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#582 - One Fundamental Problem, 21-Jan-1998

The history of environmental contamination in the U.S. is basically the
history of a power struggle between a few hundred large publicly-held
corporations, on the one hand, and governmental public health
authorities on the other. (For example, see REHW #539, #540 --the
history of tetraethyl lead in gasoline.) During the past 100 years, the
large corporations have generally prevailed handily. Unfortunately, in
prevailing, transnational corporations have created an industrial
system that even their managers now acknowledge is unsustainable.[1]

Importantly, corporations have established the principle that chemicals
and other new technologies will be considered safe until proven
harmful. Thus the burden of proof lies with the public to show that
harm is occurring before controls can be considered. (Only in the
pharmaceutical industry is the burden of proof reversed. Before new
drugs can be marketed, they must be shown to be both reasonably safe
AND effective. And even with this restriction, pharmaceutical
preparations kill an estimated 140,000 (!) Americans each year.[2])

The transnational corporation is the principle institution of our era,
and this has been true for roughly the last 100 years. This institution
is as important today as the Christian church was in Europe during the
15th century, determining and shaping most of reality for most people.

As we think about establishing an industrial system based on principles
of sustainability in the 21st century, we would be remiss if we did not
examine the nature of this legal entity, the corporation. As things
stand today, the corporation --and not government --is the legal entity
that will determine whether a sustainable industrial system is
possible.

The nature of the large publicly-traded corporation

** In the U.S., corporations were initially created as artificial,
subordinate entities, chartered by state legislatures, with no rights
of their own. Up until 1886 corporations could only serve the public
purposes that they were specifically established to serve: build a
canal, manage a toll road, finance and construct a bridge, and so
forth. Their capitalization was fixed by law; they could not own other
corporations; often their board of directors were required to live in
the state where they were incorporated, to make them locally
accountable. In these early years, a corporation's lifetime was finite,
often 20 years.

For example, the Pennsylvania legislature declared in 1834: "A
corporation in law is just what the incorporation act makes it. It is
the creature of the law and may be moulded to any shape or for any
purpose that the Legislature may deem most conducive for the common
good."[3]

The constitution of the state of California in 1879 contained this
clause (Article XII, section 8): "The exercise of the right of eminent
domain shall never be so abridged or construed as to prevent the
Legislature from taking the property and franchises of incorporated
companies and subjecting them to public use the same as the property of
individuals, and the exercise of the police power of the State shall
never be so abridged or construed as to permit corporations to conduct
their business in such manner as to infringe the rights of individuals
or the general well-being of the State."[3]

After 1886 the situation changed. In an 1886 decision by the U.S.
Supreme Court, corporations were given the status of "persons" under
the U.S. Constitution, protected by the Bill of Rights. After that,
corporations could do anything that any other "person" could do, so
long as it was legal. Armed with the Constitutional protections of
individuals, but having none of the limitations of individuals,
corporations soon ceased to be subordinate entities. Today many
corporations are larger than countries. For example, Mitsubishi is
larger than Indonesia. General Motors is larger than Denmark. Ford
Motor is larger than South Africa and larger than Saudi Arabia. Toyota
Motor is larger than Portugal. Wal-Mart Stores is larger than Israel,
larger than Greece.[4]

** For the most part, corporations are staffed by intelligent, well-
meaning people. But the personal motivations of those individuals are
not what motivate the corporation. A large publicly-traded corporation
is driven by its own internal logic.

** A corporation has an internal drive that is comparable to a human's
"will to live." Once a corporation is publicly traded, it:

** Must return a profit to investors;

** Must grow;

** Must externalize costs to the extent feasible.

These are essential characteristics of the corporate form. If a
corporation fails to provide a decent return for investors, those
investors can (and do) sue for breach of fiduciary trust. This
requirement --to turn a profit --narrowly limits what corporations can
do. In general, what is unprofitable cannot be pursued. This means that
individuals must sometimes put aside their consciences when they make
decisions for a corporation. The most well-meaning people in the world
are not free to act on their personal philosophies when they are acting
on behalf of a publicly-held corporation. They must do what is
profitable, which is not necessarily what is right.

Corporations must grow for a variety of reasons. In general, larger
size brings stability. It also tends to bring greater market share. It
also brings a measure of political power, which allows corporate
managers to manipulate the political environment within which the
corporation must operate. Size also brings with it the power to create
and control the demand for goods and services, through mass-market
advertising. A corporation that stops growing is thought to be in
trouble, and may therefore lose investors.

Corporations must externalize their costs to the extent feasible. Faced
with a sick worker, a corporation will tend to let the public health
apparatus pay the costs of bringing the worker back to health, rather
than burden the corporation with the worker's medical bills. Faced with
the option of treating hazardous waste at $100 per ton, or dumping it
free into a river, the corporation will tend to dump wastes into the
river. Of course this externalizing behavior is not absolute --it
varies from situation to situation --but in general, corporations have
a powerful drive to externalize their costs to the extent feasible.

Corporations have other traits that are important:

** They are hierarchical and authoritarian in the extreme. Workers at
the bottom take orders from bosses above them, and workers (and middle
managers) can be fired at any time for any reason. Corporations are
simply not democratic. Indeed, many corporations are not only
UNdemocratic, they are also aggressively ANTI-democratic, seeking to
undermine efforts to expand democratic decision-making within the U.S.
and in many countries overseas.

** Corporations have proven to be marvelously efficient at
consolidating wealth and power into the hands of a few people, to the
detriment of democratic decision-making in the larger society.

