Thursday, October 2, 2014

Don’t Get Me Wrong. I Love Corporations. Really.

Friends often ask me, regarding my blog, something to the effect of, “dude, does your boss know you write this shit?” The short answer is, yes. The DanJanifesto is on my resume. For real. The longer question is, “how can you go to work every day as a business lawyer - mergering and acquisitioning and joint venturing and corporate financing - when you have so many horrible things to say about corporations?” And the longer answer is… 

The system is supposed to work like this: the people (via government) set the rules; capitalism (via corporations) works within those rules to make the most money possible and “expand the pie”; and the people (via taxation, via government) decide who should get how much of the pie. It’s when that basic structure starts to fall apart that I get all agitated. 

I believe that corporations are justified in doing anything and everything not prohibited by law and, further, that they should not be expected to even consider any factor – moral, social or otherwise – so long as what they are doing is legal. My general super leftie disposition notwithstanding, I’ll go to bat for Wal-Mart’s right to pay below poverty wages to full-time workers, Apple’s right to set up international shell companies to shelter profits from US taxation, and BP’s right to permanently ruin a massive chunk of coastline in exchange for penalties equal to a few day’s revenues. However unconscionable those practices might seem, If they’re legal, if they maximize a corporation’s profits, then that’s their prerogative, and it’s what they should do. 

When companies pretend to care about the world beyond maximizing shareholder value and say things like “being environmental / treating our employees well / supporting our community is not just a good idea, it’s good business,” it’s disingenuous, not to mention stupid-looking. It might not be 100% percent bullshit 100% of the time. Sometimes, for purposes of building goodwill with customers, or even for cold, hard business reasons, it turns out to be true. But, then, when it’s not true, it’s not. And when a choice has to be made between doing what’s “right” and what maximizes profits, profits win out every time. Period. 

If a company can maximize its profits by paying its employees sub-poverty wages or by destroying the environment, and we the people think workers deserve to make more and that forests need to be preserved, the solution is not to protest the company, but to change the rules. And we the people, not companies (who are not people; I’ve voiced my opinion on that issue plenty), are the ones who should decide what the rules are.

And that’s where things become problematic. Companies are doing more than trying to maximize their profits within the rules set by the people. They’re trying to set the rules themselves. The most fundamental problem with how the rules are made these days, in my humble opinion, is that there is no meaningful countervailing force to the intense concentrated interests companies have in certain very precise, industry-specific issues. If an environmental regulation would negatively impact some particular industry, it makes economic sense for that industry to lobby, with all its might, within one dollar of bankruptcy, to make sure the regulation doesn’t get passed. It could be the case – and I think it very often is – that the vast majority of the population agrees with a regulation, and that if every person who agreed would contribute one dollar to fight for the regulation, it would breeze through the legislative process and become law in a flash. But when there is no centralized structure for the masses to express that preference, it can’t compete against the targeted, coordinated message of even a very small minority. Absent any kind of meaningful counterforce, the industry wins.

When people get frustrated with this result and point to corporations as the culprit, I think they’re going after the wrong target. Whenever I hear any kind of message about “corporate greed,” I pretty much tune it out, because it almost always misses the real point. I wouldn’t necessarily go as far as Gordon Gecko in saying that “greed is good.” I’d say something more like, “greed just is, like gravity.” The profit motivation, a.k.a. “greed,” is what fuels capitalism. And capitalism really does do a spectacular job – a better job than any other system we’ve seen on Earth so far – of advancing progress and expanding the economic pie.

But a larger pie in and of itself is not always better. Distribution matters. Similar to “greed,” the terms “socialism,” “redistribution” and “class warfare” – at least as they’re generally tossed around by the media in this country – are pretty good indicators that whatever screed follows is not going to be very meaningful or informative. “Redistribution” in particular. The word is a sneaky, not-so-subtly loaded term, implying that there is some cosmic, natural order defining who should get what cut of the pie, and that any RE-distribution of the goods is unnatural. It’s a ridiculous premise, just like the idea of “free” markets. Every game has rules. Having no rules is, itself, a set of rules. Human beings don’t exist to serve the needs of markets. Markets exist to serve the preferences of people. And people should set the rules.

The question of who should be entitled to what relative portion of the pie gets pretty philosophical pretty fast. Business owners may be the most visible catalysts of progress and creators of wealth, but the forces that underlie any business success are vast and often invisible, and usually include some significant contribution from the government. We the people should determine the distribution. There’s no “re” about it. It’s a democratic choice. Nobody is intrinsically entitled to anything.  

