Corporations and Civil Disobedience

Corporations and their incentives are totally misunderstood by most Americans.  People seem to think that if they are domiciled in the US and work under Delaware corporate law they somehow are “patriotic” and for the country they are domiciled in.

That’s weak thinking.

Corporations aren’t evil.  They aren’t virtuous.  They are efficiently designed entities that engage in commerce.  If there was a better way to design a company to return capital to shareholders and service customers, someone would have thought of it already.

People on the right-wing are ticked because corporations enable and do business with China.  It’s clear communists are a mortal enemy to capitalists, so what gives?  At the same time, the left-wing is totally disgusted by corporations because they think their salary structure is racist (it isn’t), there is a race to the bottom on wages (there isn’t) and that the Supreme Court decision affirming corporate citizenship and free speech is blatantly illegal.

The right wants to regulate social media companies and Big Tech.  The left wants to tax them all into oblivion.

Combine this misguided sentiment with the criticism of corporations that acting in the best interest of their shareholders and customers is the wrong way to transact business, and we are formenting a large attack on corporations.

Let’s look at Thoreau’s essay on Civil Disobedience and see what the original source had to say about corporations.

Can there not be a government in which majorities do not virtually decide right and wrong, but conscience?- in which majorities decide only those questions to which the rule of expediency is applicable? Must the citizen ever for a moment, or in the least degree, resign his conscience to the legislation? Why has every man a conscience, then? I think that we should be men first, and subjects afterward. It is not desirable to cultivate a respect for the law, so much as for the right.

The only obligation which I have a right to assume is to do at any time what I think right. It is truly enough said that a corporation has no conscience; but a corporation of conscientious men is a corporation with a conscience.

Often in economics, we look at the extremes.  We look at what happens at the margin. What are the opportunity costs of a decision?  It’s informative.  In Thoreau’s time, he was talking about corporations and their support of slavery.  Today, it could be said that corporations support all kinds of evil things across the world.  They also do a lot of good things too.  The oil company everyone loves to hate finds crude oil, refines it into gasoline, and allows us to put it in our vehicles at a cheap price in order to move around.  Much better than dirt streets and horses.

By the way, a diesel car is far more environmentally friendly than a battery-powered one all in from soup to nuts.

One of the most extreme tests of the corporate structure was WW2.  Corporations all over the world were forced to choose.  Remember, the only thing a corporation cares about is keeping shareholders and customers happy.  Get a good return on equity and shareholders are happy.  Satisfy customer needs quickly and cheaply, they are happy.  That’s the only reason for a company to exist.

What happened in WW2 when faced with an extreme situation?

In the US, corporations shifted production from things like washing machines and cars to products that could help us win the war.  They didn’t do it out of altruism or some sort of patriotism.  They were doing so to keep shareholders whole and in the pink.  They switched to the military build-up because of their own self-interest in satisfying shareholders.  Without a free country and American style legal system, those same companies would have been at the beck and call of a totalitarian government.  Corporations prefer the legal certainty American style of government.

Today, corporations see a big market in China. They will jump through all the hoops they have to in order to get to that market.  They don’t care about privacy, human rights, intellectual property or any of the things that they are “supposed” to care about.  They care about profit, and returning capital to shareholders.

Today, Nordstrom corporate is doing all they can to get people to shop online.  Meanwhile, they still pay their in-store employees on commission.  Except, no one is in the store because of Covid fear-mongering and policy.  Nordstrom corporate won’t change their pay policy to amend it for the new reality, and employees are suffering terribly. All employees in-store do is process returns.  The overarching Covid policy combined with the corporate policy is bankrupting them.

World War Two was a hot war with terrible consequences if the US lost. It was an easy choice for companies to become the “Arsenal of Democracy”.  It was good marketing too.  Making the choice to embrace patriotism and work with America for victory was simple for them.  Plus, they had a ready buyer flush with cash in the American Military.

Today’s Cold War with China has been approached differently by America’s companies.  The choice is not so clear since corporations are discounting the threat that China might be to the United States.  You might categorize this as corporations focusing on the short term, while the communists are focusing on the long term.  The end result is this.  Today’s corporations are enabling a totalitarian dictatorship that has killed more humans and enslaved more people than Hitler ever dreamed of.

Corporations also engage in “crony capitalism”.  That’s a special form of fascism. It’s very prevalent in the US today and gives the impression to citizens the game is rigged.  Just look at Covid policy.  Shut down the small businesses, but let the big box corporations do their magic.  Cronyism is certainly on page one of the textbook in order to do business in China.

As our government has gotten larger and larger with the burgeoning regulatory state increasing, corporations have used lobbying and leverage to stop competition and get what they want.  Watch what the Big Tech companies do if Congress moves to regulate.  They will fashion the regulation to crush potential competitors while creating a green field to expand their own businesses.

Corporations do this in various ways which Professor George Stigler called, “regulatory capture”.  They are party agnostic, and only want to return capital to shareholders. If that means engaging in crony capitalism, they’ll do it.  See what’s happening in Illinois between the Democratic Machine and Commonwealth Edison.  It’s not a new phenomenon.  Rahm Emanuel is cited as being some investment banking whiz kid for doing a deal with Exelon but that was cronyism pure and simple.

But, the problem of cronyism is much much larger than some isolated instances in the states.

For example, there is a revolving door between Wall Street and the US Treasury.  There is a revolving door between all kinds of industries and their regulators.  University of Tennessee Law Professor Glenn Reynolds points out that we ought to tax the incomes of people who take advantage of that revolving door.  Perhaps a 50% tax on income, no write-offs would change the behavior and help to crush the cronyism.  Perhaps.

There is a way to combat this.  Citizens can win.

1.  We need to shrink the size and scope of the regulatory state.  Neither Republicans nor Democrats have been aggressive in taking that job on.  Elect people that will.
2. Taxing revolving door incomes of lobbyists that go from industry to regulator to industry is a good idea.
3. Today, small businesses need to simply open their doors in defiance of the Covid orders.
4.  Bring transparency to corporate policy that hurts employees and customers.

Again, I echo another post.  We don’t need stimulus which will just go to non-government organizations and consultants.  Checks to people don’t help.  We need to open up the economy.  Businesses need to find resolve, and simply open.  Then be willing to fight the tyrannical government when it happens.  Fortunately, businesses are within their Constitutional rights to engage in civil disobedience.

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