Economists and Corporations: Partners or Opponents?

Cover photo: Protester holding Adbuster’s Corporate American Flag at Bush’s 2nd inauguration, Washington DC. Photo by Jonathan McIntosh, 20 January 2005, Wikimedia Commons [Attribution 2.0 Generic (CC BY 2.0)]
Volume 8, Number 1: May 2022 | Essay

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At this point, corporations have become so institutionalized and imbedded in our social fabric, it is hard to imagine life without them. In many ways we have become dependent on them for our products, for our jobs, and for our savings through shares of ownership in the companies. The concept of stakeholder capitalism is being discussed now more than ever as an alternative to the shareholder capitalism model, but this could be interpreted as corporations replacing government as the providers of social services and protection and, ultimately, one which makes the population even more dependent on corporations than ever before.

Not all corporations are the same and it might be unfair to classify them all in an identical manner. However, large multinational corporations must be distinguished from small and medium-sized local businesses because their business models and subsequent social implications differ dramatically. Corporations are not simply another type of business like a sole-proprietorship or partnership. They are a legal entity designed for the purpose of enriching their owners or shareholders. At first, this may seem no different from any other business model which is motivated by profit-making. One key difference is scale, and one could argue that large, private companies can be equally problematic for society, as there are many such examples. The key distinction is the social and spatial separation of ownership and work, with upper management acting as the mediator between opposing interests. On the one hand, you have owners (or shareholders) who want to earn passive income by simply owning, not by participating in the day-to-day business operations. Today, shareholders can be located anywhere in the globe for the most part and purchase shares in publicly traded companies. This means they are primarily spatially disconnected from the effects of the business operations and the costs that are externalized. On the other hand, you have the workers, the customers, local communities, and society. The degree to which we as a public are saturated by corporate marketing does not even compare to that pushed by local businesses. The amount that these companies devote to public relations should also tell us something about the need to clean up their public image.

Why should economists care? As a branch of moral philosophy, economics is fundamentally a contest of ideas revolving around the question of how limited and scarce resources should be used in order to achieve a stated objective. In the case of the economics, the stated objective, and the one which should unify all economists, is the improved well-being of society. If economists are to remain true to their discipline, rather than simply assuming a role in a discipline [arguably] hijacked by corporate and financial interests, they would want to question and closely examine the social implications of various institutions in achieving those ends. Some of the underlying values to which most, if not all, economists would subscribe include socially, politically and economically inclusive institutions. Recent work by economists Daron Acemoglu and James Robinson have brought to the forefront of discussions around development the importance of inclusive institutions. While they focus on the political and economic institutions, I think most would agree that social inclusivity is just as important for improved well-being. Amartya Sen, also a development economist well-known known for his capabilities approach, certainly supports the importance of social inclusion as one of the key, what he calls, “functionings” – what a person can be or do – the expansion of which is the evaluative criteria he uses to measure development.

It is with these considerations in mind that I argue that economists should challenge corporate power, not be cheerleaders for it; because corporations are anti-social, anti-democratic, and extractive institutions which contradict the most fundamental normative theories that are taught in principles, intermediate, and advanced courses.

Anti-Social Institutions

To begin the overall discussion about multinational corporations, I have concluded that they are anti-social, because they are structured and incentivized to externalize as many costs as possible onto society, they are anti-labor, anti-community, and anti-consumer, and they instinctually fight against any kind of legislation that is aimed at social protection. Here I will focus more on the conflicting values at play, rather than the actual mechanism. The basic premise is that when it comes to serving investor interests, among shareholders and management there is a callous indifference to hardships and suffering inflicted upon society, due to the social and spatial separation of ownership and work.

A striking example of the cost externalization is the mass oil spills and destruction of livelihoods experienced by the small rural fishing and farming communities of the Ogoniland in the Niger Delta region of Nigeria in what could be considered one of the worst ecological disasters in modern times. Currently, Shell is fighting an ongoing legal battle in the Netherlands against the people who are trying to defend the lives of the poor who do not have the kind of financial and political resources to defend themselves, all in the name of profits. The company even goes as far as aligning with the Nigerian military to defend their interests over the Nigerian citizens whom the military is supposed to defend. I could dedicate an entire book to similar examples on this point alone.

