View Sidebar

Post Tagged with: Europe

Corporations Is People

Corporations Is People

We have all heard the phrase “corporations are people,” either stated in earnest as a reading of the law (corporations are people in that they are independent entities, pay taxes, have rights to due process, and of course, the right to free speech) or stated ironically as ammunition for our friends on the Left. But whereas that question is about the legal personhood of the corporate entity itself, I would like to discuss something else entirely: the oft-forgotten fact that a corporation is not a distinct entity but a team effort comprised of many individuals. In other words, “corporations are people,” and we would serve ourselves to understand this vital distinction.

So what is a corporation?

In a free society, corporations are voluntarily organized by and among a collective of individuals–investors, employees, volunteers, and customers–in order to pursue a common goal. If you look into any large corporation, you find nothing less than tens of thousands of real people, all on a team together. The goals of that team can be very different. At BP, the goal of the team is to explore, dig and extract new oil wells on the one hand and ship, refine, and distribute gasoline on the other. At Walmart, the goal of the team is to produce and purchase a variety of items so they can be sold at mass market prices in their retail stores. To take the opposite end of the corporate spectrum, the goal of the team at a hair salon is to make women beautiful.

In other words, corporations have no sentience on their own. This may seem blindingly obvious to anyone who has worked for a corporation of any size. Corporations are, first and foremost, collectives where people collaborate to perform labor in exchange for money, which is exactly what people as individuals do. Except in a corporations, people can be often more productive working as a team than they can alone. If someone takes a job with corporation instead of producing and selling a product all by themselves, it is often because they can earn more with their skills as part of a team than they can alone. And the more successful the team is at producing and selling a product, the larger, more specialized and more efficient the team becomes.

I am not suggesting that all the people who make up a corporation are equal, but merely that their incentives are aligned. Shareholders, for instance, have a much bigger stake in the corporation’s successes and failures than employees. But those employees benefit from greater corporate profits in the form of greater job security if not increased benefits and wages, and when corporations lose money, they are the first to suffer. The level of commitment and risk may vary among members of a corporate team, but that doesn’t mean that it’s any less of a team, for the same reason that a quarterback and a wide receiver have very different risks and rewards that come together for a common purpose.

And yet, everywhere you turn in politics today, there is an attempt to demonize and dehumanize corporations, to “make them pay” for whatever real or imagined harm they have inflicted, and in general, hold them responsible for the world’s ills. This trend is especially alarming in Europe, where hating on corporations is in vogue, and just yesterday Angela Merkel announced a G20 conference to tackle “corporate tax avoidance,” a particularly bad euphemism since it ascribes evil intent to a perfectly legal practice, encouraged by many G20 nations themselves. Corporations are routinely maligned as rapers of the environment, destroyers of wealth, vanguards of global destruction, and, of course, kingmakers behind elections. The American Left is particularly adept at these forms of accusations, although the right takes its toll in its own crusade against nonprofits like Planned Parenthood. And the Right is more prone to defending corporations, while corporations themselves deserve neither to be attacked or defended while sparing the individuals who make them up.

Why is it so easy to detatch corporations from the people who make them up?

I think for your run-of-the-mill politician on either the Right or the Left, it is politically popular to complain that “corporations are making record profits,” whereas it would be unpalatable for a politician to complain that individual tax-paying men and women are making too much money (not to mention complaining about the jobs that follow). When a politician says that an auto company should get a bailout, that is more persuasive than suggesting that tens of thousands of employees instead receive a welfare check directly from the government. It helps to be able to hold up certain corporations as “criminal,” but corporation can’t really commit a crime, only people can. Nothing is stopping us from going after criminal individuals who make up a corporation, and we should go after them just as we do anyone else committing a crime. Yet it is far easier for politicians to attack corporations as criminal rather than individuals.

So why do we continue to dehumanize corporations?

I think one of the biggest things to drive a wedge between people and corporations has been the corporate tax. Corporate taxes aren’t really corporate taxes at all, but are in reality taxes on the people that make up that corporation. If a corporation pays money in taxes, it must take that money from the corporation. If that money comes out of the pocket of shareholders, it is a tax on shareholders. If employees must earn less to cover the cost of the tax, then it is a tax on employees. If prices must go up to compensate for the tax, then it is a tax on consumers. The corporation as an entity has not paid anything, as it does not have any money of its own (much like the government doesn’t have any money of its own). Instead, the people who make up that corporation–the shareholder, the employee, and the consumer–have paid for it.

