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Book Review: Owning Our Future

March 18, 2013 by staff

Marjorie Kelly, Being Amazing
Author Marjorie Kelly

Background — The Divine Right of Capital

The biggest problems often seem less like problems and more like unavoidable features of reality – their permanence and ubiquity make them sort of blend into the background. For example, Europeans once took for granted that Kings ruled by Divine Right. It was such a longstanding tradition, few people questioned it.

Marjorie Kelly, founder of Business Ethics magazine and a fellow at the Tellus Institute, has argued for more than a decade that we face another problem of this kind: ownership of corporations – specifically, the cultural norms and laws determining who owns what and what responsibilities and privileges come with that ownership.

In her 2003 book, The Divine Right of Capital, Kelly argued that modern ownership structures are expressions of old feudal ideas about the rights and privileges of ownership. She argues these old ideas are not only long-outmoded but also directly contradict some of our most central cultural values.

Consider the most basic calculation in corporate accounting: profit. Profit equals revenue minus costs. Thanks both to longstanding corporate cultural norms and court decisions like the Supreme Court’s Dodge v. Ford Motor Company, corporations feel obligated to maximize profit for their shareholders, which means maximizing revenue and minimizing costs. It sounds benign until we consider that costs include the salaries of every person doing the actual work of the company. Meanwhile, most shareholders are “absentee owners” who don’t interact with the company except to collect dividends (and raise hackles when they believe a company is too generous with workers).

The example above illustrates that “profit” isn’t just a value-neutral accounting tool. It expresses a judgement about who should receive the fruits of labor.

So companies generally shift as much of the reward of work from workers (top executives a notable exception) and shareholders as possible. What have shareholders done for this privilege? They’ve taken a risk, by handing over money without knowing if they’ll get it back.

The net effect is we’ve systemically promoted gambling at the expense of work.

I read The Divine Right of Capital months ago and had that rare and precious experience of having my brain spun around inside my skull. Despite initial skepticism, Kelly won me over.

Owning Our Future

If the Divine Right of Capital has a shortcoming, it’s that it provided diagnosis only; no cure was offered.

Nonetheless, a decade later, Kelly wrote Owning Our Future, and while it doesn’t provide anything like a comprehensive corrective (Kelly admits this in the book’s prologue) it’s an exploration of possible ways forward and a great conversation starter.

In recent years, an alternative ownership culture has blossomed around the edges of mainstream capitalism. We see it in the proliferation of coops, social businesses of various kinds, and employee-owned businesses.

The recent upward trend in job postings containing the phrase "social business" reflects the growing popularity of such enterprises.
The recent upward trend in job postings containing the phrase “social business” reflects the growing popularity of such enterprises.

Kelly argues these new models provide clues regarding how ownership structures might evolve for the healthier. Owning Our Future is a kind of survey of the different ownership structures emerging from this movement, including discussions of their strengths and weaknesses, and speculation about their potential impact on our world

To convey the fundamental difference between mainstream ownership models and the alternatives she discusses, Kelly draws a distinction between What she calls “Extractive” ownership models, and “Generative” models.

The goal of extractive models are to “maximize financial gain and minimize financial risks.” Kelly argues there are several problems with the extractive model. As just one example, if a company is obligated to maximize profit, it’s incentivized to leave some things off of balance sheets and contracts.

For example, let’s say a new coal plant raises the incidence of lung cancer in nearby residents. But the contracts to build the plant don’t acknowledge the existence of such costs, to say nothing of specifying who is to bear them, and the residents themselves aren’t acknowledged as stakeholders in the transaction.

As a result, residents and the local health system bear a brutal cost resulting from a transaction in which they had no say. Current corporate structures provide no adequate institutional mechanisms for sorting out the resulting messes, or better, preventing them in the first place. To the extent they get sorted out at all, they tend to involve dogfights in which burned citizens go to war with the companies involved. It’s antagonistic, trust-destroying, and often fails to solve anything.

This happens not because company managers are evil, but because our cultural and legal institutions tell those of us who work in corporations that our obligation is to the absentee owners (shareholders), even if it conflicts with our own interests or those of others.

