Can Capitalism Buy Happiness? [2]

smiley face

We’ve been looking at the zero-sum economy’s winners and losers — the new “meritocracy” vs. the “precariat” and the Millennials.

We’ve also seen that winners and losers find common ground in higher education, where students of all stripes are increasingly stressed to the point of mental ill-health  — not by the demands of higher learning, but by the enveloping culture of hyper-competitive capitalism.

One predictable response has been for the established, older, prosperous, and powerful to wag the shame finger and tell the kids to quit whining and buck up:

“Student protests and demands for better mental health services are frequently dismissed in the press. ‘We just can’t cope with essay deadlines, and tests stress us out, moan snowflake students,’ read a headline in the Daily Mail in November 2017. In September 2018, the Times described today’s students as ‘Generation Snowflake’ and suggested that ‘helicopter parents’ had ‘coddled the minds’ of young people.”

The way universities are run is making us ill: inside the student mental health crisis. The Guardian (Sept. 27, 2019).

Truth is, we just don’t like to talk about mental illness, and if we regard it at all, tend to shoo it away as a personal problem or character flaw. Plus, there are enduring cultural myths that capitalism and its marketplace are “free,” and that anyone can make it with enough gumption. Together, these attitudes foster the “snowflake” judgment.

Mental illness is ultimately about a clash between the “reality” of the individual deemed to be mentally ill and the “reality” of the prevailing culture.[i] Conventional thinking sides with the culture, and uses pharmaceutical and other therapeutic interventions to realign the individual. As a result, the list of economic stressors is accepted as part of the culture’s normal life to which individuals are expected to conform,

Meanwhile, viewed on its own terms — outside of its cultural context — the list itself is long and dismaying. For example:

  • There has been a forty-year drought in middle class real income growth, with most households drifting downward while an economic elite soars at the top.
  • The percentage of Americans who are considered to be poor by Federal standards is approaching 50% — meaning they have no or limited access to what were historically considered “public goods” such as shelter and sustenance, education and healthcare, etc.
  • Public support safety nets have been replaced by the privatization of essential services. The social services that remain are expensive for the government to administer and are demeaning and counter-productive for recipients;
  • Soaring educational costs mean soaring and strangling student loans.
  • Runaway housing costs have made conventional home ownership unaffordable for the lower economic classes.
  • Due to the rise of the “rentier” economy, the general public must increasingly pay capital holders for the use and enjoyment of essential resources and intellectual property.
  • Upward mobility for the lower 90% is now a thing of the past (the “glass ceiling”). Meanwhile the top 10% is protected against drifting downward (the “glass floor”).
  • Touted “job creation” is mostly “gig economy” contract work, with no assurances of sustainability and no benefits such as healthcare, retirement, etc.
  • Prospects for sustainable income are bleak, and the new job market requires the “hustle” and the “grind” and the monetization of everything in a state of “total work.”
  • Meanwhile, GDP “growth” is largely due to production increasingly shifted not just off-shore, but to intelligent machines. Benefits accrue to capital holders, not wage-earners.
  • These job trends have increasingly resulted in social isolation and an unfulfilled struggle to find meaning and purpose at work.
  • Meanwhile a new generation of huge and powerful “corporate nation-states” now challenge conventional notions of national sovereignty, democracy, and policy-making.
  • The same is true of “philanthrocapitalism” and “social entrepreneurship.”

And there’s more.

While “snowflake” judgments turn a blind eye, for the past several years there has been a counter commentary that looks at the list systemically:  it examines how the capitalistic over-culture creates social mental ill health which is then transmitted to the individual. I.e., it asks if the culture’s assimilation of contemporary capitalistic belief and practice has become toxic to the point that it is making both society and its individual members sick. This is a huge shift in perspective, which we’ll explore further.

[1] For more on how cultural beliefs create collective reality, you might take a look at this article, which evaluates mental health diagnosis and treatment in light of the Cartesian worldview that still dominates the western world:  i.e.,the dualistic thinking that separates the natural world, which can be known scientifically, from the realm of soul or spirit, which can’t. I have talked about how cultural beliefs created social reality in prior blog series in this forum. I also address it in my other blog.

Can Capitalism Buy Happiness?

smiley face

Over two years ago, the first blog post in this series asked, “Can money buy happiness?” Today’s question looks past the medium of economic exchange to the more foundational sociological and psychological implications of contemporary hyper-competitive capitalism — a good example of which is the “meritocracy trap” we looked at last time, which clearly is not making capitalism’s elite happy, but instead is driving maladaptive behavior like the college admissions scandal.

