Introduction by Richard Farson
Welcome to our conference on The Future of the Corporation, which, I'm glad to say, will be led by one of my favorite public intellectuals, ILF Fellow Douglass Carmichael. As many of you know, Doug is a psychologist, psychoanalyst, organization consultant, and probably the most well read person I know. Since I know all of you, that's really saying something. I know, I know, I really don't know your reading habits, but I know Doug's and he is very much in touch with the most advanced thinking around, especially when it comes to human organization. He has just completed a book, Garden World, which outlines a possible future in which our civic aspirations are wedded to our environmental resources. In this book, he deals extensively with the corporation.....its history, its function, its strengths, its problems, and its future....so he is well qualified to lead us in this journey into the future. So welcome again, and a special welcome to you, Doug.

Response 60 : 1 Douglass Carmichael
We need corporations, or something like them. Organizations intermediate between people and federal government. Strength and flexibility come from such organizations. Corporations have the advantage over governments in not being burdened by centralized planning process, but this advantage is lost as corporations have become larger than many governments. Governments have the advantage over corporations in being able to command more of the assets of a society for a longer term investment. The libertarian view that the corporation is just the result of unfettered freedom fails when we realize that the corporation is dependent upon the legal infrastructure of the state well beyond that of mere private property. The corporation is legally a very strange beast and we may need to discuss that farther.

Corporations can be attractive and a lot of fun. They can be good places to work and help support successful lifestyles and families. They create products many of which we lust for. But there are problems. Morale inside and outside the corporations is not very good, the environment is in trouble, and wealth is concentrated rather than dispersed.

How do we produce what society needs with an entrepreneurial spirit, and inventive spirit, in the spirit of creating good jobs and even exceptional profit without giving in to the corporate � government partnership that is increasingly exploitative and serving itself at the cost of the environment and society? The corporation � the major way we have of organizing business - is a key element in any society that can thrive: we need production to meet human needs. At the same time we have a worldwide business culture that knows how to create wealth but does not know how to distribute it.

There are many aspects to this complex question of the future of the corporation. I do not know what the answer is and I would sure like your participation in the conversation about the issues. Would changing the tax code so it no longer favored concentration of wealth be enough? If it were combined with tough environmental regulations (that would drive innovation), would that be enough? Do we need to mess with the corporate charter issues? What about rethinking what "property" is?

Response 60 : 2 Raymond Alden
And, Doug, in addition to those questions, what about considering the ideas of the late Louis Kelso? Among the more intriguing, I think:

1) Do not tax the income of corporations, but require them to distribute as dividends 100% of their earnings -- which would, of course, be taxed at the recipient's level.

2) When corporations want to invest more money in the business, require that they raise the money through new stock issues -- thus making moving the final decision to those who would invest the money, instead of risking a self-serving decision by those who would then lead a larger company and thus earn more.

Response 60 : 3 Douglass Carmichael
The best we can hope for is to play the near term well and leave the next generation to deal with the issues they face." Things like this have been said for several decades, watching the environment, wealth inequality, and quality of life issues become more severe. But the problem is, we may be now at the point where "the next generation" is now.

After WWII there was a general expectation of increasing prosperity and quality of life, but that expectation has been lost under the pressure, first of the cold war, and then fear of economic competition such as we faced with Japan in the seventies, and now in the new fears were the real issues of economy and the environment are masked by exaggerated security concerns. Where is it all going, and what do we do with corporations?

I've been writing a book (proposal can be found at http://www.doug.pbwiki.com/proposal) on the future of politics and the need for a vision of where we can go. The corporation is a key issue in our capacity � or lack of it � to deal with the future. What I've been seeing is the tendency of the corporate environment to want to maintain the current structure of the economy because an alternative looks like a loss of power and value, value based on the current cash flow.

We can make a distinction between the mainstream economy we have and the new economy we need. How big is this distinction? How important is it that we make the shift? What will be the role of the corporation as we navigate these issues?

