A Short Lesson in Economics
by Michael Luckman
http://www.michael-luckman.com
I have a sneaking
suspicion that there are a lot of good people out there who believe that
corporations are people too. I can’t begin to tell you how wrong that statement
is. But I’ll try.
Yes,
corporations in good standing do have the same legal rights that individuals
do. They are a legal entity and can enter into contracts, pay taxes, sue and be
sued and must obey all laws, local, state and federal.
The one major
difference between a human being and a corporation is this: a human being has a
conscience and a corporation does not. Before you start asking what’s a
conscience got to do with all this. Let me explain.
Years ago, when
a company placed a sign on their building it was often composed of the owner’s
last name: Hewlett-Packard, Macy’s, Bloomingdales, Culligan, Dayton’s, Abbott
Laboratories, Nordstrom, Dell and thousands of others. There was a certain
pride these owners felt, and a certain obligation they felt towards their
employees, customers and the communities where they were located. They often
donated large sums of money for the betterment of those communities and its
citizens. And when it came to paying their taxes they did it proudly, happy to
repay this nation for giving them so many opportunities.
That was then.
And this is now. In most of those companies I mentioned above you can search
high and low for an individual with the same last name as the sign out front,
but most likely you’ll never find one. Often they’re owned by an even larger
corporation not even located in the same state. Maybe, not even in this
country.
Corporations
are run by paid managers whose sworn allegiance is to the board of directors
and to the corporation’s real owners, their shareholders. And often these
shareholders are large Wall Street hedge funds, mutual funds and huge pension
funds like Calpers (California public employees). These managers are
responsible for profits, and they are graded every 90 days on their
performance. If they fail to meet their numbers they’re usually shown the door
(often with a severance package that you and I could live on for the rest of
our lives).
Let’s get back
to the difference between a human being and a corporation, a conscience, or
lack thereof. Let’s pretend that a large corporation has a manufacturing plant
in a small Midwestern town. 100 years ago it was started by John Smith who was
born and raised in the town. Over the years that the Smith family owned their
company the company prospered and grew, and so did the town. Often a local
family could boast of three or four generations who worked for the Smiths.
In the 1970’s John Smith’s descendants were no longer
interested in manufacturing and decided to sell the company to one of their
competitors. The company prospered under the new owners and so did the town. A
decade later the new owners sold their company to Mega Corporation, one that
didn’t directly manufacture any products but made their profits strictly by
buying and selling these portfolio companies.
The new owners of John Smith’s company, looking to maximize their profits, and
thus increase shareholder value, realized that they could increase their
margins by 3% if they moved their manufacturing facilities to Mexico or China or Viet Nam or somewhere else. To top
management and the board of directors this seemed like a good plan. The company
wins and the shareholders win. The only people who lose are the employees and
all the local businesses in this Midwestern town that depend on the salaries of
those employees.
Let’s suppose that the John Smith company had 500 employees, and the average
household had 3.5 people. Laying off those 500 people directly affects 1,750
people with no means of support and few prospects for employment because, as
often is the case, a single large manufacturing plant supports the whole town.
With those 1,750 people having less income (or none at all) they spend less at
the local stores; supermarket, pharmacy, coffee shop, clothing store, service
station, local bank, etc. With fewer everyday sales these stores start hurting
and soon start laying off workers. With less revenue from property taxes and
retail sales taxes the local and county governments begin reducing services and
laying off workers. There are fewer teachers to teach the town’s children, fewer police
to protect its citizens, longer response times for the fire department and
emergency medical technicians, rumbling roads and bridges.
In addition, the John Smith Company bought raw materials and supplies from a
wide range of regional companies. When the manufacturing plant closed, these
companies lost a long standing customer. If they could not replace the lost
revenue, they too would have to lay off workers.
All this happens because a group of “suits” felt that a 3% increase in margins
was best for the company’s shareholders, plus the CEO keeps his job for another
90 days and beyond.
The above fictional scenario is a classic example of what has happened to
America. It is an example of the Law of Cause and Effect. Mega Corporation had
no qualms about moving manufacturing offshore for a 3% increase in margins.
The survival of the town was never a part of the equation. After all, as the
Mafia says, “it’s only business!”
Would the Smith family, in good conscience, have done the same? Somehow I doubt
it.
We are our brother’s keeper.
Reposted by permission of the author.