New Money …
The recent Kumhof/Benes “Chicago Plan” to rein in the banks and restore the money creating power to Congress is just one of many monetary reform efforts currently underway. Jefferson knew very well what would befall America if the bankers gained the upper hand over the Republic, and he was painfully accurate in his predictions. If there is to be hope for a democratic future, banking and monetary reform will be the keystone.
… And New Business …
Small businesses can also be incorporated and legally structured as “corporations”, but it is enterprise scale, not legal structure, that distinguishes large bureaucratically managed collectivist enterprises from small owner managed individualist free market enterprises. So we focus on the giant industry titans–many of which control annual revenues larger than the GDP of most of the world’s nations–that people generally think of as “corporations”. Fortune 500 lists the 2008 annual revenue of Exxon Mobil at $442.8 billion and Walmart at $405.66 billion, while Google lists the 2008 GDP of Venezuela at $315.6 billion. Each of those two US based transnational corporations directly controls and allocates more economic resources than all of the 29 million people and all of the businesses and the government in the entire nation of Venezuela.
Exxon and Walmart are “managed” by a CEO and an Executive; Venezuela is “governed” by a President and a Cabinet. Both forms of government have numerous levels of middle management below the executive, as they are both organizationally structured as multi-level hierarchical bureaucracies. You can argue that private sector corporate entities have “better” managers than public sector corporate entities, but then you concede my point that these entities practice economic “management” and the private corporate planners are simply more effective at their task. A counterargument is that it is easier to achieve a single goal (profits) than to satisfactorily achieve multiple competing goals as political government tries to do.
Like nations with political governments who manage the collective interests of the nations, corporations have managers who govern the collective interests of the company. And like tyrannical political regimes that extract the wealth of their nations for the ruling elite, modern corporatist kleptocrats extract the wealth of their markets and their companies for the management elite.
… And New Economics
Proselytizers of “free markets” criticize political government because human beings in positions of power are making humanly flawed decisions that generate sub-optimal outcomes, setting us inevitably on Hayek’s “Road to Serfdom”, whereas in a market system no human being is supposed to be in a position to exercise such control and among free people an inhuman “invisible hand” automatically optimizes outcomes. In previous eras invisible inhuman forces ruling events in the world were called gods or magic. Now we call it neoclassical economics and teach it as “fact” in all the great universities (though a few heretics like Australia’s Steve Keen of “Debunking Economics” notoriety and his country mate Bill Mitchell, and the heterodox “outlaw economists” at UMKC and elsewhere, are currently raising their voices against this preposterously anti-reality economic orthodoxy).
The False Dichotomy of Public vs. Private Management
If the CEO and Executive of corporations are not “planning” and “controlling” the economic destiny of the companies they are hired to manage, what are they being paid 10s or 100s of millions of dollars a year to do? Offer prayers to the invisible hand? It is absurd to even begin arguing that the CEO of Exxon or Walmart is not reaching out his “human” hand and “governing” a corporate economy that is larger than the national economy that Hugo Chavez readily admits that he is “governing”.
It is not “market forces” but HUMAN DECISIONS guided by “economic planning” that determine the actions of Exxon’s $442 billion corporate economy and Walmart’s $405 billion corporate economy, just as human decisions determine Venezuela’s economic planning and management. There is absolutely no difference in principle between “corporate planning and governance” of nation size economic resources and “political planning and government” of nation size economic resources. The former pursues profit above all; the latter pursues a variety of interests; but BOTH exercise centralized human power to execute their economic agendas.
The centralization of power into the hands of “managers” and “governments” is a direct consequence of enterprise scale. Jared Diamond, author of “Guns, Germs and Steel” and “Collapse”, in a review of the new Paul Robinson and Daron Asomoglu book, “Why Nations Fail: The Origins of Power, Prosperity and Poverty”, writes:
“The chain of causation leading slowly from productive agriculture to government, state formation, complex institutions, and wealth involved agriculturally driven population explosions and accumulations of food surpluses, leading in turn to the need for centralized decision-making in societies much too populous for decision-making by face-to-face discussions involving all citizens, and the possibility of using the food surpluses to support kings and their bureaucrats.”
Whereas in the medieval past (and still today in banana republic tyrannies) it was aristocrats and their political governments who extracted the wealth of their nations to “live off the fat of the land”, by the 14th century in Europe Medici bond merchants were also bleeding nations, via interest payments on loans to governments of fabricated ‘financial credits’. This was followed by the institutionalization of fractional reserve “banking” that is legally permitted to create money and charge interest to everybody who uses money (which is “everybody”, period). And then bankers are later supplemented by 19th century robber barons who extracted vast tracts of land and resources from political governments. Finally, today corporate governors have taken to extracting the wealth of their company and the economies within which they operate by generating “profits”, which often exist only as accounting fictions. The result is that the hollow shell of the robbed company implodes, while imaginary and real profits they pay to themselves in salaries, bonuses, golden parachutes, pensions, stock options, and myriad other ways disappear with the corporate barons riding off into the sunset.
