A comment on the recent Supreme Court decision Saturday, Jan 23 2010 

Recently, the Supreme Court ruled in Citizens United v. Federal Election Commission that corporations (and labor unions) can spend unlimited amounts of their money on elections. Essentially, the Supreme Court ruled that corporations can run campaigns. Many have lauded the decision as a great defense of First Amendment rights.

Is it? “Freedom is awaking from its coma today,” declares conservative Rush Limbaugh. Dr. Spagnoli, writing on his blog, states, “there’s no reason to deny corporations [free speech].” This is because “free speech [is a human right],” he says. I agree with Dr. Spagnoli, free speech is a human right. But are corporations humans?

As it happens, corporations are not people. They are social constructs, entities created to carry out specific functions. However, as I discussed in a earlier blog post, Are corporations individuals?, corporations slowly became considered “persons” through a series of judicial rulings. There is no law that says corporations are humans. It’s not anywhere in the Constitution. The Fourteenth Amendment was passed after the Civil War to give rights to people, specifically the newly freed slaves. It declared, “No State shall … deprive any person of life, liberty, or property, without due process of law.” It affirmed the rights of people. It was there to protect blacks from the evils they had endured under the brutal regime of slavery that had oppressed them for centuries.

Well, corporate lawyers were very savvy, and they began to say, “look, corporations are persons.” Corporations deserve the protection that was meant for freed slaves. In fact, when you look at the history of it, it’s very perverse. According to work done by Doug Hammerstrom, of the 150 cases involving the Fourteenth Amendment heard by the Supreme Court up to Plessy v. Ferguson, only 15 involved blacks. The other 135 were brought by corporations. This is the exact opposite of what we would expect to happen. However, through a series of activist decisions by judges, which has no basis in law, corporations gained personhood. Richard Grossman proclaims, “600,000 people were killed to get rights for people, and then with strokes of the pen over the next 30 years, judges applied those rights to capital and property, while stripping them from people.”

So now they can say corporations deserve the rights of flesh-and-blood persons, like the right to free speech; the ability to sue others; the right to “life, liberty, or property”; the right to own other businesses; the right to run campaigns; and so on. But there’s nothing inherent to a corporation that says its a person and deserves the rights of flesh-and-blood people. That’s only come about through very perverse judicial activism (e.g. Santa Clara County v. Southern Pacific Railroad). Moreover, there’s nothing in economic theory that says corporations ought to be treated as persons. That corporations should run campaigns has got nothing to do with capitalism. There’s nothing about efficiency that says corporations should be allowed to do this. In a free and competitive market, it wouldn’t happen.

Anyone who argues that corporations should be treated as persons and have the same rights would also have to accept that corporations should also then be allowed to run for office, hold office, to vote in elections, and so on. But no one agrees with that and for obvious reasons. Moreover, Dr. Spagnoli does not say that only corporations should have the rights of persons. He also says, “corporations, trade unions etc.” should not be denied the right to free speech. Well, what does “etc.” constitute? If a corporation is a person, why not a sports team? Can a townhome association be considered a person under the Fourteenth Amendment? Why not?

What happened before corporations were granted the rights of persons? They were chartered by the state to carry out some function that was meant to serve the public good. They had a specific charter, their shareholders were accountable, they had limited rights, they were regulated, and so on. That they should be running campaigns was completely unfathomable, particularly to the Founding Fathers, who were vary wary of corporate power. Within this framework, corporations had moral obligations to the communities they served. With judges granting corporations personhood, however, the moral obligations we ascribe to flesh-and-blood persons was not ascribed to corporations. The moral obligations and social responsibility that corporations have, according to people like Milton Friedman and Ayn Rand, is to serve their own interests. The only obligation corporations are to have is to maximize profits. These are not the same type of moral obligations we think flesh-and-blood people have. Most decent people, ignoring extreme ethical egoists, believe we ought to consider what happens to other people, that we have an obligation not to harm others, that we should not rape the environment, that we should not ignore grave injustices, that we should treat flesh-and-blood people as ends rather than means, and so on. Even those who support corporate personhood do not ascribe these moral obligations to corporations. These are very special types of “persons” indeed.

Should people have the right to free speech in a democracy? Yes. Are corporations people? No.

