Governments and Corporations
After reading TQE #80, a reader wrote, "I do agree that governments tend to concentrate power and abuse it, but so do corporations." She was right, of course, but there is more to say about that.
Governments are monopolies, but corporations are not. I cannot think of any corporation today that does not fear its competitors. Unlike corporations, the government may make regulations it forces on its clients, the citizenry, whether they like them or not. But if a corporation does not satisfy its customers and workers it may well lose them both. If Windows does not satisfy, try Linux or MacOS.
A government does not go out of business if it misbehaves, the way a corporation does. (Remember Enron? Arthur Anderson?) Of course, we can throw the president out, be we cannot change the government itself short of violent revolution.
Suppose we do throw the president (or governor) out. We end up with two (or more) candidates to replace him or her (135 in the California recall). Suppose there are two. One favors free trade, deregulation, and war with Iraq, the other trade restrictions, heavy regulation, and peace. Suppose you favor free trade, deregulation, and peace. You cannot choose the bundle of policies you prefer. You must vote for one or the other candidate, along with his or her bundle. In the grocery store, by contrast (a free market), you can buy your bananas, butter, and other products separately, or you can patronize a different market if you do not like the first one.
During this past year, a number of corporations have deceived their stockholders by manipulating the accounting, setting up subsidiaries to absorb losses and not including them on the main balance sheet, and other shenanigans. They have been aided by the CPA firms that audited their books, and by banks as well. In each case there were financial winners and losers. The winners were corporate executives who sold their stockholdings "just on time," and the losers were stockholders, creditors, and workers.
However, zillions of corporations did not behave this way. I have not heard of Hewlett Packard cheating its employees and stockholders, for example. I recently spoke to an audience of Quaker businesspeople who place ethics above profit, as Quakers did in the seventeenth century. What of the thousands of corporations listed daily in the financial pages? These corporations learned to be honest because they feared the consequences if they were not. Over time they adopted honesty as a popular culture. If this is so, it is not fair for my subscriber to speak the stereotype that "so do corporations." (It's like generalizing from the behavior of a few members of an ethnic minority, and then claiming ALL members of the minority behave that way).
However, we must condemn the deceptions of those that cheat. To the best of my knowledge, cheating occurred mainly during the most recent bubble, when profits were rising rapidly, and "everyone" wanted to get on the bandwagon, buying stocks. We were so eager to see them go up in value that we did not examine carefully the means by which the corporations were making it so.
But how could we examine them, when each one of us is but a small stockholder? We could have formed a stockholders' union for every corporation whose stock we own, to be charged with representing honesty at board meetings. Banks and CPA firms could have refrained from helping the corporations do their wrongs, since they too should be accountable. (That's the way it was in the CPA firms where I worked, 55 years ago.) The stockholders' union (or labor union or creditors' union) could sue not only the executives of the corporations but also the participating banks and CPA firms, to make them pay for their deceptions. (As it is, the government fined them, taking the money itself instead of reimbursing the losers.)
If these methods were followed, it would be up to the losers to sue the deceiving winners. Except for running the courts, the government would stay out of it. But instead of that, Congress passed the Sarbanes-Oxley law which, among other things, put responsibility on the C.E.O. to guarantee the integrity of the accounts. In fact, however, the C.E.O. does not normally know how the accounts are fashioned; the accountants do that. The result of the law is that any person invited to be an executive will think twice before assuming the possibility of being jailed for an error he or she did not make. Thus we may lose the very people that have been providing us with the high-scale standard of living we enjoy.
In case you fear too many lawsuits under this proposal, consider a society which is our goal, not totally achieved today in which corporate and individual behavior are so shaped that we do the expected (correct) thing in order to avoid lawsuits. After a few decades we do it because it is right. This is the history of institutions everywhere. For example, we stop at red lights. But the media noise is mostly about the exceptions, not the rule.
Congress has itself set rules for corporations. But Congresspeople are not trained managers; they don't know how to run a corporation. Besides, some of them also cheat or seek power. They may manage poorly because they themselves do not suffer the consequences. Following TQE #79, in which I lamented that we as a society tend to blame others for our derelictions, my proposal would require each person to shoulder the responsibility himself or herself, to see that he or she is not cheated. We should insist on unions of stockholders to represent us; workers should insist that their unions do the same, and so on.