In serving shareholder interests, corporate management is often incentivized to take an anti-labor position. This leads them to undermine attempts of workers to unionize, to demand better working conditions, to demand reasonable compensation, and to demand general respect. When concerned managers give in to pressure from workers to improve working conditions, they are often met with fierce resistance from shareholders. When employee pay goes up, share prices tend to fall.  An example of this was reported in CNBC in 2017 as, “Shares of airlines fell [Thursday] after poor earnings and a big pay raise for pilots and flight attendants raised concern on Wall Street that the sector was returning to the days when the stocks rarely made good investments.” This demonstrates the institutional role that, even socially conscious, CEOs play. Most often the CEO that does not serve the shareholder interests will be replaced by someone who will. The individuals who fill these roles are not necessarily bad people, but the role they play is certainly an anti-social one. They could at least be held accountable for choosing to play such a role, but they are often lured in by the social prestige [ironically] and generous compensation packages. But in the end, I think this quote from the CNBC article of 2017 summarizes the point quite well, “We are troubled by AAL’s wealth transfer of nearly $1 billion to its labor groups. In addition to raising fixed costs, American’s agreement with its labor stakeholders establishes a worrying precedent, in our view, both for American and the industry,” Baker wrote in a note to clients [Thursday]. In developing countries, migrant laborers are often subject to harsh working conditions. Their passports are often kept in the hands of their employers as leverage. According to a report in The Guardian in 2017, Burmese migrant workers in Thailand were forced to work 22-hour days and sleep among the chickens on a poultry farm. The workers and journalists who attempted to reveal this information to the public were met with defamation lawsuits and looming prison sentences, because the law is often used to protect the large companies over workers’ rights. More on this point in the next section on the rule of law and democracy.

When it comes to the anti-community argument, there is clearly overlap with the previous point about willingness to externalize cost as well as the extractive nature to be discussed below. However, there is a point, in the interest of fairness, that should be acknowledged. Some corporate businesses that enter small communities do provide an economic foundation for the community, if that business’ product is exported out of the community. This dependency does lead communities to often overlook some of the externalized costs, even to the point of not realizing the full effects until much later. In my hometown, as a small town that depended on the tannery and a chemical company for decades as a foundation for jobs and incomes, these companies had been contaminating the lake, which many residents used for recreation, and local ground water for decades. Only recently have cancer rates reached alarming rates, many of which can be traced back to exposure. Corporate businesses also become a problem when local businesses in a similar sector are outcompeted for a share of the local economic activity, which is the lifeblood of community. The families living and working in the community offer real value to the local economy because they will generally recirculate their profits into other local businesses, although this too is under threat by e-commerce giants like Amazon. Small local businesses may also willingly choose to support each other, rather than trying to drive out or take-over competing business. Corporations have little incentive to cooperate with local businesses, because it is not in the interest of shareholders who do not live in that community. Corporate profits are seldom recirculated in the local economy, but rather are siphoned out or repatriated to the corporate headquarters in distant location to be distributed among owners. This will be mentioned again in the supporting argument related to extractive institutions.

An additional anti-social community impact involves speculative investment in real estate by private equity firms. Contributing to the asset price inflation, making homeownership out of reach for more and more people, driving more people into dependency on out-of-touch absentee landlords who continue to raise rents beyond affordability for current tenants. This results in a dysfunctional economic situation in which homelessness occurs alongside unoccupied dwellings that are owned as speculative assets for the relatively wealthy. These companies do not care if they make low-income people homeless by buying up affordable homes and raising rents in the interest of their shareholders. They really do not care who they hurt in the process, if there is a profit to be made.

A final point regarding the anti-social value system of corporations is the anti-consumer attitudes of multinationals when it comes to information.  There is a general disrespect toward consumers evidenced by an inclination toward deception and manipulation. An obvious example involves marketing and public relations. Corporations hire teams of psychologists who study consumer behavior to identify and exploit consumers’ weaknesses in order to push more products. The unethical practice of marketing to children, due to their vulnerability and high susceptibility, has been banned in many countries – mostly developed countries – however, the corporations still actively target children with advertising in countries were the legal climate remains weak in adopting and enforcing policies to deter such practices. In Brazil Coca-Cola targets schools by sponsoring activities to establish brand loyalty at a young age, while looking like a socially responsible company because of their funding. Would it be seen as ok for a tobacco company to sponsor school activities, even if the school is desperate for funds? The long-term social impacts far outweigh the short-term benefits, as there are numerous alternatives to school funding than simply relying on a multinational corporation’s cash donations. Even directed toward adults, advertising of beauty products, cosmetic surgeries, and luxury products are targeted to lower people’s self esteem with the hope that buying their product will return the consumer to their baseline esteem.

