Why should so many Americans resent and distrust the very institutions that make possible our productivity, pleasure and opportunities? Given the fact that major corporations provide virtually every one of the commodities and comforts we consume, it makes no sense to feel hostile and contemptuous of the corporate organization of the contemporary economy.
As I write these words – and as you read them –we all rely on the products of major companies with increasingly far flung and international operations. Leave aside for a moment the obvious example of the complex combination of brilliantly designed computer hardware and software that allows me to transfer my thoughts to a word processor and broadcast them to the world. I’m also relying on a light fixture above my desk and the bulb to illuminate it and the electricity to drive it, on the books stacked on the filing cabinet behind me, printed and distributed and transported across the country, on the paper and the pens that allowed the scribbled notes and, very significantly, on the ceramic mug filled with steaming coffee based on beans brought from far corners of the globe, then roasted and packaged and finally brewed in the wonderfully efficient coffee maker beneath our kitchen sink. Though “corporation” has become a dirty word to many Americans, successful corporations made possible each of these wonders and blessings and amplifications of our personal power. Without those engines of economic energy, we’d retreat to darkness and frustration and the dead ends of poverty.
The late Nobel Prize-winning economist Milton Friedman used to hold up a common pencil and to ask his students at the University of Chicago to consider the labor and resources that made it possible. At one point, timber workers cut the trees sawmill workers shaped into usable milled wood, while miners drew the graphite from the earth, and others smelted and shaped it into the thin but durable pencil, then encased in the octagonal rod of wood, in turn painted and varnished and stamped, with a milled metal tip (also mined and processed and stamped) connecting it to a pink and functional eraser relying on gum from remote jungles. This miracle of technology and cooperation, in other words, relies on literally hundreds (if not thousands) of workers in different corners of the earth, but then, ultimately, makes its way into your hand at the shockingly, insanely, irrationally low price of --- about ten cents. Consider the amazing efficiency that brings you this versatile and remarkably efficient common writing implement that you take for granted every day. This deceptively simple pencil costs the typical American less than 20 seconds of his time at work. For higher income toilers, you can earn yourself a pencil for a mere second of your effort.
And yet we commonly curse the very rise of corporate power and productivity that puts such wonders into our hands. “Enlightened” commentators, politicians, academics, activists and malcontents of both left and right never tire of deriding for-profit companies as some parasitic alien life form that devours honest toil, crushes creativity, pollutes the environment, and steals power from ordinary Americans.
A few undeniable truths about corporate power in the United States can liberate every day citizens and the society at large from such sour and ungrateful folly.
1) FROM THE DAYS OF EARLIEST SETTLEMENT, AMERICA EMERGED FROM RISK-TAKING AND PROFIT-MAKING CORPORATIONS. The famous colonies at Jamestown, Plymouth and Massachusetts Bay (not to mention Walter Raleigh’s similarly celebrated and tragically unsuccessful settlement of Roanoke) depended on British investors who put up the considerable capital to fund the expensive business of sending “venturers” across the Ocean. Of course, some of these sponsors shared religious ideals with some of the settlers, but they all fervently cherished the (often frustrated) hope of earning a handsome return on their risky investments. Meanwhile, other corporations like the Hudson Bay Company and the British East India Company also played an outside (and sometimes heroic) role in exploring a wilderness continent and establishing a British presence in the New World.
