The Corporation

In the mid-20th century, “governments in extant democracies expanded their domain over society and the economy” (139). By century’s end, though, deregulation and privatization reign, and “the corporation had become the world’s dominant institution” (139).

Many people feel unhappy with this turn of events: “Throughout the late 1990s and early 2000s, protesters continued to dog the architects of economic globalization wherever they met” (141). Former banker Ira Jackson, a department head at Harvard’s Kennedy School, warns “that business may be overplaying its hand. ‘We’ve won,’ he says of capitalism’s triumph over communism, but growing resentment toward the corporate system could snowball into ‘a potential backlash’” (141). Corporations haven’t kept their promise to the poor that “a rising tide lifts all boats” (142).

Jackson believes that increased government regulation won’t work; instead, “[t]he customer and the consumer and the employee are the kings and the queens of the new capitalism, and we have to start exercising our authority and opportunity responsibly” (143). Corporations are more socially responsible, he says, because “they understand the market requires them to be there, that there’s competitive advantage to be there” (143). Pfizer chief Hank McKinnell agrees: “‘If we’re going to win back public acceptance and trust,’ he says, ‘we have to be progressive’” (144).

Another pushback comes from corporate shareholders: “Because so many people now own company stock, usually through their pension plans, shareholders can serve as ‘a good proxy for the public good’” (144). Some business leaders propose that people’s purchasing and investment choices could act as a kind of “consumer democracy” and “shareholder democracy” that might “serve as effective public-interest constraints on corporate behavior” (144).

However, citizens each have one vote, while consumers and investors have widely varying amounts of dollars with which to influence companies, and “when we move that power over to the marketplace,” says Harvard’s Elaine Bernard, “the humblest and the wealthiest are totally asymmetrical” (146). What’s more, there is no evidence that people’s purchasing decisions are affected “by social and environmental concerns” (146). Meanwhile, half of Americans own no stock and thus possess no investment leverage over corporations, while the rest own too few shares to apply pressure, and their investment decisions “are likely to be driven by financial self-interest” (147). Finally, corporations “have no incentive to reveal their misdeeds to the public” (147), and shareholders must struggle to acquire such information; the results generally are “sporadic and insufficient” (148).

Deregulation can save tax money and increase business profits, but the costs “only reappear elsewhere” in the effects on victims of corporate malfeasance (150). “Regulations,” on the other hand, “are designed to force corporations to internalize—i.e., pay for—costs they would otherwise externalize onto society and the environment” (150).

Today’s regulatory systems are anemic. Corporations engage in “regulatory capture” to control regulators “through lobbying and selective information sharing” (152). On top of this, “regulatory laws often are reactive, rather than preventive, and too weak to stop corporations from causing serious harm” (152). Democracy itself is weak: Voter turnouts are poor, politicians are “unduly pressured and influenced by corporate money,” and “social inequality is rampant” (152).

Despite this, democratic processes remain important: “Now is the time to reinvigorate, not abandon, democratic institutions, and to craft them into truer reflections of the ideals upon which they were founded” (153). Furthermore, “the corporation depends entirely on government for its existence and is therefore always, at least in theory, within government’s control” (153). Corporations are chartered and delimited by governments, which have ultimate say over them, so “[i]t is therefore a mistake to believe that because corporations are now strong, the state has become weak” (154). Government power has instead shifted from promoting the interests of citizens to promoting those of the corporation.

Because of the harm corporations have the potential to do, “[t]he question of what to do about, and with, the corporation is one of the most pressing and difficult of our time” (158). At one end are proposals simply to increase restrictions on corporate behavior; such efforts, “though desirable, are unlikely to strengthen corporations’ accountability to society in significant ways” (159). At the other are proponents of getting rid of corporations altogether, but this is, “for now, too remote a possibility to plan for” (159). Can the corporation be reshaped so as not to resemble a psychopath? Public-purpose corporations already behave differently; one such corporation is the US Postal Service, whose mandate is “to bind the Nation together through the […] correspondence of the people” (160). A comprehensive system of public-purpose corporations is, however, likely only in the distant future.

In the meantime, government regulations should be stiffened, regulatory agency staffing increased to “realistic levels,” fines raised enough “to deter corporations from committing crimes,” and penalties for corporate officers harshened. These actions should be coupled with “suspending the charters of corporations that flagrantly and persistently violate the public interest” (161). Corporations should also be prohibited ahead of time from actions that “are reasonably likely to cause harm” (162).

In addition, local governments “should play greater roles in the regulatory system, as they are often more accessible to citizens” (162). Trade unions and “environmental, consumer, human rights, and other organizations that represent interests and constituencies affected by what corporations do” should have their authority strengthened (162). Lobbying ought to be scaled back, and elections “publicly financed” with “corporate political donations phased out” (162).

To protect citizens, “[s]ocial groups and interests judged to be important for the public good […] should be governed and protected by public regimes” (163). Finally, a campaign ought to be launched to “shift the ideologies and practices of international institutions, such as the WTO, IMF, and World Bank, away from market fundamentalism and its facilitation of deregulation and privatization” (164).

In Bolivia, the government authorizes a corporation to manage the water supply in a dry region. The corporation forbids locals from drawing water from their own wells; protests break out, including violent demonstrations; the government backs down and deprivatizes the water district. Today a nonprofit government corporation brings together “local officials and representation from unions and professional associations” to manage the water supply in a manner that is “not only transparent, but more just, more efficient, and encouraging of the people’s participation in the solution to their problems” (166).

The corporate ideal of citizens as consumers is too limited: “We also feel deep ties and commitments to one another […] We believe that some things are too vulnerable, precious, or important to exploit for profit” (167).