As the obesity epidemic demonstrates, there is no concern for public health as corporations continue to push (through heavy marketing efforts) products that are known to be unhealthy onto an unwitting public, while at the same time fighting against public policies designed to inform consumers about the health implications of various products. They also engineer the processed foods to be more addictive, just like the tobacco companies did with enhancing nicotine’s addictive qualities. It is interesting that the healthiest foods see almost no marketing, but the least healthy foods are the most heavily marketed. More on this point in the second supporting argument when it comes to lobbying. They will prevent information from reaching the public about health and safety concerns regarding their products, if it costs them profits. They do this through the non-disclosure agreements with former employees, threatening of whistleblowers, and funding scientists to produce research that clouds certain issue creating uncertainty and plausible deniability which prolongs government intervention or public behavioral shifts. Corporate media does not report on these issues if they could potentially harm the interests of other corporations who advertise with them.

Finally, “ag-gag laws” are anti-whistleblower laws that forbid filming or photography of activity on factory farms run by large corporations. Filming is often used to inform the public of animal and human rights abuses. Food libel laws, also known as food disparagement laws (or veggie libel laws), make it easier for corporate food producers to sue their critics for statements made that hurt their business. This has a chilling effect such that those who are trying to provide the public with information for consumers to make ethical choices will think twice about what they say. The hope is that they will self-sensor themselves.  

Anti-Democratic Institutions

Building on the anti-social argument, multinational corporations are institutionally anti-democratic. Political institutions determine who has power in the society and how that power can be used. According to Acemoglu and Robinson, political institutions must be both pluralistic and centralized. Pluralistic implies the distribution of power is broadly shared and subject to constraints. Centralization can be bad when it is not pluralistic; however, it is crucial for the ability to enforce law and order to support economic activity, trade, and the basic security of its citizens. In a democratic society, people voluntarily submit to the authority of the executive, as long as the rules are seen as fair and equally applied. Internally corporations operate as a top-down hierarchy, much like an authoritarian structure, albeit with a potential plurality of representation among shareholders. This hierarchical structure is not unique to corporations, but they have been traditionally structured in this way and continue to be to this day. Externally, corporations are anti-democratic because their lobbying efforts often translate into laws which prioritize investors’ interests above everyone else’s; because multilateral trade agreements are effectively investor rights agreements negotiated behind closed doors with no public scrutiny and with no pluralistic representation at the negotiating tables; because of the revolving door between corporate managers and public office; and because corporations often align with dictatorships in developing countries which are able to suppress labor, environmental, and social movements which threaten the potential investment climate.

Lobbying by itself is not necessarily anti-democratic. In a representative democracy, it is important for a wide variety of groups to have their needs heard by representatives in government. Why is corporate lobbying anti-democratic? It depends on whose interests are represented and how money translates into representation. A corporation may be headquartered in a particular country, but that does not mean that they have any loyalties to that country and its people. Given that shareholders are transnational, why should they care about the well-being or political voice of the people of that nation, state, or community? The corporation is structured to serve these transnational interests above all else. With concentrated financial resources at their disposal, it is not difficult to see that representative democracies can be effectively co-opted by the lobbying efforts of these transnationals, effectively blocking the interests of the citizens whom such governments are assumed to represent.

At the state level in the United States, for example, the American Legislative Exchange Council (or ALEC) is an organization in which state legislators meet with corporate lobbyists at resort hotels, not state capital buildings, where they negotiate potential legislation behind closed doors with private security guards to prevent media from reporting on the process. ALEC has been labeled a “corporate bill mill,” in which cookie-cutter legislation is essentially drafted by the corporations and handed to politicians to basically fill in the state’s name and return the state capital where they would then sign the bill into law. When it is cheaper to break the law and pay a fine, a corporation will consider writing that off as just the cost of doing business. Smaller firms would not have the option of non-compliance because the penalties would be large enough to bankrupt them. Smaller firms also do not have the concentrated resources to lobby government in their interest. Even if they did, they would at least be citizens of the country whom the government supposedly represents. However, if corporations can get laws changed in their favor, they do not even have to worry about breaking the law.

