Three Corporate Myths that Threaten the Wealth of the Nation

Yves Smith reposts a post by William Lazonick about Three Corporate Myths that Threaten the Wealth of the Nation. He proposes that large corporations are actually owned by the public and challenges three (3) myths about them:

• They are not “private enterprise.”
• They should not be run to “maximize shareholder value.”
• The mega-millions in remuneration paid to top corporate executives are not determined by the “market forces” of supply and demand.

I was stunned by the concentration of corporate power in terms of number of employees and payroll:

The wealth of the American nation depends on the productive power of our major business corporations. In 2008 there were 981 companies in the United States with 10,000 or more employees. Although they were less than two percent of all U.S. firms, they employed 27 percent of the labor force and accounted for 31 percent of all payrolls. Literally millions of smaller businesses depend, directly or indirectly, on the productivity of these big businesses and the disposable incomes of their employees.

Emphasis Mine

In Imperialism: The Highest Stage of Capitalism, Lenin describes the concentration of German industrial power in the last century in terms of power consumed as well. He calculates that these large industrial firms consume 75.3% of all steam output, and 77.2% of electrical output.

Lenin also compares USA concentration in terms of output. I have tabulated these figures as follows for comparison with those of Lazonick (first row):

Year	Threshold for large enterrpise	Percentage of all firms	Percentage of the workforce
2008	10,000 employees	<2%	27%
1904	USD 1,000,000	0.9%	25.6%
1909		1.1%	30.5%

Lazonick argues that since public enterprises have shares that can be owned by anyone, they are fundamentally different from private enterprises whose ownership is not on the open market. This seems to be the democratisation of capital. Here the ordinary person can participate in the ownership of the means of production. In other words, anyone can become a capitalist as long as they have the money.

Lenin argues against this democratisation of capital by saying that the capitalists and their apologists (Finance Capital And The Financial Oligarchy):

But the monstrous facts concerning the monstrous rule of the financial oligarchy are so glaring that in all capitalist countries, in America, France and Germany, a whole literature has sprung up, written from the bourgeois point of view, but which, nevertheless, gives a fairly truthful picture and criticism—petty-bourgeois, naturally—of this oligarchy.

Paramount importance attaches to the “holding system”, already briefly referred to above. The German economist, Heymann, probably the first to call attention to this matter, describes the essence of it in this way:

“The head of the concern controls the principal company (literally: the “mother company”); the latter reigns over the subsidiary companies (“daughter companies”) which in their turn control still other subsidiaries (“grandchild companies”), etc. In this way, it is possible with a comparatively small capital to dominate immense spheres of production. Indeed, if holding 50 per cent of the capital is always sufficient to control a company, the head of the concern needs only one million to control eight million in the second subsidiaries. And if this ‘interlocking’ is extended, it is possible with one million to control sixteen million, thirty-two million, etc.”

As a matter of fact, experience shows that it is sufficient to own 40 per cent of the shares of a company in order to direct its affairs,[4] since in practice a certain number of small, scattered shareholders find it impossible to attend general meetings, etc. The “democratisation” of the ownership of shares, from which the bourgeois sophists and opportunist so-called “Social-Democrats” expect (or say that they expect) the “democratisation of capital”, the strengthening of the role and significance of small scale production, etc., is, in fact, one of the ways of increasing the power of the financial oligarchy. Incidentally, this is why, in the more advanced, or in the older and more “experienced” capitalist countries, the law allows the issue of shares of smaller denomination.

Emphasis Mine

Lazonick concludes that:

We have to elect politicians who will take on corporate power rather than shill for corporate power-brokers. We have to support labor leaders who recognize that gaining a voice in corporate governance is the only way to ensure that corporations will invest in workers and create good jobs. We need teachers at all levels of the education system who understand what business corporations are and what they are not. We need the responsible media to escape from the grip of corporate control. And we have to put in place business executives who represent the interests of civil society rather than those of an elite egotistical club.

This is not a true democraticisation as the wealth is not distributed evenly throughout the society.

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Lynn Parramore: Capitalism’s Dirty Secret: Corporations Don’t Create Jobs, They Destroy Them

Yves Smith reposts Lynn Parramore: Capitalism’s Dirty Secret: Corporations Don’t Create Jobs, They Destroy Them:

For the last four decades, U.S. corporations have been sinking our economy through the off-shoring of jobs, the squeezing of wages, and a magician’s hat full of bluffs and tricks designed to extort subsidies and sweetheart deals from local and state governments that often result in mass layoffs and empty treasuries.

Passmore strongly believes that government exists independently of the Capitalists and is able to enforce benevolence upon the corporations. She sees the problem with corporations as the short-term focus on profits:

Bad things happen when corporations are unconstrained by strong national policies that force players to think long term, behave decently, and refrain from dumping their short-term costs on the rest of us. They tend to focus single-mindedly on maximizing profits for shareholders at the expense of all else – including jobs. Executives set their sights on a path to short-term boosts in share prices paved with layoffs, wage cuts, and jobs moved overseas, while slashing research and development and investing in the skills of their employees.