The first key issue is that the idea of the corporation is buried in ideology and received opinion.. For example, while we talk about "free markets and democracy" the real issue is democracy and markets on one side, and corporations and capital on the other. The �democracy and free markets� rhetoric leaves out ownership, capital, and corporations. Markets as maximum flexibility and spontaneity is the exact opposite of the corporate form of organizing.

Adam Smith in His Wealth Of Nations speaks of the advantages of free markets, but in the whole text there are about a dozen references to corporations, and in every case he sees them as instruments of control that prevent markets from functioning. The quotes can be found at http://www.doug.pbwiki.com/GW1

The core idea of markets is flexibility and responsiveness - the core idea of the corporation is planning and control, and the gaining of quasi monopoly positions. This is most obvious for the small number of corporations that control 50% of the "market." But the principle extends downward to smaller corporations. For example, where I live it is illegal to put locally made windows in one's house, because the windows cannot pass the testing rules, and the small producers can't pay the costs of testing. Hence we can buy Anderson but not Gomez and Sons.

Corporations were originally chartered by states, in a contract to do things the state wanted. These charters were time limited. But with time corporations slipped out from under the contract idea into the status of persons, giving the corporations power than other forms of association did not have, such as the right to free speech, and limited responsibility in the hands of owners, who are not really owners, and to avoid the constraints of social need as expressed in the original idea of the charters.

I recently attended a seminar on research by one of our major corporations on "service." Since it is 70% of the economy, if we could replace it by machines (that we make) we and our customers (those who replace their service staff with our machine) make a lot of money. When asked about the obvious the leader said, "That releases the employees to go create fascinating new businesses." To paraphrase Einstein's famous quote "It will take more expensive technology and inventiveness to clean up the problems caused by existing technologies." Business opportunity is unlimited.

So what do we do? We want entrepreneurial activity, we want a well distributed quality of life, we want a measure of security and stability, and we want an attractive environment. How can the idea of the corporation develop so that we can recapture the promise we had after WWII of prosperity for all, and avoid the dynamic of the corporation to push costs out and pull value in, in ways that are hard on the environment and concentrate wealth and power?

Response 60 : 4 Raymond Alden
If corporations did not exist, would we have to invent them? If so, then what would our newly invented form of organization look like, in order to avoid the worst attributes of current corporations?

 

Response 60 : 5 Douglass Carmichael
Ray, these a good questions. Of course the "if we had to invent them" tops the list. Part of the answer is that small cumulative effects are important. Just reversing the tax structure on income so that we did not get the extreme concentrations we get now would help.

Enough?

I don't know. Certainly taxing corporations is really a regressive tax because the costs are passed on to the consumer, so it is smoke and mirrors.

The Kelso proposals would also help.

But my own current conclusion is that the relation of corporations to political power, where the corporations have the government in its pocket, and "free trade "policies that suppress rights to labor, is fundamentally flawed. Often people argue that the corporations are just asserting the right of association. But then why the asymmetry between labor and corporations? If capital can organize, why not workers?

But more deeply the idea that the corporation is a legal person seems to me to undermine the whole idea of rights and citizenship, because the corporation is not an equal citizen: in some ways it has more rights and in some ways less than a real person.

So, is the legal form of the corporation necessary? For what? Increasing wealth and the possibilities of civilization, and above all creating the conditions of peace? What we have now is a system that concentrates wealth and power and leads to wars for resources.

So the change I would like to see, based on my partial understanding, is that we revert to corporations having charters that are time limited and include social purposes, including statements about payout to executives, environmental effects, and impact of overseas workers.

Ray, what would be on your list of "worst mistakes?" Certainly where you and I live the growing concentration among absentee vineyard owners and the stealing of water rank high locally. But those are part of a larger system of corporations, finance, and globalization that are crisis producing.

Thanks for joining the conversation.

Response 60 : 6 Richard Farson
So many big issues in a single comment.

If we want to see corporations become more socially responsible, we must level the playing field, as I think you are suggesting, Doug, with your insisting on corporations having charters that include social purposes. To appeal as we now do to individual corporations to act socially responsible is doomed, because it jeopardizes their competitive status, and we need that even more than we need the social purposes, because that competitiveness vitalizes our economy which enables us to have a strong democracy. As Ed Lindblom has pointed out, there is no democracy without a strong market ecnomy.