Another example is the heavy lobbying by multinational corporations in the European Parliament in Brussels. Led by major food industry giants like Nestle, enormous efforts were put forth by the food industry lobby to block legislation mandating food labeling systems to inform consumers about the amounts of sugar, salts, and fats in given products. From leaked Coca-Cola documents, we gain insights into their lobbying priorities. Among the things they are preparing to fight against include, as quoted in their documents, “increased collection and recycling targets,” “EU scheme for deposit systems,” “ban of advertising to children >12yr,” “advertising restrictions for ‘sweet’ beverages,” and “discriminatory nutrient profiles for claims.” All this while the company is trying to market itself as a socially responsible and sustainable company.  Their public relations representatives are programed like machines to repeat the generic line, “don’t worry about our past record, just know that our policies have changed, and we are moving forward in a different direction.” Just believe them, they demand.

Investor rights agreements or, as they are more commonly known, multilateral trade agreements, are anti-democratic because they are always discussed and agreed upon behind closed doors with corporate representatives, finance and banking representatives, and government officials at the negotiating table. There are no labor rights, social, or environmental interests represented in these negotiations. This was true of the NAFTA agreement, the TPP and TTIP agreements, the MAI agreement from the late 90s, and even the plans for opening investment opportunities in Indonesia back in the 1970s.  These are not typically focused on increasing trade flows for the good of the countries involved. These are concerned about trade only insofar as it comes to opening markets for corporate and financial investors to penetrate and expand growth opportunities. In finance jargon, these are referred to as “emerging markets,” what in economics might be labeled “developing countries,” although even that term is falling out of favor. The primary purpose of these agreements is to codify into the legal structure protections for their intellectual property, which sounds good in theory, but in practice this is usually about maintaining monopoly control and markups on life essentials such as GMO seeds and pharmaceuticals, which become cost prohibitive for low-income countries. Additionally, these agreements attempt to enshrine into law guarantees that signatory governments will not introduce labor and environmental protection legislation what will undermine these companies’ profitability. Investor-state disputes arbitration involves multinational corporations suing governments that passed laws or implemented policies that cost the firm profits.

The “revolving door” between corporations and government demonstrates another way in which corporate interests are served by politicians. While corporations possess substantial financial resources with which they can influence legislators directly, they also have substantial resources they can offer implicit agreements with politician for opportunities within the company after their time in office. Often these lucrative deals offered by corporation eclipse the relatively modest salaries paid to them as public servants. With these implicit deals in mind, politicians are more inclined to serve the corporate interest while in office, otherwise they fear such offers will no longer be on the table. Besides signing onto favorable legislature, what other benefits do former politicians offer these companies such that they would offer such attractive options once they are no longer in office? This is the networking benefit, which makes lobbying more efficient. It becomes easier to know who to target to get things done. Now the revolving door works in the other direction as well. Numerous examples of former CEOs of companies have been brought into cabinet positions within the executive branch. Most notably was Dick Cheney, former CEO of Halliburton and former vice president of the United States in the George W. Bush administration. During his time in office, this administration passed legal loopholes in the Clean Water Act and the Safe Drinking Water Act to exempt fracking companies from these environmental regulations. His former company Halliburton is a major producer of drilling rigs for hydraulic fracturing and was in a position to profit substantially from the fracking boom. Meanwhile, this “Halliburton loophole” led to the contaminations of thousands of households’ drinking water in states like Pennsylvania, Colorado, Wyoming, and Texas. Most egregious of the administration’s offenses was the illegal invasion and destruction of Iraq. Lucrative contracts were awarded to Halliburton, a construction company, for the reconstruction of the country, thanks to their man in Washington. A more recent example would be Rex Tillerson, short-tenured Secretary of State in the Trump administration, but also former CEO of ExxonMobil, a company which knowingly funded climate-change denying scientists. I can only speculate to what extent he influenced Trump’s decision to withdraw the U.S. from the Paris Climate Agreement.  

In the developing world, throughout much of the Cold War, and even before, corporations aligned themselves with dictators who will protect their interests, by keeping labor repressed and the investment climate stable while granting access to markets and key resources of interest. A typical dependency relationship took the form that foreign direct investment in a country was often protected by strong-armed leadership. The big fear of the corporations who invested in these countries was “economic nationalism,” meaning the people of the country begin to demand that the resources of the country be used to benefit the people. This could lead to popular uprisings, labor strikes, and general disobedience which would have to be suppressed. Military aid, provided by the Unites States government, would go to propping up dictators or military regimes to maintain stability. If that failed and there was an overthrow of government, there would be attempts to undermine the new governments which were guided by economic nationalism. This would include attempts to overthrow leaderships by coups, economic warfare, indirect military intervention by supporting opposition groups, or by direct military intervention by the United States and its allies.

