Making the Titans of Finance and Industry Accept Social Responsibility

Why is our society, our world, ignoring the warnings of climate change, destroying our environment, creating ever-larger inequality even as more people are lifted out of poverty?  Why is it that the U.S. middle class, which used to be such a strong, vibrant element of our society has become weak and stagnant?

The reason for all of this lies not with the mass of people on this Earth, who have no or little control of anything, even in their own lives.   The reason lies with those with ultimate power – the corporate titans of finance and industry.   

It is they who decide what is in their corporation's best interest, which is what will make the most money in the short run, and implement that plan of action without any concern for the plan's impact on the public good or the welfare of their workers.  And it is they who largely determine the regulatory scope of government, regardless which Party is in power, and so they are in most critical areas effectively unregulated.   

This is not an indictment of capitalism, as I made clear in my post, "Is the Problem Capitalism or Our Society?"  Regardless the economic system, it is the holders of capital – whether they be aristocrats, political dictators (Communist, fascist, or otherwise), or corporate titans – that have determined the fate of their economies, their workers, and the general public.   It is thus instead an indictment of man-made society going back millennia. 

Until the dawn of the 20th century, those who controlled capital pretty much had their way.   Whether it was the robber barons of the industrial revolution or the aristocrats of the old social/political order, these people could do what they wanted and treat people, whether their workers or cottagers, as they wanted.  Income inequality was huge with the large mass of people being both poor and illiterate.   Slavery may have been the most egregious example of this system, but it was definitely part of the system. 

It was only with the ascendancy of Teddy Roosevelt, of all people – a wealthy Republican – that finally some people with political power felt the huge damage that those with unregulated power wreaked on the masses, while acquiring astronomical wealth.   And so the progressive era was born.   The trusts were broken up, anti-trust laws were passed, and workers were protected and empowered for the first time, both through protective laws as well as government support for the growth of labor unions.   This movement gained further momentum in the 30s because of people's reaction to capitalism during the Great Depression and the election of F.D.R. with his crusading New Deal. 

As a result, the middle class grew from a small segment at the turn of the 20th century (15 - 20%) to become the largest single bloc in the population (around 70%) and the backbone of the country's economic prosperity at its highpoint in the 1970s.  This increase came about because the lower working class had largely become middle class.   In 1970, 62% of the nation's aggregate income went to middle-class households, compared to 29% for upper-income households. 

Then Ronald Reagan was elected President and things started changing.   Central to that change was the famous Reagan line, "Government is not the solution to our problem; government is the problem."  

From that perspective, the dismantling of government regulations that had protected the public and workers began and gathered steam in the decades that followed.   Culminating perhaps most significantly in the repeal of the Steagall-Glass Act which was passed to regulate banks in the aftermath of the 1929 stock market crash.   

This repeal happened during an otherwise liberal Democratic administration (Clinton), but with wall street insiders in key cabinet positions and Republicans in control of both the House and Senate.   Efforts to reenact Steagall-Glass after the 2008 market crash and recession failed, as did efforts to regulate derivatives – all of this again under a Democratic administration with full control of Congress. 

The result of this disempowering of workers/empowering of corporations together with the forces of globalization, which began in the 1970s, resulted in the stagnation of worker's salaries.    While wages have risen (26%), their purchasing power has stayed the same during the 50 years between the 1970s and 2020; or said another way, salaries adjusted for inflation have remained the same.   While those in the top 1% rose 160% during the same period, unadjusted for inflation.

As a result of that stagnation together with many formerly middle-class workers falling back into the lower-class income category, the middle class in 2015 accounted for just under 50% of the population – a significant drop since the 70s – and accounted for only 43$ of the nation's aggregate income, down from 62% in 1970. 

The middle class was also the main victim of the finance industry's predatory lending schemes, made possible when Steagall-Glass was repealed, that were a major cause of the 2008 recession.   The recession cost the middle class not only jobs but also resulted in the foreclosure of millions of homes.   (I do not include the upper class as a main victim of the recession because although they lost heavily, they generally regained their wealth when the market rebounded.) 

Another measure of how the middle class have fared during this period is to look at income inequality.   One measure of this is that in 1929, the richest 0.1% of Americans held 25% of the country's wealth.   By the 1970s, that percentage had fallen to below 10%.   Over the past 40 years, it has again risen to around 20%.

We have gone back to the future, with those with the control of capital being largely unregulated.   Yes, we don't have child labor anymore and various other controls remain in place.   But so many have been weakened or repealed that corporations have been empowered to consider almost no interests other than their own greed.   Workers are no longer considered an asset to be nourished and grown but as a cost center to be controlled. 

Clearly, if left to their own devices, corporate leaders will not do what is in the best interest of anyone other than themselves.   They only act as responsible members of society when they are forced to by government laws. 

