The modern corporation: a charming psychopath

  • February 5, 2020

Capitalism & Crisis

Over the past decade, corporations have started to embrace sustainability and social responsibility, possibly making them even more dangerous than before.

This interview is syndicated from TNI’s State of Power 2020 report as part of an ongoing TNI-ROAR partnership.

In 2003, a powerful documentary film, The Corporation, caught the political imagination when it was released at the peak of the alternative globalization struggles that emerged following the protests at the World Trade Organization (WTO) in Seattle. Using a witty and stylish mix of news clips, music and perceptive analysis, the film boldly challenged capitalism’s single most important player: the corporation. The documentary won 26 awards, with even conservative commentators such as The Economist calling it a “surprisingly rational and coherent attack on capitalism’s most important institution.”

The Transnational Institute went back to the writer of the film and accompanying book, Joel Bakan, a law professor at the University of British Columbia, to find out how he views the corporation today. This is an abridged version of the interview. You can read it in full at TNI’s website here.

What is the corporation?

The corporation is a legal construct, indeed a legal fiction. It is not something created by God or by Nature, but rather a legally created and enforced set of relations designed to raise capital for industrialism’s large projects. Its main function is to separate the owners of an enterprise from the enterprise itself. The latter is alchemically transformed into a “person” that can bear legal rights and obligations and therefore operate in the economy. The owners — shareholders — thus disappear as legally relevant, with the corporate “person” itself — and sometimes its managers and directors — holding legal rights and being liable when things go wrong.

It follows that shareholders’ only risk is to lose money if their share value declines. They can’t be sued for anything the corporation does. Moreover, to further sweeten the pot for their investing, the law imposes obligations on managers and directors to act only in shareholders’ best — that is, financial — interests.

The genius of it all is that this highly pro-shareholder construction provided strong incentives for many people, particularly from the emerging middle class, to invest in capitalist enterprise. That was the corporation’s main purpose — to generate the huge pools of capital needed to finance large enterprises, railways, factories, and so on, that industrialization made possible. It was, in effect, a crowd-funding institution.

What has the corporation become?

The corporation’s central institutional function — concentrating thousands, even millions, of investors’ capital into one enterprise — also created the potential for enterprises to become very large and powerful. There were initially limitations on their power — caps on growth, restrictions on multi-sector involvement, competition laws, and so on — but over the course of the 20th century these were weakened and eliminated. Now companies can merge, acquire and get bigger and bigger, accumulating ever more power with little to constrain them. As a result, they become these vast concentrations of capital that dominate not only the economy, but also society and politics.

They are not democratic and are legally compelled to serve their shareholders’ interests in everything they do. So, you have these huge and powerful institutions, compelled by their institutional characters to pursue self-interest regardless of the consequences, bent on avoiding or pushing out of the way anything that impedes their missions — such as regulations, taxes and public provision — creating wealth for anonymous and unaccountable shareholders, and with no democratic accountability to anyone affected by their decisions and actions — other than their shareholders.

What has changed in the 15 years since you wrote The Corporation?

Movie poster for The Corporation

A few obvious things. Big tech didn’t exist — at least not in the dominant way it does now — at the time of the first project. Climate change was a problem, but not yet the existential and immediate crisis we know it is today. The populist right was still on the fringes, globalization was in full swing and corporations — smarting from anti-globalization struggles around the world and worried about growing popular distrust and concerns about their expanding power — strategically changed their image and their game.

In terms of the latter, around the time my first book and film came out corporations began to make sweeping commitments to sustainability and social responsibility — to use less energy, reduce emissions, help the world’s poor, save cities, and so on. Creative capitalism, inclusive capitalism, conscious capitalism, connected capitalism, social capitalism, green capitalism — these were the new kinds of buzzwords that came to the fore, reflecting a sense that corporate capitalism was being modified into a more socially and environmentally aware version.

The key idea, whatever rhetoric it was wrapped in, was that corporations had changed fundamentally, that while corporate social responsibility (CSR) and sustainability had previously been located on the fringes of corporate concerns — a bit of philanthropy here, some environmental measures there — now they became entrenched at the core of companies’ ethos and operating principles.

Well, has it made any difference?