U.S. foreign policy throughout the Cold War and continuing to this day is to serve the interests of investors abroad. Even when leaders are democratically elected such as the case of Jacobo Árbenz in Guatemala, if these leaders enact policies that oppose corporate interests for the benefit of their own people, the large corporations will call on the support of Washington. When Árbenz was elected to the presidency in 1951, he instituted a policy of land reform to redistribute the large tracts of uncultivated land that was owned by United Fruit Company by giving it back to the poverty-stricken agricultural laborers, many of whom were indigenous peoples, whose families had been dispossessed of their land following the Spanish conquest. In retaliation for his [unfavorable in the eyes of United Fruit] policies, he was overthrown in a coup orchestrated by the CIA. John Foster Dulles was Secretary of State under the Eisenhower administration and a lawyer for United Fruit and was the one who helped negotiate the land giveaways for the company in the 1930s in Guatemala and Honduras. Alan Dulles was head of the CIA under the Eisenhower administration and did legal work for United Fruit.  Both Dulles brothers were on United Fruit’s payroll for nearly forty years. Multiple government officials have been revealed to have received benefits from United Fruit, such as Henry Cabbot Lodge, who was America’s ambassador to the U.N. and was also a major shareholder of United Fruit stock. After the overthrow of Árbenz, two generations of extremely repressive military governments followed. United Fruit referred to this as a “decidedly favorable development” in its 1954 annual report.   

Today’s U.S. policy toward Venezuela is carried out for “American” oil companies to be able to produce and export Venezuelan oil. This was expressed surprisingly lucidly by John Bolton, former National Security Adviser under the Trump administration, in which he stated on Fox Business:  

“We’re looking at the oil assets. That’s the single most important income stream to the government of Venezuela. We’re looking at what to do to that. We want everybody to know we’re looking at all this very seriously. We don’t want any American businesses or investors caught by surprise. They can see what President Trump did yesterday. We’re following through on it.”

This language he uses is quite clear. Investors are to be reassured that U.S. policy is working for them. However, in the second part of this interview, his language use here is important to decipher. Bolton continues:

“We’re in conversation with major American companies now that are either in Venezuela or in the case of Citgo here in the United States. I think we’re trying to get to the same [end] result. It’ll make a big difference to the United States economically if we could have American oil companies really invest in and produce the oil capabilities in Venezuela. It’d be good for the people of Venezuela. It’d be good for the people of the United States. We both have a lot at stake here making this come out the right way.”

When Bolton says “the American people,” he is referring to the investors in “American” corporations. When he says “the people of Venezuela,” he is referring to the Venezuelan elite who represent the opposition to the Chavismo movement which is driven to expand health care, education, and food security, among other things, to the previously overlooked populations of the barrios and rural poor. When he says, “we’re trying to get to the same [end] result,” the interests of the majority of the Venezuelan people, particularly those of the barrios, are not compatible with the upper 5 percent of Venezuelan’s who are trying to undermine the government and the Chavismo movement to advance their own interests.   

Larry Wilkerson, a retired United States Army colonel, former chief of staff to United States Secretary of State Colin Powell, distinguished adjunct professor at the College of William and Mary, where he teaches courses on U.S. national security, explains in an interview with Paul Jay of the Real News Network:

“You also know that I know that no move in our hemisphere that I can recall in our history has ever been about democracy and freedom, though we use those words quite loosely to describe our motivation, because it makes the somnolent American people feel good. It’s usually about commercialism, whether it’s Guatemala and the United Fruit Company, and bananas, and land, or whether it’s some other country, like today Venezuela, where it’s oil and the 5 percent that we have relations with.”

He acknowledges that during his time in the Bush administration they began, in his words, “a slow-burning coup d’etat” to overthrow Hugo Chavez and later Nicholas Maduro. He suggested that he has no doubt that this covert operation has continued to this day.  

“What Hugo Chavez did and Nicolas Maduro, in my estimation, sort of colluded and corrupted, but nonetheless, what Chavez did was start to reverse [the situation in which the impoverished and poor have no political power, no means to get ahead, and little hope for the future.]. As others in Latin America have tried in the past, he tried to give a little political power, a little money, a little prosperity to the lower classes. And that’s not acceptable. You just don’t do that when the Koch brothers, ExxonMobil, Coca-Cola, and a host of other American commercial interests don’t want to do that.”

