Posts Tagged ‘society’

The same day I wrote that capitalism was coming apart at the seams, indicated by the shocking disparity between the compensation of corporate CEOs and workers, the Business Roundtable published its new statement of purpose of a corporation.*  The 180 or so corporate executives who signed the statement declared that all their stakeholders, not just owners of equity shares, were important to their mission.

Many business pundits, such as Andrew Ross Sorkin, greeted the new statement as a sign that the era of shareholder democracy (what he refers to as “shareholder primacy”) had finally come to an end and that a “significant shift” in corporate responsibility to society would be ushered in. Readers, however, had their doubts, most of them echoing JDK’s response to Sorkin’s piece: “Talk is cheap.”

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The fact is, over the past three decades, net dividend payments to shareholders have soared—from $178 billion in 1989 to $1.3 trillion in 2019 (that’s an increase of 630 percent, for those keeping track).** And much of the responsibility is laid at the feet of mainstream economists like Milton Friedman (pdf), who famously declared that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits” and the only responsibility of corporate executives is to their employers, the shareholders—and corporate raiders such as Carl Icahn.

As I see it, the idea of shareholder democracy has merely served as a cover for any and all corporate decisions and strategies. When pushed to take on other responsibilities, or to make other decisions, the corporate defense has long been that it ran counter to the mission of maximizing profits or shareholder value.

In reality, corporations have never attempted to achieve just one objective or to maximize one value. One issue is that the usual objectives or values ascribed to corporate managers are ill-defined. There is neither singular meaning of profits (since, as they’re reported, they’re largely the result of a particular set of accounting conventions, defined over the fuzzy boundaries of the inside and outside of a corporate entity) nor a unique time frame (over what period are profits or dividends maximized—a week, quarter, year?).*** But the defense of such a corporate mission has served as a convenient excuse to resist pressures to make different decisions or adopt alternative strategies—such as increasing worker pay, improving working conditions, implementing environmentally sustainable practices, and so on.

My view, as I argued back in 2013, is that corporations have never done just one thing or followed a single rule. They do make profits (at least sometimes, depending on the definition and timeframe). But they also seek to grow their enterprises and destroy the competition and maintain good public relations and buy government officials and reward their CEOs and squeeze workers and lower costs and reward shareholders and implement new forms of automation and build factories that collapse and. . .well, you get the idea. In other words, they appropriate and distribute surplus-value in all kinds of ways depending on the particular conditions and struggles that take place over the shape and direction of their enterprises.

The problem inherent both in the new Business Roundtable statement of purpose and in the attempts by corporate critics to argue that corporations should take on additional social responsibilities is that corporations are already too central to the U.S. economy and society. They’re the main institution where the surplus is appropriated and then distributed—with all the consequent effects on the wider society. The private decisions of corporate entities, as decided by the boards of directors and implemented by the chief executives, are responsible for the Second Great Depression, the grotesque levels of economic inequality that have been growing for decades now, the global-warming crisis, and so much more. Why would anyone want to give corporations even more power or scope to decide how to solve those problems when they’re the root of the problem in the first place?

No, the only viable strategy is make corporations less important, to decenter the American economy and society from the decisions made by corporate directors and executives. That begins with fostering the growth of other types of firms (such as worker-owned cooperatives) and making sure that the workers employed by corporations play a significant role in corporations (including how much surplus there will be and how it will be utilized). That’s the best way of moving beyond the era of shareholder democracy to a real economic democracy.

Anything else is just cheap talk.

 

*I certainly don’t want to imply that the Business Roundtable was responding to my blog post. No, the fact that they felt it necessary to issue such a new statement of purpose is an indication that American corporations—and, with them, U.S. capitalism—have lost a great deal of legitimacy in recent years. As Farhad Manjoo [ht: ja] recently wrote,

A recession looms, and the nation’s C.E.O.s are growing fearful.

It isn’t the potential of downturn itself that has them alarmed — downturns come and downturns go, but whatever happens, chief executives, like cats, tend to land on their comfortably padded feet.

Instead, the cause of their fear appears to be something more fundamental. . .They’re worried that when the next recession breaks, revolution might, too. This could be the hour that the ship comes in: The coming recession might finally prompt the masses to sharpen their pitchforks and demand a reckoning.

**During that same period, average hourly earnings (for production and nonsupervisory workers) increased by only 140 percent—but corporate profits (after tax) rose by 570 percent.