The scandal evokes the kind of horrified fascination you get from reading the National Enquirer headlines in the checkout line:

“A teenage girl who did not play soccer magically became a star soccer recruit at Yale. Cost to her parents: $1.2 million.

“A high school boy eager to enroll at the University of Southern California was falsely deemed to have a learning disability so he could take his standardized test with a complicit proctor who would make sure he got the right score. Cost to his parents: at least $50,000.

“A student with no experience rowing won a spot on the U.S.C. crew team after a photograph of another person in a boat was submitted as evidence of her prowess. Her parents wired $200,000 into a special account.”

Actresses, Business Leaders and Other Wealthy Parents Charged in U.S. College Entry Fraud, New York Times (March 12, 2019)

What the…?

The parents who wrote those big checks now face a stiff legal price, but why did they do it in the first place? An ongoing discussion over the past several years[i] suggests an answer:  they did it because of the “meritocracy trap” as evident in higher education, — an economic necessity for more than just the elite — where the current dynamics of of how capitalism is practiced are a significant contributor to mental ill health.

A long article on that topic came out last weekend:  The Way Universities Are Run Is Making Us Ill’: Inside The Student Mental Health Crisis. The Guardian (Sept. 27, 2019). The subhead reads “A surge in anxiety and stress is sweeping UK campuses. What is troubling students, and is it the universities’ job to fix it?” The article’s U.K. examples mirror those that prompted the USA’s college admission scandal,. Predominant mental health issues on both sides of the Atlantic include general anxiety disorder, depression, and “an alarming number of suicides.” What’s behind all this? Consider these quotes from the article:

“In the drive to make universities profitable, there is a fundamental confusion about what they are for. As a result, there has been a shift from prizing learning as an end in itself to equipping graduates for the job market, in what for some can be a joyless environment.

“Studies have looked at the impact of social media, or lack of sleep caused by electronic devices, as well as the effects of an uncertain job market, personal debt and constricted public services.

“In his book Kids These Days: The Making of Millennials, Malcolm Harris … identifies the pressures of the labour market, rising student debt and a target-driven culture as contributing to steep increases in anxiety and depression among young people.

“Driving our universities to act like businesses doesn’t just cannibalise the joy of learning and the social utility of research and teaching; it also makes us ill,’ wrote Mark Crawford, then a postgraduate student union officer at UCL, in a 2018 piece for Red Pepper magazine… ‘It’s self-worth being reduced to academic outcomes, support services being cut, the massive cost of housing,’ he says.

“[Mental health authorities] have noticed a fall in participation. It’s getting harder to fill up events, most likely a symptom of the sharp increase in students living far away from campus to save money… Others have limited time as they juggle studies with paid work.

“For [Sean Cullen, a student featured in the article], money worries have been a grinding and ever-present aspect of his university experience. In his first year, he socialised more than he does now. But given that a single night out costs as much as a weekly food shop, he soon began to think twice about going out with friends. To complicate matters, the amount he receives from Student Finance England, the body responsible for student loans, changed year by year, with unpredictable amounts and repayment terms. “The financial aid is getting worse and worse, even though the cost of living is going up,” he says.

“In 2017, Cullen was elected as the student union’s disability officer… He heard accounts of mental health problems from hundreds of other students, many of whose experiences chimed with his own. ‘I’ve not yet met a student that hasn’t experienced high levels of stress while studying, whether it’s because of deadlines, balancing paid work, or problems with housing,’ he says.

“While many students survive more or less on their overdrafts, …many have mental health problems in their final year. ‘Nowadays, getting a degree doesn’t necessarily guarantee you a job, or not a better job than without one,’ he says.

“[The need to work many hours per week] has an impact not only on academic performance but on students’ ability to fully participate in university life.

“Students exhausted from working while studying full time, and still struggling to cover their basic living costs, are bound to be more anxious about deadlines and exams. ‘It’s all the environmental stuff that makes it more stressful… If you’re tired, you haven’t had time to study, you have to make a long journey to university, it’s all cumulative.’”

Cuts in social services, educational and housing costs, social isolation, student loans, constricted access to upward mobility, a stingy job market, precarious prospects for sustainable income, a struggle to find meaning and purpose at work… these are economic issues, not education issues. This series has looked at all of them. Next time we’ll look further into what’s behind them..