2) THE REVOLUTION RESISTED GOVERNMENT INTERFERENCE WITH FREE MARKETS, NOT THE POWER OF BIG BUSINESS. The Stamp Act Protests, the Boston Tea Party and other Colonial challenges to British authority aimed their wrath (and occasional property destruction) not at the traders or merchants who brought their products to New England, but against the government officials who insisted on telling the colonists what they could buy and how much they must pay. In the Declaration of Independence, Thomas Jefferson specifically condemned the king for “imposing taxes on us without our consent” and for sending his tax collectors to interfere with commerce: “He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our People, and eat out their substance.” Any contemporary American who’s faced an IRS audit can relate directly to Jefferson’s complaint. The Declaration also attacked King George for his protectionist export-import policy and “for cutting off our Trade with all parts of the world.” The Founding Fathers never embraced anti-business attitudes because most of them were themselves ambitious and successful entrepreneurs. George Washington and John Hancock may have been the two richest men in the colonies – with Washington one of the largest land-holders (who loved speculating on frontier real estate) and Hancock the owner of America’s most formidable fleet of merchant ships. At the Constitutional Convention in 1787, when the Founders laid out the powers of the new Congress and Government in Article 1, section 8, all of the first 8 provisions concern setting up an economic system (“power to lay and collect taxes,” “to establish…uniform laws on the subject of bankruptcies,” “to coin money,” and so forth) before the document finally gets around to such relatively trivial matters as setting up courts and raising an army.
3) THE FAMOUS DEPRADATIONS OF THE SO-CALLED “ROBBER BARONS” INVOLVED GOVERNMENTAL, NOT BUSINESS, ABUSES. In his indispensable 1986 book “The Myth of the Robber Barons,” Burton W. Folsom of the University of Pittsburgh makes the important distinction between “political entrepreneurs” and “market entrepreneurs” who played very different roles in the development of the new nation and its economy. The political entrepreneurs WHO manipulated their insider influence relied upon sweetheart deals and special concessions and monopoly power granted by government, rather than their own efficiency and competitive advantages. At the same time, market entrepreneurs (like James J. Hill of the Great Northern Railroad) refused to entangle themselves with the political process and built their much more successful and durable corporations without favoritism from bureaucrats or officeholders. As Folsom writes of the emerging and crucial steamship industry: “Political entrepreneurship often led to price-fixing, technological stagnation, and the bribing of competitors and politicians. The market entrepreneurs were the innovators and rate-cutters. They had to be to survive against subsidized opponents.” Significantly, all of the most significant economic reform movements from the Jeffersonians at the turn of the nineteenth century up through the Progressives at the turn of twentieth, sought to disentangle government from its involvement in the free market, not to impose to new bureaucratic controls. As the great historian Forrest McDonald of the University of Alabama wrote: “The Jacksonian Democrats engaged in a great deal of anti-business rhetoric, but the results of their policies were to remove or reduce governmental interference into private economic activity, and thus to free market entrepreneurs to go about their creative work. The entire nation grew wealthy as a consequence.”
4) THE ERAS OF GREATEST CORPORATE INFLUENCE WEREN’T NIGHTMARISH PERIODS OF OPPRESSION AND RETREAT, BUT RATHER GOLDEN EPOCHS OF PROSPERITY, PROGRESS AND GROWING AMERICAN POWER. While historians and other intellectuals invariably deride the “Gilded Age” following the War Between the States, no generation in world history achieved comparable progress in rapidly raising standards of living, absorbing and assimilating unprecedented waves of immigration, settling the remotest frontier and building a dozen new states and scores of glittering new cities, while establishing the United States for the first time as a world power of the first rank. As the editors of American Heritage Magazine wrote in the introduction to their book, “The Confident Years,” about US life from 1865 to 1914: “It was a period of exuberant growth, in population, industry and world prestige. As the twentieth century opened, American political pundits were convinced that the nation was on an ascending spiral of progress that could end only in something approaching perfection. Even those who saw the inequity between the bright world of privilege and the gray fact of poverty were quite sure that a time was very near when no one would go cold or hungry of ill clothed. These were indeed the Confident Years.” An era of rampant capitalist power, in other words, that saw the emergence of giant corporations that touched the lives of every American, corresponded with the most dynamic and dazzling achievements in our history. Other eras associated with big business also brought unparalleled blessings of peace and prosperity to the nation at large and virtually all of its citizens – such as the 1920’s, where President Coolidge produced snickers from cognoscenti by saying “the business of America is business,” or the 1950’s, when Defense Secretary Charlie Wilson declared (not unreasonably) that “what’s good for General Motors is good for America.”