Passmore correctly says that the corporations owe their success to the social investment made in education and other public utilities:

Corporate executives have lost the sense that they owe anything to the public. They have forgotten that the 99 percent, as taxpayers, have made huge investments in them. They fight to lower taxes as if all the money “belongs” to the companies. They fight regulations as if the public doesn’t have the right to interfere in their business.

Passmore also points the link between worker's income and consumption. No wages, no profits.

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Ken Jacobson: Whose Corporations? Our Corporations!

Yves Smith reposts Ken Jacobson: Whose Corporations? Our Corporations! An argument is made that corporations are not about profits, but:

Historically, corporations were understood to be responsible to a complex web of constituencies, including employees, communities, society at large, suppliers, and shareholders. But in the era of deregulation, the interests of shareholders began to trump all the others. How can we get corporations to recognize their responsibilities beyond this narrow focus? It begins in remembering that the philosophy of putting shareholder profits over all else is a matter of ideology which is not grounded in American law or tradition. In fact, it is no more than a dangerous fad.

Emphasis Mine

The obvious answer is public ownership under Socialism. Ownership is critical in controlling the production in a society. Private ownership means the private objectives of the rich are pursued. When these objectives diverge from that of the society at large, then we get the problems we currently see.

Jacobson says that the conception of profit maximization is a recent fad, and:

This narrow conception of corporate purpose has become predominant only in recent decades, however, and it flies in the face of a longer tradition in modern America that regards the responsibilities of a corporation as extending far beyond its shareholders. Owen D. Young, twice chairman of General Electric (1922-’40, 1942-’45) and 1930 Time magazine Man of the Year, told an audience at Harvard Business School in 1927 that the purpose of a corporation was to provide a good life in both material and cultural terms not only to its owners but also to its employees, and thereby to serve the larger goals of the nation

Emphasis Mine

This view seems to conveniently ignore the gilded age of the robber barons that existed up to the start of the second World War. The end of the nineteenth century and the beginning of the twentieth century was a time of great economic crises and bitter battles. This was when troops (public and private) turned their guns upon the workers in the mines of Colorado, factories of Detroit and Chicargo, and elsewhere.

The success of the Russian Revolution challenged the supremency of the Capitalists. This challenge was met with the furour of Fascism or the comforts of the Welfare State. Corporations became part of this Welfare State in order to ensure their survival in a Capitalist society.

The need for this survival declined as the threat of a Communist revolution in the West receded as the 1970's and 1980's saw the start of the neo-Liberal onslaught against the Welfare State. It was no longer necessary to buy the workers off as the workers suffered defeat after defeat.

Jacobson concludes that:

An important step toward countering their influence can come in refusing to accept the legitimacy of shareholder primacy. Up to now, this fad has had the power to neutralize opposition in part because it has obscured the tool needed to challenge it: a clear understanding of the economic realities. For this reason, we must learn what contributions all stakeholders – not just the shareholders, but all the others as well – make to the corporation, and the extent of the risks and rewards those contributions truly entail. We must learn about the interrelation of business and government in all its complexity, going far beyond the headlines about taxes and regulation to discover who needs whom for what, and who does what for whom. And we must learn what rights corporations legitimately hold, what privileges they enjoy, and what duties they are obliged to carry out.

Emphasis Mine

Again I say that public ownership is the only way to align the productive capacities of corporations with the needs of the society at large. The next question is how align the decision making bodies responsive the needs of the public at large.

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Burma Election 2012

There are two (2) differing reactions to the recent elections in Burma:

1. A useful political exercise but no real transfer of power from the military;
2. A step to a liberal democracy with business opportunities opening up.

Giles Ji Ungpakorn writes that there are Two sides to Burma's elections:

Elections are important political events that can be used to advertise policies, can often give encouragement and can be used to mobilise activists outside parliament. For these reasons the elections in Burma in early April were extremely important for the democratic movement. …

However, we must not fall into the trap of thinking that these elections are a “first step” in some top-down designed “road map” towards democracy. Instead they are a desperate attempt by the Burmese junta to find legitimacy for the continuation of the dictatorship. No doubt the generals were well aware of the uprisings in the Middle East and needed to shore up their authoritarian rule.

Peter Hartcher disagrees with the second point in his analysis of Despair and hope in the tale of two tyrannies. He see a genuine attempt to get economic progress going in Burma:

…because of Burma's membership of the Association of South-East Asian Nations, the military dictators got to travel frequently to other capitals in the region and saw the prosperity and success in Singapore, Jakarta, Bangkok and elsewhere. They “grew more comfortable” with the concept of political power-sharing and economic liberalisation, [Nicholas Farrelly] posits.

Giles Ji Ungpakorn would reply that this is an example of setting up democracy for economic exploitation:

Right-wing analysts always state that democratic transition comes from the actions of the ruling elites and Western governments “designing” gradual steps towards democracy. We can see what this means in the case of Iraq and Afghanistan. Western rulers do not give a fig about democracy and human rights. What they, and authoritarian governments like China, want to stress is “stability” for making profits with a thin veneer of legitimacy thrown in for good measure.