And so, in one post, "Toward a Reformed Capitalism," I urged the laws of incorporation be changed to force companies to consider their workers' interest as well as the public good.   Let me quote from that post:

"We must reexamine what a corporation is.  What is its function in our economy and society?

Corporations are a creature of the law.  Corporations are allowed the benefits of incorporation because they provide something of value … they are critical to the economic health of the country and of their workers.  They also thus meet a societal need.

So from a governmental/societal perspective, corporations exist to enhance the greater good.  Unfortunately, as we have seen repeatedly ever since the industrial revolution, corporations have been mostly intent on making money and so have done much that harms, that is not in keeping with, the greater good.  And typically with full knowledge of that harm.    And they have been abetted by the government's action or inaction.

The answer to this conundrum is to reform the laws under which corporations are organized by restructuring their governance.  The goal of this effort should be to make consideration of the greater good … the public interest as well as worker interest … an integral part of the corporate decision making process. "  Specific recommendations are made in the post. 

These recommendations are not unrealistic or totally novel.   Most countries in the EU require employee board-level representation.  They also require a number of "independent" directors; but these are not directors who are tasked with representing the public good, they are just tasked with preventing conflict of interest in decision making.   My recommendations go much further.

This will take strong political leadership and lock-step support from Democrats in Congress because this will certainly not be a bi-partisan effort, not in the current political climate. 

This may result in the end of corporations as we have known them, but they will still be strong and financially profitable.  As I noted in the post, this proposal does not in any way eliminate the profit motive in corporate decision making, nor the amount of profit they seek to make.   It just ensures that the public good and workers' interests are considered in the adoption of corporate plans, and so it will most likely impact the amount of profit.   

Republicans will scream, "socialism."  But this is not socialism in any form; government is not taking over the role of the private sector.   This is not even the government hovering over or involving itself in corporate decision making; it is just setting the law which corporations must follow.   

Clearly this is a change in the way things have been done.   But it is a change that is wholly in keeping with the reason why corporations are sanctioned by the government, why government gives corporations the benefits of incorporation.   And it is past due because of the havoc corporations have caused in the economy, the environment, and people's well-being due to the unregulated effect of corporate greed over the past four decades.   

It is important to note that in the period between the passage of Glass-Steagall in 1933 and its repeal in 1999, the U.S. suffered no major financial crisis – there were recessions but they were due to monetary policies or other factors.   Further, during the period of progressive corporate regulation and increasing government measures supporting low income families, income inequality decreased.   

Since the repeal of that act we have had a major financial crisis and economic downturn, major stuck market volatility.   That together with the decrease in regulation and lower-income supports since the 80s (pre-Biden) returned income inequality to its pre-Depression levels.   One measure of this is that in 1929, the richest 0.1% of Americans held 25% of the country's wealth.   By the 1970s, that percentage had fallen to below 10%.   Over the past 40 years, it has again risen to around 20%.

If we want to maintain a sound, stable economy and one that fosters greater income equality, then government must take this step to reform capitalism and our society. 

Unexpected High Call Volume - Mendacity from Corporate America

It doesn't matter what company you call these days (or actually for some time already) the standard message you get is that due to unexpected high call volume your wait-time will be longer than usual. 

There are several aspects of this statement which are mendacious, an outright lie.   First, the call volume is not unexpected; it is standard.   Second, the wait-time is not longer than usual; a long wait is the new usual. 

But the boldest aspect of this mendacity is that the long waits that we are subjected to are the result of corporate decisions to not hire enough people in their call centers to handle the volume of calls efficiently, which is to say in a timely manner.   They are more concerned with the impact of extra hires on the bottom line than they are the time of their customers. 

This practice is beyond rude.   Many companies do not even have the courtesy to tell you approximately what your wait-time will be, to enable you to make a decision whether the wait is worth your time.   They think nothing of keeping you hanging.  

A few companies, recognizing the inconvenience facing their customers, do provide you with an option to receive a call-back without losing your place in line.   This is an excellent practice.   Most however do not bother; they just don't care about their customers, protestations to the contrary notwithstanding. 

In the old days, when companies dealt with mostly local customers, this problem would have been unheard of.   That is what made Lily Tomlin's AT&T telephone operator character so funny — because she, being with a large national corporation, was so different in her attitude towards customers. 

Now, not only is the volume of people huge, but technology has made us all more distant, our interactions more ephemeral.  There is no there there anymore.   And so we all suffer in countless ways,  both large and small.   Being put on endless hold is one of the small ways.

What is the Role of Corporations in Our Society?

As I have often written, corporations are a creature of the law.  The law developed to allow corporations and gave them various benefits because corporations served a public purpose. 

Let me backtrack … before the law created corporations, all business concerns were partnerships or sole proprietorships.  Under this system, the individuals who owned the business were personally liable for the actions of the business.  The law of corporations, however, generally shields the owners (whether private or public/shareholders) from liability for the acts of the corporation.  Over the years there came to be many more benefits that accrued to corporations.