Extractive Institutions

Finally, multinational corporations are extractive institutions, which connects back to the first supporting argument that they are anti-social; but here I will attempt to explain the mechanism by which they are extractive in a simplified way. It starts with market power and rent extraction. This is done primarily through mergers and acquisitions and driving smaller competitors out of business in local community economies. There is market power in both product markets, which allow for the extract of monopolistic rents, and in labor markets, which allows for the monopsonistic extraction of value from the labor force by driving wages down below the value of the marginal revenue product of labor and less hiring than would be done in a perfectly competitive market. No economist would be able to justify monopoly rents while simultaneously preaching to about the importance of competitive markets. This runs directly contradictory to the fundamental theorems of welfare economics, which state that competitive markets (no market power on either consumer or producer sides of the market) are welfare enhancing. Obviously, the assumptions and necessary conditions for the first fundamental theorem to be satisfied are seldom realized in the real world, because of the external costs, asymmetric information, and market power resulting from large multinational corporations.

Other means of extraction are through subsidies, government contracts, and buying patents from publicly funded research and development. This is extraction from taxpayers insofar as the benefits are not returned to the taxpayer in some capacity, but rather go to the recipient corporations and, of course, shareholders. The number of examples of industries receiving subsidies is too long to cover in this essay. However, some examples include the agricultural, energy, airline/automotive, and financial industries. A more recent example was the CARES Act of 2020, which was meant to provide assistance during the COVID-19 pandemic. Major bailouts went to big corporations, while small businesses were driven out business. In fact, the corporations were the first to receive any assistance – $500 billion from the initial relief bill. Keep in mind, the U.S. taxpayers essentially “bailed-out” global investors through this move, such that their profit were uninterrupted. Workers and small business owners received a much smaller amount, which had to be shared among more parties, and they had to wait much longer to receive it. On top of that, with many small businesses pushed out, mostly corporations were left standing and in a much stronger monopolistic position as before, hence shareholders did well as corporations were making record profits and consumers now face price “inflation” – more like monopoly mark-ups. The pharmaceutical giants had governments effectively mandate vaccines and purchase doses with taxpayer money at huge markups above cost, which is an extraction from taxpayers. On top of that, according to the New York Times, governments helped create the vaccines, provided funding for the research and development, but the companies got to keep the patents, giving them monopoly rights over that intellectual property. To add insult to injury donations are resales were restricted in order to create artificial scarcity.  

Private prison corporations raise revenue from government budgets, based on the number of inmates, which incentivizes mass incarceration and the passing of laws making it easier to keep prisons full. The drug war serves this end quite effectively, by criminalizing non-violent crimes such as simple possession. Industries connected to even publicly funded prisons, such as telecommunications and food service, have financial incentives to tap into the money being spent on housing inmates derived from tax revenues. This is known as the prison-industrial complex and leads to mass incarceration. Industries connected to military actions enjoy similar benefits, while not delivering much benefit to the society as a whole and incentivizing unjust wars. In these two examples, companies are being subsidized by taxpayers and with people’s lives.

Foreign direct investment is seen by many economists as positive for development, but there is a legitimate debate about the net benefits offered to developing countries from attracting foreign capital. One of the most convincing arguments is technology transfer. Another argument often given is job creation in export industries, like textiles. This certainly could be beneficial if the money for wages is coming from outside of the country. The gains will be offset, however, by a race-to-the-bottom in wages as governments compete in terms of lower wages. These leaders proudly market their country to potential investors as having lower wages than competing countries. How disrespectful is that to the people of that country? Low wages reflect desperation and limited options, so why should the leaders be proud of this? This reflects a failure of their institutional structure. These leaders stand to benefit from extracting labor value, so, of course, their interests align with the corporations’. Taking advantage of cheap labor while undermining the expansion of employment options is one means of extraction. Another benefit cited for attracting multinational corporations is the potential for closing the savings gap. If corporations can provide tax revenue, then government budgets can provide for the necessary spending on infrastructure, education systems, health system, and other areas to support the economy. However, these gains are often undermined by the tax (holiday) incentives and special economic zones used to entice the multinationals there in the first place. In this case, the corporations extract benefit from the taxpayers by taking advantage of existing infrastructure financed by domestic taxpayers, while contributing little to no tax revenue. One of the most convincing examples of extraction by multinational corporations, as briefly mentioned above and much like the effect on smaller domestic communities, is the repatriation of profits to geographically distant corporate headquarters. The gains from which are redistributed among shareholders and upper management. The gains to local elites may circulate through the domestic economy, unless they use the gains to buy expensive luxury imports or purchase foreign assets for their investment portfolios.