As it happens, we already impose these taxes separately: we tax shareholders for their holdings, tax employees for their income, and tax consumers for their spending. If we were to eliminate the corporate tax entirely, surely these taxes could be appropriated to the individuals from whose pockets the money came out of in the first place. But by taxing the corporate entity, we allow shareholders, employees and consumers alike to pretend that the corporation is an entity separate and apart from themselves. At the very least, the corporate taxes imposed offset the direct cost on the individual in the short term and lets the individual believe his money is safer than it would be without the corporate tax. This is an illusion, but a compelling one: we have let it drive us to raise taxes on corporations to the highest level of any country in the industrially advanced world.

Finally, I think one more major factor in creating a dehumanizing membrane around corporations is caused by corporations themselves: branding. Branding is, definitionally, creating a unified identity and persona behind a corporation. Through branding, corporations, subvert individual identity to the wisdom of the collective. Although corporations are collections of free people, the big ones present like unifaceted behemoths; ironically, the more people a corporation contains, the less human it appears. As consumers, we allow the branding of corporations to define our attitudes towards the work those corporations do, especially if we don’t approve of it. It is easier to rally against a logo that stands for a purpose rather than lash out at the indivdual actors, for the same reason it is easier to fire on an advancing enemy under one flag than it is to hunt urban guerillas. The corporation has proudly and intentionally presented its mission for all to see, and this makes its existence even the more offensive if their mission is distasteful. The fact that profit is the primary goal of the corporation is added salt in the wound. Never mind that profit, like taxes, doesn’t belong to the corporation at all, but belongs to the shareholders, employees and consumers of the corporation.

Let’s end anti-corporatism

Now, I think that it is generally true that people will ascribe a set with the actions and morals of a much smaller subset. It is generally true for racists who use the actions of a small minority of people to justify hatred of an entire group. It is true for misogynists who prefer to paint all women with the brush of a few bad ex girlfriends. And it is true for anti-corporatists, who feed on news like an oil spill or financial system collapse as evidence of the global evil of corporations. It would of course behoove the anti-corporatists to know that their prejudice towards corporations is usually based on the behavior of a small minority of corporations, usually in one or two industries. If pressed, they will of course not attack with the same vigor barber shops, restaurants, bodegas, hardware stores, bars, nightclubs, Hollywood movies, publishing houses, newspapers, coastal fishermen, travel agencies or farmers’ markets, which are all organized as corporations. Nor will they attack corporations established for an eleemosynary purpose: Churches, preschools, health clinics, hospitals, cancer research institutes, civil liberties organizations, or rotary clubs.

In addition, the anti-corporatist slant willfully ignores the unrelenting progress and prosperity we have experienced as a society using the corporation as a vehicle. It is not a coincidence that the formation of the first corporations in 17th century Holland (debatably the first, but certainly the first legally defined joint stock operations) coincide with the explosion in private capital investment, exploration, mass employment through international trade, and real distribution of wealth through wages that characterized the late mercantilist period, sowing the seeds (or tulip bulbs) for the industrial revolution. The reasons for this are complicated, but in short: the corporate vehicle allows private investors to protect their personal assets and take risks, while at the same time providing a legal structure for many people to work together in pursuance of common goals.

I’m not suggesting that corporations are victims, but just that our rampant anti-corporatism too easily misses the vital distinction between the corporation as a legal entity and the corporation as a living organism with real human beings as its working cells. We do not benefit when we deprive corporations of oxygen. We only benefit when the corporation is allowed to thrive as an organization of free people assembled to accomplish a common purpose.

February 16, 2013Comments are DisabledRead More
The Problem with Free Water Bottles

The Problem with Free Water Bottles

I was at Budapest-Keleti this morning for one of my weekend trips out of town, and I had a couple minutes to kill before boarding so I pulled out my current book, Catch-22 (I know, I haven’t read it yet).  Reading about Yossarian and his zany flight squadron while waiting for a train, I had the occasion to look up from the book and idly glance around the station, and lo and behold, someone was setting up a FREE WATER BOTTLES table. I snapped a picture, which you can see here.

Now, I don’t know for sure if this was a government operation or not. I assume it was because one of the guys giving out bottles was wearing the reflective vest that civil employees wear here. The table and its environs had over 30 cases of water bottles. People going to and from their trains were snatching them up like hotcakes. After all, the temperature today was 34˚ C–real sweaty balls weather.

But this simple vignette represents everything that’s wrong with government spending, and it does it so perfectly I’m surprised there wasn’t a Fox News crew there to document it.