5) THE RISE OF BIG BUSINESS NEVER IMPOVERISHED AND ALWAYS ENHANCED THE LIVING STANDARDS OF ORDINARY WORKING AMERICANS. In their 1998 book, “The History of the American Economy” Gary Walton and Hugh Rockoff summarize the progress of the working class. From 1820 to 1860, wages grew at a 1.6% annual rate, while the purchasing power of an average worker’s paycheck went up between 60 [SPACE] and 90 percent (depending on the region of the country). Between 1860 and 1890 (that genuinely gilded age) real wages (adjusted for inflation) increased by a staggering 50% in America. The average work week shortened at the same time, so that the real earnings of the Average American worker increased more like 60 percent in just thirty years. As Thomas J. DiLorenzo points out in his illuminating book “How Capitalism Saved America,”: “Capitalism improves the quality of life for the working class not just because it leads to improved wages but also because it produces new, better and cheaper goods…When Henry Ford first started selling automobiles only the relatively wealthy could afford them, but soon enough working-class families were buying his cars.” The efficiency and productivity made possible by corporate organization gave typical Americans a range of choices and an economic power unimaginable for prior generations. As Federal Reserve Board economists Michael Cox and Richard Allen made clear: “A nineteenth century millionaire couldn’t grab a cold drink from the refrigerator. He couldn’t hop into a smooth-riding automobile for a 70-mile-an-hour trip down an interstate highway to the mountains or seashore. He couldn’t call up news, movies, music and sporting events by simply touching the remote control’s buttons. He couldn’t jet north to Toronto, south to Cancun, east to Boston or west to San Francisco in just a few hours. He couldn’t transmit documents to Europe, Asia, or anyplace else in seconds.
He couldn’t run over to the mall to buy auto-focus cameras, computer games, mountain bikes, or movies on videotape. He couldn’t escape the summer heat in air conditioned comfort. He couldn’t check into a hospital for a coronary bypass to cure a failing heart, get a shot of penicillin to ward off infection, or even take aspirin to relieve a headache.” In this context, jeremiads about the “horrifying” gap between rich and poor miss the point that poor people in America’s 21st century enjoy options and privileges that the wealthy couldn’t claim a hundred years ago. Far from oppressing the working class, the corporate system brought about a vast improvement in purchasing power for all Americans. The 1999 book “Myths of Rich and Poor” by Michael Cox and Richard Alm indicates that a worker in 1900 worked two hours and forty minutes to earn the cost of a three point chicken; in 1999, a mere 24 minutes of toil could buy him the bird. If anything, the growth in rewards for working only accelerated in the last fifty years. In 1950, typical workers put in more than two hours to afford 100 kilowatts of electricity; by 1999, the cost had dropped to fourteen minutes. A three minute coast-to-coast phone call cost 104 minutes of labor in 1950, but by 1999 that was down to two minutes (and it’s no doubt even less today).
6) THE INDUSTRIALIZATION THAT DRIVES PROSPERITY RESCUES RATHER THAN ENSLAVES THE WORKERS IT EMPLOYS. Adam Smith, who defined capitalism more than 200 years ago in “The Wealth of Nations,” described the essence of the system as a series of mutually beneficial agreements: “Give me that which you want, and you shall have this which you want.” This captures the essential fairness and decency of the free-market system, which relies on voluntary associations that enrich both parties. Concerning the process of industrialization, which saw millions of workers engaged in powering the mighty, productive engines of major corporations, the great economic Ludwig van Mises (cited by DiLorenzo) trenchantly observed: “The factory owners did not have the power to compel anybody to take a factory job. They could only hire people who were ready to work for the wages offered to them. Low as these wage rates were, they were nonetheless much more than these paupers could earn in any other field open to them. It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchens and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation.” The same process applies to newly opened factories throughout the developing world today, despite the efforts by “anti-globalist” and “anti-corporate” activists in the United States to obliterate the only jobs that keep suffering millions from a return to misery and destitution.
