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Friday, March 01, 2013

Rules for corporations - taking back the regulatory sphere

I was talking to my brother the other day, and I said that the corporation does not just exist to make a profit. He contradicted me that no, in fact, corporations have no other goal.
My brother was announcing the contemporary consensus, which owes more to Milton Friedman than it does to the history of corporations, which, far from being the natural creatures of the “free market”, were artifacts of the collision between the legal system and the sphere of circulation as it arose in capitalism.  Like Frankenstein, the corporation was made out of dead bits of history and galvanized into a monstrous life, at which point they began to ravage the countryside. However, there is nothing in their unnatural organism that would prevent them being forced to make a social profit as well as a profit for themselves. On the contrary, they are legal creatures which, in a democracy, can easily be redesigned to reflect the ethos of a democracy.
Adam Smith justly saw the double origin of the corporation in, on the one hand, guilds, which attempted to monopolize certain skills (and which, it should be said, are far from dead – guilds, or professions requiring government licensing, make up 30 percent of the work force in the U.S., three times more than is made up by unions) through the use of the state, and trading ventures, such as the ‘adventurers’ companies that colonized North America, which lay claim to a certain channel of trade. Out of these pre-capitalist fragments, the corporation, whether privately owned or joint stock, was forged. In the U.S., this forging process produced a vast allergic reaction in the progressive era. Progressive politicians pressed back against the rise of giant inter-state corporations using the Sherman anti-trust act – that is, they pressed back by demonstrating the contradiction between the monopolistic behavior or tendency of the corporation and “free trade”. Ultimately, the justification for the corporation or free trade was not that the trader or businessman made a profit – often they didn’t – but that the distribution of the social product and the creation of new tools for better living were facilitated better by these means than by other means.
In other words, profit should reflect a better arrangement of the distribution of goods and the creation of new goods, to the betterment of mankind. If it doesn’t, profit represents a perversity, or viciousness, in our social arrangements.
This is of course discomforting for monopolists and plutocrats. While they are quite pleased to be hailed as ‘producers” or “innovators”, instinctively they understand the contradiction between the socialist ethos that justifies their activity and their desire for monopoly and profit-making as a good in itself.
It is only since the eighties that these elementary facts have been forgotten by the populace – or rather, I should say, it is only since the eighties that the elites have managed to inject a certain amnesia into the social body. But that amnesia is beginning to wear off. Among the most fascinating parts of the Five Star Party program that won in Italy is the fact that it recalls that the corporation is a social being, rather than a technical entity for the delivery of profit to the shareholder. Under the reign of de-regulation, the policy making elite has taken it upon itself to judge what is and what is not socially useful – and, no surprise, the policy making elite has made out like bandits deregulating merrily here and there. But “deregulation” is a misnomer – what it really means is putting regulatory power into private hands. When Microsoft “sells” its software but does not allow its owner to sell that software in return, Microsoft has gained true regulatory power that distorts the market in its favor. Imagine giving Ford or GM the same kind of rights over autos. A market is an inherently regulated space – an unregulated market is like a card game without rules – it has no point, and leads to no end. The question is: who does the regulating. We know from the last thirty years that the progressives at the beginning of the 20th century were right. It is way past time to change the rules of corporations such that the social benefit audit is a standard part of corporate practice. And that means an audit that has teeth – before the shareholder or administrator gets a penny, the social audit must show that the corporation has efficiently distributed goods and services and facilitated innovation. If not, all profit must be devoted to filling that social hole.   

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