What’s wrong here? Well, first of all, these are clearly not free water bottles. Someone had to pay for them, and in this case, that someone would be the taxpayer. The people receiving the water bottles, however, aren’t paying for them–or, if they are taxpayers, they are paying far less than the cost of the water bottle for their contribution. So these people are getting water bottles at the expense of people who are not getting water bottles, which doesn’t seem very fair to me at all.

What about the service being provided? There’s no question that the consumers get a great deal. It’s a hot day, and there’s the city right there to relieve their discomfort, and possibly even save them from real dangers like dehydration and heat stroke. But what about all those people who aren’t passing through the train station today? What about everyone else in the city living through the same hot weather who pays a portion of their income to subsidize these water bottles? They are paying for someone else’s protection from these same dangers, which gives them less money to protect themselves by buying their own water. While this service may be good for some, it takes away those same benefits from others.

And speaking of buying their own water, why can’t these commuters buy their own water? After all, water is one of the cheapest commodities there is, and most of these people are either getting onto, or getting off of, a train whose ticket costs 30-100 times the price of a bottle. Are these people so poor and helpless that they can’t, if required, buy water for themselves? Is the government really needed to provide this “free” relief?

Now, I can hear some of you say, what if there is a market failure that prevents them from getting water they desperately need? Well, it just so happens that there are 5-8 vendors in the station who sell water bottles. They sell water bottles all day, every day, winter or summer, rain or shine. If the government continues to provide “free” water bottles right next to their stalls, can these businesses really compete? Of course not. They will go out of business. Plus, to add insult to injury, the vendors have the privilege of paying taxes being spent to undercut their own business. Handing out free bottles and driving vendors out of business is a sure way to cause market failure, not solve it.

I have no doubts of the sincerity of the intentions of the city planners or government officials (or perhaps private donors) who came up with this scheme to hand out free water. There is no question that some nameless individual wanted to help people, wanted to provide a good service for citizens, and maybe even help protect against dangerously hot weather. But even this simple act of goodwill can have profound economic consequences and real victims.

It’s not just Hungary. In the United States, there are countless examples of these so-called “free” programs that undercut the hard work of entrepreneurs and result in money being directed from people who don’t benefit to people who do. New York City has regularly scheduled helmet fittings where bicycle helmets are provided for “free” to people in the name of bike safety. Now, bike safety? Great! And if New York wants to spend taxpayer money to tell people to buy helmets, that might be considered a good use of public funds. But to actually spend taxpayer money to give helmets to some people at the expense of others, while simultaneously competing with local businesses at an impossible-to-beat price? Not cool.

To be fair, this problem is not just reserved for government spenders. Private capital mobilized for “good” can do quite the opposite. For example, the National Fitness Campaign built a free workout gym in the Marina in San Francisco, one of the wealthiest neighborhoods in the country. I don’t think that the NFC is publicly financed, but either way, I have no doubt that these people want to encourage fitness and weight loss in one of the fattest countries in the world. But providing fitness equipment free of charge in the same neighborhood as half a dozen gyms, to be used mostly by people who could more than afford to pay for the service, seems to do the exact opposite of what was intended. If enough people use “free” gyms instead of private ones, gym services will decline and overall gym access will go down.

The most tragic example of this phenomenon for both private and public spending is foreign aid. I don’t want to get into the particulars of foreign aid right now, since that’s a whole other thing, but suffice it to say that there are serious problems with giving foreign “aid” to poor countries, even that aid which circumvents corrupt governments. Foreign aid in the form of food, clothes, medicine, or anything else has a deleterious effect on foreign economies, where local entrepreneurs can’t compete with handouts. This study says that between 1981 and 2000, employment in the African textiles industry decreased by 50% due to the influx of donated clothing from well-intentioned Americans. Dambisa Moyo has an excellent book on the subject. There’s a reason why poverty in the third world has only gotten worse the more people try to “help.”

Despite the fact that the same phenomenon can occur from private or public spending, I would reiterate the problem with public spending in particular. Because while private philanthropists have to convince donors to voluntarily give money to provide a potentially destructive “free” service, a government can compel taxpayers to provide the same service, and only requires a simple majority, or in many cases, a very vocal minority, to do so. There is a larger post, perhaps essay, to be written about the downstream effects of the “water bottle problem,” as it represents a massive failure of well intended people to do good using other peoples’ money. Water bottles are only a small piece of the pie. Large-scale programs like Social Security can probably be tackled on the same principles.

Until then, I have something to say to the City of Budapest: STOP GIVING OUT FREE WATER.

July 1, 20125 commentsRead More
Too Little Central Control in the EU?

Too Little Central Control in the EU?