***As I have long explained to students, that’s the myth that serves as the foundation of the neoclassical theory of the profit-maximizing firm: what exactly are corporate profits and over what time frame are they supposed to be maximized? The assumption of a profit-maximizing firm is equivalent to what one hears from many so-called radical economists, that “capitalists accumulate capital.” Again, no. Accumulating capital (that is, purchasing new elements of constant and variable capital) is only one of the many possible forms in which capitalists distribute the surplus-value they appropriate from their workers. Sometimes they accumulate capital, and other times they don’t. The presumption that they always seek to accumulate capital is the heroic story proffered by classical economists (so that, in their view, capitalist growth would take place), much as neoclassical economists today presume that capitalists maximize profits (so that, in their view, an efficient allocation of resources will result). Marxists presume neither that capitalists maximize profits nor that they always and everywhere accumulate capital.

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Special mention

suppression-regression-1-505  Border Policy

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We’ve long known there is a strong correlation between growing up in poverty and low academic achievement. Thus, for example, children living in poverty tend to have lower scores on standardized tests, lower grades, and are less likely to graduate from high school or go on to college.

Now we’re learning that that there is a correlation between poverty and children’s actual brain development.

According to Mike Mariani, the results of studying the “neurocognitive profile” of socioeconomic status and the developing brain are startling. For example, according to one study, kids from poorer, less-educated families tended to have thinner subregions of the prefrontal cortex—a part of the brain strongly associated with executive functioning—than better-off kids. Moreover, according to the data from another study:

small increases in family income had a much larger impact on the brains of the poorest children than similar increases among wealthier children. And [Kimberly] Noble’s data also suggested that when a family falls below a certain basic level of income, brain growth drops off precipitously. Children from families making less than $25,000 suffered the most, with 6 percent less brain surface area than peers in families making $150,000 or more.

Noble is one of the pioneers in this area and, in order to go beyond correlation to causality, she’s now proposing a randomized controlled trial of giving some mothers a $333 monthly income supplement or others a $20 monthly income supplement.

I am all in favor of giving cash to members of poor households—as against, for example, taking over poor people’s lives by using brain science to promote more effective “executive function skills” such as “impulse control” and “mental flexibility” of the sort proposed by the Crittenton Women’s Union (pdf).

However, as I see it, there are two problems inherent in the way these new poverty-brain trials are proceeding.

First, the trial that Noble proposes is another instance of the kind of work we’re now seeing in development economics (associated especially with Abhijit Banerjee and Esther Duflo), which conducts experiments on poor people. One “treatment” group is assigned randomly to receive an intervention, and the other is randomized to receive the “control” experience, enabling the investigators to assess the impact of one intervention or another—in this case, on brain development. In other words, poor people are being used as human guinea pigs to conduct scientific experiments.

What’s the alternative? Set up programs, with the participation of poor people, to analyze the causes and consequences of poverty and identify changes that need to be made in the system in order to end existing poverty and prevent its recurrence in the future.

Second, the focus is on the brains of poor children, which in Noble’s language are “at much greater risk of not going through the paces of normal development to eventually become the three-pound wonder able to perform intellectual feats, whether composing symphonies or solving differential equations.”

What about the brains of rich children—why are they presumed to go through “the paces of normal development”? I’m thinking, for example, of the new psychological research on the “pathologies of the rich,” which involves studies of “social class as culture” and “sharing the marbles.” And, of course, there’s the infamous 2013 manslaughter trial of Ethan Couch, whose defense included a witness saying the teen was a product of “profoundly dysfunctional” parents who gave him too much and never taught him the consequences of his actions.

The issue here is not just the continued existence of obscene poverty, but also grotesque levels of inequality—which affect both poor and rich children, albeit in different ways. In my view, we need to be worried about an economic and social system that generates extreme levels of both poverty and inequality and that alters the brains of all children.

There’s nothing normal not just about the minds of children who are born into such a system, but the system itself.

Cartoon of the day

Posted: 17 October 2016 in Uncategorized
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Home alone

Posted: 19 May 2016 in Uncategorized
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Rich Americans aren’t only getting richer, distancing themselves financially from everyone else. They’re becoming more socially isolated from their fellow Americans, too.

A recent analysis of survey data from more than 100,000 Americans by Emily C. Bianchi and Kathleen D. Vohs finds that the rich spend significantly less time socializing with others and more time alone than low-income Americans. On average, they spend 6.4 fewer evenings per year in social situations. Wealthy people also spend less time with family members and neighbors compared to households with lower incomes—but they spend more time with friends.

It’s possible, of course, that people who put little value on social relationships may spend more time on their careers and accordingly have higher earnings than others. It’s also possible that people choose to interact less with individuals who have a lot of money.

