Corporations and Government

Peter Barnes: Capitalism 3.0: Preface (pages ix.-xvi)

I’m a businessman. I believe society should reward successful initiative with profit. At the same time, I know that profit-seeking activities have unhealthy side effects. They cause pollution, waste, inequality, anxiety, and no small amount of confusion about the purpose of life.

I’m also a liberal, in the sense that I’m not averse to a role for government in society. Yet history has convinced me that representative government can’t adequately protect the interests of ordinary citizens. Even less can it protect the interests of future generations, ecosystems, and nonhuman species. The reason is that most — though not all — of the time, government puts the interests of private corporations first. This is a systemic problem of a capitalist democracy, not just a matter of electing new leaders.

If you identify with the preceding sentiments, then you might be confused and demoralized, as I have been lately. If capitalism as we know it is deeply flawed, and government is no savior, where lies hope? This strikes me as one of the great dilemmas of our time. For years the Right has been saying — nay, shouting — that government is flawed and that only privatization, deregulation, and tax cuts can save us. For just as long, the Left has been insisting that markets are flawed and that only government can save us. The trouble is that both sides are half-right and half-wrong. They’re both right that markets and state are flawed, and both wrong that salvation lies in either sphere. But if that’s the case, what are we to do? Is there, perhaps, a missing set of institutions that can help us? ...

For much of this time I was president of Working Assets, a company that donates 1 percent of its gross sales to nonprofit groups working for a better world. These donations come off its top line, not its bottom line; the company makes them whether it’s profitable or not (and many years we were not). It occurred to me that 1 percent is an exceedingly small portion of sales for any business to return to the larger world, given that businesses take so much from the larger world without paying. How, for example, could we make any goods without nature’s many free gifts? And how could we sell them without society’s vast infrastructure of laws, roads, money, and so on? At the very least, I liked to think, we ought to pay a 1 percent royalty for the privilege of being a limited liability corporation. ...

In retrospect, I realized the question I’d been asking since early adulthood was: Is capitalism a brilliant solution to the problem of scarcity, or is it itself modernity’s central problem? The question has many layers, but explorations of each layer led me to the same verdict. Although capitalism started as a brilliant solution, it has become the central problem of our day. It was right for its time, but times have changed.

When capitalism started, nature was abundant and capital was scarce; it thus made sense to reward capital above all else. Today we’re awash in capital and literally running out of nature. We’re also losing many social arrangements that bind us together as communities and enrich our lives in nonmonetary ways. This doesn’t mean capitalism is doomed or useless, but it does mean we have to modify it. We have to adapt it to the twenty-first century rather than the eighteenth. ...

The dramatis personae throughout the book are corporations, government, and the commons. The plot goes something like this. As the curtain rises, corporations are gobbling up the commons. They’re the big boys on the block, and the commons — an unorganized mélange of nature, community, and culture — is the constant loser. It has no property rights of its own, so must rely on government for protection. But government is a fickle guardian that tilts heavily toward corporations.

Fortunately, corporations only dominate government most of the time; every once in a while, they lose their grip. So it’s possible to imagine that the next time corporate dominance ebbs, government — acting on behalf of commoners — swiftly fortifies the commons. It assigns new property rights to commons trusts, builds commons infrastructure, and spawns a new class of genuine co-owners. When corporations regain political dominance, as they inevitably will, they can’t undo the new system. The commons now has safeguards and stakeholders; it’s entrenched for the long haul. And in time, corporations accept the commons as their business partner. They find they can still make profits, plan farther ahead, and even become more globally competitive. read the whole chapte

Peter Barnes: Capitalism 3.0 — Chapter 3: The Limits of Government (pages 33-48)

Limits of Regulation

The idea of regulation is that, while markets should ideally be as free as possible, there are times when an external actor, not driven by profit maximization, must impose some rules for the common good. When it comes to nature, government has many ways to regulate.

* It may require timely disclosure of toxic releases.
* It may grant, sell, or deny rights to use public resources.
* It may ban some pollutants altogether, limit others, or tell polluters what technologies to use.
* It may divide the landscape into zones and specify what kinds of activities can take place in each zone.
* It may tax certain activities and subsidize others.

This wide array of tools — plus the power to prosecute rulebreakers — seemingly creates in government a formidable counterweight to corporations. Yet history has shown that government isn’t the regulatory tiger it appears to be. It faces fierce corporate resistance whenever it tries to exercise its powers. And time after time, its regulatory agencies have been captured by the industries they were intended to regulate.