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” – Alexis de Tocqueville, misattributed

I had the extreme displeasure of reading Paul Krugman’s latest excretion today. He begins by complimenting (nay, sucking up to) the Greek people and ends by making a specious claim about the relationship between a strong central government and the success of the dollar vs. the Euro. He’s clearly not even trying to make a cogent argument anymore. I am neither a Nobel laureate nor a syndicated New York Times columnist, but I will try to respond in kind, by frothing at the mouth and seeing what comes out.

First off, I am able to begrudgingly come to common ground with Mr. Krugman on some points: One, that the Euro is responsible for Greece’s woes. Mr. Krugman, like George Soros, is right that the Eurozone is a terrible idea in the way it’s currently constructed. As a friend of mine recently emailed me, “Where were all these people 15 years ago when the Maastricht Treaty was signed? How did ANYONE think a monetary union without a fiscal union could work?”  Two, Mr. Krugman is right that austerity has been devastating for Europe. He gets no points for making obvious statements. Where he gets me every time is his continued advocacy of democratic socialism and big government spending at a time when the consequences of decades of such rampant opportunism and irresponsibility are clearer than they have ever been.

When times are good, people routinely credit whatever proximate cause they can, and for Europe for the last three decades, the cause célèbre has been “democratic socialism.” It is that wonderful post-Stalin Marxist ideal that attempts to solve the historically failed experiment of socialism by putting a friendlier face on it: we’ll do it Marx-style, but make sure we vote for it first. Thus the people retain their political sovereignty and, fingers crossed, economic productivity as well. Although, of course, we know that the economic productivity part is a joke, since it is based on the notion that people are A) fiscally responsible, B) more fiscally responsible in larger groups and C) able to spend other people’s money better than they can spend their own. But we know that when times are good, there’s no problem.  Political parties coming to power promising to lower the retirement age, shorten the work week, fund hefty retirements and guarantee low cost loans are always going to win elections against those parties that tout the boring virtues of hard work, discipline and fiscal responsibility.

But then times get bad, and the bill comes due, and austerity hits. No one wants to blame themselves, of course, so they turn to the scapegoats. The most wealthy and productive are a favorite of the democratic socialists. Mr. Krugman gets in on it when he complains about “the arrogance of European officials, mostly from richer countries.” Of course, when Mr. Krugman proposes that European governments continue to spend money they don’t have on social programs and entitlements that don’t work, where does he suggest they get the money if not from richer countries like Germany, that have not only singlehandedly funded the entitlements and social programs Mr. Krugman supports and have prevented much worse austerity which he opposes, but have kept the entire Eurozone afloat?

Europe is not suffering because of a lack of strong central government that can coerce the German people to paying for Spanish mismangement. It’s suffering preciely because it has too much power centralized in the hands of too few, a large central monetary union that has done precisely what Mr. Krugman wants it to do: increase spending in poor countries at the expense and risk of rich countries. The problem is, bailouts don’t work in the long term, and now Europe is just staving off disaster one close call at a time. The markets know the danger of moral hazard and contagion, which is why bond yields in Spain shot up well before Spain was in crisis.  And that’s why no one is surprised when Spain’s banks fail, and then Spain has to borrow more money from the EU (read: Germany) to bail out the banks. And when Spain needs to pay off those debts, they will need to borrow more. It’s a pyramid scheme to the tune of hundreds of billions of dollars with the taxpayer money of productive Europeans, people who don’t deserve to have their lifestyles turned upside down by coercion into an economic and political union in which they have no voice. Why should an olive grower in Spain have to pay–dearly–when the Greeks vote for one party over another?

On Sunday, as you recall, there was an election in Greece, and perhaps no time in recent history has so much of the fate of the world economy hinged on one election in such a small country. If anything is needed to demonstrate the folly of this system, it is the idea that 50,000 votes swinging the other way in Greece could have created a global recession. Mr. Krugman wants a bigger political union–a stronger European central government–in order double down on this vulnerability. Why would anybody put power over the economy in the hands of so few? And why would Mr. Krugman, knowing full well the danger of economic collapse, advocate a system whereby economic power is further centralized making a greater collapse even more likely?

And yet Mr. Krugman wants more of that.

June 17, 2012Comments are DisabledRead More
Kicking the Can

Kicking the Can

Saw the news today on Spain’s bailout. The market seems to favor this news. I don’t see how it can. We’re about to see the biggest market correction since the 30’s. And you thought 2008 was bad.