When people howl about redistribution, they’re usually just complaining about paying taxes. To sound less complain-y, the protests against taxes are usually said to be based on some larger philosophy. In particular, good ol’ Ayn Rand. I certainly don’t believe the idiot Randian / Atlas Shrugged notion that if people have to pay too much in taxes they’ll decide to drop off the grid and stop enlightening society with their creations. That whole idea seems to me like an entirely clueless notion about human nature – that people will stop competing if they don’t get to keep 100% of the fruits of “their” noble work. People compete because they love to compete. If people had to pay a 95% tax on each dollar over $1 billion, that additional dollar would still be an extra point on the scorecard of who’s “winning.” More is more, and after you’ve reached the point where extra dollars have no impact whatsoever on how your life is actually lived, the value of an extra dollar lies purely within the realm of philosophy. (There’s another more mundane matter of people simply not understanding how marginal tax rates work, and thinking, incorrectly, that there is ever a situation where, after taxes, a person would take home less by making more if making more would bump up his tax bracket). As long as human beings like to show off and measure themselves against others (“by height” says Ty Webb to Judge Smails – sorry, couldn’t help myself), they’ll keep working hard even when taxes are high. 

OK, so, got it? We the people should set the rules. Corporations should compete all-out within those rules. We the people should decide who gets to keep the spoils. And we should all stop complaining about paying taxes.

And that, in a nutshell, is how someone can be an angry, verbose, blogging leftie and still go to work as a corporate lawyer every day.  


Unknown said...

Love it Dan. Been a fan for years, still a fan. Doesn't sound like you're left, I think you're stuck in the forgotten center with me. (you poor bastard) My views in addition: The human failing of greed is what leads to most of problems we see. For example: Politicians are greedy for more power so they spend money inefficiently to buy votes. People elect politicians who promise to get them more of the public pie than they contribute. Etc. I'm generally of the mindset that our form of government is not broken, it's how we implement it that's broken. I love the saying about "I'm part of the conspiracy to take over the government then leave you alone". And I'll stop complaining about paying taxes when government stops using them for supporting people who can work but don't. heh heh!

Michael Bishop said...

I think we have a similar outlook... I notice that when a story comes out about a company that pollutes, or takes advantage of a tax shelter, most people who talk about it want to use the story to express their moral indignation. I prefer to focus people's attention on "the system" (usually the laws and their enforcement) that enable the action, because I agree that's usually the most important way to prevent it.

That said, I think there are a couple places in your essay where you could be interpreted as taking it too far. You say:

"I believe that corporations are justified in doing anything and everything not prohibited by law and, further, that they should not be expected to even consider any factor – moral, social or otherwise – so long as what they are doing is legal."

Even though I agree that we should focus our attention on the laws that create the incentives for "bad actions," and even though I agree we can't "expect" corporations (or people) to be particularly moral, I don't want to give up moral criticism and protest as a supplementary means of affecting change.

I don't think you want to knock protest when its an effective means of achieving your desired ends do you?

Unknown said...

Corprations don't just lobby the government successfully, they also 'lobby' the people. Much more will be spent by PACs this uocoming politico season than by candidates.

This is another example of how the rule setting is broken.

And at some point (1917 in Moscow for example; 1932 in Washington; 1945 in London) the forces will align to reset how the rules are made. But note the dates above -- dates that signify events that influence pie carving today -- all fall outside of our mass media culture. I fear that the power of mass media means that the 'people' can be easily swayed to accept the status quo -- again by the rarional corporation. See Reaganism, trickle down ecomics, and the accelerating income inequality since 1970.

So 100% agree (as always) with the janifesto.

Just not terribly optimistic that the system (people voting for change) can work.

In the meantime am optimistic about more companies shifting away from the mandate to maximize profit. I work for a Fortune 100 'non-profit' called TIAA-Cref. We compete fiercely with the for-profit companies such as Fidelity. We win by delivering a lower cost, higher quality product. Think Patagonia at LL Bean prices. We offer anyone who calls us financial advice whereas at Fidelith you need $1mill in investable assets to get advice. We offer low high performing but super low cost funds (as low cost as Vanguard, another firm that isn't in the profit maximization game.) We can 'afford' to deliver this value bc we're not siphoning off 30 percent of the profits to pay for the 'owners' third yacht. And don't get me wrong, TIAA pays its employees very well and we 'make' a LOT of money. We are a huge corporation. We're just set up differently. We're set up to maximize the delivery of customer value. Which also turns out to be a good strategy business growth and success.

The rise of B companies, like Patagonia, is a hopeful sign that we don't need to change the political rule making in order to see some shift in our sysyem.

Rubber Monkey said...

hmm..."free markets" and re-distribution" yadda yadda yadda. HUNGRY NOW! Where can I get some pie around here?