Central Planning is Central Planning
Tyrannical economies are planned by a ruling elite to generate extractable wealth for the benefit of those elites. If large scale central planning is bad for nations, as “free market” advocates believe, then it is also bad for nation size financial and industrial corporations whose managers are paid enormous incomes for no other actions than “planning” those corporate economies. The motivation and temptation and opportunities for extractive behavior and other forms of anti-market corruption are at least as prevalent in private corporate environments as in public corporate environments, because both offer individual humans ready access to enormous amounts of other people’s wealth. Small business owners already own all the money their company earns so there is no opportunity to steal, except from customers and creditors, and that kind of theft is vigorously prosecuted.
Businesses truly in a free market operate in an economic environment of individualistic and often highly idiosyncratic competition (diverse small business owners are motivated by a wide range of various ideas and values, many of which prove NOT to be very “profitable” to the owner/manager). On the other hand, corporations function in the economic environment called “oligopoly”, with a few very professionally managed (no heterodox ideas or values quirks in the executive suite!) immortal non-human legal constructs that are chartered by governments as “limited liability business enterprises”. These monopolize and control their industry and systematically PREVENT competition, except among themselves, in an ego battle over “market share” to determine “which guy has the biggest” as measured by how much corporate income and regulatory favoritism he can extract from the public and from the government and how much personal income he can extract from the company he manages without paying tax.
The New Baronies
Via a combination of enormous financial, economic, and human resources, and control or influence of political governments who pass and enforce enabling legislation, corporations dominate and “govern” their industries. They don’t meekly “compete” in free markets like Joe the plumbing contractor. These giants “rule” their markets. Joe cuts his prices and expands his service hours to try to keep himself and maybe an employee or two gainfully employed, even if one of them has to be “on call” 365 nights of the year. Try getting your corporate cable or telecom ISP to come and replace your faulty modem, let alone expect them to show up at 3 a.m. on a holiday weekend as on-call private sector service workers routinely do.
“Free market” business people provide this level of service because they have to or they lose business (and thus lose personal income) to competitors who WILL come and fix your problem in the middle of the night. In economic sectors populated by small businesses there is always some new guy cutting prices (and/or raising service) to try to break into the market, and these competitors prevent everybody else in that market from sustaining higher prices. That’s why you can never get rich in small business: real competition. Oligopolists discover that “service” is not necessary because THERE ARE NO COMPETITORS who will break ranks and keep employees on call all the time. So they ALL provide no service without fear of losing work to nonexistent ‘competitors’.
And by firing service staff to reduce company labor costs while not lowering the prices they charge, the Romney/Bain-style managers find ‘spare’ corporate profits to pay themselves fat ‘bonuses’. Bottom line folks: service is a cost that reduces corporate manager pay packages, so managers fire service workers and take home all those “saved” wages as their personal “bonuses”.
The Theory of Rational Behavior
Free market true believer Greg Mankiw (whose Harvard introductory economics class walked out en masse in protest of his overtly ideologically biased presentation of neoliberal economic theory as “the economic facts”) says it would be “irrational” for corporate managers to NOT maximize their personal income in this way, including financial crimes, if they feel they can get away with it. You, the consumer, pay high prices for no service to enrich the corporate managers who decide for self-serving reasons that you will not get service, and whose decision is tempered not by fear of nonexistent “market discipline” but is rather motivated by blithe and positively reinforced expectation of personal gain at your expense. And his ‘competitors’ will abuse you in precisely the same way in this oligopolized captive market. And ideologically blinded mainstream economics tells you all is right with this ‘free market’ world.
The Equivalence of Corporations and Governments
So I repeat, corporations are not free market competitors subject to the market discipline of real competition. The doctrines of free market economics do not apply at this scale of enterprise any more than there is a “free market” in national governments. Large corporations are an alternate form of government ruled by the actions of individual people exercising power, no different than political rulers exercising power, so corporations should be subject to the same kinds of democratic constraints that we try to impose on our political governments.
Related Articles
About the Author
Derryl Hermanutz is a frequent contributor to Global Economic Intersection (Opinion and Analysis) on topics related to theory of money and relationships between current events and economic history and philosophy. He has a degree in Philosophy and Political Economy from the University of Alberta (1997).