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What’s with Corporate Capitalism?

2008.November.20

Back in grade school, even high school, capitalism seemed like a pretty straightforward concept: If you made a decent product that people needed and sold it at a decent price, you’d make a good living for yourself.

The simplicity seemed to encourage long-term strategy and thoughtful improvements. Specialization was important. You wouldn’t cut back on quality unless you had to, because the name on that product was probably your name or the name of someone whom you respected and you didn’t want to see it tarnished. Customers would know their role in this system.

But that isn’t really how American capitalism works, now, is it?

The rule of the day is corporate capitalism, since those small businesses politicians love to court account for less than half of private payroll in the U.S. (and keep in mind that payroll does not even include investment income).

Corporate capitalism makes money for investors by doing whatever makes the most profit. It doesn’t have to be a product, sometimes it’s not even much of a service. Profit cannot be allowed to level out, it must increase each year, by leaps and bounds, to remain competitive. That means unrestrained, unyielding growth. Specialization means you’re not thinking big. Brand names are frequently exploited to promote something unimpressive, and if you’re not growing fast enough, you use advertising to create the demand. Urgency encourages short-term strategy and artificial innovation to fix what ain’t broke. Good products are lost because the business model is not sound, or they get corrupted by overreach and their quality declines. Market share is more important than customer satisfaction, and if you can’t beat your competitor, you should buy them.

And in case you haven’t picked up on this little nuance yet, for most publicly-traded companies, you are not the customer. Many corporations actually have it in their mission statements that making money for their stockholders is a higher priority than most, if not all, other goals. These guys believe strongly in spending money to make money, so it’s the investors’ money they’re after, not yours. The investor is the customer. You are the product.

Well, what’s wrong with all that? Unhinged growth can’t be all that bad, can it? Well, let’s just ignore the moral ambiguities about how much (money, debt, conspicuous consumption) is too much and ask ourselves, logically, where does it end? How big is too big? If the goal of every company is continuous growth, eventually that company could (in logical extreme) eventually reach every human being on this planet and sell them more than they possibly have time and energy to use. Unless we find extraterrestrial life by that point (and they’re big on bling), where does the market go? Sure, the market will correct itself; businesses will fail, people will lose their jobs, and good products with bad business plans will get lost.

In more realistic terms, every market has a limit (it’s the law of supply and demand), and you can only push it so far artificially before it stalls. The larger any institution becomes, the slower it is to respond to change, even though that’s how growth happens. Business models that depend on new funding get into trouble when the new funding isn’t coming fast enough. An economy based on continuous growth can’t just slow down. Deceleration is negative growth; it’s shrinking your profit margin and maybe even losing money, so your stockholders sell. Deceleration is death.

The reason so many people get angry at corporations is that the people most vulnerable in a situation like bankruptcy will be those who were furthest from the planning. Enron was the exception, not the rule, for sending a couple of executives to jail for clear violations of the law. Our country is usually forgiving to money-masters who can afford a good accountant and twelve good lawyers. They just get a bonus and an offer for another corporate leadership position – it doesn’t even have to be in the same industry! – and the rest are told to pull themselves up by their bootstraps, not ask for unemployment or non-corporate welfare, and get out of the way of those who are still living the American Dream.

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