The Corporation: The Pathological Pursuit of Profit and Power, by Joel
Bakan. Viking Canada (Penguin Group), Toronto, 2004. 228 pages, including 44 of
informative endnotes, plus selected bibliography and index.
The perspective of a law professor adds just enough new material to give a
fresh and compelling interpretation to issues and events familiar to anyone who
has paid modest attention to economic policy fashions over the past half
century. This book is a serendipitous complement to The Economics of Innocent
Fraud. A review of the latter work appeared in the Financial Times on August
12, 2004 under the title of "deceptions for which no one can be held
responsible". After reading this exposition on the corporation a reader may be
less than willing to agree that no responsibility can be assigned for the
deceptions. Bakan brings a degree of precision without identifying individual
malefactors. He manifests no disagreement with Galbraith’s observation that "the
corporation…is an essential feature of modern economic life. We must have it."
His book is rather an expansion on the next sentence: "It must conform, however,
to accepted standards and requisite public constraints."
The critical, core concept here is the person status with which the
corporation came to be endowed, especially in U.S. law, as the 19th
turned into the 20th century. Bakan provides a tour through the
legislative and judicial history of the corporation to show that much of the
popular economic dogma impaled as innocent fraud by Galbraith is
traceable to the success of corporate promoters in persuading politicians and
judges to give them privileges that are effectually denied to real persons.
The corporation is not a person, of course. It is instead a socially created
institution, quite recent in origin, and is utterly insensitive to the moral
codes and principles out of which laws affecting interpersonal behavior have
evolved. The person parallel emerged from judicial decisions after
agitation by corporate promoters had expanded the scope of its legislated
privileges. A few decades of experience with the consequences prompted a more
apt metaphor in a 1933 decision by Supreme Court Justice Louis Brandeis, who
characterized the corporation as a Frankenstein monster. "Corporations, like the
monster, threaten to overpower their creators." Monsters need to be kept on a
chain to keep them from causing harm. Since corporations are created by acts of
sovereign governments, those governments must regulate them to protect the
interests of the people (who are the supposed sovereign in democratic nations).
The corollary of the corporation’s birth in a legislative act is that it can
also be killed through the same process. That is not a notion that appears often
in newspapers, but Bakan’s references demonstrate that legal scholars are
thinking and writing about it as an important policy option.
Graphic accounts of corporate misbehavior are abundant these days, even as we
enjoy the apparent fruits of corporate "efficiency" in the production of a
rising flood of abundantly affordable "stuff". Although we wouldn’t want to give
up the corporation in principle, the good work it does for us comes at a high
social cost, for the corporation does all it can to reduce expenses by forcing
others to pay them. The "others" include employees, customers, suppliers,
innocent bystanders, even shareholders and corporate managers in their roles as
citizens and inhabitants of the common biosphere. Abuses of these kinds have
long been addressed in economics literature as "externalities". The difficulty
of evaluating their magnitudes to facilitate parallel comparison with internal
money savings has made it too easy to dismiss them as "mere"—even if the word is
not voiced. In this book, and especially in the film "The Corporation", Bakan
has provided impressive documentation of the high costs we all pay (and that
future generations will pay) for the internal efficiencies of the corporation.
As Milton Friedman is fond of saying, "there’s no free lunch".
Bakan demonstrates by extensive presentation of judgments against corporate
abuses that they seem virtually immune from condign punishment, even though the
penalties imposed might be expected to deter real persons from repeat
offenses. Fines and damage awards are accepted as a cost of doing business. The
managers of corporations are required by law to make money for shareholders. The
list of judgments illustrates the cold-blooded risk analyses that corporations
make in determining how many customers and employees they can kill and maim and
still come out ahead on a comparison of likely penalties to the known savings
afforded by cheap design and lax administration of safety procedures. Executive
spokesmen manifest no personal shame in these instances, for it is in fact a
requirement of their job. Peter Drucker is quoted as saying that a manager with
a social conscience must be fired immediately. It is only when managers defraud
shareholders, as in ENRON, that they get sent to jail.
In support of his sub-title, Bakan calls on a specialist in psychopathy to
witness that the corporation’s institutional character manifests most of the
traits of human psychopaths. Fundamentally, that means a focus on the self to
the exclusion of all others. Identifying symptoms include
irresponsibility—they put others at risk in order to reach their own
goal. They are asocial in refusing to accept responsibility for their
own actions and are unable to feel remorse. Like human psychopaths
they are manipulative and grandiose (we’re the best), relating to
others superficially, for "their whole goal is to present themselves to
the public in a way that is appealing… .Human psychopaths are notorious for
their ability to use charm as a mask to hide their dangerously self-obsessed
personalities." Corporations present a façade of social responsibility, but it
goes only so far as the consequences are good for the bottom line. This behavior
is an inevitable consequence of the corporation’s institutional structure, which
impels managements to seek ever more powers by telling ever more lies about the
corporation’s aspirations and performance. Even when they undertake "good works"
for public relations, a cost-benefit calculus is required. There must be a
reasonably foreseeable pecuniary reward.