** Corporations tend to be patriarchal (in general). They tend to
reinforce and maintain a male chauvinist tradition.

** A modern corporation has unlimited lifetime (quite unlike a person).
This gives a corporation the capacity to grow without limit, whereas
the growth of an individual's wealth and power are strictly limited by
the grave.

** As a result of unlimited longevity, among the world's 100 largest
economies in 1995-96, 51 were corporations and only 49 were countries.
[4]

** After they grow large, corporations cannot feel pain. For example,
the Exxon Corporation was fined $5 billion for the Exxon Valdez oil
spill. On the day that enormous fine was announced, Exxon's stock price
rose because investors realized that Exxon was invincible. No matter
how odious its behavior, human institutions have no capacity to curb
the excesses of a large transnational. Similarly, the day the
government of India imposed an $800 million fine on Union Carbide for
its role of negligence in the Bhopal disaster, Carbide's stock rose.

** Investors and directors (and often managers as well) are shielded
from liability, and therefore corporations tend toward antisocial
behavior. Indeed, limiting liability was the reason the corporate form
was invented in the first place. This --and the inability to feel pain
--are crucial points. Pain is very important as we humans grow up from
infancy. Pain serves to limit and guide our behavior. As infants, if we
try to crawl through a solid door, we hit our forehead and are brought
up short by painful reality. As toddlers, if we strike another person,
we may be struck in return; thus we learn that violence is not
necessarily the best policy. Eventually, external pain becomes
internalized into a conscience and we become civilized adults. Under
law, corporations are formally denied this civilizing impetus. As a
result, corporations tend to behave like sociopaths. Widespread
contamination and destruction of the natural environment provide
evidence of this fact.

** In the U.S., fewer than two dozen of these extraordinary creatures
own and operate 90% of the mass media --controlling almost all books,
magazines, records, videos, TV and radio stations, newspapers, wire
services, and photo agencies (Ben Bagdikian, MEDIA MONOPOLY, 4th
edition. ISBN 0-8070-6157-3). Thus the number of people who set the
terms of public discussion in the U.S. would easily fit into one small
room. To the extent that they are visible at all, corporations use the
mass media artfully to give themselves the appearance of benevolence.
Think of Joe Camel.

In sum, the publicly-traded transnational corporation is a colossus,
larger than most national governments, a smiling giant that must grow,
cannot die, cannot feel pain, cannot take responsibility (liability)
for its actions, must deposit its excreta in public places to the
extent feasible (externalizing its costs), is unable to act upon the
conscience and sense of morality its managers and directors personally
have, is unable to care about place or community, is politically
privileged by its size and wealth, and owns or controls all the
relevant mass media, as needed.

This tends to be a sociopathic and politically-unstoppable creature
indeed.

This is the creature that we are asking to curb its appetites on behalf
of the "general welfare" (a phrase from the preamble to the U.S.
Constitution). Unfortunately, this is not an entity with a conscience
or a sense of social purpose (it is, after all, a paper invention and
is not human). This entity is incapable of caring about the general
welfare or unborn generations --no matter how good-hearted and well-
meaning its employees, managers and directors may be.

If society wants these entities to behave differently, society will
have to build different incentives and requirements into the legal
foundations of the corporation by modifying the corporate charter --the
piece of paper issued by state legislatures giving corporations the
privilege of being.

In addition, in the U.S., corporations could be denied the privileges
of personhood under the Constitution. Our rule of thumb could be, If it
doesn't breathe, it isn't a person and therefore isn't protected by the
Bill of Rights. Thus publicly-traded transnational corporations could
be brought back to the subordinate status that our grandparents and
greatgrandparents clearly envisioned for these dangerous, unruly
inventions.

--Peter Montague (National Writers Union, UAW Local 1981/AFL-CIO)

=====

[1] Stephan Schmidheiny and others, CHANGING COURSE; A GLOBAL BUSINESS
PERSPECTIVE ON DEVELOPMENT AND THE ENVIRONMENT (Cambridge, Mass.: MIT
Press, 1992). ISBN 0-262-69153-1. And see REHW #296. Those wishing to
know more about the corporate form might read David C. Korten, WHEN
CORPORATIONS RULE THE WORLD (San Francisco: Berret-Koehler Publishers,
1995). ISBN 1-887208-00-3.

[2] David C. Classen and others, "Adverse Drug Events in Hospitalized
Patients," JOURNAL OF THE AMERICAN MEDICAL ASSOCIATION (JAMA) Vol. 277,
No. 4 (January 22/29, 1997), pgs. 301-306.

[3] Quoted in Richard Grossman, "Only the People Can Be Socially
Responsible," in Trent Schroyer, editor, A WORLD THAT WORKS (New York:
The Bootstrap Press, 1997), pgs. 171-181. ISBN 0-942850-38-6.

[4] Ward Morehouse, "Multinational Corporations and Crimes Against
Humanity," in Trent Schroyer, editor, A WORLD THAT WORKS (New York: The
Bootstrap Press, 1997), pg. 51. ISBN 0-942850-38-6. Morehouse
attributes the data to these sources: corporation data from "Fortune's
Global 500, The World's Largest Corporations," FORTUNE magazine August
7, 1995. Country information from: THE WORLD DEVELOPMENT REPORT
(Washington, D.C.: World Bank, 1996).

Descriptor terms: corporations; pharmaceutical deaths; pa; ca; ben
bagdikian; media monopoly; media; corporation sizes vs. nation sizes;
david korten; when corporations rule the world; richard grossman; ward
morehouse;