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Is the government inefficient? Sunday, Jan 3 2010 

I found this passage somewhere on the Internet, unknown author:

This morning I was awoken by my alarm clock powered by electricity generated by the public power monopoly regulated by the U.S. Department of Energy. I then took a shower in the clean water provided by the municipal water utility. After that, I turned on the TV to one of the FCC-regulated channels to see what the National Weather Service of the National Oceanographic and Atmospheric Administration determined the weather was going to be like using satellites designed, built, and launched by the National Aeronautics and Space Administration. I watched this while eating my breakfast of the U.S. Department of Agriculture-inspected food and taking the drugs which have been determined safe by the Food and Drug Administration.

At the appropriate time as regulated by the U.S. Congress and kept accurate by the National Institute of Standards and Technology and the U.S. Naval Observatory, I get into my National Highway Traffic Safety Administration-approved automobile and set out to work on the roads built and maintained by the local, state, and federal departments of transportation, possibly stopping to purchase additional fuel of quality level determined by the Environmental Protection Agency, using legal tender issued by the Federal Reserve System. On the way out the door, I deposit any mail I have to be sent out via the U.S. Postal Service and drop the kids off at the public school.

After work, I drive my NHTSA car back home on the DOT roads, to a house that has not burned down in my absence because of the state and local building codes and fire marshal’s inspection, and which has not been plundered of all its valuable thanks to the local police department.

I then log on to the Internet, which was developed by the Defense Advanced Research Projects Administration and post on freerepublic.com and FOX News forums about how SOCIALISM in medicine is BAD because government can’t do anything right.

What this passage is getting at is the myriad functions that government serves— sometimes unbeknown to the general public—and it only begins to scratch the surface. It would, I think, be pretty safe to say government is responsible for or at least crucially linked to the development of modern society, not free markets. That’s just a descriptive statement, and I believe the main point of the quoted passage. There are some, like those “on freerepublic.com and FOX News forums,” who bemoan government and its supposed inefficiency, yet take for granted all the things it provides them (like roads and police protection).

The question, really, is an economic one. One issue that arises concerns what are called public goods. In technical terms, a public good is any “good that is non-rivalrous and non-excludable.” All non-rivalrous means is that when one person uses that good another person is not restricted from also using that good (e.g., when I log on to the Internet, this does not preclude you from doing the same). All non-excludable means is that no one wanting access to the good can be reasonably denied access to that good. A decent example might lighthouse beams that provide light to ships, regardless of which ship it might be (that is, it’s difficult to exclude other people from seeing this light). As the Wikipedia article points out, “there may be no such thing as an absolutely non-rivaled and non-excludable good; but economists think that some goods approximate the concept closely enough for the analysis to be economically useful.” (The economic idea of public goods, by the way, was developed by Paul Samuelson, the pioneering Nobel laureate who died just three weeks ago.)

The problem that arises is that public goods are not produced efficiently in “free markets.” They’re under-produced. This causes what is called market failure; the market does not operate efficiently. The reason for this is because you can’t make a profit off of it, or not very much the closer the good approaches the concept of a public good. If a good produces a benefit to society that the creator of the good cannot profit from, there’s little economic incentive to produce such a good. That’s standard neoclassical economic theory, anyway. The idea is tied to what are called externalities. A positive externality is something people benefit from, e.g. clean air, but those who benefit from it don’t necessarily have to pay for it. An example I get from Milton Friedman, the great free-market thinker, is that when I plant a pretty garden in my front yard, other people get to experience the benefit of it without having to pay or do any work for it. Again, these are under-produced in free markets, according to standard theory, because there is not enough economic incentive to produce these things.

Well, one solution has been to have the government produce goods for public use, which is where the entire passage quoted above comes from. The result is that we all get to benefit from government involvement in the market place. I get the ability to tell the precise time because the government has taken the initiative to keep accurate account of time—something theory tells us profit-maximizing corporations would be unwilling to do.

At the same time, however, as the story above illustrated, people still bemoan government and its attempts to provide for the public good. The market is great, it will provide us all the things we need, and it will do so efficiently, they might say. The socialist might respond by pointing out that this is not necessarily true, and point to things like externalities and asymmetric information, which exist nearly everywhere, and conclude the market rarely works efficiently. For this reason, we need the government to provide for the public good, particularly when the unfettered market cannot. The right-winger (if they’re not Austrian) might concede that things like externalities and asymmetric information exist but posit that the government still ought not get involved because that would constitute an abridgment of our freedom, is coercive, evil, etc. The question becomes harder. Indeed, for many the question is not only economic but also ethical. At this point, I think most people begin to ask what the right balance is between market forces and government involvement. The question is left unanswered and, in mind, the answer remains to be seen.

