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.

Homo Economicus

homo economicus

John Stuart Mill coined the term homo economicus to explain economic behavior. This is from . Investopedia:

Homo economicus, or ‘economic man,’ is the characterization of man in some economic theories as a rational person who pursues wealth for his own self-interest. The economic man is described as one who avoids unnecessary work by using rational judgment. The assumption that all humans behave in this manner has been a fundamental premise for many economic theories.

“The history of the term dates back to the 19th century when John Stuart Mill first proposed the definition of homo economicus. He defined the economic actor as one “who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labor and physical self-denial with which they can be obtained.”

“The idea that man acts in his own self-interest often is attributed to other economists and philosophers, like economists Adam Smith and David Ricardo, who considered man to be a rational, self-interested economic agent, and Aristotle, who discussed man’s self-interested tendencies in his work Politics. But Mill is considered the first to have defined the economic man completely.”

Homo economicus says the rational approach to commerce is to seek the most for the least. The idea has its detractors:

“The theory of the economic man dominated classical economic thought for many years until the rise of formal criticism in the 20th century.

“One of the most notable criticisms can be attributed to famed economist John Maynard Keynes. He, along with several other economists, argued that humans do not behave like the economic man. Instead, Keynes asserted that humans behave irrationally. He and his fellows proposed that the economic man is not a realistic model of human behavior because economic actors do not always act in their own self-interest and are not always fully informed when making economic decisions.”[1]

Austrian economist Ludwig von Mises sided with Keynes:

“It was a fundamental mistake … to interpret economics as the characterization of the behavior of an ideal type, the homo economicus. According to this doctrine, traditional or orthodox economics does not deal with the behavior of man as he really is and acts, but with a fictitious or hypothetical image. It pictures a being driven exclusively by ‘economic’ motives, i.e., solely by the intention of making the greatest possible material or monetary profit. Such a being does not have and never did have a counterpart in reality; it is a phantom of a spurious armchair philosophy. No man is exclusively motivated by the desire to become as rich as possible; many are not at all influenced by this mean craving. It is vain to refer to such an illusory homunculus in dealing with life and history.”

The Homo Economicus Straw Man, Mises Institute (Oct. 26, 2016).[2]

More recent criticism questions the role of rationality in human behavior not only in economics but more generally:

“Humanity’s achievements and its self-perception are today at curious odds. We can put autonomous robots on Mars and genetically engineer malarial mosquitoes to be sterile, yet the news from popular psychology, neuroscience, economics and other fields is that we are not as rational as we like to assume. We are prey to a dismaying variety of hard-wired errors. We prefer winning to being right. At best, so the story goes, our faculty of reason is at constant war with an irrational darkness within. At worst, we should abandon the attempt to be rational altogether.

“The present climate of distrust in our reasoning capacity draws much of its impetus from the field of behavioural economics, and particularly from work by Daniel Kahneman and Amos Tversky in the 1980s, summarised in Kahneman’s bestselling Thinking, Fast and Slow (2011). There, Kahneman divides the mind into two allegorical systems, the intuitive ‘System 1’, which often gives wrong answers, and the reflective reasoning of ‘System 2’. ‘The attentive System 2 is who we think we are,’ he writes; but it is the intuitive, biased, ‘irrational’ System 1 that is in charge most of the time.

“Other versions of the message are expressed in more strongly negative terms. You Are Not So Smart (2011) is a bestselling book by David McRaney on cognitive bias. According to the study ‘Why Do Humans Reason?’ (2011) by the cognitive scientists Hugo Mercier and Dan Sperber, our supposedly rational faculties evolved not to find ‘truth’ but merely to win arguments. And in The Righteous Mind (2012), the psychologist Jonathan Haidt calls the idea that reason is ‘our most noble attribute’ a mere ‘delusion’. The worship of reason, he adds, ‘is an example of faith in something that does not exist’. Your brain, runs the now-prevailing wisdom, is mainly a tangled, damp and contingently cobbled-together knot of cognitive biases and fear.

Not so foolish:  We are told that we are an irrational tangle of biases, to be nudged any which way. Does this claim stand to reason? Aeon Magazine (Sept. 22, 2014)

Even so,

“Although there have been many critics of the theory of homo economicus, the idea that economic actors behave in their own self-interest remains a fundamental basis of economic thought.”[3]

If the shoe doesn’t fit, why do we keep wearing it? And to what end? More next time.

[1] Investopedia, op cit.

[2]  The image above is from this article.

[3] Investopedia, op cit.