Why did the law allow individuals to incorporate and thereby shield themselves from liability?  Why were other benefits bestowed on corporations?  Because corporations were seen to serve a public purpose.  They were seen to be key to economic expansion and advancement, to increasing the power of the United States internationally, and to providing jobs for an ever-increasing work force thereby increasing the standard of living of Americans.

Once the age of the robber barons ended with the progressive policies of Republican President Teddy Roosevelt, while corporations still were always about making money for the owners/shareholders, corporate management became more conscious of their responsibility to the communities in which they were located and to the workers they employed, up to a point.  

Part of that was good public relations; part of it was necessitated by the National Labor Relations Act and other laws that gave real power to labor unions.  But where the law did not constrain them, where the public’s guard had not been raised, they acted with no concern as before, befouling the local environment and endangering lives.  Corporations literally got away with murder.

During this period, there was no felt need to cater to shareholders as they had little power over management. Then in the 1980s, after a decade of lagging corporate profits due to increased competition and the beginning of globalization, corporations found themselves under attack by corporate raiders and others.  The mere threat of a possible takeover moved corporate executives to focus more on shareholder value to insure shareholder happiness.  

In the years since, the concept of maximizing shareholder value has become the mantra of all corporations.  This perspective of corporate management is supported by the business schools who train future executives.  It is this perspective that has encouraged the short-term profit outlook which has caused many of the problems we face today … the loss of jobs (first to cheaper parts of the country and ultimately overseas), the stagnation of wages, increased income inequality, and even the increased volatility of the stock market.

At a minimum, we must return to a more worker/community/consumer focused corporate management perspective.  But can’t we do more; can’t we elevate that perspective as never before?  Since we’re talking about culture and behavior here,  this will not be easy.  Especially given the nature of the corporate beast.  The dynamic is not going to change on its own.  It will require leadership from the top.  

It will require a change in the curriculum of business schools that train our future executives.  It will require changes in the law:  one which makes the public good part of every corporation’s mission; one that includes workers and a public ombudsman on the management team, as has been done in Germany; and one that limits the amount of profit a corporation can make, which will help encourage corporate management to better reward workers, not reduce the workforce through automation, protect consumers, and be better citizens … all of which are in the corporation’s best long-term interest.

As I noted in my post, “The American Dream?” changing our corporate culture is critically important to the future our country, if young people are to have hope again and have the drive to push the envelope of what is possible. 

Capitalism Is Not the Answer; Capitalism Is the Problem - But What To Do?

A recent article in The New Yorker, “Rage Against the Machine,” commenting on several recent books about the future of robotic automation, shows clearly the disaster - massive unemployment - that will be created by this technology in the next 10-20 years due to the unending desire of corporations to increase profits by reducing labor costs through automation.  Capitalism is thus clearly not the answer to our economic future, as many hold.  Capitalism is the problem.*

To answer the question of how many jobs are at risk, the article cites a 2013 Oxford University study which concluded that “nearly half of all occupations in the United States are ‘potentially automatable,’ perhaps within ‘a decade or two.’”  Another said that if a job can be learned by repetition, then whether manual or cognitive the job can probably be done by a computer.  The various books cited arrive at more or less the same conclusion to the question, “How long before you, too, lose your job to a computer?”  The answer is, “Not long.”

The article makes clear that this process is already well underway.  Amazon uses 30,000 robots in its fulfillment centers.  A huge electronics factory in China succeeded in reducing its labor force from 110,000 to 50,000 using robots.  And textile plants which have been “re-shored” (bringing production back to the U.S.) have brought with them almost no employment.  A factory in South Carolina, for example, that produces 2.5 million pounds of cotton yarn a week employs only 150 workers.

This is certainly not a new force.  In small, localized ways, the impact of automation on jobs was already being felt 50 years ago.  But over the decades it has grown and has now reached the critical mass where its impact will be like an avalanche.

The future all these books foresee is a “brilliant,” “prosperous,” technological world, but one where a vast percentage of the working age population will be unemployed.  And so they dutifully come up with various schemes for government to provide the unemployed a minimum living income.  That doesn’t cut it as far as I’m concerned,

In the past it was argued that retraining technology-unemployed workers and providing youth superior school education was the key to ensuring high employment in the technological workplace.  In this future world, however, it seems not even education will guarantee a place in the work force.  The quantity of jobs just won’t be there relative to the size of the population because of the greatly reduced workforce needed to produce a given amount of product.  Nevertheless, equality of educational opportunity will be even more important.

The really scary thing is that none of these books, written by people from various fields - law, finance, and political theory, say we have to somehow stop this from happening.  Nor do the glowing reviews or the New Yorker article.  There is a forgone conclusion that it will happen, that it’s on balance good, and the only question is how to provide for the unemployed masses.  