The profit motive Friday, Nov 20 2009 

In my global marketing strategy class the other day, instructor David Thomsen showed two pretty shocking videos in discussing public relations. One was on the Bhopal disaster of 1984. The Bhopal gas tragedy is the worst industrial disaster in human history, leaving 8,000 dead within hours of the gas leak in the Indian city, 25,000 dead since the disaster, hundreds of thousands adversely affected by the chemicals, continuing side effects on humans and other animals, and environmental damage that persists today. The “compensation” the video talks about was less than $900 per injured person. Union Carbide, the corporation responsible for the leak, denied any culpability. The Dow Chemical Company later bought them in 2001. The CEO of the company at the time, Warren Anderson, was charged with homicide and manslaughter. He left the country and fled to the United States, where he currently resides, and refuses to appear before Indian courts.

The second video was a report by Australia’s Channel 7 revealing that Nike, a corporation marred by its human rights violations and despicable working conditions in Third World countries, continued to engage in forced labor practices in sweatshops in Malaysia as late as 2008. Note this is after they claimed to have cleaned up their act.

There is a simple reason these types of actions, and others like them, occur, which is what’s called the profit motive. When profit-maximization is the creed, what happens to people is only incidental. There is a whole generation of businesspeople who have been influenced by the work of people like Milton Friedman and Ayn Rand, whose principle message is that the only socially responsible (and indeed morally right) action is to maximize self-interest by way of profits. These ideas are justified by ethical egoism, a morally bankrupt and vacuous theory that says the only morally right actions are actions that maximize the acting agent’s self-interest. That’s what’s called “the moral economy.” The right, in their usual perversion of Smithian theory, always tries to defend this on economic grounds, appealing to what they refer to as “the invisible hand,” a term meant to describe the unintentional benefit to society that corporations bring about through acting in their self-interest. Adam Smith, of course, only used the term once in his The Wealth Nations and only as a “casual metaphor” for risk-adverse merchants wary of foreign exchange who inadvertently help their own countries. Smith, like many of the other great anti- and pre-capitalist Enlightenment thinkers, denounced greed and selfishness. As most serious scholars of Smith recognize, Smith never saw the “invisible hand” as a reality or “law” of markets. As Joseph Stiglitz puts it, “the reason that the invisible hand often seems invisible is that it is often not there.”

As ethical egoism posits to us, there is a certain calculus all moral agents are supposed to undertake in their actions. Namely, they are to ascertain which actions will ultimately lead to profit maximization and undertake those actions. For Union Carbide, that meant denying responsibility for the worst industrial disaster in human history and paying its victims an inconsequential and truly unjust fraction of its coffers. For Nike, that meant finding the cheapest source of labor and exploiting them in the worst kinds of ways—that is, until they’re caught. And while these might indeed be the profit-maximizing choices, surely nobody agrees they have improved the lot of all. When we ignore the rights of people and the laws that regulate acceptable behavior (as, indeed, ethical egoism asks us to do when it is profitable), the necessary result is an abject and deplorable world. The fact that the far-right advocates the abolition of regulations intended to safeguard against such massive injustices from ever happening is justified, they say, by a certain euphemism they call “market democracy” (the idea that ordinary market participants, like you or me, can shape business behavior—but you more than me, because I’m poor). The sobering reality: Dow’s revenues in 2008 totaled more than $57.5 billion, and over $16.6 billion for Nike.

So long as corporations continue to operate within the framework of this “moral economy,” justified by Friedman, Rand and others, we will continue to witness the tragedies and corruption that we hear about on an everyday basis. What is needed instead, at the most minimal level, is a better consideration for those other than the self, as advocated in theories like stakeholder theory, and better regulations and stiffer penalties to ensure “profit over people” (what Smith described to as “the vile maxim of the masters of mankind”) does not become the norm.