Generative Models, on the other hand, take as their mission some notion of service to community. This is an old, time-honored idea, as Kelly acknowledges: “It’s what the butcher, the baker and the candlestick maker have always done – serve the community as a way to make a living.” In these models, profit is a part of the mission but only as a means to the more central end of community service. Interestingly, experts from various UK betting sites have noted that this approach can also be seen in businesses aiming to create a more sustainable and ethical betting environment, where user satisfaction and community well-being are prioritized alongside profit.

Although the idea is old, Kelly argues it can be and is being implemented not just by the one-employee shop down the street, but by big companies in complex, modern economies. She cites the John Lewis Partnership, owner of one of the largest retail chains in Great Britain. The company is profitable, owned entirely by employees, more democratic than any public U.S. corporation I know of, and its central mission is employee happiness, not profit. It has thrived through decades of disruptive economic change.

Kelly’s conception of generative design goes considerably beyond what I’ve mentioned here – she describes at length five core design principles behind the idea.

Although she argues forcefully for the virtues of generative models, she’s silent on the matter of how we might promote their proliferation. I wish she weren’t, because it’s not clear how her alternatives will displace the entrenched economic forces with sufficient speed and scale.

Another quibble is her discussion of stakeholders. One core principle of generative models is that companies must take account of stakeholder-interest. What she doesn’t much discuss is the exceptional difficulty in defining who is and isn’t a stakeholder. Certain global problems, like climate change, illustrate that, to some extent, every person on Earth is a stakeholder in every company on Earth. How do you take that into account in building a company?

Nonetheless, I loved Owning Our Future. Its umbrella message is that the concept of ownership is not, never has been, and should never be static. Ownership has conferred different rights and responsibilities in different times and places, and our notions of ownership can and will change in the future. Whether they will change for the better or worse depends on how attentive the American electorate is to the issue. Kelly’s book can go a long way toward focusing that attention.

For those interested, I recommend reading Kelly’s earlier book The Divine Right of Capital. It’s aged little and helps bring to light background assumptions most of us aren’t aware we hold. Recognizing those assumptions provides a sound foundation for fully appreciating Owning Our Future.

By Nick Bentley
Organizer, Reclaim Democracy

Filed Under: Corporate Accountability, Free Trade, Globalization, Independent Business Tagged With: capitalism, corporations, shareholder maximization, social business

NY Times Rails Against Fake Drugs, but Ignores the Role of Corporate Power in Creating the Demand

December 3, 2012 by staff

by Reclaim Democracy staff
December 3, 2012

a victim of fake drugs? Among the many awful consequences of  many essential pharmaceuticals being priced beyond the reach of those who need them is the proliferation of fake drugs. While some counterfeit drugs are  manufactured by unauthorized producers and simply flout patent law, less scrupulous people are making pills or serums with no active ingredients or even toxic substances.

It’s a deadly problem in need of solutions, so it’s unsurprising the New York Times devoted a recent editorial to “The Problem of Fake and Useless Drugs.”But while the Times editors called for several sensible measures, they did readers a huge disservice by neglecting to mention the primary reason why fake drugs are so prevalent: federal actions that ban market competition, creating artificially high prices that are unaffordable to many who need them.

First, our patent laws grant pharmaceutical corporations long monopolies on essential drugs — even though a majority of the most medically-significant drugs derive from taxpayer-funded research (a situation we described a decade ago, but continues today). These exclusive patents enable companies to charge prices unrelated to costs of research and development or production. *

Further, pharmaceutical corporations routinely employ legal manipulations, illicit non-compete agreements and other tactics to further extend patent monopolies and block production of generic competitors that lower prices.

To make matters worse, federal laws ban importation of drugs or even re-importation of genuine drugs manufactured here. Under the guise of protecting consumers from counterfeit drugs, such laws enable gouging that forces us to regularly pay double or triple the price people pay for identical drugs in other nations, driving the demand for cheap counterfeits.

