Tuesday, October 2, 2007
Mr. Smith Needs to Kick Some Ass.
Every once in a great while a book comes out that perfectly defines the moment we're in. In 1988, Bennett and Harrison's The Great U-Turn: Corporate Restructuring and the Polarizing of America documented how a globalized economy and Reagan-era deregulation had ushered in a new era of growing inequality. While one could argue with the viability of their solutions, if one sought to understand what was happening in America at the time, this was the book. Nearly twenty years later, Robert Reich's Supercapitalism is the must read sequel.
While Bennett and Harrison placed much of the blame for growing inequality on corporate greed, deregulation, and a growing hostility to organized labor, Reich says all of these things are secondary to the real issue: in a supercharged hyper-competitive capitalism — where consumers vote with their feet for the lowest prices and investors can seek the highest rate of return with a click of a button — corporations must seek efficiencies wherever possible.
But while the successes of capitalism have led to low prices and high rates of return for investors, the impact upon democracy has been disastrous. Corporations have turned to the public sector as one more means to seek competitive advantage, and as their enormous resources and political clout have come to dominate the legislative arena, the legitimate public interest has been eclipsed. Democracy has become incapable of defending the greater good.
The solution, says Reich, is to stop expecting corporations to act like anything other than the amoral profit-seeking entities that they are. We need to get corporations and corporate money out of the political process, and force government to regulate capitalism to promote the public good. All else, in Reich's memorable phrase, "is detour and frolic."
As consumers and investors, we need to grapple with the fact that low prices and high returns on investment come with hidden costs to society, and that trade-offs are involved. These trade-offs, he says, can only be negotiated through the democratic process.
Some of Reich's more surprising conclusions are that the idea of the socially responsible corporation is, at bottom, an oxymoron, and that campaigns against particular corporations, such as the Nike and Walmart efforts, are misguided and, in the long run, doomed to failure.
Corporations he reminds us, are responsible only to their shareholders. Social responsibility, given the unforgiving logic of the marketplace, makes sense only to the degree that it adds shareholder value or pre-empts regulatory threat. The public interest cannot, by the rules of the game, enter into the calculation.
The Body Shop's Anita Roddick, he points out, was forced into an advisory role by investor pressure, and Ben & Jerry's was taken over by Unilever. He describes how Starkist tried to net dolphin free tuna, but consumers wouldn't pay the extra cost, so they had to stop, and how Nike, under intense public pressure, reformed its labor practices, but could not sustain these changes over time.
The only way to enforce the social good, says Reich, is to change the rules for everyone, and this means imposing regulation across the board.
When we, as investors and consumers, expect corporations to give us low prices, high returns, and socially responsible behavior, he says, we are being confused and hypocritical. There is a trade-off here, and corporations are incapable of negotiating the middle ground. The public good can only be enforced by government, and for this to happen, we need to reassert citizen control over democracy.
Ultimately, he argues, capitalism and democracy need to be separated. Corporations, he argues, are not people, and should not have political representation, and democracy should not be reduced to just one more means of enhancing shareholder value.
There is, of course, a chicken and egg problem here. How do you get politicians to regulate corporations when corporate money dominates politics? The answer, while not easy, is at least clear: we need campaign finance reform and a resurgence of citizen activism that doesn't get sidetracked by misguided campaigns for corporate responsibility. Holding our electeds responsible is much more to the point.
At bottom, it come down to this: corporations are not accountable to the broad public. Not even in theory. But politicians are, and this is where we need to begin.