There’s a very simple principle at play here. The more you borrow, the more you owe. If you borrow more to pay back your debts, you will end up owing more. Now that Spain has intermarried its bank debt and government debt, when it borrows $100bn to stay afloat, this isn’t just a bank bailout. The people of Spain wake up today in legitimately more trouble than they were in yesterday. Spain has officially entered the part of the Eurozone that’s beholden to the other members. This part–Greece, Spain, Ireland, Portugal–is growing, and the number of countries with money to bail out the others is shrinking.

At this point, we’re just kicking the can down the road. And one of these days, there isn’t going to be any bailout money left. Germans will put down their foot. And the country needing the bailout this time is going to be a big player like France or Italy. And no one’s going to be able to pay it.

Sound familiar? At this point we’re just waiting for a Lehman Brothers of Europe. That’s all it will take: one country that’s too big to fail, failing. And when that happens, it’s all over. The moral hazard will be broken. The markets will crash. Capital will fly to Switzerland, the US, the Caymans, or Canada (the rats have been fleeing the ship for a long time already). Debt ridden countries will have billions in liabilities with no way to pay them. Populations will be left without jobs, food or security. People will riot. Tyrants will come to power. What little capital is left will be divvied up by cannibals looking for scraps. The ironic twist is that the only country that will be stable and productive enough to weather the storm will be Germany.

So-called democratic socialists of the world beware: there is no such thing as a substitute for a productive society. Anyone can borrow their way into an easy lifestyle. But eventually the bill will come due.

June 11, 2012Comments are DisabledRead More
Obama’s Spending My Money on Hummus and Currywurst

Obama’s Spending My Money on Hummus and Currywurst

I have read much commentary on the pie-in-the-sky arrogance of Barack Obama as he hightails it to Israel, Jordan, Britain, France and Germany in a much-publicized, much-anticipated and headline-stealing foreign tour of the world.  People on the right (and some on the left) have criticized Obama for putting on airs, for acting like a president when he clearly is not, and of course, for seeming to have a greatly overinflated sense of self.

These mild criticisms may be well-placed.  After all, Obama has given a podium speech behind a faux-presidential Obama seal, he tried originally to make a speech at the Brandenburg Gate (a move the Germans did not take well to), and he has on more than one occasion defended his “apolitical” tour of Europe by claiming that presidents do it all the time (to which a reporter abroad recently replied, reminding him that he is not the president yet).

All of the criticisms have been of Obama from a political perspective, and they have come from already entrenched political opponents of the Democratic candidate.  But as a donor to the Obama campaign, I have one very important question:  Why are you spending my money on hummus and currywurst?

I have not donated much to the campaign.  But when I donated, I was giving money to help out a candidate who I wanted to become president.  I hoped that my money would pay for advertisements, campaign expenses such as offices and staff, and literature that would help my candidate be elected.  My donation, like that of over a million people, was given to a Democratic candidate in hope of improving his chances of being elected in America.

But now I find out that the campaign has sent its candidate into the Middle East and Europe for a high-profile tour, and I’m wondering, who’s paying for this?  Who’s paying for the mileage Obama is putting on his private jet?  Who’s paying for the gas for the motorcade of 20 vehicles Obama apparently used in Jordan?  Who’s paying for catering costs and hotel bills for the 40 embedded journalists, and dozens of advisers and aides?  Who’s paying for flyers advertising his arrival, and his upcoming speech in Berlin?  Who’s paying for security, production costs, public speaking fees, city permits and cleaning up Berlin’s tiergarten?

And furthermore, of the five countries on this trip, two of them use the Euro and one of them uses the Pound.  These are the most expensive currencies to buy with the dollar, and however much the campaign spends, it’s multiplied by a pretty hefty number.  All of a sudden, my measly donation will probably buy a lunch for Obama and one foreign policy adviser, one afternoon in a charming café on le Rive Gauche in Paris.

I don’t know who supplements these lavish trips abroad entirely.  As a United States Senator traveling abroad, is Obama entitled to some government assistance?  Certainly the secret service is paid by our tax dollars, but I wonder just how much of this trip is supplemented by Obama for America.  My guess is, quite a bit of it, enough of it to be an outrage.

The ironic thing is, when Americans find out their tax dollars are being spent on “pork barrel projects,” they are outraged (and McCain tries to squeeze their outrage for political gain).  But for some reason, contributers to the Obama campaign aren’t becoming outraged at the lavish spending of their donation money in a foreign country.  I don’t know why that is the case.  But I, personally, am going to think twice before putting more of my pennies into the Obama piggy bank.  After all, I don’t want that piggy bank to turn to pork.

July 23, 2008Comments are DisabledRead More