[1] See, for example, this NCBI study:  “Anxious? Depressed? You might be suffering from capitalism: Contradictory class locations and the prevalence of depression and anxiety in the United States.”

The Zero-Sum Economy [2]  Meet the Winners

The House Always Wins

We met the zero-sum economy losers last time. Let’s meet the winners this week.

The winners are the best of the best and have the best of the best in cultural, logistical, financial, and other kinds of support. They were tapped for economic competition before preschool. They’ve been groomed for it all their lives. But they pay a ridiculous price — the stress of training and competing is unreal. And when it’s time for college and beyond, only a handful stand on the podium. No wonder their ascent has been tainted with scandal

They’re the children of the new Meritocrats — the economic top 1%. They complete in the X Games of economic competition, and it’s killing them. That description is from Yale law professor Daniel Markovits — a Meritocrat himself, and the author of The Meritocracy Trap: How America’s Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite (just out, on Sept. 10, 2019).  Prof. Markovits previewed his book in a recent article that begins as follows:

“Two decades ago, when I started writing about economic inequality, meritocracy seemed more likely a cure than a cause. Meritocracy’s early advocates championed social mobility. In the 1960s, for instance, Yale President Kingman Brewster brought meritocratic admissions to the university with the express aim of breaking a hereditary elite. Alumni had long believed that their sons had a birthright to follow them to Yale; now prospective students would gain admission based on achievement rather than breeding. Meritocracy—for a time—replaced complacent insiders with talented and hardworking outsiders.

“Today’s meritocrats still claim to get ahead through talent and effort, using means open to anyone. In practice, however, meritocracy now excludes everyone outside of a narrow elite. Harvard, Princeton, Stanford, and Yale collectively enroll more students from households in the top 1 percent of the income distribution than from households in the bottom 60 percent. Legacy preferences, nepotism, and outright fraud continue to give rich applicants corrupt advantages. But the dominant causes of this skew toward wealth can be traced to meritocracy. On average, children whose parents make more than $200,000 a year score about 250 points higher on the SAT than children whose parents make $40,000 to $60,000. Only about one in 200 children from the poorest third of households achieves SAT scores at Yale’s median. Meanwhile, the top banks and law firms, along with other high-paying employers, recruit almost exclusively from a few elite colleges.

“Hardworking outsiders no longer enjoy genuine opportunity. According to one study, only one out of every 100 children born into the poorest fifth of households, and fewer than one out of every 50 children born into the middle fifth, will join the top 5 percent. Absolute economic mobility is also declining—the odds that a middle-class child will outearn his parents have fallen by more than half since mid-century—and the drop is greater among the middle class than among the poor. Meritocracy frames this exclusion as a failure to measure up, adding a moral insult to economic injury.

“Public anger over economic inequality frequently targets meritocratic institutions. Nearly three-fifths of Republicans believe that colleges and universities are bad for America, according to the Pew Research Center. The intense and widespread fury generated by the college-admissions scandal early this year tapped into a deep and broad well of resentment. This anger is warranted but also distorting. Outrage at nepotism and other disgraceful forms of elite advantage-taking implicitly valorizes meritocratic ideals. Yet meritocracy itself is the bigger problem, and it is crippling the American dream. Meritocracy has created a competition that, even when everyone plays by the rules, only the rich can win.

“But what, exactly, have the rich won? Even meritocracy’s beneficiaries now suffer on account of its demands. It ensnares the rich just as surely as it excludes the rest, as those who manage to claw their way to the top must work with crushing intensity, ruthlessly exploiting their expensive education in order to extract a return.

“No one should weep for the wealthy. But the harms that meritocracy imposes on them are both real and important. Diagnosing how meritocracy hurts elites kindles hope for a cure. We are accustomed to thinking that reducing inequality requires burdening the rich. But because meritocratic inequality does not in fact serve anyone well, escaping meritocracy’s trap would benefit virtually everyone.”

How Life Became an Endless, Terrible Competition:  Meritocracy prizes achievement above all else, making everyone—even the rich—miserable. Maybe there’s a way out (The Atlantic, Sept. 2019).

The rest of the article details the lives of the winners, and is well worth reading. (For a long and thoughtful critique of the book, see this NewYorker article.)

Next time, we’ll look further into “escaping the meritocracy trap.”