Keynes vs. the Chicago school of economics Tuesday, Sep 15 2009 

I just finished reading a very good article in The New York Times Magazine by Paul Krugman, an economics professor at Princeton University and the recipient of the Nobel Prize in Economics in 2008. It’s pretty long, but I think it’s well worth it. In it, Krugman discusses the questions of how economists got it so wrong, of how they failed to predict the current recession, of how contemporary macroeconomics has been so illusioned. He points to the prevailing economic belief (among both freshwater and saltwater economists) in an “idealized vision of an economy in which rational individuals interact in perfect markets,” that is, the Chicago school of economics that embraces the efficient market hypothesis. Krugman contends that people do sometimes act irrationally and that markets are not always efficient or perfect—ideas that I myself have come to accept despite the SCSU academe that tends to dismiss such notions. What he propose as a solution to the current problem in macroeconomics is a reversion to Keynesian economics and a heavier reliance on behavioral economics. I can certainly agree with him on many of his points, but I doubt I can do the article justice here so I advise people read it on their own.

“Economic miracle” Sunday, Aug 23 2009 

I have a few things I want to talk about, but this is probably the most important. I want to talk about economic liberalization and what’s called “globalization” and what kind of effects it has on ordinary Americans.

The first thing I would like to point out is that, despite the talk about how free markets have paved the way for America’s success as an economic juggernaut, America is not a market economy and never has been. America’s success has been a result of gross violations of market principles. The closest things approximating market economies are poverty-stricken, underdeveloped nations whose colonizers ram it down their throats. (This is, of course, referred to as “socialism for the rich and capitalism for the poor,” which I have discussed here.) If America were a market economy, we, like them, would be seeking our comparative advantage.

This did not stop a wave of economic liberalization policies taking place some 30 years ago. With it, we have seen what is today being called globalization (which, by the way, incorporates very little of Adam Smith’s ideas). These movements have most closely been linked to Milton Friedman and his advocacy for economic liberalism. These policies have been defended, like most changes to liberalization have been around the world, on grounds of what’s usually dubbed an “economic miracle.” GDP rises, corporate profits soar, etc. All looks well. But what kind of effect is it having on the ordinary American? Like in other nations where liberalization is promoted (e.g. Chile under Pinochet, Brazil, Egypt, etc.), the masses approach pauperization and toil away while the wealthiest benefit handsomely. That is, the observed increase in wealth is concentrated in the hands of a tiny minority of individuals. Some refer to this as “the rich getting richer and the poor getting poorer.” Let’s look at it in more detail.

An in-depth look at this issue was provided in a 1999 study by Chuck Collins, Betsy Leondar-Wright, and Holly Sklar. What they find is that most people have lost wealth, despite the economic boom in the 1990s. Write the authors, “Between 1983 and 1995, the inflation-adjusted net worth of the top 1 percent swelled by 17 percent. The bottom 40 percent of households lost an astounding 80 percent.”

Through efforts to liberalize the economy, people’s wages have decreased and working hours have increased. At one time, Americans worked the fewest hours of any developed nation—what one would expect in the wealthiest nation. Today, we are among the most worked of any developed nation. King Banaian, professor and chairman of the economics department at SCSU, asks how wages could decrease and hours increase during a period of great corporate profits. If we look at the period between 2003 and 2007, which saw a high increase in productivity, real median wages stagnated. Some refer to this as the gap between productivity and wages. Even when we include benefits, real median compensation has been stagnant (e.g. -1.1% for the median wage earner). If we look at the average weekly earnings between 1964 and 2004, we see that real wages have been decreasing. The answer to Dr. Banaian’s question: income is not shared equally. This is referred to income disparity or economic inequality. So, despite increasing corporate profits and increased productivity, the gains have only been realized for a few, very wealthy individuals.

Dr. Banaian doesn’t like the use of median wages, though. When measuring wages for the typical American, I do believe median is better. Dr. Lee explains why here. When measuring income, the U.S. Census Bureau prefers to use median income over average (mean) income because it “provides a more accurate representation.” Unfortunately, I don’t have the data on historical mean wages. The only thing I found was this graph, which shows a marked decrease in real average wages during a period referred to as the era of liberalization and globalization. Likewise, data provided by the government shows that real before-tax household incomes have been fairly stagnant since 1989, except for the highest percentiles of earners. This is precisely what one would expect given the information provided above.

