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RE: [greenyes] FW: Corporation as Psychopath

I knew my post would be a bit controversial, but have enjoyed hearing the views of others on this topic. From the position put forth in the initial forwarded post that all corporations are bad, a good deal more nuance has arisen in the comments of others. Among the points made are: smaller corporations are less of a problem than big ones; international corporations are a bigger problem than domestic ones; publicly-held corporations increase the impetus for short-term thinking relative to privately-held ones; and that the profit motive is ingrained in human nature.

Others have continued that argument that corporations have no accountability as they destroy the earth, take advantage of workers, and do other pernicious things.

It's not likely that I'll change the minds of those who hold that private enterprise for profit is an evil that must be replaced. However, I do hope that a more nuanced view will prevail.

Clearly, there are many industries where corporate activities provide jobs without damaging those they employ or the wider environment. Similarly, there are many sectors of the economy where large scale multinational firms do not dominate. Where there are large economies of scale, either in production or in the administration of an activity, you will see large firms. These firms are sometimes privately-owned domestic corporations, sometimes multi-nationals, and sometimes government-owned enterprises. Examples of disasterous management, dissolution of wealth, environmental destruction, etc. can be pulled from all three categories. Recourse for those harmed is often least available when the enterprises are publicly-owned - especially if owned by corrupt and unaccountable governments (unfortunately, a pretty big swath of the world).

Jen points out that the large companies in the beverage industry waste enormous amounts of materials. If you compare the thickness of an aluminum can in the US versus many other nations, it is much thinner. This suggests that these firms have actually worked to reduce the materials per unit of product delivered, not increase it. That is, they pay attention to efficiency for the portion of the production chain they are responsible for. Her basic point that they continue to waste valuable resources by not recycling them remains valid.

Whether this is a failure of the corporate form per se, or of the appropriate regulation of the industry is a worthwhile question. I would argue the latter. Government-owned enterprises in many basic commodity industries are often poorly capitalized and operate at lowever conversion efficiencies than do private firms. The resource waste can be enormous. For example, simply using a band saw rather than a circular saw when converting raw logs to timber greatly increases the recovery of usable materials. Similar examples exist in oil refining, other primary materials, even electricity production and distribution. Small or moderate improvements in conversion efficiencies can have large impacts on the eco-efficiency of production.

What of corruption and accountability? Clearly, fiascos such as Enron and Parmalat indicate problems remain. But some perspective is useful. At least in the US, companies can, and are, regularly sued by those damaged by their products or by contract violations. Governments, at all levels, commonly regulate many of the externalities of production for many industries. This regulation is not always comprehensive, and sometimes very inefficiently applied, but the firms are not free to do whatever they want.

Firms also face tremendous pressure from capital markets. This is often presented as a negative (firms are driven to sacrifice long-term rational decisions to make quarterly numbers for Wall Street). There are positive sides as well, however. Capital markets force corporations (which control large amounts of societal wealth) to deploy this wealth in an efficient manner. Systems to remove capital from sectors that are no longer needed, or from firms that are poorly run, are extremely important in keeping our country vibrant. Redeploying this money, often at quite high risk to investors, to new and emerging sectors, is vital in creating future industries.

Do these systems of accountability work perfectly or all the time? No. But they can be improved, and even in their current form often perform considerably better than their alternatives. Consider that with the Parmalat scandal, Europe's biggest, around $20 billion is missing from the firm's books, money that disappeared over the past 10-15 years. This is a huge loss, to be sure. But before slaying the corporate form, let's look at the US federal government, one of the world's most open and accountable. The current energy bill is being touted by sponsors as costing taxpayers roughly $14 billion. Their accounting for costs is incomplete and non-transparent. Outside estimates, which I've compiled, run well above $120 billion. And what are the external costs of pumping hundreds of millions more into new coal plants - which the bill does - even if they are supposedly "cleaner"? Surely not insignificant. Do you think the $315 billion transporation bill has any tighter controls? Or the recently passed modifications to medicare benefits?

My view is that corporations are an indispensible building block of societal wealth creation and management. Within their parameters of operation, they tend to work quite efficiently. But, their parameters of operation do not account for everything. Identifying gaps in appropriate checks to corporate action should be where we focus, not attacking the corporate form itself. Basic elements of market structure, such as rights to sue, rational regulation, and robust anti-trust policies, remain critical. But again, all of these systems are much easier to operate against private firms than they are/would be if one government agency (e.g., EPA) had to institute them against other government operations.

Globalization does raise some risks, such as the loss of some (though not all) domestic leverage over corporate behavior. At the same time, however, global companies that now operate both in corrupt developing countries and the developed world face increased risks to their corporate image and developed-world sales from misbehavior. These pressures can have quite large financial impacts on multinational operations, and did not exist at all for the organizations (local or government-owned) that used to mine, extract, and pollute in many of the developing countries. If the WTO is not functioning adequately to police important aspects of global industry (as some of the earlier posters stated), it should be challenged. There is already wide recognition, for example, that countries are not living up to many of its existing requirements such as reporting on environmentally harmful subsidies. Institutions like the WTO are relatively new and still evolving; there's no reason that environmental and other social interests can't have as large a say in this evolution as does industry.

-Doug Koplow

Doug Koplow
Earth Track, Inc.
2067 Massachusetts Avenue - 4th Floor
Cambridge, MA 02140
Tel: 617/661-4700
Fax: 617/354-0463

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