The Zero Sum Economy

The House Always Wins

“Zero sum” in game theory means somebody wins and somebody loses. Some people think that describes the economy.

This article chronicles current economic trends that only shift dollars from here to there, without adding value to the whole — for example workers job-hopping or companies e automating production. There are as many losers as winners, and nothing is gained.

Thomas Piketty’s classic Capital in the 21st Century extensively detailed how current economic practice is creating economic inequality at a record pace. Inequality means a tiny few at the top are the big winners while everybody else loses.

On the other hand, this explanation from Investopedia asserts that economic transactions are generally “positive sum”:

“When applied specifically to economics, there are multiple factors to consider when understanding a zero-sum game. Zero-sum game assumes a version of perfect competition and perfect information; that is, both opponents in the model have all the relevant information to make an informed decision. To take a step back, most transactions or trades are inherently non zero-sum games because when two parties agree to trade they do so with the understanding that the goods or services they are receiving are more valuable than the goods or services they are trading for it, after transaction costs. This is called positive-sum, and most transactions fall under this category.”

Similarly, this writer has an ideological bone to pick with the zero-summers — he’s frustrated that people just don’t get that every economic transaction is win-win and makes the pie bigger for everybody.

Meanwhile, this article first carefully describes the zero sum concept, then explains why you don’t want to win a zero-sum trade war.

And on it goes.

One thing is evident from all points of view:  there is no such thing as capitalism in the abstract; instead, capitalism is what economic policy makes it. As Investopedia explains:

“Nearly every proponent of capitalism supports some level of government influence in the economy. The only exceptions are anarcho-capitalists, who believe that all of the functions of the state can and should be privatized and exposed to market forces. Classical liberals, libertarians and minarchists argue that capitalism is the best system of distributing resources, but that the government must exist in order to protect private property rights through the military, police and courts.

“In the United States, most economists are identified as Keynesian, Chicago-school or classical liberal. Keynesian economists believe that capitalism largely works, but macroeconomic forces within the business cycle require government intervention to help smooth it out. They support fiscal and monetary policy, as well as other regulations on certain business activities. Chicago-school economists tend to support a mild use of monetary policy and a lower level of regulation.”

What Role Does The Government Play In Capitalism? Investopedia (June 26, 2019)

Therefore if the economy is zero sum, it’s not capitalism’s fault, it’s the capitalists’ fault. And if it’s positive sum, they should get the credit.

This article skips the debate and focuses on what the author sees as today’s biggest economic losers:

“For Millennials and the Gen Z who come after them, there are many disturbing signs of a transition to a new society, one based on wage stagnation, high debt to income levels and rising wealth inequality characterizing a capitalism that’s breaking down social economic mobility and the American dream at its core.

“It could be argued the middle class is being disrupted and the pain points of Millennials mean each subsequent generation of young Americans will feel these pains.

“These are some of the meta-trends that come to mind:

  • Wage stagnation
  • Student debt crisis
  • Part time and gig economy work imprisonment (like a glass ceiling for the lower middle class)
  • Rising costsof housing, healthcare and the affordability of the next milestone (home ownership, marriage, children)
  • Mental health issues surrounding technological addiction
  • Finding the right life-work balance while developing a career path that’s both economically and morally fulfilling
  • Loneliness epidemicwith isolation and unsubstantial support systems in place

“We are living in an era where an entire generation are ‘late bloomers’ by default, in a system that hasn’t just not just protected and empowered young people — but of a generation that suffer major disadvantages the youth of other generations didn’t even experience.

  • The affordability crisis millennials are dealing with is impacting their mental health at a time when they lack social support.
  • The affordability crisis and career uncertainty has made Millennials subject to dangerous combinations of vulnerability.
  • Financial struggles and ruthless capitalism has meant many Millennials have no hope of bettering their circumstances.
  • It’s scary but accurate to say ‘deaths of despair’ are increasing among young Americans.”

The  article has much more to say, and frankly it’s not the most carefully constructed piece of the hundreds (maybe thousands) I’ve reviewed in the past two and a half years, but I cite it because it captures the desperation of the “precariat” — a term economist Guy Standing applies to “millions of people obliged to accept a life of unstable labour and living, without an occupational identity or corporate narrative to give to their lives.”

My kids are members of the precariat, which makes them economic losers. So are their friends.

Never thought I’d see the day.

We’ll look more at the zero sum economy next time.

