Corporations and Society

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

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. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 1: Time to Upgrade (pages 3-14)

What’s more, many negative externalities aren’t even the result of meeting genuine human needs. The word thneed doesn’t appear in any economics text, but it’s symbolic of our modern predicament. The word was coined by Theodor Geisel — better known as Dr. Seuss — in his children’s fable The Lorax. A thneed is a thing we want but don’t really need. As many parents will recall, The Lorax pits a dynamic entrepreneur (the Once-ler) against a pesky Lorax who “speaks for the trees.” The Once-ler makes thneeds by cutting down truffula trees. When the Lorax protests, the Once-ler replies:

I’m being quite useful. This thing is a Thneed.
A Thneed’s a Fine-Something-That-All-People-Need!

Economists have no technical term for thneed; they assume that all “demand” in the economy is equivalent, as long as it’s backed with money. Yet surely it would be helpful to differentiate. One can imagine an axis running from needs to thneeds. On one end are such things as food, shelter, basic transportation, and health care. On the other end are Coca-Cola, iPods, and Hummers. (Significantly, needs are generic, while thneeds are typically branded.) Filling needs contributes more to human well-being than does selling thneeds, yet our economic system increasingly devotes scarce resources to thneeds.

Why do we have so much illth and so many thneeds? Because our economic operating system is far out of balance. On one side, representing owners of capital, are powerful profit-maximizing corporations. On the other side, representing future generations, nonhuman species, and millions of humans with unmet needs, are — almost nothing. The system lacks institutions that preserve shared inheritances, charge corporations for degrading nature, or boost the “demanding” power of people whose basic needs are ignored. Hence the system generates ever more illth, waste, and ever-widening disparities between rich and poor. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 2: A Short History of Capitalism (pages 15-32)

Enclosure, in which property rights are literally taken or given away, is half the reason for the commons’ decline; the other half is a form of trespass called externalizing — that is, shifting costs to the commons. Externalizing is as relentless as enclosure, yet much less noticed, since it requires no active aid from politicians. It occurs quietly and continuously as corporations add illth to the commons without permission or payment.

The one-two punch of enclosure and externalizing is especially potent. With one hand, corporations take valuable stuff from the commons and privatize it. With the other hand, they dump bad stuff into the commons and pay nothing. The result is profits for corporations but a steady loss of value for the commons. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 4: The Limits of Privatization (pages 49-63)

The corporation is an externalizing machine, in the same way that a shark is a killing machine. There isn't any question of malevolence or of will. The enterprise has within it, as the shark has within it, those characteristics that enable it to do that for which it is designed. — Robert Monks, 1998 ...

Propertize, But Don’t Privatize

Simply turning the commons over to corporations, without compensation or further ado, is like putting the fox in charge of the henhouse. There’s no guarantee the corporations will preserve the asset, much less share its benefits widely. We’re asked to believe that corporate owners will do the right things, either because it’s in their self-interest or because they’re socially responsible, but historical evidence and the inner logic of corporations suggest otherwise.

Nevertheless, it’s possible to propertize a natural inheritance without privatizing it, and in the next chapter I’ll show how this can work. The basic idea is to turn pieces of the commons into common property rather than corporate property. This would let us charge corporations higher (and truer) prices for using the commons, while sharing the benefits of those higher prices broadly. And it would ensure that the quantity of usage rights sold — which is to say, the level of pollution allowed — is set with the interests of future generations foremost in mind. ...

It’s tempting to believe that private owners, by pursuing their own self-interest, can preserve shared inheritances. No one likes being told what to do, and words like statism conjure fears of bureaucracy at best and tyranny at worst. By contrast, privatism connotes freedom.

In this chapter, we look at Garrett Hardin’s second alternative for saving the commons: privatism, or privatization. I argue that private corporations, operating in unconstrained markets, can allocate resources efficiently but can’t preserve them. The latter task requires setting aside some supplies for future generations — something neither markets nor corporations, when left to their own devices, will do. The reason lies in the algorithms and starting conditions of our current operating system.

The Algorithms of Capitalism 2.0

If you’ve ever used a computer spreadsheet, you know what an algorithm is. Each cell in the spreadsheet contains a set of instructions: take data from other cells, manipulate the data according to a formula, and display the result. The instructions within each cell are algorithms.

If you think of the economy as a huge spreadsheet, with each cell representing a producer, consumer, or property owner, you can see that the behavior of the whole is driven by the algorithms in the cells. Our current operating system is dominated by three algorithms and one starting condition. The algorithms are:
(1) maximize return to capital,
(2) distribute property income on a per-share basis, and
(3) the price of nature equals zero.
The starting condition is that the top 5 percent of the people own more property shares than the remaining 95 percent.

The first algorithm is what drives corporations. It tells them to sell as much as they can, pay as little as possible for labor, resources, and waste disposal, and make shareholders happy every quarter. It focuses the minds of managers every day. If they work in marketing, they wake up thinking about how to sell more; if there’s no demand for their product, they must create some. If they work in finance, they worry about margins and leverage. If they’re in labor relations, they bargain hard, replace long-term employees with temps, and shift jobs to places where wages are lower. All the while, the CEO feeds sweet numbers to Wall Street.

The second and third algorithms then mesh with the first. It’s the combination of these algorithms that causes the wheels of capitalism to devour nature and widen inequality among humans. At the same time, nothing in the algorithms requires or encourages corporations, either individually or collectively, to preserve anything.

This doesn’t mean people inside corporations don’t think about protecting nature, raising their workers’ pay, or giving something back to society. Often, they do. It does mean their room for actually doing such things is too narrow to make a difference. Nor does it mean that, from time to time, some brave mavericks don’t briefly flout the corporate algorithm. They do that, too. What I’m saying is that, in the great majority of cases, the corporate algorithm and its brethren are obeyed. For all practical purposes, the publicly traded corporation is a slave to its algorithm. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 10: What You Can Do (pages 155-166)

To build Capitalism 3.0, we each have unique roles to play. I therefore address the final pages of this book to a variety of people whose participation is critical. ...
POLITICIANS

Everyone wants your attention. Channel 5 is on line 3 and a powerful lobbyist is at your door. It’s hard for you to see the forest for the trees. What can I possibly tell you?

What I want to tell you is, there’s a fork in the road. On one side lies capitalism as we know it; on the other, an upgrade. You must decide which branch to take. Your choice has vast ramifications. Very possibly, the fate of the planet is in your hands. Trillions of dollars are also at stake. I want you to be courageous. I want you to choose the upgrade.

But that isn’t what one says to a politician. What one says is, we need to reduce our dependence on foreign oil, create jobs in America, and protect the environment. All those things cost money, and government doesn’t have enough. But here’s what government can do.

• First, delegate to an independent authority — something like the Fed — the power to cap U.S. carbon consumption. That way, when energy prices go up (which they inevitably will), you won’t get blamed. Also, make sure the carbon authority pays dividends, like the Alaska Permanent Fund. Then, when checks are mailed to your constituents, you can take credit.
• Second, talk about jobs and energy independence in your speeches. And push for an American Permanent Fund financed by sales of pollution permits. Within a few years, thousands of people in your district will be installing new energy systems and cashing dividend checks. You’ll be a hero.
• Finally, tell your donors not to worry. You’re a low-tax, small-government, pay-as-we-go kind of person. You think the environment should be protected through market mechanisms. You favor an ownership society in which every American has a tax-deferred savings account and no child is left behind. ... read the whole chapter