jurisdictions to exploit regulatory gaps. Even if each haven's claim to be properly regulated were true, the regulation of such firms falls between stools, since each jurisdiction only accepts responsibility for what happens in its domain. Regulation cannot function in such a world - a fact the failing banks exploited. And tax havens will enable many beneficiaries of the years of exuberance to protect their winnings in offshore black boxes, even if law courts wish otherwise.
These havens are not just the palm-fringed islands of popular imagination. They are also places at the heart of the global economy. In particular the City has many offshore features. The IMF thinks London is offshore. When coupled with links to satellite havens like Jersey and Cayman, it becomes clear that Britain must be central to a global response to this problem. Gordon Brown and his predecessors have ignored this. As a result they have knowingly permitted the harm which secrecy jurisdictions wreak on the poor at home and abroad. Unless they are tackled, tax havens will sabotage any efforts to build global governance and international cooperation.
That is why we must gear up for a global fight against tax havens. In the long term this push must stop regulation being embedded in a context riddled with powerful actors deliberately aiming to undermine it. More immediately, it must help policymakers address the crisis's fallout by giving them back powers to tax wealth and capital properly, and constrain what is a hothouse for cross-border crime.
Tackling the increasing tension between global integration and a lack of credible international governance is impossible while these jurisdictions and their financial and criminal communities thwart attempts to deploy democratic controls. We emphasise, the secrecy jurisdictions' role in this is generic. Undermining democratic accountability is what they do for a living.
Politicians can, and must, be braver now - public interest demands it.
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
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