Corporation Nation-States [3]: Competition is King

competition is king

We’ve seen that corporations and their CEO’s are increasingly implementing socio-economic policies deemed to be “good” for their constituents and for the world at large — combining the conventional roles of philanthropy and government. That sounds altruistic, but it’s entirely in line with conventional capitalist theory, which relies on competition to achieve both outcomes, and in return asks government to keep the marketplace free of anti-competitive barriers.

This theory was evident in an article that came out as I was writing this mini-series .  What Companies Are For:  Competition, Not Corporatism, Is The Answer To Capitalism’s Problems, The Economist (Aug 22, 2019). These excerpts speak for themselves:

“Across the West, capitalism is not working as well as it should. Jobs are plentiful, but growth is sluggish, inequality is too high and the environment is suffering. You might hope that governments would enact reforms to deal with this, but politics in many places is gridlocked or unstable.

“Who, then, is going to ride to the rescue? A growing number of people think the answer is to call on big business to help fix economic and social problems. Even America’s famously ruthless bosses agree. This week more than 180 of them, including the chiefs of Walmart and JPMorgan Chase, overturned three decades of orthodoxy to pledge that their firms’ purpose was no longer to serve their owners alone, but customers, staff, suppliers and communities, too.

“The CEOs’ motives are partly tactical. They hope to pre-empt attacks on big business from the left of the Democratic Party. But the shift is also part of an upheaval in attitudes towards business happening on both sides of the Atlantic. Younger staff want to work for firms that take a stand on the moral and political questions of the day.

“However well-meaning, this new form of collective capitalism will end up doing more harm than good. It risks entrenching a class of unaccountable CEOs who lack legitimacy. And it is a threat to long-term prosperity, which is the basic condition for capitalism to succeed.

“Ever since businesses were granted limited liability in Britain and France in the 19th century, there have been arguments about what society can expect in return. In the 1950s and 1960s America and Europe experimented with managerial capitalism, in which giant firms worked with the government and unions and offered workers job security and perks.

“It is this framework that is under assault. Part of the attack is about a perceived decline in business ethics, from bankers demanding bonuses and bail-outs both at the same time, to the sale of billions of opioid pills to addicts. But the main complaint is that shareholder value produces bad economic outcomes. Publicly listed firms are accused of a list of sins, from obsessing about short-term earnings to neglecting investment, exploiting staff, depressing wages and failing to pay for the catastrophic externalities they create, in particular pollution.

“The popular and intellectual backlash against shareholder value is already altering corporate decision-making. Bosses are endorsing social causes that are popular with customers and staff. Firms are deploying capital for reasons other than efficiency… this portends a system in which big business sets and pursues broad social goals, not its narrow self-interest.

“That sounds nice, but collective capitalism suffers from two pitfalls: a lack of accountability and a lack of dynamism. Consider accountability first. It is not clear how CEOs should know what “society” wants from their companies. The chances are that politicians, campaigning groups and the CEOs themselves will decide—and that ordinary people will not have a voice.

“The second problem is dynamism. Collective capitalism leans away from change. In a dynamic system firms have to forsake at least some stakeholders: a number need to shrink in order to reallocate capital and workers from obsolete industries to new ones.

“The way to make capitalism work better for all is not to limit accountability and dynamism, but to enhance them both. This requires that the purpose of companies should be set by their owners, not executives or campaigners.

“It also requires firms to adapt to society’s changing preferences. If consumers want fair-trade coffee, they should get it. If university graduates shun unethical companies, employers will have to shape up.

“Accountability works only if there is competition. This lowers prices, boosts productivity and ensures that firms cannot long sustain abnormally high profits. Moreover it encourages companies to anticipate the changing preferences of customers, workers and regulators—for fear that a rival will get there first.

“Unfortunately, since the 1990s, consolidation has left two-thirds of industries in America more concentrated. If you cast your eye down the list of the 180 American signatories this week, many are in industries that are oligopolies, including credit cards, cable tv, drug retailing and airlines, which overcharge consumers and have abysmal reputations for customer service. Unsurprisingly, none is keen on lowering barriers to entry.

“Of course a healthy, competitive economy requires an effective government—to enforce antitrust rules, to stamp out today’s excessive lobbying and cronyism, to tackle climate change. That well-functioning polity does not exist today, but empowering the bosses of big businesses to act as an expedient substitute is not the answer. The Western world needs innovation, widely spread ownership and diverse firms that adapt fast to society’s needs. That is the really enlightened kind of capitalism.”

