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Books

The Corporation: The Pathological Pursuit of Profit and Power by Joel Bakan

Lisa Kemmerer calls corporations to account under the guidance of Joel Bakan.

“We have, over the last three hundred years constructed a remarkably efficient wealth-creating machine, but it is now out of control.” (p159) The out-of-control machine to which Bakan refers in his highly readable and informative book is the corporation. Few entities are as damaging to the environment as are corporations. Bakan ’s book outlines the history of the problems that stem from too much corporate power, describes some of the worst consequences of this trend, and proposes ways of bringing this out-of-control wealth-creating machine back in line with common decency.

Bakan begins in 18th Century England. He explains how the South Sea Company sold stock hand over fist, for a shady trading proposition in nations unlikely to grant trading rights, with company directors who knew little about the countries in which they proposed to trade, and with which they had established no contacts. Not surprisingly, “the South Sea Company collapsed. Fortunes were lost, lives were ruined, one of the company ’s directors... was shot by an angry shareholder, mobs crowded Westminster, and the king hastened back to London from his country retreat to deal with the crisis. ” (p7) As a consequence, Parliament passed the Bubble Act in 1720, “which made it a criminal offence to create a company ‘presuming to be a corporate body,’ and to issue ‘transferable stocks without legal authority’.”

But industrialization required capital investment for large-scale enterprises such as railroads, mining and waterworks, and the Bubble Act was repealed in 1825, while government controls were relaxed to facilitate corporate growth. Concurrently, shareholder liability was limited to encourage the masses to invest, and constraints on mergers and acquisitions were relaxed. At the turn of the 19th century, during a mere seven years, “1,800 corporations were consolidated into 157... The era of corporate capitalism has begun. ” (p14) Corporations were no longer the result of government grants, but had become “free and independent being[s].”

In 1916 the US Government had a strong hand in shaping the free and independent corporate entities that were emerging. Henry Ford made his fortune from cars; but he was a man of conscience, who chose to limit his profits and share the wealth with employees. He even canceled the shareholders’ dividend at one point, by reducing prices in order to divert money to customers. But one of Ford ’s shareholders objected to his generous methods. John Dodge wanted to start his own business with the dividend earned from Ford stocks, and he took Ford to court when the dividend was canceled. The judge agreed with Dodge: “Ford had no right to give their money away to customers, however good his intentions. ” (p36) Corporations were from that point forward, legally required to act in the best interests of the profits of shareholders, and not for the general good. Thus in 1916, corporate investment on behalf of the environment, human health and welfare, or human rights, was deemed illegal in the US if it was not in the shareholders’ best interests financially. Since the days of John Dodge and Henry Ford, corporations have been legally obligated to be motivated solely by shareholder profit.

US states courted, and soon many nations competed, to attract big business. Each state or nation sought the influx of jobs and capital investment which go with corporate growth. As a result of international business competition, GATT (the General Agreement on Tariffs and Trade) was introduced in 1948, and in 1993 the WTO (World Trade Organization) was created. Through these trade organizations and agreements, business regulations were removed or relaxed across borders to attract and expedite international business. Corporations, which held no responsibility for the general welfare but only for shareholders, soon carried their disregard for public safety and welfare into the global arena.

So, Bakan asks, why do today’s corporations increasingly speak out on behalf of the environment, community problems, or human rights? Pfizer Inc, the world ’s largest pharmaceutical company, has installed security in local subways, developed and now helps fund a local school, and donates life-saving drugs to African communities. How can this be profitable to shareholders, and therefore legal?

Bakan explains: Those who now invest expect companies to “deliver the good, not just goods; to pursue values, not just value; and to help make the world a better place. ” (p31) Corporations have begun to show an interest in public health and welfare as a strategy to enhance profits. Bakan digs deeper: is this new moralism itself immoral? Do businesses appear to be interested in the general welfare, while ultimately just pursuing profit?