The process of regulatory capture has been described by many scholars. Details vary, but the plot is always the same. A new agency is created to regulate an industry that’s harming the public. At first the agency acts boldly, but over time its zeal wanes. Reformers who originally staffed the agency are replaced by people who either worked in the industry earlier, or hope to do so after a stint in government. Industry-packed “advisory committees” multiply, while industry-funded “think tanks” add a veneer of legitimacy to profit-driven proposals. Lobbyists meet constantly with agency staffers. The public, meanwhile, has no clue about what’s going on.

This process has reached extreme proportions in recent years. As I write, the head of public lands in the Interior Department is a former mining industry lobbyist, the head of the air division at the EPA is a former utility lobbyist, the second in command at EPA is an ex-Monsanto lobbyist, and the head of Superfund cleanups at EPA (which makes industry clean up its toxic wastes) formerly advised companies on how to evade Superfund. Although today’s pro-industry bias may be more egregious than usual, the absence of outrage or resistance suggests it’s not far from the norm.

And it’s not just regulatory agencies that have been captured. Congress itself, which oversees the agencies and writes their controlling laws, has been badly infected. According to the Center for Public Integrity, the “influence industry” in Washington now spends $6 billion a year and employs more than thirty-five thousand lobbyists, some two hundred of whom are former Congress members who enjoy easy access to their erstwhile colleagues.

A glimpse at the corporate lobbying game shows just how rewarding it is. MBNA, the nation’s largest credit card bank, spent over $17 million on lobbying between 1999 and 2004. This is pin money compared to the sums it will reap from an industry-drafted bankruptcy overhaul, passed in 2005, which precludes all but the very poor from wiping out their debts and starting anew. (The great majority of Americans who file for bankruptcy are middle-class victims of job loss, huge medical bills, or family breakup.) A New York Times reporter described this scene as the bill was being marked up: “Lawyers and lobbyists jammed Congressional hearing rooms to overflowing. . . . During breaks, there was a common, almost comical pattern. The pinstriped lobbyists ran into the hallway, grabbed tiny cell phones from their pockets or briefcases, and reported back to their clients, almost always with the news they wanted to hear.” ...

Three points are worth making here.

• First, ownership isn’t the same thing as trusteeship. Owners of property — even government owners — have wide latitude to do whatever they want with it; a trustee does not. Trustees are bound by the terms of their trust and by centuries-old principles of trusteeship, foremost among which is “undivided loyalty” to beneficiaries.
• Second, in a capitalist democracy, the state is a dispenser of many valuable prizes. Whoever amasses the most political power wins the most valuable prizes. The rewards include property rights, friendly regulators, subsidies, tax breaks, and free or cheap use of the commons. The notion that the state promotes “the common good” is sadly naive.
• Third, while free marketers are fond of saying that capitalism is a precondition for democracy, what they neglect to add is that capitalism also distorts democracy. Like gravity, its tug is constant. The bigger the concentrations of capital, the stronger the tug.

We face a disheartening quandary here. Profit-maximizing corporations dominate our economy. Their programming makes them enclose and diminish common wealth. The only obvious counterweight is government, yet government is dominated by these same corporations.

One possible way out of this dilemma is to reprogram corporations — that is, to make them driven by something other than profit. This, however, is like asking elephants to dance — they’re just not built to do it. Corporations are built to make money, and the truth is, as a society we want them to make money. We’ll look at this further in the next chapter.

Another possible way out is to liberate government from corporations, not just momentarily, but long-lastingly. This is easier said than done. Corporations have decimated their old adversary, organized labor, and turned the media into their mouthpiece. Occasionally a breakthrough is made in campaign financing — for example, corporations are now barred from giving so-called soft money to political parties — but corporate money soon finds other channels to flow through. The return on such investments is simply too high to stop them.

Does this mean there’s no hope? I don’t think so. The window of opportunity is small, but not nonexistent. Throughout American history, anticorporate forces have come to power once or twice per century. In the nineteenth century, we had the eras of Jackson and Lincoln; in the twentieth century, those of Theodore and Franklin Roosevelt. Twenty-first century equivalents will, I’m sure, arise. It may take a calamity of some sort — another war, a depression, or an ecological disaster — to trigger the next anticorporate ascendancy, but sooner or later it will come. Our job is to be ready when it comes. ... read the whole chapter