Culturally sensitive or not, competition is “zero sum,” which means it’s a game with winners and losers. And anyone who wants to play should remember that the house always wins. More next time.

Corporation Nation-States [2]

Writing for Forbes earlier this year, a former British ambassador to the U.N. listed the rise of the corporate nation state as one of the reasons for the nation state’s eventual demise.

“Multinational corporations… operate globally, unrestricted by borders.  The biggest tech companies are now richer than most countries, and foreign Governments find it very difficult to tax them properly on the profits they make.

“If the Nation State system of governance were to come to an end, what would take its place? That takes us into the realm of even greater speculation.  Fiction offers some ideas – a World Government depicted in much science fiction; huge competing blocs, as in George Orwell’s 1984; the return of empires or the city state system of medieval Europe; or post- apocalyptic tribal units beloved of film writers.  None of these alternatives currently looks at all likely, but I think it unwise to assume that the current Nation State system will inevitably exist in 100 years time. “

The Beginning of the End of the Nation State? Forbes (Jan. 3, 2019)

Ever heard of an “anarcho-capitalist”? Me neither. But Doug Casey is one, and in his Mises Institute article The End of the Nation State he said this:[1]

“Even though things are starting to look truly grim for the individual, with collapsing economic structures and increasingly virulent governments, I suspect help is on the way from historical evolution. Just as the agricultural revolution put an end to tribalism and the industrial revolution killed the kingdom, I think we’re heading for another multipronged revolution that’s going to make the nation-state an anachronism.

“Why would that happen? Because of what ‘the evil genius Karl Marx’ called the ‘withering away of the State.’ By the end of this century, I suspect the US and most other nation-states will have, for all practical purposes, ceased to exist.”

If the nation state ends, what will replace it? And particularly, how will the replacement shape economic policy? Anarchist Casey welcomes the end of the state’s role in determining economic policy — which he thinks is fouling it up anyway:

“The way I see it, Thomas Paine had it right when he said: ‘My country is wherever liberty lives.’ But where does liberty live today? Actually, it no longer has a home. It’s become a true refugee since America, which was an excellent idea that grew roots in a country of that name, degenerated into the United States. Which is just another unfortunate nation-state. And it’s on the slippery slope.”

Free market purists trust multi-national corporations to do a better job than national governments, but one issue neither can escape is rising economic inequality, which has recently been given a new twist. This is from a Harvard Business Review IdeaCast:

“Stanford economist Nicholas Bloom discusses the research he’s conducted showing what’s really driving the growth of income inequality:  a widening gap between the most successful companies and the rest, across industries. In other words, inequality has less to do with what you do for work, and more to do with which specific company you work for. The rising gap in pay between firms accounts for a large majority of the rise in income inequality overall.

“BLOOM:  “We’ve looked in the US over the last 35 years, so going back to 1978. And what you see is firstly, there’s a huge increase in inequalities. That probably comes as no surprise to anyone.

The rich have got richer, the middle has kind of tapered along, and the poor have actually done worse over time. But what was amazing in our data is the vast majority there, so something like 70% or 80% of this increase in inequality can be explained by the firm you work in.

So inequality has gone up dramatically. But actually for most people, what’s happened is their colleagues have got richer or poorer with them. So inequality is mainly across firms. And actually, inequality within firms has really not increased that much.”

A widely-cited Deloitte article issued after the 2007-2008 recession reviewed the growth of income inequality and offered corporations some marketing advice:

 “Given the expectation of essentially two different types of consumers (affluent consumers with rising income versus low- and middle-income consumers with stagnant incomes), companies can either choose to target only one consumer group or undertake to segment the market and target each group separately. Targeting all consumers uniformly—that is, selling all things to all people—will likely be less effective.”

Mind The Gap:  What Business Needs To Know About Income Inequality, Deloitte (Jan. 1, 2011)

Attending to your marketing strategy addresses an issue faced by governments and corporations alike:  the need to generate revenue. Both also need to distribute that what’s left of that income after expenses, and according to commentators like Casey and Bloom, they both have some work to do on that topic.

More on corporate nation-states next time.

[1] The image above is from the article.

Corporation Nation-States

british east india company

dutch east india company

The first thing you learn about corporations in law school is the principle of limited liability:  the state trades the benefits of corporate business activities for letting investors off the hook if things run off the rails. The British and Dutch used this concept to colonize the world.