During the twentieth century, Congress took many powers for itself that were not assigned them in the Constitution. The Supreme Court, which is supposed to protect us from this sort of robbery, did nothing. Congress in turn delegated its newly-taken powers to regulating agencies, which have been ordering the economy ever since, and not always for the better. See TQE #80 for an array of harmful regulations, or of those that seek power for the regulators.
Congress has paid our tax money to many corporations it favored politically. The administration has proposed $35 billion "for research and development in just about everything from nuclear energy to clean coal... The nuclear business could well get not just subsidized insurance but, more outrageously, loan guarantees merely for building and operating new plants" (The Economist, 8/2/03). Consider also agricultural corporations. Do you think farm subsidies are paid to poor, small farmers? Nonsense. They are paid to the richer agricultural corporations that are the least to need subsidies. Why pay them? Because the farm states carry a large number of electoral votes, and guess what? they have been known to elect a president even when he lost the popular vote.
During the same twentieth century, government after government all over the world has recognized the insidiousness of over-regulation. When too much regulation, cheating, and corruption caused governments in Asia, Africa, and Latin America to come close to bankruptcy, those governments called on the International Monetary Fund for help. The Government of the United States did not call on the Fund because as rich as we are we could "afford" the inefficiencies.
In TQE #79 I pointed out that regulation had cost about $7,000 for each consumer in just one year (hidden in the prices of products bought), which was more than the average consumer paid in income taxes.
However, Congress has also recognized the inefficiency of over-regulating and has been deregulating, as have other governments. Deregulation has caused greater efficiency in many enterprises, including railroads and airlines, both of which have lowered their prices competitively. (See TQE #43)
I seek a world of freedom to contract. Those who engage each other economically make contracts of what is expected of each. If the contract is violated, or if third parties are harmed, those harmed should employ previously-formed organizations to take the miscreant to court and gain redress. Once this becomes the popular culture, the number of miscreants will be reduced.
To create such a world, we must first vote away the powers of Congress to bestow special privileges upon the corporations. We must limit Congress's power to regulate, and we must place more responsibility on individuals to compose the rules and enforce them. Quaker meetings and other churches should be heavily involved in creating this culture, instead of empowering a government to rule us miscreants.
What do you think of such a radical proposal?
Sincerely your friend,
Note: Robin and I will be doing the "ultimate grand tour" by river boat during September. We leave from Amsterdam on the North Sea and go all the way to Constanta on the Black Sea. During that time my co-editor Asa Janney will issue Letters 82 and 83. In TQE #82 he will describe an interview with Charles Murray, co-author of The Bell Curve, and in TQE #83 he will explain the ideas that other scientists hold about The Bell Curve.
I was shocked by the statement, "You must vote for one or the other candidate." I was taught and I assume all Christians have a standard by which they judge a candidate and only vote for a candidate if a person meets that standard. Thus most of the time a Christian does not vote.
Arnold M. Wedel
You propose to use adjudicated contracts as a means of regulating the economic mechanism to provide a more fair and equitable outcome for the society, and to remove government from the temptations of "over-regulation." In the current context, this puts more power in the hands of judges and juries. That is an enticing proposal, but I can see at least a couple of problems. One is that many judges are elected (and in many cases for life), and would be subject to the same pressures and temptations as the current crop of lawmakers. Another is that lawsuits can drag on and on, often to the advantage of the party having the deeper pockets.
Tom Selldorff, Weston, MA.
I agree with all the above, but I seek a society in which we behave properly because it is the moral thing to do. The courts are a way station in that endeavor. I believe their deficiencies are more likely to be corrected than the deficiencies of regulation. Jack
I have been a Quaker business executive for some 50 years. I have tried to learn from the Cadbury family, the Roundtree family and Barkleys. Over the years companies run on these ethical standards have done better than their competitors. The same happened to Vermont American when I was the CEO. Who do you want to do business with? The ethical for sure. I am not as worried about the certification of financials as you are. The accountants must sign first. They report to the CEO. They are on the hook first.
Lee B. Thomas, Jr., Friends Meeting of Louisville (KY).
One thing that excites me about my Quaker meeting is that slow process that allows us to look at many facets of any given problem or situation and watch what appears after the threshing has been completed. The grains of solution that emerge are many times more creative than I could ever have imagined. And rarely fall neatly into one or another side of a dichotomy.
Ah well, again ... thanks for the exercise in thinking.
Barbara Seidel, Gwynedd (PA) Friends Meeting
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