Extractive industries like fracking or mining corporations typically set up operations in small rural towns. Initially they are welcomed because they provide needed jobs for many locals who have limited employment options. Often for only short-term gains – most of which go to the companies, not the local workforce or communities – they leave degraded environments in their wake for the community to deal with for decades to follow. Communities are affected because oil and gas companies have been legally exempted from community right-to-know acts, thanks to loopholes such as those mentioned earlier that were instituted under the Bush administration, like the “Haliburton loophole.” Lucrative extractive industries, particularly oil, have established operations in resource rich countries. Economic nationalism and colonialism have a long antagonistic history. Many countries under colonial systems were designed as a monocrop state with an institutional structural to support the export of a single commodity, i.e., value extraction. Such systems are not designed for self-sufficiency; they are designed to import food and other consumer goods. Since the elites in the country are the ones who have access to foreign exchange, they are the ones who can enjoy a decent standard of living; while the majority of the population, those who does not have access to foreign exchange from oil exports sales, are condemned to lives of deprivation. The term “resource curse” has been used to describe mass deprivation despite large deposits of valuable commodities. This is accompanied by massive economic, social, and political inequality. Wars have been waged on behalf of the multinationals over control of valuable resources, when leaders start to demand that the revenues from oil should go to help the people of the country. The current war against Venezuela takes the form of an economic war (from elites within the country and the U.S. led global financial system) and media war, which sees all corporate media united in an all-out assault against Chavez and now Maduro.  

Finally, the corporate origins of colonialism begin with the English (eventually the British) East India Company, a joint-stock company, under a mercantilist system known for colonization and extraction. While not quite the first corporation, founded in 1599, it was the first big multinational corporation. This launched an epoch of global corporate power which continues even after the days of mercantilism. Perhaps even ironically, the American revolution was based on a great mistrust of the multinational corporations of the British empire – particularly the Virgina Company, which was chartered by King James I in 1609 with the objective of colonizing the eastern coast of America – for fear of corporate tyranny. The famous Boston Tea party was a rejection of the Tea Act of 1773, which gave the East India Company tax exemption that gave them competitive advantage over colonial tea importers. At its peak, the East India Company had its own private army with twice the number of soldiers as the British military. As historian William Dalrymple states: “We still talk about the British conquering India, but that phrase disguises a more sinister reality. It was not the British government that began seizing great chucks of India in the mid-eighteenth century, but a dangerously unregulated private company headquartered in one small office, five windows wide, in London.” The term looting, in fact, enters the English language in this period to describe the activities of the East India Company. The word loot comes from the Indian word lutna, which means to plunder.

Much like the East India Company, the previously mentioned United Fruit Company was centered around extracting from rather than providing value to the local populations of Central America. In fact, it is difficult to identify any positive contribution the company brought to the region. Even before the Árbenz coup, United Fruit’s practices involved bribing government officials for preferential treatment, exploitation of workers, paying little to no taxes to countries in which they operated, and worked to consolidate businesses to create monopoly power. One of the primary tactics was controlling the distribution of arable land, which prevented locals from entering the banana trade. While allowing vast tracts of land under its ownership to be unused, they also discouraged governments from building highways, which would have undermined their monopoly in transportation, primarily railroads. They also destroyed ecosystems and biodiversity on the lands they controlled. Before Árbenz, they had pretty well established themselves in a position to loot these countries at will, with the cooperation of the respective governments of Guatemala and Honduras and even Cuba under Batista until the Cuban Revolution in 1959. Again, Col Larry Wilkerson brilliantly summarizes the U.S. foreign policy relations with respect to Latin America:

“You have to understand that U.S. commercial relations with South America–Central America too, to an extent, but mostly South America–have always been that we try to maintain the wealthiest 5 percent, usually the corporate leadership in that country, in power, because they’re aligned with our corporate leadership in profitmaking. Well, what that does, of course, is put the other 90 or so odd percent of the population, particularly those people in the barrios, the ghettos, those people impoverished and poor with no political power no means to get ahead, no hope for the future.”

