Friday, July 30, 2010

Corporations as a threat to democracy

In a blog post on the forthcoming Australian election, journalist and QUT researcher Derek Barry has managed to express the notion that corporations are bad very clearly, complete with Chomskyan hyperlink (via):
The problem for journalism is that most journalists are employed by corporate media. The single biggest threat to democracy is the corporation itself with its profit motive subsuming all other motives to the fatal detriment of the body politic. That means large numbers of lobbyists, PR flacks and lawyers working only to make more money for their company. People who don't see society, only consumers.
Corporations are bad because they are motivated by profit, are based on a bad view of the world, have lots of money and so are the biggest threat to democracy.

Bit odd that democracy grew up in highly commercial societies then, isn’t it? Indeed, that the historical origins of modern elected representation was to give merchants a say.

If you are in business, you have to get consent for your income on a regular, even daily or hourly or moment-by-moment, basis. This is quite central to why commerce generally has a better record towards marginalised groups than politics or religion and why the politics of government-by-consent grew up in highly commercial societies.

Profit is just making more in sales than what it cost to produce/acquire/put together what one is selling. No economy can operate if one’s productive units do not make profits—that is, generate surpluses by creating more value than they consume.

Such surpluses are how one generates funds for the creation of capital, the produced means of production, and the prosperity of society is determined by how much capital it has operating per person and how effectively.

And if profits are bad, does that make losses good? Well, losses have value as a signaling mechanism (indeed, a great deal of value as such, which is why eliminating loss by providing guarantees can have such disastrous effects). But losses have value as signals because they are things to be avoided. And if losses have signaling value, so do profits.

So, on the face of it, “profits are wicked” (which means “productive surpluses are wicked”) is a nonsense pejorative, however common (indeed, clichéd). But notice how talking about ‘surpluses’ sounded so much better than ‘profits’? First, because ‘surplus’ has not had the ongoing campaign against it that ‘profit’ has had. Second, because profits are typically private and motivated by gain.

Well, so are worker’s wages. Most workers have as instrumental an outlook on working and being paid for it as business folk have on, well, working and getting paid for it. (Indeed, if anything, businessfolk are more likely to be engaged in an area they personally enjoy: remembering that managers are employees, not businessfolk in this sense.)

Much of the modern assault on profits as wicked is derived from the Marxist critique of the same. But that is based on a false theory of value and a spurious theory of exploitation which relies on playing games with the meaning of ‘labour’.

But such rhetoric as I quoted above is not about the realities of being in business, it is about the status of not being in business. Of not being engaged in grubby “profit”. It it is a case of “look at me, I am not motivated by grubby profit, but by Virtue!”

This is, of course, an old status claim: one that dates back at least to Plato and Confucius. And, as in those cases, it is a claim that is congenial to rival power groups: whether landed aristocrats, scholar-bureaucrats or priests and clerics, as the case might be.

Or, as in our time, conspicuous compassion within the (typically inner city) academic-advocacy NGO-public servant-union networks: folk who get status against commerce and power against markets. And who, clearly, have good motives, a proper understanding of the world and work in good institutions: they just ooze virtue and conspicuous compassion, unlike those wicked corporate folk.

It remains the sort of self-congratulation that is millennia old and does not get any better over time.

It is true that some corporations can have huge turnovers, but politics is not their prime activity. So they tend to engage in any political activity for commercial reasons. Thus, the more politics interferes in commerce, the more corporations engage in lobbying. Politics drives lobbying, rather than the other way around.

Jonah Goldberg, in the sensible bit of his book Liberal Fascism (the main thesis of the book I strongly disagree with), gives an excellent example of this. Microsoft™ used to have a minimal lobbying presence in Washington. Then the US Justice Department went after Microsoft™ in an anti-trust suit. Microsoft™ now mounts a major lobbying operation in Washington.

The more interventionist public policy is, the more official discretions matter, the bigger the return (in profits gained and losses avoided) there will be in lobbying and the more lobbying there will be. Lobbying is the legal side, corruption the illegal side, of the market for official discretions. If you want to reduce lobbying and corruption, reduce the ambit of official discretions.

This is what the UK did, leading to its later C19th and early C20th reputation as a remarkably corruption-free polity. C16th and C17th England had a fairly high level of corruption. But—in the later C18th and early C19th—there was a massive purge of interventionist regulations under the influence of classical economists such as Adam Smith and David Ricardo. The result was a dramatic drop in the level of corruption, an effect that percolated down society.

In Australia, where is there the most political corruption? In land use cases, since official discretions there are so pervasive and so valuable. Particularly at the local government level, as that is the level of government where oversight is poorest. (The extensive official discretions over land use also have other ill effects.)

Command economies are pervaded by official discretions (as all attempts to replace markets and voluntary activity have to be). This is why—once the revolutionary fervour wears off—command economies rapidly become extremely corrupt.

To advocate strongly interventionist government policy and then complain about corporate lobbying is to engage in laughable misdiagnosis. But very useful misdiagnosis, if you are in the business of rival politics.

Since politics is not corporations’ main activity, the resources they allocate to it tend to be significantly less than rumoured or imagined. Indeed, the academic-advocacy NGO-union networks dispose, directly or indirectly, of significantly more politically-directed resources than does business. (And far more than small business.) But pointing loudly at “evil corporations” is very useful. For it is very convenient for rival power networks to direct attention to “evil corporations” and away from themselves. It is easier to hide what you are: particularly from yourself. (Status claims based on alleged moral superiority rather need that sort of self-blindness.)

We all clearly much prefer living in societies where profit-seeking private corporations are thick on the ground. Indeed, this is a very widespread preference, as global migration flows demonstrate. This is not an accidental feature, because such societies are also prosperous, liberal and free precisely because of (not despite) having large and vibrant private sectors.

What folk are really complaining about when they jump up and down about how wicked corporations are—including what a “threat” they are—is the existence of rival politics and rival points of view. The notion that corporations are “the greatest threat to democracy” is based on status-claims and power-seeking, it is not reality or evidence based.

ADDENDA See also my later post on trust, power and status.


  1. The basic assumption is that since business is interested in private profit, it cannot be trusted in safeguarding the interests of the people -- the consumers, the employees and the public at large.

    The conclusion is that others should be empowered to safeguard these interests -- unions, advocacy groups, the (civil) courts, and of course (elected) government.

    This of course ignores the fact that all these groups can be as untrustworthy as business.

    However, the counter assumption, that business left on its own will do right on its own, thus securing these other interests by the power of self-interest, does not seem very convincing either.

  2. Surely it is business that sometimes drives the lobbying. Richard Stallman is of that opinion.

  3. Well, no, I am not an anarchocapitalist. There is a reason why law, including commercial law, evolved.

    But it is not the business of business safeguard other people's interests and it is silly to hold that against it. Adam Smith rather covered all this quite some time ago. (There is a nice discussion of the twists of that here.) But to then parade corporations as the "greatest threat to democracy" is profoundly silly.

  4. Tinos: yes, the process is interactive. But, generally, the regulation (or regulatory proposal) comes first, then lobbying occurs then regulatory changes happen (or not).

  5. (My first comment is responding to Micha.)