“Back in the seventeenth century, when the British and Dutch were first learning to exploit their overseas colonies, a problem emerged:  people were afraid to finance expeditions because they face jail if something went wrong and they couldn’t repay their loans. The solution these governments came up with was a corporate charter, which limited investors’ liability to the amount of their investment and nothing more.”

The Patterning Instinct:  A Cultural History of Humanity’s Search for Meaning, by  Jeremy Lent (2017). (Except where indicated otherwise, the quotes in this article are from this book.)

Technology hadn’t shrunk  the world yet, so the British and Dutch East India Companies (their flags are above) were granted autonomy to exercise state-like powers, such as the right to impose and collect tax, make treaties, wage war, take prisoners, and carry out the death penalty.

“Before long, though, it became clear that these legal charters created incentive to take inappropriate risks because the potential growth was greater than the downside. In England, after a series of spectacular frauds and a market crash, corporations were banned in 1720. The ban was eventually lifted when the Industrial Revolution generated demand for new investments in railways and other infrastructure.”

Corporate Republic, Wikipedia

Meanwhile, across the Atlantic,

“The political leaders of the United States, aware of the English experience, were suspicious of corporations. Thomas Jefferson wrote in 1815, ‘I hope we shall take warning from the [English] example and crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trail of strength and bid defiance to the laws of our country.’ Accordingly, corporations in America were given limited charters with tightly constrained powers.”

In time, though, American skepticism gave way to the need to finance war and reconstruction, and to carry out the USA’s own industrial expansion. Opportunists again turned to the corporation — much to Abraham Lincoln’s chagrin:

“During the turmoil of the Civil War, industrialists took advantage of the disarray, leveraging widespread political corruption to expand their influence.

“Shortly before his death, Abraham Lincoln lamented what he saw happening with a resounding prophecy: ‘Corporations have been enthroned…. An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the prejudices of the people… until wealth is aggregated in a few hands…. and the Republic is destroyed.’”

President Hayes later joined Lincoln in this lament:

“As the nation reconstructed itself, it increasingly fell under the sway of corporate power. ‘This is a government of the people, by the people, and for the people no longer. It is a government of corporations, by corporations, and for corporations,’ lamented Rutherford B. Hayes, who became president in 1877.

“Corporations took full advantage of their newfound dominance, influencing state legislatures to permit charters to be issued in perpetuity that gave them the right to do anything not explicitly prohibited by law. A crucial moment occurred in 1886, when the Supreme Court designated corporations as ‘persons’ entitled to the protection of the Fourteenth Amendment.”

From these contested beginnings came the corporation-nation states which — just as Jefferson predicted — have since gained enough political and economic power to challenge national governments “to a trial of strength” and “bid defiance to the laws” of their countries of origin.

“Around the globe, more and more corporations are beginning to act like governments.

“They negotiate with guerrilla leaders, build roads, and set up schools. Increasingly, they’re setting labor standards in places where nations can’t or won’t.

“There’s only one problem.

“By accepting more social responsibility, they’re taking on more power just as a small but growing backlash against rising corporate power is taking hold in the United States.

“At the heart of this debate lies a simple question: Who should set society’s agenda – big business or big government? How Americans answer that could well determine the future of issues as diverse as campaign-finance reform and antitrust action.”

Rise Of The Corporate Nation-State, (Apr. 10, 2000).

The sheer size of today’s corporation nation states would have been incomprehensible to Jefferson, Lincoln, and Hayes. Consider, for example, this Business Insider article that compares the revenues of “25 giant companies” to the GDP of nations. It found that, in 2017,

  • Walmart’s revenues exceed Belgium’s GDP
  • Volkswagen’s revenues are greater than the GDP of Chile
  • Apple’s revenues in were higher than Portugal’s GDP
  • Amazon’s revenue exceeded Kuwait’s GDP
  • Facebook’s income was greater than Serbia’s GDP
  • Coca-Cola’s revenue was greater than Bolivia’s GDP
  • Visa made more than Bosnia’s GDP
  • Walt Disney’s takings exceeded Bulgaria’s GDP
  • Microsoft’s revenue surpassed Slovakia’s GDP

And so it goes. Even corporations like Netflix, Spotify, and Tesla make the bigger-than-countries list. That’s good for capitalism and capitalists, but it challenges the historical ideal that nation states ought to be in charge of running the world.

More next time.