Response 60 : 7 Raymond Alden

Yeah, so many issues!

Let's try to work at the basement level for awhile.

Corporations have as a primary purpose to enable tasks and processes that are beyond the capability of individuals. What are these? They are associated with the limited capacity of one person to raise funds and assume risks. Perhaps there are a few others.

Declaring corporations to be legal "persons" is something that became stretched far beyond the real requirement -- i.e. There is a need to treat them as persons for certain administrative and/or legal purposes only, but not generally.

My thoughts on taxation may differ from yours, Doug -- I can't tell from your brief reference to that above. The net earnings of corporations go in only a few directions: To be reinvested, at the option of the management, or to the owners in dividends, and -- now -- to the government in taxes. Remove the taxes, and the addition to retained earnings could be used for those two, or to reduce prices, or to increase salaries and wages. Where else? And which of these would be considered NOT in the public interest?

Reinvested earnings have the potential to distort the power structure. Management has a vested increase in growth -- it contributes to their compensation and pensions! If they had to go into the equity markets to sell their proposals for growth, there would be two benefits: 1) Their proposals would be tested in the market place, and 2) There would be added opportunities to purchase shares and thus spread the ownership more widely. Couple that with the reforms that are slowly becoming significant, and broader ownership will tend to level the playing field to which Dick refers.

I'll go on with this later, but enough for tonight.

Response 60 : 8 Douglass Carmichael
Obviously corporations are embedded in a world economy. And the world economy is determined by political structures - laws, regulations, currency, and these in turn determined by influences on the various national political processes. These are influenced by - determined by - corporate influence on elections and legislation (the current flap over network neutrality is a good case to watch). It is a complex circle of causes, not a linear process. So obviously the claim "We gotta do these things, such as cutting worker compensation, to be competitive" has a bunch of assumptions.

Some, maybe even all, of those assumptions are probably true. No individual corporation can reverse the market pressures, so appeals to act socially responsible are not very effective (but do influence corporate advertising, which keeps moving in a green direction).

It is a larger problem. Competitive advantage is mostly based on either cheap labor or regulatory advantages. If labor were allowed to be free - to move, organize, or boycott - wage differences would rapidly diminish around the world (and looking at Indian Software wages, they are). If we could eliminate regulatory advantage (my locally produced house windows example above), then competitiveness would appear quite different than it is today.

What can I say about the response above"...and we need that even more than we need the social purposes, because that competitiveness vitalizes our economy which enables us to have a strong democracy.�As Ed Lindblom has pointed out, there is no democracy without a strong market economy.." I think I am being goaded, but here goes.

Ed wrote " To do what is needed requires that we recognize the difference between an individual person, weak as that person is, and a massive organization often as powerful as a nation-state. To write good law is, at this late date, extraordinarily difficult. For among the prerogatives long granted the corporation are powers to obstruct corporate regulation. Even so, it is apparent that like horses these productive institutions need better harness than has ever been thrown on them. Are we afraid to approach the animal?

Pasted from <http://ilfpost.org/?p=159>

and

Might it be possible for a nation, even a nation with a history of freedom and democracy to reach a parting of the two? Liberty remains, but democracy erodes to extinction? Citizens continue to enjoy their civil liberties, their choices of occupation, and mobility; and they read and speak as they please? But they lose control over their government; they do not effectively instruct or control their political leaders? Policy is made by a political elite and does not suit the preferences of voters?

Pasted from <http://ilfpost.org/?p=89>

And

Historically, democracy usually comes packaged with liberty, with which it is often confused. Liberty gives us some rights to speak, assemble, maintain some privacy, choose our occupation, and the like. These we greatly prize; but they do not necessarily give us democratic control over our government. Enjoying liberty, we may still be powerless.

Well, then, what to do? One line of inference is to work harder at politics. I am sometimes so moved.