Of course, when privately-funded research yields an important new drug, the creators should be able to reap significant rewards in order to create strong incentives for real research and development. The trouble is, our present patent system rewards political power above innovation.

And when drugs are developed with publicly-funded research, we should contract private companies to produce them at a fair profit, not give away rights to valuable public property.

We’ve been thrilled to see the Times editors call for amending the Constitution twice in recent months to revoke the runaway political power of corporations, in recent months. This excessive power over agencies that purportedly serve the public underlies the tragedy of fraudulent drugs and the lives they claim.

The  arguments by the NY Times editors, and those made by all who call to revoke corporate personhood, will possess more power if they make such real-life impacts clear.

* See, for example, the current controversy over the AIDS drug Norvir.

Sources for further reading on this topic:

  • How to Lower the Price of Prescription Drugs by Dean Baker, June 2011.
  • The $800 Million Pill (book) by Merrill Goozner, 2004. Goozner’s blog (no longer updated as of Oct. 2012) also is a great resource.
  • Against Monopoly (blog).
  • Stagnation in the Drug Development Process: Are Patents the Problem? March 2007, Dean Baker

image courtesy bayat

Filed Under: Corporate Accountability, Corporate Welfare / Corporate Tax Issues, Food, Health & Environment, Free Trade

Amazon Plays Hardball on Tax Avoidance in Texas

November 30, 2012 by staff

The following is excerpted from “Lines Blur as Texas Gives Industries a Bonanza,” part of a series on corporate tax incentives in the New York Times. Published December 3, 2012 

Tarik Carlton gathered with other workers in February 2011 to hear the bad news: Amazon was shutting its distribution center in Irving, where he loaded trucks for $12.75 an hour.

Business had been strong, but the online retailer did not want to pay a $269 million tax bill from the state comptroller. A standoff with the state ensued, and Amazon laid off the workers. “They didn’t have our interests in heart, truth be told,” Mr. Carlton said.

Amazon opened the distribution facility in 2005 in Irving, near Dallas-Fort Worth International Airport, and local officials awarded the company tax breaks on its inventory.

Positions at the warehouse included product pickers, dock crews and truck loaders. The employees were typically on the young side, and some had served in the military. The warehouse churned through workers because many could not meet the quota of products they were supposed to move each day, according to Frankie Lloyd, who helped Amazon find temporary workers to fill many of the jobs.

“It’s all about what you can do physically,” Ms. Lloyd said. “Like manufacturing, but without the great pay.”

The distribution business grew as manufacturing moved overseas and online shopping boomed. It is big in the Dallas area because two main train lines run here from Long Beach, Calif., where goods arrive from Asia.

The work is highly physical. One Amazon worker wore a step counter that logged five miles during one shift, according to Mr. Carlton, who only recently found a new job. He was among 12 former Amazon workers, including two warehouse managers, who agreed to be interviewed.

There was no air-conditioning in the warehouse, and Mr. Carlton and others said the temperature could reach 115 degrees. They said it was difficult to take breaks given the production quotas.

The pay was typically $11 to $15 an hour, Ms. Lloyd said. Amazon gave out small shares of stock and some bonuses, but the amounts were minimal, she said.

Amazon said it had been working to upgrade its warehouses, which it calls fulfillment centers. The company has installed air-conditioning in all its centers over the past year, said Dave Clark, the vice president for global customer fulfillment.

Mr. Clark said workers always received breaks, and sometimes free ice cream when the facilities did not have air-conditioning. He said the quotas were akin to “expectations that go along with every job, mine included.”

“I really do think these jobs get a bad rap,” Mr. Clark said. “They’re great jobs. They’re safe jobs.”

Mr. Carlton said he had no idea the company was being partly subsidized. “If you give them money, I think more should be expected,” he said, adding that Amazon should have been required to hire more people to handle the heavy workload.

John Bonnot, the director of business recruitment for the Irving Chamber of Commerce, said the city did not impose wage or benefit requirements on companies that received incentives. Irving had required that Amazon create only 10 jobs to receive the tax break.

