Corporations Are People, Too, Right?

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.

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Why Occupy Wall Street?

There’s a tremendous buzz among friends, associates, blogs and TV news media these days about what the Occupy Wall Street protesters want.

Mitt Romney has called it “dangerous…class warfare.”  Herman Cain of Godfather Pizza fame said, “Don't blame Wall Street, don't blame the big banks; if you don't have a job and you're not rich, blame yourself!  It is not a person's fault if they succeeded, it is a person's fault if they failed."  And later, "To protest Wall Street and the bankers is basically saying you’re anti-capitalism.”  CNN’s Ali Velshi this morning conducted an interview with four opinionators, all speculating about what these people want.  It seems there are many who would like to discover what flavor of treats the New York City protesters like so they can throw them the right one, sweep these people off the street and get back to business as usual.  Meanwhile there are similar demonstrations taking place in other cities, including Seattle.  So far there have been few instances of their protests being hijacked by crazies and anarchists.  Stay tuned.

Why is their plea so difficult to understand?  What they want has been ably enunciated by the NYC General Assembly, the nearest thing to an organization of the protesters themselves in their Declaration of the Occupation of New York City.   The document may have some problems, such as the reference to direct democracy (we don’t have that here; we have representative democracy), and its asterisk appended to the end of a long list of grievances, giving it near infinite possibilities.  But the document itself reads a bit like the Declaration of Independence and the movement resembles the great act of rebellion of American colonists against a tyrannical ruler three years earlier.

Representative Peter DeFazio of Oregon, speaking on the floor of the House to those still mystified by the protest, ably condensed the NYCGA’s Declaration by pointing out once again that Americans have witnessed reckless Wall Street gambling, massive deregulation that permits it, higher corporate profits, higher CEO compensation and giant bonuses often even in the absence of profits while millions of capable citizens are unable to find a job.  They've seen mortgages being foreclosed on honest, hardworking families.  They've seen bailouts of the wealthiest Americans, but nothing for the small businesses that create jobs. They've found a stacked deck blocking their access to the American dream.

This movement is very much in concert with the Main Street sustainability movement if they're not one and the same. Wide-spread disillusionment, even despair, with the state and future of our economy is driving Americans of all stripes back to the values we once practiced with ease in doing business with our neighbors and nearby farmers vs. lining the pockets of executive shareholders who live far away and care not a whit about your neighborhood and mine.  But many of our politicians, those who could make a difference, seem in their endless election campaign madness insensitive to those being squeezed by forces far greater than themselves.

Donna Brazile gets it.  Bainbridge Island author David Korten gets it.  Many others among both the suit-and-tie set and the younger, not-yet-finished crowd also get it.

This is not a Republican or Libertarian or Democratic Party issue.  All Americans want access to the opportunities that once were every American’s birthright.  They want an even playing field.  Many of them, including the author of this blog, believe it has become anything but even.

Friday, January 7, 2011

Let justice roll down...

I've just returned from a ceremony I'd never have expected until very recently to witness firsthand and that I don't expect I'll ever witness again, the swearing in of a Washington State Supreme Court Justice, in this case my friend and fellow Bainbridge Islander Charlie Wiggins, pictured here.

Must I from now on address him as Justice Wiggins?  I doubt it.  Charlie is a humble and approachable man of the highest integrity.  The theme of his career is expressed in the book of Amos:  "Let justice roll down like waters and righteousness like an ever flowing stream."

This was a gratifying experience because what I heard were the voices of real people with real lives, real families and genuine passions -- people who have achieved some great things and who are now at the pinnacle of their careers in an important and respected profession.  I came away feeling that our courts are to a very high degree in good hands, that they're vital to the protection of our liberty and our cherished unalienable rights as Americans and members of the human race.

Is justice delivered perfectly?  Not always, and I feel certain the Judges and Justices I met today in Olympia would acknowledge that as fact.  Charlie today eloquently affirmed his desire as an attorney and now as a Supreme Court Justice to bring to his work the effort he's made throughout his career to restore balance to relationships that have gotten out of sync.  I couldn't be more proud to call him my friend.  All of Kitsap County and of the State of Washington can likewise be proud of their decision to invest him with this responsibility.

John Hays