Of course, many will raise the question as to whether modern multinational corporations act in the same way. I think, at the very least, this should provide a lesson that we should be skeptical about the net benefits from attracting multinational corporations to locate in low-income countries for the sake of development, especially since they are still structured to act on behalf of global shareholders, not local populations and society in general

Counterarguments

The arguments from much of society to support corporations is that they provide many of the needed goods and services that we use and enjoy today. Many people see this offering from these companies as improving our standard of living. Take Apple, for example. Many consumers have developed a deep affection for their devices from smartphones to laptops and have demonstrated an entrenched brand loyalty, despite many of the company’ practices which could easily be described as anti-consumer, like opposing right-to-repair laws and releasing designs of products that make simple replacement of parts, like battery replacement, more and more difficult over time. Other laptop computer and cell-phone manufacturers do the same, so it is not just Apple. Planned obsolescence is a strategy used by many corporations which leads to wasteful consumption for the sake of profits and growth. Fossil fuel companies are seen by many as a necessary evil, because they provide us with the energy of mobility, which is true. These types of businesses require large capital costs, which leads to an economies of scale argument for larger business operations. However, if it is in society’s best interest to reduce energy consumption, a topic for another discussion, then there is a strong case for these to be publicly owned and not run for profit.

Libertarians may argue that the problem is government in what they term as crony capitalism. I feel there is quite a bit of overlap between our positions. I think we often get hung up on loaded words like capitalism and socialism. Both positions recognize the corrupt relationship between big business and government, and we see government corruption as problematic. Their proposed solution is to shrink the size of government such that corporations cannot use the concentrated political power to their ends. However, I have yet to find a libertarian critique of corporations, despite their call for free market solutions over government solutions. Personally, I do not find the libertarian critique necessarily wrong. I would argue that it mostly underappreciates the logic of the corporate business model. If the corporation is designed to grow and concentrate market power through mergers and acquisitions, why would they not be expected to try to control the legal system? If there is no regulatory environment to limit its cost-externalizing and extractive behavior, who will protect the public?  Corporations cannot be trusted to police themselves. It is better to rely on a government which, at least in theory, is accountable to the people rather than an unaccountable private tyranny. When government starts working for the interests of corporations, big business, or the rich in general, it is the responsibility of the citizens to pressure their government back in line with the interest of the people.

I think we could find some agreement in that big business is the problem, not corporations specifically. To this I would partially agree. Most often a big business can and does abuse its concentrated financial resources and subsequent power. It is also true that small corporations are not necessarily wielding disproportionate amounts of influence on the political system. They may even have a sustainable business model with which all their shareholders agree. But with the large family-run business, they still have the power to decide how much profit is “enough” and not simply be driven to externalize costs and drive smaller competitors out of business. Most corporate management does not have that degree of freedom, so long as the shareholders mandate exponential returns. The larger the number of shareholders, the harder it will be to bring them to agree on directions for the company other than profit maximization. Therefore, smaller corporations, could conceivably still go in a sustainable direction; however, once they grow beyond a certain size, it becomes almost an uncontrollable machine. Libertarians advocate for free markets, but not necessarily competitive markets. Free markets are ones which still allow corporations to dominate. So, libertarians cannot really use the principles of economics to support their positions; even though they do, yet do not see the irony in such a position.

Conclusions

In conclusion, economists should challenge corporate power, not be cheerleaders for it. Corporations are anti-social, anti-democratic, and extractive institutions which contradict most of the fundamental normative theories that are taught in principles, intermediate, and advanced courses. The basic logic of the corporate model is to create dependency, hence inelastic demand, and to be one of the only sellers in order to extract monopoly rents. There is a growing danger that we have become too dependent on the large multinational corporations for the products we buy, the jobs we seek, and our savings for the future. This dependency will be exploited to the benefits of the owners of these companies, which today transcends national boundaries.

From my experience as a student and professor of economics, the majority of economists are both direct and indirect supporters of capitalism. The support is often subtle, because it is seldom a topic of debate. Economists tend to implicitly support corporations by not criticizing them or even distinguishing them from other types of private business structures. Economics is a social science, with an emphasis on social welfare. In fact, it is what distinguishes economics from other fields that deal with monetary and financial topics, such as finance and accounting.

Monopoly power is good for shareholders, but not for society. Authoritarianism is good for a stable investment climate, but not for political inclusivity. War is good if you’re invested in weapons manufacturers’ stock, but society obviously does not benefit from war. As long as profits are generated for investors who are socially and spatially separated from the consequences of their actions, they will never have to look their victims in the face and will continue to push for policies that serve their interests at the expense of others.

“Fascism should more properly be called corporatism because it is the merger of state and corporate power.” — Benito Mussolini

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