7) CORPORATIONS DON’T DESERVE BLAME FOR “PUTTING PROFITS OVER PEOPLE,” SINCE PROFITS INEVITABLY BENEFIT PEOPLE. Corporations don’t exist in order to provide welfare for workers, or cheap products for consumers, but rather to earn profits for investors and operators. If they succeed in earning such profits they can provide more jobs at higher pay, and better products at lower cost. If a company fails at bringing in those profits it will shed jobs and provide fewer products – ultimately going out of business altogether. The idea that laborers or customers somehow benefit if a corporation feels squeezed, or facing shrinking profits, remains one of the profoundly illogical legacies of discredited Marxism. In the free market system, the boss Peter can’t benefit long term at the expense of his employee, Paul. They either prosper together or fail together. Increased profitability brings increases in capital that allow increases in productivity – directly and simultaneously rewarding management and labor (not to mention the public at large). Political demagogues who rail against “immoral” or “obscene” profits need courses in remedial economics. For a corporation, only a lack of profitability counts as immoral and going out of business represents the ultimate obscenity.
8) THERE’S NO LOGICAL REASON TO FAVOR SMALL BUSINESSES OVER BIG BUSINESS. A recent Wall Street Journal poll showed that the public felt more approval of “small business” than of “big corporations” by a ratio of more than three to one. This makes little sense, since virtually every “big business” started out as a small operation before success brought growth, and virtually every small business dreams of getting bigger one day. Not far from my home stands the original Starbucks Coffee stand (still operating) at Seattle’s Pike Place Market: an unprepossessing shop that couldn’t accommodate more than twenty customers at a time. Did that quaint operation do a better job providing coffee to its patrons than today’s multi-billion dollar, globe-straddling colossus? Any coffee connoisseur can certify that one of the major improvements in American life over the past twenty years involves the now universal availability of strong, delicious, gourmet coffee (and innumerable exotic derivatives), as opposed to the watery, flavorless blandness of the old-fashioned “cup of Joe.” Could any sane observer honestly believe that a small business could do a better job than big international companies in providing us with the automobiles and computers and cell phones and medical supplies that do so much to enrich our lives?
9) CORRUPTION IS MORE OF A PROBLEM FOR BIG GOVERNMENT THAN BIG CORPORATIONS. Since the beginning of the 21st Century a series of tawdry and hugely destructive corporate scandals (Enron, Tyco, WorldCom, many more) led the commentariat to conclude that business ethics had been hopelessly compromised and we needed to turn to government for redemption and purification. This assumption ignores the long history of hideous corruption in every endeavor of flawed humanity – including religion, education, charities and, most spectacularly, government itself. Giving government greater power over corporations increases rather than reduces the likelihood of corruption, since so many of the prior business scandals involved existing entanglements of bureaucracy with the free market. When political office holders decide winners and losers in the business world, the temptations for bribery and favoritism become more acute, not less so. Moreover, the public enjoys greater and swifter recourse against an abusive or inefficient corporation than it does against an abusive or inefficient government. The customer can always decline to patronize a business, a product or a service he dislikes, but with a dysfunctional government you’re stuck till the next election – or long after that, in this era of entrenched and immovable bureaucratic power. A determined individual can escape the reach of even the most ubiquitous corporation (yes, even our Seattle neighbors at Microsoft) but the only way to choose for yourself a different national government is to flee the country. Yes, corporate power frequently corrupts government, and government power even more frequently corrupts and warps corporations, but the best way to avoid this mutually destructive influence is to bring about less bureaucratic involvement in the free market, not to insist on more.
Despite all the shortcomings and silliness, bureaucratic bungling and bankruptcies, foreclosures and failures, conniving and corruption, the big corporations that inevitably emerge in free and fair markets continue to perform remarkably well in terms of giving the public what it wants and needs. Our daily lives bear wondrous witness to the amazing achievements and efficiencies of the system. Any honest examination of the past and the present must lead to the conclusion that major corporations in their appropriate pursuit of profit will continue to bless, not oppress, the people of the United States.
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