Yes, but not necessarily a positive one. The subtitle of my new book is “Why ‘good’ corporations are bad for democracy.” Let me explain. To begin with, despite all the fine rhetoric, the new corporation is fundamentally the same as the old one. Corporate law hasn’t changed. The corporation’s institutional make-up hasn’t changed. What has changed is the discourse and some of the behavior. The new ethos is captured by the idea of “doing well by doing good,” finding synergy between making money and doing social and environmental good rather than presuming there’s conflict.

So now corporations make a lot of noise about their aim being to do good, far less about the fact that they can only do as much good as will help them do well. The fact is, despite all the celebratory talk, corporations will not — indeed, cannot — sacrifice their own and their shareholders’ interests to the cause of doing good. That presents a profound constraint in terms of what kinds and amounts of good they are likely to do — and effectively licenses them to do “bad” when there’s no business case for doing good.

The further problem — and this is the part about democracy — is that corporations are leveraging their new putative “goodness” to support claims they no longer need to be regulated by government, because they can now self-regulate; and that they can also do a better job than governments in running public services, such as water, schools, transport, prisons, and so on.

Climate is an area where corporations have been particularly crafty. No longer can they plausibly deny climate change, so they don’t. Instead, they say “yes, it’s happening, we acknowledge it, but we now care, we can take the lead and provide solutions, we don’t need government regulation.”

Now, if you talk to scientists, they all say we needed to have adopted renewables yesterday to prevent cataclysmic scenarios, and that this will require massive state-led changes. If you talk to the fossil-fuel industry, they say something quite different, something consistent with their plans to profit as long as possible from carbon fuels. They say we have time, that we shouldn’t, and can’t get to renewables any time soon, that natural gas and fracking are good alternatives, that it’s all right that they continue to develop mega-projects to tap fossil-fuel reserves — including coal, like the Adani mine in Australia — that that they will take the lead on renewables. That we should trust them — not governments — to sort out climate.

This new strategy is probably even more dangerous than outright denial. By purporting to be the “good guys” now, they more subtly obfuscate and obscure truths and intentions, wielding their influence with governments and at climate summits to ensure their carbon-fuel-based business models remain largely unimpeded.

In my first book, The Corporation, I argued that if corporations were really people, they would be considered psychopaths by their behavior and traits. Now, as they put on a false face, they have effectively become charming psychopaths.

How does corporate control over our personal lifes affect democracy?

As corporations gain greater direct control over individuals through new technologies, it becomes more difficult — if not impossible — for democratic governments to regulate the relationship between corporations and private citizens. When an insurance company has indirect control of individuals it insures — knowing their driving habits, or whether they are fit and adjusting rates or denying pay-outs on these bases — it becomes difficult for democratic institutions such as regulators and courts to protect individuals’ consumer rights. When a platform like Uber uses technology to effectively circumvent the employment relationship — a regulatory construct designed to protect workers from the much greater power of their employers — it becomes difficult to protect workers.

Democracy is also affected by the rise of misinformation, hate and incendiary speech, which is magnified by the internet and social media. That too is connected to big-tech business models. A company like Facebook thrives by getting more people engaged more often. More is better — and questions about truth, or the public interest, or democracy are simply irrelevant.

More generally, the rise of right-wing authoritarianism, which is happening through democratic electoral processes, is in large part a reaction to 40 years of neoliberal policies that have destroyed jobs and social provision, and thus lives and communities. Those 40 years of policies were — and continue to be — spearheaded by large corporations, which used their resources to lobby, fund elections, move and threaten to move operations in response to regulation and proposed regulation, roll back and avoid taxes, and so on. Leaders of the “new” corporation movement — the very companies claiming to care, to be socially responsible and sustainable — have been at the forefront of these campaigns. None of them has said, “social and environmental values are important, so let’s have more regulation and taxes to protect them.” Quite the contrary.

Corporations are now leveraging their supposed new persona to push back democracy, by claiming, as noted above, that they can regulate themselves in lieu of legal measures, and that they should be put in charge of social provision in place of public authorities. It’s quite the two-step. They campaign to eviscerate governments’ capacity to deal with social and environmental issues, and then step in to say that they can do the work government has been rendered, through their efforts, unable to do. The result is less government and more corporations in our lives and societies — meaning less democracy overall.

How have civil society and social movements responded to the rise of the corporation?