True democracy cannot be obtained through the elections in a Capitalist society because Giles Ji Ungpakorn says that:

Elections under capitalist democracy never lead to state power changing hands because many important elements of the capitalist state are not subject to elections or even accountability. For example, we never get to elect capitalists who make important investment decisions that affect millions of peoples’ lives. In addition to this, judges, military and police commanders, top civil servants and those who control the media are never elected. But that does not mean that we should ignore elections.

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New Kickstarter Project: “Congratulations! You Have Overthrown the Government of the United States of America”

Ted Rall wants to write a book on starting a revolution in the USA through a New Kickstarter Project: “Congratulations! You Have Overthrown the Government of the United States of America”.

I am a bit doubtful that anyone could write a prescription for a revolution given the experiences of the Bolshevik Party during the February Revolution when the party found itself way behind the mood of the people. This was a party who had studied the 1905 Revolution, the Paris Commune, and other revolutions. And they could not keep up with the people.

The study of revolutions held the party in good stead through the counter-revolutionary attacks in the middle of 1917. And they were able to prepare the people for a successful Communist revolution in November 1917.

It was only in the consummation of the revolution that the intense study was useful, not in setting the process going.

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How American Corporations Transformed from Producers to Predators

Yves Smith reposts a post about How American Corporations Transformed from Producers to Predators:

Corporations are not working for the 99 percent. But this wasn’t always the case.

William Lazonick retells the pretty story of how the corporations were once concerned with their employees and the broader society:

A generation or two ago, corporate leaders considered the interests of their companies to be aligned with those of the broader society.

He blames the ‘financialization’ of the firms starting in the 1960's through mergers, then acquistions for the purpose of asset stripping. Fincialization means that:

…executives began to base all their decisions on increasing corporate earnings for the sake of jacking up corporate stock prices.

He sees the problem as:

When a corporation becomes financialized, the top executives no longer concern themselves with investing in the productive capabilities of employees, the foundation for rising living standards for all. They become focused instead on generating financial profits that can justify higher stock prices – in large part because, through their stock-based compensation, high stock prices translate into megabucks for these corporate executives themselves. The ideology becomes: Corporations for the 0.1 percent — and the 99 percent be damned.

One solution he proposes is to:

Recognize that taxpayers and workers bear a significant proportion of the risk of corporate investment, and put their representatives on corporate boards where they can have input into the relation between risks and rewards.

Sounds like the start of Socialism to me.

My problems with this analysis are that:

• The characterisation of corporations as changing over time;
• The absence of the influence of the fall of Communism in 1989;
• The decay of unions in the 1970's and later

Corporations have always been about the maximization of profit. That is the reason for their existence. They reproduce capital in the shortest time possible.

In earlier epochs, this was achieved through technical innovations such as mechanisation, electrification, automation, and computerisation. This required investment of large amounts of capital, and the replacement of manual workers with intellectual (or knowledge) workers to support these innovations.

Unfortunately, these innovations lowered the percentage of labour power that could be exploited for profits. Thereby lowering the long term rate of profits. So, we have the classical Marxist description of the decline in the rate of profits due to the replacement of labour with machines.

Once this rate of profit falls below the minimum requirement of Capitalists for the reproduction of capital, the amount of investment falls. To restore the rate of profits, the Capitalists relied on the neo-Liberals such as Thatcher and Reagan to crush the unions thereby allowing for greater exploitation of workers. Once the exploitation could not be increased in the First World countries, the factories moved off-shore so that profits could be increased further.

Other firms faked profits through financial means. This is what Lazonick is mainly concerned about. But profits are still profits, no matter where they come from.

This exploitation was further expanded with the collapse of Communism in 1989. Countries that were outside of the Capitalist system were suddenly available for exploitation. There was an added benefit of the the discrediting of Communism as an alternate system. Capitalism was put forward as the winner of the historical struggle. The ideological impediment to greater exploitation was removed.

For the means of production that is currently owned by the corporations to serve the interests of the society at large, we must place the ownership of these assets in public hands. We must overturn the power of the Capitalist class by stripping them of their private property. Public benefit requires public ownership.

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Billionaire bashing: the new class war

Paul Sheehan writes of Billionaire bashing: the new class war in that:

Class war is back. On both sides of the Atlantic. The consequences have a long way to run.

I disagree. The class war has never gone away. It is a permanent feature of Capitalism.

What has happened instead is that the class war has become visible to the general public despite the best efforts to deny its existence. This is something that is obvious to both right-wing and left-wing popular movements:

Last year, the Tea Party movement and the Occupy Wall Street demonstrations pointed to a percolation of social anger. Occupy Wall Street did leave one indelible phrase in the public consciousness - “the 1 per cent” - a term which now routinely crops up in public dialogue. It is shorthand for the unprecedented concentration of wealth in the hands of the top 1 per cent of the population in the capitalist system, against the share of the remaining 99 per cent. It is a theme resonating in troubled Europe and also applies in China.

Here the class war is portrayed as the inequality in the distribution of wealth. Nowhere is the analysis of the reasons that give rise to the inequality.

The inequality is a natural consequence of the capitalist mode of production in which the surplus production accrues to the owners of the means of production, instead of to the producers of the commodities.

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