Does Bill Maher have a point? Saturday, Aug 1 2009 

Recently, Bill Maher has written an article for The Huffington Post decrying some aspects of capitalism. Bill Maher is a comedian, movie maker (Religulous), writer, host of HBO’s Real Time with Bill Maher (though he’s probably better known for hosting Politically Incorrect), and a social commentator. Though he describes himself as a libertarian, some people have doubted this and have called him a liberal. I wouldn’t say I agree with everything Maher says, but there are some pertinent things I do agree with him on.

In this recent article, Maher argues, “Not everything in America has to make a profit. It used to be that there were some services and institutions so vital to our nation that they were exempt from market pressures. Some things we just didn’t do for money.” He criticizes war profiteers, the prison-industrial complex, corporate media (which I’ve discussed here), and for-profit health care. Maher asks, “When did the profit motive become the only reason to do anything? When did that become the new patriotism?”

I think Maher may be more or less correct: the only obligation a corporation is supposed to have is to maximize self-interest (i.e. maximize profits). This is the argument that is made by free marketers such as Milton Friedman and is based on the moral theory of ethical egoism. They call this the moral economy, which I’ve criticized a bit on this blog. If the only obligation, moral or otherwise, that a corporation has is it to itself (i.e. shareholder profits), then we’re likely to end up with decidedly immoral business practices (which we hear about on the news on a daily basis). Now, there is nothing that says corporations must operate within this egoist context since they are socially constructed, but absent any change in this model then there is reason to worry about the corporatization of things like war, news, or medicine.

Should some things simply not be done for profit? Should corporations have some obligations to other stakeholders in addition to their shareholders? Are there some moral obligations that individuals and corporations have that take precedence over maximizing profits? These are questions that should be answered if we are to take seriously the issue of corporatism and the corporatization of particular social functions and institutions.

America’s brand of socialism Friday, Jul 3 2009 

Excuse the long period of time of inactivity. I’ve just been busy with other activities; in addition, Iran’s election has been dominating the news. There’s not a lot of things I have to say about that which has not already been said by plenty of people (namely: Iranians should have the right to peacefully assemble and protest their government, be free from coercion and violence, and to freely voice their opinions; that the vote-counting process was suspect and that Iran should conduct a recount; and that the U.S. government should not interfere).

Instead, I want to talk about what many want to refer to as “socialism in America.” See, for example, this post by King Banaian, a professor and the chairman of the economics department at SCSU. In it, he argues that America’s economic policy is most accurately described as “interventionism” rather than flat-out “socialism,” as some people have suggested. I would not call it flat-out socialism either. People who simply throw around the word “socialism” use it as a scare word of sorts, to draw emotional responses from people wary of government intervention. If we try to use that loose definition of socialism, however, it would be impossible to name any country that exists or that has ever existed that wasn’t socialist. So that doesn’t seem correct (unless you want to call every country a socialist one).

I prefer to think of socialism that has varying degrees of intervention. Stalinism, for example, might be approximated at one of the spectrum where the state has total control over political and economic systems. Current-day America would be on the opposite end, where the state is moderately involved in economic matters, mostly through regulation. We could say it’s a weak form of socialism. This brand of socialism now includes the bailouts of Wall Street, Big Bank, and the automotive industry, highlighted in Bush’s final months in office and continued through Obama’s current presidency. It’s important to look at the characteristics of America’s socialism, which is sometimes referred to as “socialism for the rich and capitalism for the poor.”

This form of socialism has long been seen as a criticism of America’s “capitalist” system. It is sometimes also referred to as “privatizing profits and socializing costs”; “lemon socialism”; “crony capitalism”; “corporate welfare”; or, as I referred to it as during the Wall Street bailouts, “Wall Street socialism.” There are an equal amount of euphemism to defend this policy, such as “trickle down economics,” “too big to fail,” “lender of last resort,” etc.

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There has been constant refrain all throughout, however, which is that the state ensures big business is being protected, often at the cost of others not a part of corporate America (sometimes referred to as “Main Street,” as opposed to Wall Street). Some use this to explain the “rich getting richer and the poor getting poorer,” i.e. wealth or economic inequality and disparities. One way this is achieved is through privatizing corporate profits and socializing their costs. We saw this, for example, with the bailouts of AIG et al. at the expense of tax payers. Such actions by the state create what are called moral hazards, meaning corporations such as these are being shielded from risk (of failure) and so act differently (more riskily).