Mr. Bonnot said Amazon “would have nothing but praise” for the original assistance from the state and the city, which outsources its economic development to the local chamber.

Things began to slide downhill in late 2010 when the state comptroller, Ms. Combs, demanded that Amazon pay the $269 million sales tax bill. The retailer had never charged its Texas customers the tax, giving it an advantage over on-the-ground competitors.

The company hired three powerful advocates with ties to the governor, according to state lobbyist disclosure records. One, Luis Saenz, had been the director of Mr. Perry’s political operation. Days after the warehouse closed, Mr. Perry said he disagreed with the comptroller’s decision to demand the taxes.

“I was the last person besides the site leader and the administrative assistant to leave the building. It was sad for me because I had gotten my family, my grown kids, to move to Dallas with me, and I didn’t want to transfer back and leave them.”

As it was battling with the comptroller, Amazon began negotiating with the Legislature, which was debating whether online businesses should be required to charge sales tax. The company told lawmakers that it would create up to 6,000 jobs in exchange for delaying sales tax collections, similar to a compromise it had struck in states like South Carolina and Tennessee.

The lawmaker with the most power in the decision was John Otto, a Republican member of the Texas House of Representatives. Like all Texas legislators, Mr. Otto’s government job is part time. He also works at Ryan LLC — a job that is not disclosed on his legislative Web site.

Mr. Otto drafted legislation that said online retailers like Amazon would not have to charge sales tax as long as it did not have distribution facilities in Texas. By then, the company had already shut the Irving warehouse.

Mr. Otto and Mr. Saenz declined to comment about the legislation. Amazon would not comment on its negotiations with Texas.

In July, Amazon began collecting sales tax from customers in Texas after the comptroller agreed to release the company from most of its $269 million bill. The company has also promised to open new distribution facilities and hire 2,500 workers. Amazon will owe the state a $1 million penalty if it fails to deliver.

[pullquote] For Texas to give up more than $250 million in tax revenues in exchange for 2,500 jobs amounts to about $100,000 per job.[/pullquote]

The math on the new deal angers former Amazon workers, especially those who are still unemployed. For Texas to give up more than $250 million in tax revenues in exchange for 2,500 jobs amounts to about $100,000 per job. Most distribution workers are paid $20,000 to $30,000 a year. The rest benefits the company’s bottom line, which generally increases executive bonuses and shareholder returns.

King White, a consultant who helps Amazon choose locations, would not comment on the online retailer but said that companies in general had come to view incentives as entitlements. “Everybody thinks they deserve something,” Mr. White said. “ ‘If I’m creating jobs, what’s in it for me?’ ”

The deal on the sales tax did not require Amazon to reopen the Irving facility. That touched off the latest state competition to win over Amazon.

Last month, the city of Schertz beat out neighboring San Antonio for one of Amazon’s warehouses. The company is currently in negotiations with Coppell, outside of Dallas, about an additional center. Like Schertz, Coppell has offered Amazon a deal to keep a part of the sales tax it collects there, among other incentives.

If Amazon accepts, it will be located near Irving and many of its former workers. Sharon Sylvas, 47, had moved from Kansas seven years ago to help Amazon set up the Irving facility. She lives nearby in a one-bedroom apartment with her partner, daughter and two grandchildren.

After Amazon closed, she was out of a job for over a year. With limited options, Ms. Sylvas took a temporary position in October at another company’s distribution center. It is a tougher job than the one at Amazon, and it pays less. For $11 an hour, Ms. Sylvas moves heavy inventory and other items.

She said that if Amazon returned to the area, she would work there again, despite the rigors of warehouse jobs. “It’s real miserable,” Ms. Sylvas said. “But you do it to make a living.”

Image courtesy of John Stich via Diesel.

See also
Amazon Bolts Texas (Columbia Journalism Review)
Amazon Picks U.S. State Sales-Tax Winners (Business Week)
Amazon’s Physical Presence in U.S. and the Sales Tax Battle (American Independent Business Alliance)

Filed Under: Corporate Welfare / Corporate Tax Issues, Free Trade, Independent Business, Uncategorized

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