Clearly, the angst felt by white middle class workers in 2016 will only get worse, and the affected group will broaden, regardless what the Trump administration does because it’s responding to the wrong threat - the past, not the future.  If this future does come to pass as described, the robotization of the workplace will be the death knell of the American worker.  Even white collar technology jobs such as software engineering will be impacted.  

In this envisaged future, income inequality in the U.S. will be far worse than it currently is.  The vaunted American standard of living will be no more.  It will destroy our democracy because it will create a society where half the population has nothing to do and lives on the dole, and the other half is well-employed.  It portends huge unrest which could bring about a police state, an age of fascism, because that is the only way the elite employed will be able to keep their status secure.  I know this sounds extreme, but the future depicted by these books is extreme.

It we want to be true in any sense to Lincoln’s “government of the people, by the people, and for the people,” America cannot allow this to happen.  The American people cannot allow this to happen.  The American government cannot allow this to happen.

So how do we avert this disaster?  This is so complex and important that there needs to be a public discussion within and between government, business, academia, and the people.  The issue can no longer be ignored.  We must together find a way to manage the future for the benefit of all.

I can see two possible avenues to explore.  They both have their challenges, to put it mildly.  But I think the first is more practical, easier to realize, and delivers more benefit than the other.

The first avenue is a new division of labor, so to speak.  The law concerning corporations would remain more or less unchanged.   They would compete globally and roboticize their operations as they felt warranted.  

At the same time, a reenergized government would take on or resume the task of making America’s infrastructure second to none through a new version of the WPA (Works Progress Administration) which would directly or through subcontracting employ the vast numbers of manual or low-technology workers left out of the new-technology job market.  Thus there would be no massive unemployment.  This would not be government as an employer of last resort, but an employer charged with keeping America strong and using the vast workforce needed in that effort.

The virtue of this approach is that we would be meeting two national security needs - one existing, the other new - with one stroke.  This would truly be making a virtue of necessity.

The other avenue is to put an end to the age of unchecked, government-supported capitalism.  In its place would be a system of socialized capitalism in which companies would be limited in the extent to which, in the name of increasing shareholder returns, they could reduce their workforce. 

Corporations are a creature of the law.  They were created, and shielded from many liabilities and taxes, because their growth was felt to ultimately benefit the welfare of the larger society, the common good.  But it’s getting to the point, or already is there, where this is often no longer the case; just the opposite.  And so one can argue that it’s time to change the rules.

There are several problems with this scenario.  Many will say that this approach would make products more expensive.  But to my mind this is not a problem.  We have too long wanted things to be as cheap as possible without thinking of the dear price we were paying.  Globalization with its job dislocations was the first price we paid; robotization with an even greater impact is the next.

One problem, possibly intractable, is how the economics of this would work out.  I know America does not exist in an economic bubble, that global competition exists.  Another is that it would certainly be strongly opposed by powerful forces.  In the end, I think the scenario suggested above goes a bit too far.  It is too much of a change and I would not advocate it given the alternative solution.

That said, I do think that social consciousness should be part of a corporation’s decision-making process because they exist only by the grace of the law to benefit the greater good.  Having lacked that perspective, corporations have done much harm to that greater good, whether it’s as polluters, manufacturing products that include dangerous chemicals, destroying the environment, etc.  The process therefore must be broadened beyond the question: what’s best for the shareholders?  And so I think it’s time to change the rules. 

Finally, although in one sense this has nothing to do with the issue of automation and the reduced workforce necessary for a technology-driven economy, the issue of population growth is relevant.  The reason why we need to produce so much and employ so many is our ever-expanding population. This also provides the economies of scale necessary for the investment in robotization.  As recently as 1960, the population of the world was only 3 billion, far more manageable.  Now it is 7 billion and expected to reach 9 billion by 2040.  So in addition to helping control climate change and the destruction of the environment, controlling the population would mostly obviate the need for the economy and firms to constantly grow.

We must all come together to talk about how to manage the future for the benefit of all Americans.  Regardless of the path taken, we cannot end up with a country, a society, as nightmarishly pictured by the books cited in the New Yorker article.**

______________

* This does not contradict the post I wrote some time ago, “The Problem Isn’t Capitalism, It’s Our Society,” which addressed a different issue … people have railed against capitalism for causing the exploitation of people and the environment.  The reasoning there was that the same basic problems have existed in all modern societies regardless of the type of economic system.

** Eric Brynjolfsson and Andrew McAfee, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, Norton

Martin Ford, Rise of the Robots: Technology and the Threat of a Jobless Future, Basic Books

Jerry Kaplan, Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial IntelligenceI, Yale

Alec Ross, Industries of the Future, Simon & Schuster