Government was not always so toothless against corporations as it appears
today. The first corporations emerged in England in the late 16th
century and by the early 18th had left a trail of scandals and
corruption that climaxed in the South Sea Bubble. That event goaded Parliament
into passing the Bubble Act of 1720, "which made it a criminal offense to create
a company ‘presuming to be a corporate body,’ and to issue ‘transferable stocks
without legal authority.’" That prohibition lasted for more than a century. But
the industrial revolution was coming on, and the new opportunities for
application of non-animate power for transportation and urban infrastructure
called for greater pools of financial capital than had hitherto been
contemplated (outside of warfare). Railroad building was the activity that
vaulted the corporation into the form and dominance it has manifested for the
past 150 years. The critical step in that evolution was the granting of
limited liability, which became entrenched in English corporate law in
1856 and in the various American states over the remainder of the nineteenth
century. The process speeded up in the two decades at the turn of the
20th century as states began to compete for the corporate charter
business by offering attractive privileges, such as no longer restricting the
charter to a specific range of activities and permitting mergers. Those
"reforms" sparked a mushrooming in the scope of corporate organizations and
spawned a new industry in shares trading and acquisitions and the financing of
these activities. Between 1898 and 1904, 1800 corporations were consolidated
into 157, and "the U.S. economy had been transformed from one in which
individually owned enterprises competed freely among themselves into one
dominated by a relatively few huge corporations, each owned by many
shareholders. The era of corporate capitalism had begun." (And Karl Marx had
already been dead for 20 years!)
An important consequence was that shareholders had lost control of the
corporations they owned. "Unable to influence managerial decisions as
individuals because their power was too diluted, they were also too broadly
dispersed to act collectively." This created a problem for the law, for someone
had to act and be held accountable if the corporation was to be able to buy,
sell, own and engage in physical acts of creation and destruction. By various
legal decisions over time, therefore, the corporation emerged as a legal
"person". "By the end of the nineteenth century, through a bizarre legal
alchemy…the corporate person had taken the place, at least in law, of the real
people who owned corporations. …Gone was the centuries-old ‘grant theory’ which
had conceived of corporations as instruments of government policy and as
dependent upon government bodies to create them and enable them to function."
Gone also the rationale for restrictions on corporate behavior. "The logic was
that, conceived as natural entities analogous to human beings, corporations
should be created as free individuals…, protected by…rights to ‘due process of
law’ and ‘equal protection of the laws.’"
With that kind of legislative and judicial backing, the corporation was off
and running. It was nonetheless nagged by the "robber baron" image of ruthless
monopoly capitalism, and for a long time manifested an attitude of being
persecuted by unfriendly governments. Corporations undertook campaigns of public
relations to develop an image of themselves as friendly and even benevolent.
Excesses nevertheless came in for a considerable share of blame for the Great
Depression, and the New Deal initiated an era of reforms that included not only
more strenuous regulation but also macroeconomic management by government. The
latter innovation was motivated by the conviction of Keynesians that
laissez-faire had been given sufficient rope to prove that "equilibrium is
blither" (ER Nov. 2003). In other words, "the market is a snare and a
delusion," and the "invisible hand" has no grip. In the period of post-war
prosperity that ensued, labor unions forced better wages and working conditions,
and then there was the sixties wave of "new social
legislation"—environmentalism, human rights, worker and consumer safety
(Nader!), culminating in the LBJ campaign promise of a Great Society. That was
the low point in the government-business relationship so far as the corporations
were concerned, and they mounted a counter-offensive in 1972, setting up the
Business Roundtable to co-ordinate a lobbying campaign.
Since then there has been a profound change in business-government relations.
All major companies now have offices in D.C. They won the right to finance
elections under freedom of expression provisions of the U.S. Constitution—an
extension of the "person" metaphor. Corporations have subsequently effected a
near-complete takeover of the electoral process(102-3). This is the end-point of
a long struggle to gain freedom from democratic control. They have managed to
cut funding to regulatory agencies, gutting enforcement mechanisms, and have
succeeded in effecting repeal of several (especially environmental) regulations.
"Corporate welfare bums" are frequently seen to threaten governments
openly—"give us what we want or we’ll take the relocation bonus you already gave
us and leave, taking our jobs with us."
Consequently, it is no surprise to read that "the attitude that business is a
victim is basically disappearing," and that "today corporations essentially feel
that they’re partners with government…, not adversaries of government. … (107).
This is a dangerous notion, says Bakan, for partnership implies equality. "If
corporations and governments are indeed partners we should be worried about the
state of our democracy, for it means that government has effectively abdicated
its sovereignty over the corporation."(108) Deregulation takes away the
democratic right of ‘the people’ to control corporate behavior. The PR campaign
against government seems to have persuaded citizens these days that they are
unlikely to get effective help from that source, so prominent social activists
(he cites Naomi Klein) aim their efforts directly at corporations.(150). This is
a flawed strategy because it concedes to corporations "all the coercive power
and resources of the state, while citizens are left with nongovernmental
organizations and the market’s invisible hand—socialism for the rich and
capitalism for the poor… ." (151) Quoting Noam Chomsky: "Whatever one thinks of
governments, they’re to some extent publicly accountable… .Corporations are to a
zero extent. …One of the reasons why propaganda tries to get you to hate
government is because it’s the one existing institution in which people can
participate to some extent and constrain tyrannical unaccountable power." (152)
The bottom line: "Without the state, the corporation is nothing. Literally
nothing."(154)
Citizen action to reassert democratic sovereignty is inhibited by the success
of a cultural campaign over many decades in the past century to demean and
denigrate the utility of government action. The issue is summed up in a
statement by Friedman to the author: "The big difference is whether you are
really willing to accept the idea that civil servants are pursuing the interest
of the community at large, rather than their own self-interest. That’s the big
divide. That’s the divide between Galbraith and myself." (117)
Bakan’s assertions are generally documented meticulously. The performance is
flawed in one of the very few cases (I noticed no others) where he let his guard
down and threw in, anachronistically, the apocryphal anecdote about Charles E.
Wilson saying that what is good for General Motors is good for the country.
Keith Wilde
EoK_The Corporatio
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