The last 20 years have seen a remarkable rise of organized and effective movements to push back against corporate power and the threat it poses to democracy — more than 200 cities around the world have rejected water privatization by re-municipalizing previously privatized systems; Indigenous peoples have won battles against extractive industries and for recognition of land rights and self-determination; the “movement of the squares” swept through cities around the world in 2011 and included the Occupy movement; progressive politicians have won victories in cities like Barcelona and Paris in Europe, New York, Jackson, Seattle and Tucson in the United States, and Vancouver in Canada — along with many others.

In the United States, there is Bernie Sanders, a self-declared democratic socialist, making — in 2016, and again in 2020 — a play for the presidency, and the thousands of progressive election campaigns he helped inspire, many successful — like Alexandria Ocasio-Cortez (AOC) and other progressive representatives. And then there’s the new energy and urgency of surging activism around the world, mass movements demanding action on climate change, extractive industry projects, Indigenous rights, against racism.

It’s all very positive and inspiring.

We have to be wary, however, of corporations’ attempts to co-opt this wave of resistance. They are certainly trying, working hard to make us to believe that they are the true change-makers; that our best path to a better world is to buy their “green” products, support their social and environmental initiatives, follow their advice on recycling, reducing, and so on. Companies and their CEOs take stands on various issues, and they increasingly form partnerships with non-government organizations (NGOs) like the World Wildlife Fund (WWF), Save the Children (SCF), Conservation International and inter-governmental organizations such as the various entities of the United Nations. No doubt some good may come from all this, but it’s important to recognize that the same companies allying with NGOs, and taking a stance on racism, immigration, or discrimination against LGBT+ people are also lobbying hard to reduce government oversight, push back taxation, expand markets, cut social provision, and so on.

Is there a place for the corporation in the future?

I think there is a place for a financing vehicle for large projects that require large pools of capital, which is essentially what the corporation is. But it has to be understood as a tool, as a means, not an end in itself. The corporation was created by government for that purpose, as a financing tool. Its virtue in incentivizing investment — its legal mandate to create wealth without constraint — is also its greatest danger. Because of that, it must be regulated, and it shouldn’t be used to deliver inherently social goods, and certainly not to help govern society. It is completely ill-equipped to do those things, being fundamentally self-interested and lacking democratic accountability to anyone but its shareholders.

We should also be thinking about using other kinds of economic organizations to create goods and services, such as cooperatives, or public institutions with public-interest mandates. There is no evidence to support, and much to contradict, that the ideal institution is always, or even usually or sometimes, the large for-profit corporation. Rather, corporations are best thought of as we might think about, say, a lawn mower. It has its uses. It’s very good at cutting the lawn. But you don’t want to use it to cut your hair or vacuum your living-room rug.

All of which may be an argument for shifting away from capitalism to some other kind of system — such as those imagined by democratic socialism, or the commons movement or Indigenous cosmologies — where social and ecological ends are prioritized rather than the accumulation of capital. Though something like that may be on the horizon, in the meantime we have to figure out how to rein in the dangerous tendencies of the corporations and capitalism we currently have, and to ensure they do not — as they may — turn out to be doomsday machines.

How do we get there?

I don’t advocate revolution because I believe existing democratic structures, however corrupt, can be reclaimed and repurposed, reunited with grassroots movements and the genuine needs and voices of citizens. In the meantime, we need to do a lot of myth-busting to reveal the truth that corporations and markets can’t deliver the social and environmental goods we need; that democracy and democratic institutions must be revived.

We need to work with and in our communities, schools and unions, to educate and inspire each other. To work with, become part of, and help elect progressive political parties, join and form movements, promote solidarity while celebrating difference. We need to see ourselves as political actors, citizens, obliged to take part in and contribute to creating good and just societies. We need to accept that democratic governance is messy and uncertain, that it’s as much about the process of participation as it is about the resulting policies, and that it can only flourish in social conditions that nurture empathy and solidarity among citizens.

Read the full report on TNI’s website

Joel Bakan

Joel Conrad Bakan is an American-Canadian writer, jazz musician, filmmaker, and professor at the Peter A. Allard School of Law at the University of British Columbia.

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Transnational Institute

The Transnational Institute (TNI) is an international research and advocacy institute committed to building a just, democratic and sustainable world. For more than 40 years, TNI has served as a unique nexus between social movements, engaged scholars and policy makers.

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