In fact, Pfizer makes more money selling drugs that prevent baldness and enhance male sexuality than it does selling drugs that treat life-threatening illnesses such as malaria or tuberculosis, leading causes of death in the developing world. Those with the wealth to buy drugs are not fighting malaria but baldness or erectile dysfunction. Given this financial reality, can market forces offer genuine social responsibility? The Corporation offers a resounding, “No!” “Predictably, of the 1,400 new drugs developed between 1975 and 1999, only 13 were designed to treat or prevent tropical diseases and 3 to treat tuberculosis. In the year 2000, no drugs were being developed to treat tuberculosis, compared to 8 for impotence or erectile dysfunction and 7 for baldness.” (p49)

Bakan accuses corporations of being psychopathic, in that they are “singularly self interested and unable to feel genuine concern for others in any context... The corporation, like the psychopathic personality it resembles, is programmed to exploit others for profit.” (pp56, 69) According to Bakan, corporations have a ‘built-in compulsion’ to externalize costs, and any concern for the environment or human safety quickly dissipates when big businesses are faced with the bottom line – profits.

Bakan provides examples. General Motors studied the best place to locate the gas tank to minimize the risk of a fire in the event of a crash. He alleges that this giant car company then calculated the cost of paying off victims and the cost of improving the design, and a comparison of the two figures demonstrated that it was cheaper for shareholders to pay off the families of the deceased in lawsuits than to protect human life by locating the gas tanks in a safer place.

Bakan also claims that General Electric repeatedly pays fines and finances clean-ups when caught defying environmental laws, rather than complying with environmental and public health requirements. The Corporation lists more than 40 claimed major legal breaches by General Electric just in the last decade of the 20th Century. This list of alleged infringements, indicating the seriousness of corporate moral deficit, includes weighty acts such as: repeatedly and severely defiling land and waterways; responsibility for airline disasters. and illegal sales of weapons overseas.

Bakan asserts that for corporations like General Motors and General Electric, “compliance with law, like everything else, is a matter of cost and benefits.” (p79) It is often more profitable for shareholders if corporations risk human life, defile streams and lakes, engage in fraud, and pay fines and settlements if they are caught, than it is to comply with laws.

Is this really what citizens would vote for, given a choice? “Corporate donations now fuel the political system and are a core strategy in business ’s campaign to influence government.” (p104) Bakan explains the history of the New Deal, Roosevelt’s struggle to reign in the power of corporations for the good of US citizens and the nation. He also relates a lesser-known titbit of history: the attempt by a handful of powerful business men to overthrow Roosevelt in order to shake off the business restrictions contained in the New Deal.

While Roosevelt prevailed, corporations have since gained power and influence they could only have dreamed of in his day. Democracy, Bakan reminds us, is government by the people for the people, not by corporations and for corporations. Yet corporate money now guarantees that slaughterhouses and mines function with very little regulation, and are largely regulated by people who were once prominent in these industries: Enron “used political influence to remove government restrictions” – restrictions that would have prevented the Enron scandal (p99).

Corporate power influences government, even government decisions that effect the health and welfare of all US citizens. The US has been bought by corporations, which are now backed by “all the coercive power and resources of the state, while citizens are left with nongovernmental organizations and the market ’s invisible hand – socialism for the rich and capitalism for the poor.” (p151)

In The Corporation, Bakan paints a bleak picture of the far-reaching ill-effects of corporate power, including devastation of the environment. He views capitalist nations as run by short-sighted corporations acting in the financial interests of the few. But he also offers straight-forward solutions. We, as consumers, have choices. We have governments that are responsible to the people, not to corporations. In the current reign of corporate power, regulations have been given a bad name; but regulations “are designed to force corporations to internalize – ie pay for – costs they would otherwise externalize onto society and the environment.” (p150) Regulations need to be reinstated and enforced.

Corporations, Bakan notes, were created by government, and given power by government. Democratic governments can and must choose to control these profit-making machines for the benefit of all, thereby preventing corporations from exploiting the masses and fouling the environment for the short-term benefit of a handful of shareholders. In democratic nations, only we can make the change.

Lisa Kemmerer is a philosophical activist.

• The Corporation by Joel Bakan, Free Press in the US, Robinson Publishing in the UK, 2005. pb, 240 pages, $14/£6.99.