The other inference from Ed: Don’t expect much of democracy

Pasted from <http://ilfpost.org/?p=76>

So, strong economy does not get us democracy in any meaningful sense. A very good summary of the issue in china is at "The China Model from The American, A Magazine of Ideas

"China’s soft power offensive and the lure of the China Model remain, however, entirely official government programs. Where soft power has worked durably and has permeated connections among nations and nationalities, it has also involved civil society and the media, the arts, cultural attraction, the broad range of informal human contacts. Beijing will not let such areas of life off the leash at home, let alone license them for export. Thus, its charm in the developing world remains that of the official with his jacket still on, the limousine with darkened windows waiting outside, fully paid for, and the critics regularly, clinically rounded up and removed beyond earshot."

Perhaps a strong economy requires a strong state and the tendency is toward an authoritarian state in any large economy.

Ed prefaced his comments above with

"No government matches the market system in scope or detail of achieved organized cooperation. Even at its fullest development, neither Maoist China nor Stalinist Soviet Union accomplished scope or detail of cooperation to match that of the market system. As a coordinator and cooperator, the market system is Number One, and there is no number 2 or 3, nor would there be even if a world state existed.

Ah, but the defect? The massive defect I mentioned? Yes, shortly."

Pasted from <http://ilfpost.org/?p=46>

Quoting Dick again, " As Ed Lindblom has pointed out, there is no democracy without a strong market economy." The ability of a nation to be a democracy suggests that the nation idea itself may be involved. In fact corporations (not commerce and market) are dependent on national currency regulation. Who gets to print money, who gets to borrow it, what interest is paid.?

A nation is a way of getting a monopoly on violence AND currency. Whoever then controls the money monopoly is in a strong position and corporations need to align with those interests. Dollar hegemony and US corporations are tightly woven together.

"Strong market economy" is a rhetorical smokescreen. We don't have a market economy, we have a corporate economy that uses the market. Without large corporations that commodity things like the local manufacture of house widows example, local economies would look more like markets.

Another local example: new legislation requires that compost for sale be subjected to a certain temperature for a number of days. The only way to pass that test is with a large facility with constant temperature. Small compost producers can not meet those "requirements".

My approach to the corporations as the leverage point for social change is not to start at the corporate action level, but at the societal level. We have increasing economic concentration, lack of responsibility toward the environment, increasing war dangers, loss of the nuclear culture of restraint, and large migrations coming. All history says that WW1 and 2 are part of a single clash of economic empires, and we are going down the same path today. As in the New Yorker cartoon a number of years back, a group of lemmings rushing to the cliff and one says to his neighbor, "anyone think of going to the mountains this year?"

So, starting large, I say things will have to be different at the systems level.

There is a fascinating book, Capitalism 3.0, by Peter Barnes, who started Working Assets. http://capitalism3.com/ Basic idea is that we let corporations play in some of the world but not all of it. Things that are commons like radio spectrum should be managed by public trusts, like the land trusts, and this would help preserve public space and goods. His analysis of corporations as basically taking commons and privatizing the value -patents on existing seeds for example - is quite compelling. It is well written and easy to read.

Ray says Corporations should be persons only for limited reasons. I would like to ask, why is not association good enough? There would be no restriction of the right of people with capital to organize. These organizations would not however benefit from any extra legislation. What legal and administrative reasons force us beyond this? Bigness may be the main reason, but bigness then fights with the state for sovereignty. I'd love to see the details laid out about what a reduced corporate chartering process would look like, and what laws would pertain for its lifetime. This kind of analysis is what I have most hoped for in the conversation.

I seem to agree with Ray that we should not have taxes on corporate income.

I like the idea of distributed earnings leading to broader choices in investment. No argument.

The issue of growth is mentioned. If you or I earn as much this year as last, we are probably ok, but for many their income only comes from change. These are the brokers and deal makers in the system. Thus the financial markets, which has turned industrial capitalism into financial capitalism , want growth oriented polices. Growth however is defined internal to the system, so if corporations can externalize costs, and internalize (privatized) commons assets, we also are "growing".