A Dialog mostly about Corporations
Leo: The idea that corporations are private property is naïve and absurd. Corporations have more in common with ministries of production than with private enterprise. But a corporation is to a ministry of production as a cancer cell is to a healthy cell.
Cane: So you would just get rid of them – radical surgery to remove the cancer?
Leo: It’s an appealing idea – and Adam Smith thought so. He said it would not be reasonable to create a corporation. (You should check the context – I am paraphrasing for brevity.) But it seems that with the technology of 2015 huge producer organizations are unavoidable.
Cane: So you would have ministries of production instead.
Leo: Well, that has been tried, and not only in the Soviet Union, and hasn’t worked well especially from the socialist viewpoint. What I mean by that is that it didn’t improve the lives of the workers visibly. But back to my metaphor. A healthy cell has an internal regulator that prevents it from growing regardless of the consequences of that growth for the organism as a whole. That’s what cancer cells don’t have. And the regulator will kill the cell if that is in the interest of the organism as a whole. We need to change the corporations so that they have a regulator like a healthy cell.
Cane: Doesn’t the market do that?
Leo: When Adam Smith was giving his lectures, the market probably was the controlling framework. But not now. Mostly, as Galbraith pointed out, the big companies control the market. When the market takes over control, we have something like the crash of 2008. In the economy we have today, markets have to be controlled, and they are, by the Fed if not by the big corporations.
Cane: But this internal controller – the shareholders will never stand for it.
Leo: Well, it depends on who the shareholders are, doesn’t it? Ownership is what creates the cancer, when the owners have no motivation other than profit and stock price appreciation. Substitution of worker-ownership and public ownership for ownership by billionaires has to be part of the change.
Cane: Doesn’t that bring us back to ministries of production?
Leo: Not at all. Worker ownership, through cooperatives and ESOPs, is well established and it works. That has nothing in common with ministries of production. Other, improved forms of worker ownership will be tried. Regulation can also play a part. Most big corporations in Germany are required to have codetermination, which means the employees elect one-third to one-half of the members of the board of directors, regardless of ownership. It works. Germany is the most competitive country on the planet for exports. And, anyway, public ownership doesn’t have to mean government control. Public ownership could take the form of a sovereign wealth fund. Again, sovereign wealth funds are well-established and successful. Alaska and Norway and Bahrain have them. A sovereign wealth fund can operate very much like a mutual fund – choosing its investments on the basis of principles, which may include nonprofit principles, such as green investments, but leaving the management decentralized. I would hope to see a mixture of worker ownership and control and public ownership via a sovereign wealth fund, also with smaller-scale private ownership in the mix.
Cane: The sovereign wealth funds you mentioned were funded with oil.
Leo: Yes, and one thing we might do is stop giving away our natural resources to rich people, as Joe Stiglitz suggests. But I would want to see the sovereign wealth fund funded, over a period of years, by a wealth tax – say 15% on net wealth in excess of five million for an individual or ten million for a family.
Cane: A wealth tax is confiscatory.
Leo: Every tax is confiscatory, and taxes are a necessary basis of civilization in our time – though, once the sovereign wealth fund is mature, it might serve as an endowment fund for the government, and most other taxes be eliminated. Or it might pay an equal dividend to the citizens, as the Alaska one does. Or both, depending on the numbers. But, while every tax is confiscatory, some have worse side-effects than others. Left-liberals talk about using a progressive income tax to limit inequality. That worked to some extent in the 1950s, but the top rate was above 90%, and that sort of rate has negative incentive effects. And it doesn’t directly affect wealth inequality, which is the deeper problem. Green taxes, which have positive incentive effects, could also play a big role.
Cane: Wouldn’t a wealth tax have negative incentive effects?
Leo: Some, probably. But incentive effects exist to the extent that people legally avoid the tax. The way to avoid a wealth tax is not to be rich. To the extent that people want to be rich anyway, they would have to work even harder. To the extent that they give up the rat-race, once they have a generous retirement fund, that moves us toward a society in which nobody has wealth enough for wealth to be a source of power – and that’s the kind of society in which a reform of corporations to make healthy cells of them would come naturally, to close the circle.
Cane: Well, yes, you have closed the circle, but now that we are back at the beginning, there is still something that puzzles me. At the start, you said that corporations are not really private property. But I gather from what you said later than that that they are not public property either. Whose property are they?
Leo: As things stand, they are not property at all. We have a political system that is ambiguous. From one point of view, it is a corporative state, and, as in the ideal form of fascism, the economic corporations, by their concurrence, actively constitute the state. From the other, more traditional viewpoint, we have an electoral system. Thus the corporations have to work through the electoral system, buying politicians, to exercise their will and constitute a government. And our ambiguous system is also capitalist, in that the billionaire class still collect the profits and have control over the corporations, which are their instruments of control. Thus in another ambiguity our political economy is both capitalist and corporative. But a corporative system might not be capitalist – “Guild Socialism” proposed a federation of corporations themselves controlled from below by the workers. As a democratic socialist, what I want to see is the return of the power to constitute a government to the people, operating through the electoral system. That would be a political revolution. And if that sounds a little like Bernie’s position, that’s no accident.