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One problem is that power is being concentrated in unaccountable and unresponsive institutions (both non-governmental and quasi-governmental) such as the Federal Reserve (see, e.g., this and this post by Dr. Banaian). These institutions are unwilling to sacrifice themselves or succumb to market forces. This is why, for example, President Bush came out and admitted he had to “abandoned free market principles to save the free market system.” (Remember the old arguments that we have to abandon freedom in order to be free?) Another problem, of course, is unresponsive and non-participatory democracy in America, which I have discussed here.

This has been going on for a long time, of course. But this trend was especially marked during the Reagan era—an era that spoke a lot about free trade and laissez-fair economics, but one that rarely practiced it. Take, for example, when then-Treasury Secretary James Baker boasted to business groups that the Reagan administration has offered more protection to American business than any post-war presidency. (In reality, it was more than all of them combined.) As it happens, President Clinton was also unusually popular with Corporate America for being a Democrat—the reason being his unwavering protection of big business (NAFTA being a big part of that). This is, of course, all while the benefits of free markets are being touted. Never mentioned is the fact that America’s prosperity has been a product of state intervention, trade interference, and market distortions on massive scales completely unnatural to a truly free and capitalistic market. This has continued into the present with the bank, insurance, airline, and auto bailouts seen under both Bush and Obama.

The dominate message being relayed to the American people is that in order for big business, and therefore the American economy, to survive, it must be subsidized, protected, and bailed out by the state. Incidentally, this is why a national health care system has finally entered the political discourse. For decades now, Americans have placed the health care system as a top domestic priority, with most wanting some sort of nationalized system. Prior to this campaign, such a thing was described as “politically impossible”—never mind that it was what most of the population wanted. In 2008, that was different; we saw Edwards, Clinton, and Obama bringing up the issue. What changed? It certainly wasn’t public opinion. What changed was that manufacturing industry in America was being crippled by the soaring costs and so began supporting such a system. It is only through the process of it becoming a problem for a major sector of American capital and corporate interests that it enters the political agenda of the leadership in this country. Naturally, what will happen is that the costs will be socialized but their profits will continue to remain privatized.

That’s American “capitalism” in practice.

The Moral Economy Tuesday, Apr 21 2009 

We often here the phrase, “that’s the nature of business.” What a quaint phrase. It’s almost pejorative, as it suggests there is something inherently bad and distinct going on. (I.e., it’s behavior distinct from that of human’s, and it’s also a necessary evil that we must live with.) But if we think about it for a moment, we should realize business and corporations do not have a nature. These are not natural entities. They’re social constructs. They are a product of man and his laws. If we really think something is wrong with “business as usual,” we should realize that this formulation of the corporation is just as easily changed as it was created. There should be no reason that how we think corporations ought to behave should be any different than how they actually do.

Knowing this, we should ask what moral principles and theories the corporation and the market are based on. This is not really a question we often ask ourselves, but it’s relevant if we are to understand business behavior and markets, and why they exist as they do. My hypothesis is that the classically liberal free market economy is based largely on the moral theory of ethical egoism, a morally bankrupt and vacuous theory. (Note that I do not say free markets are bad, but merely the moral principle upon which it is formulated is.) This argument assumes moral realism, which I say is open for debate. From there, we should try to figure out what the implications of this are.

The free market is a form of economic liberalism, whose principle champion throughout the 20th century was Milton Friedman, one of the most famous American economists and a Nobel laureate. An important essay written by Friedman in 1970 that outlines his beliefs in the free market is “The Social Responsibility of Business is to Increase its Profits” (PDF), which will be the basis for this post. In it, he makes many nuanced arguments in favor of the unregulated market, wherein the corporation’s sole responsibility, moral or otherwise, is to maximize shareholder profits.

So, to understand this economic principle, it’s helpful to understand the moral principle upon which it is based, ethical egoism. This moral theory says that individuals (including corporations—see my post “Are corporations individuals?“) should act only so as to maximize self-interests. For corporations, this means act so as to maximize profits. This is in direct conflict with theories based on altruism, which suggest we should act so as to consider and help others. Many egoists—people that include the likes of Ayn Rand or Friedman—would argue that altruism is immoral. Note that this theory does not say that agents should act based on what they prefer, but only what actually maximizes self-interest, therefore it’s a consequentialist theory. In all, the ethical egoistic principle of value states that only the acting agent has intrinsic moral value; others merely have extrinsic moral value, which simply means that other people besides the acting agent are means or tools to help the agent. It’s saying the only person who counts is the agent, while other people are just tools or fodder for that agent.

Automatically we are beginning to sense some weaknesses in this moral theory, but it’s largely the basis for the classically free market economic model. There are all sorts of arguments in defense of ethical egoism (e.g. psychological egoism), which are usually very easily shot down. However, these arguments are still used to justify Friedman’s free market model. The central idea is that if corporations act so that their only obligation is to their shareholders, they’re satisfying ethical egoism and their self-interests (i.e. shareholder profits) are maximized. As one commenter named Roark noted on this blog, a corporation’s obligation should be to the shareholders within the bounds of the law. Friedman makes this argument too, but it’s not quite true. The reason is because following the law doesn’t necessarily maximize profits. So, instead, corporations are supposed to follow the law only when it maximizes profits; there’s supposed to be a cost-benefit analysis of following the law. And this is indeed what we see happen (see, in particular, the documentary called The Corporation, which I referenced and linked to in my previous post on corporate personhood). If a corporation thinks they can successfully break a law without getting caught or where the benefits of doing so outweigh the costs, they will do so. In most cases, though, staying within the law does help maximize their profits, lest they end up bankrupt like Enron. In the end, when we inspect Friedman’s arguments and those of ethical egoism, the principle is that we maximize our own profits and we use others as a means to do that, which means we do not and should not have any obligation to others except ourselves (or shareholders, in the case of corporations). One argument to support this view is that it ultimately helps everyone. This capitalist structure, it is argued, benefits society, helps poor people, grows economies, is fair to others, etc. This argument, even if true, however, is incongruent with ethical egoism, because in ethical egoism the only person with intrinsic moral value is the agent him or herself—what happens to others is irrelevant, so long as it maximizes the agent’s profits. That’s what they call the moral economy.

However, as we can easily see, ethical egoism is a completely vacuous and bankrupt moral theory. Yet, this is the theory that has been used to justify and defend the classically liberal free market economy that Friedman argues for. We find the theory is morally inconsistent (some acts can be both wrong and right, depending on whose perspective it’s from), has poor applicability (like all consequentialist theories), has poor external support (psychological egoism, for example, is very unlikely true), and has very little internal support (i.e. ethical egoism is not aligned with our intrinsic or core moral beliefs).

There’s actually a pretty good example of how little internal support there is for this theory. Let’s take a blog post by Dave Switzer, an economics professor at SCSU, as an example. He argues that price discrimination is economically justifiable when it does not hurt other groups (“Economically … I would argue that the practice would be good”), but he makes a distinction that this practice may not be morally justifiable (“When I concluded the initial post by saying that if giving group A a lower price is not causing you to give group B a higher price, then price discrimination is not a bad thing, I was talking about this in an economic context. When I said gender-based preferences are wrong in my comment, I was talking about it in a moral context.”) What may actually help maximize profits may not actually be aligned with our moral beliefs of what’s right and wrong.

Does this all mean the free market model is necessarily unjustifiable? Does it mean it’s necessarily immoral to have a free market? My answer is “no.” It means we have to come up with a better moral justification than ethical egoism. Indeed, there are plenty of moral arguments to support free markets by utilitarians or deontologists (like supporters of Kantian ethics). However, it may mean we need to slightly modify Friedman’s view of the corporation. It may not be sufficient to say the only obligation a corporation has is to its shareholders. From this idea comes stakeholder theory. This theory states that every stakeholder’s interests should be considered, including the society’s and environment’s, employee’s, shareholder’s, customer’s, etc. Indeed, we generally agree that corporations should follow laws, even if doing so doesn’t maximize their profits, because they have this obligation to society (which writes these laws). We also generally agree corporations have a duty to treat employees so as to satisfy their interests, we want product safety, don’t want corporations to dump in rivers, etc. In this case, I think we ultimately can conclude a corporation’s obligations are much broader than we generally see in the free market argument. There is a new and younger generation of businesspeople who are beginning to take into account these considerations, like stakeholder theory, where it is no longer implied that shareholder profits are the only obligation corporations have, and I think this will be reflected in future corporate decisions.