Here’s the authors’ response to those possible limitations of their study (citations omitted):

First, although we reasoned that access to money influences how and with whom people spend their time, we cannot rule out the possibility that how people choose to spend time affects their income. People who put little value on social relationships may invest more in their careers and accordingly earn higher wages than others. Yet, the results showed that income is linked to different types of social engagement, even after accounting for time spent working. This suggests that the findings are not an artifact of discretionary time but instead relate to how people choose to spend that time. In addition, while we reasoned that access to more money affects how and with whom people elect to spend their time, we cannot rule out the possibility that circumstantial differences across incomes may drive the effects. For instance, greater household resources may be negatively associated with proximity to neighbors, thereby creating a structural impediment to social contact. Even so, this possibility could be a manifestation of the desire for social distance rather than a driver of these effects.

Second, our reasoning suggests that people with more financial resources voluntarily configure social worlds that are more autonomous and, when electing to be social, more geared toward friendship than family or community. Yet given that income is negatively associated with compassion and decoding social cues, it is possible that people with more money are less desirable interaction partners. As such, people may be less drawn to more prosperous relationship partners. If so, then the rich may inhabit different social worlds than the poor but for different reasons than our theorizing would suggest. Contrary to this reasoning, we found that income was positively associated with time invested in friendships, the most voluntary of the relationship types we examined. This seems to suggest that people with greater resources are deliberate architects of their social worlds.

In other words, the authors conclude, rich people have chosen to isolate themselves from others, especially family members and neighbors.

The combination of economic and social distance means that, unlike other Americans, rich people find themselves home alone.

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In a society in which the products of human labor take the form of commodities, there’s a tendency to think a commodity’s exchange-value is equal to its value to society.

That’s what neoclassical economists do. So, apparently, does Marco Rubio.

Tuesday night, in the fourth Republican debate, Sen. Marco Rubio decided to make a point about the state of wages, education, and employment in America by comparing welders with philosophers. “For the life of me, I don’t know why we have stigmatized vocational education,” Rubio said. “Welders make more money than philosophers. We need more welders and less philosophers.”

Now, it is true, the labor embodied during the course of producing a commodity is not socially validated unless and until it is exchanged in a market. The same holds for the ability to work (although, to be sure, labor power isn’t actually produced like other commodities). In both cases, within capitalism, private labor is transformed into social labor via the market.

However, as philosopher (and friend) Avery Kolers explains, that doesn’t mean the “social worth of a profession tracks the market price it commands in the current economy.”

It is false for at least two reasons. First, it is false because current market prices are distorted by a wide range of diseconomies that have funneled virtually all gains from the recovery into the pockets of the wealthiest Americans. The US economy shovels massive externalitiescosts and risks that fall on those who don’t incur them – onto working people, future generations, and the natural environment, while the wealthy few hoard the benefits. One particularly important case is carbon pollution. Because market prices do not reflect these externalities, all prices in the economy are distorted, including the price of labor and the prices of the machines that replace human labor. So there is no reason to think that the price my labor commands in the current economy is the price my labor would command in an actual market — an economy where costs were internalized, that is, paid by those who produce them. The day I hear Republicans talk about making polluters pay is the day I’ll begin to believe that they care about genuinely free markets.

But even if we made it so that rich people could not offload costs onto poor people, it would still not be the case that the social worth of a profession would be determined by the price its members could command on a market. Market prices reflect supply and demand. If there is a glut of X and a shortage of Y, the price of X goes down and that of Y goes up. It has nothing to do with the social worth of either thing. Worth is a completely different issue; English teachers, social workers, poets, and of course, Republican presidential candidates, are currently in higher supply than demand; this diminishes their wages and employment opportunities in these fields, but it says nothing at all about their social role or value.

To be clear, even if a commodity’s value were equal to its exchange-value (i.e., in the absence of externalities), that doesn’t mean we, as a society, need to make our decisions based on exchange-values alone.

It is only the hubris of neoclassical economists and politicians like Marco Rubio that presumes a commodity’s market price is the sole criterion of its worth to society.

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Mike the Mad Biologist [ht: sm] casts doubt on the idea of scarcity. And for good reason:

While they seem to have receded somewhat, a couple of years ago, there were quite a few arguments about the fundamentals of economics (especially macroeconomics) and how to teach them. As an outsider, one thing that struck me as odd was the emphasis on scarcity (e.g., economics is called the science of scarcity). It’s odd because, at least in wealthy societies, there are very few scarce items. We’re definitely not slacking in our ability to produce calories, which arguably for most of human, if not hominin, history was the vital concern.

Mainstream economists, as I teach my students, start with the idea of scarcity—the combination of limited means and unlimited desires. And then, after a great deal of math and a wealth of assumptions, they prove that a system of private property and free markets provides a perfect balance between those limited means and unlimited desires.

But, as I also teach them, the mainstream presumption is that scarcity is universal—both transcultural and transhistorical. In other words, they start with the idea that all human beings, in all times and places, have had to confront and solve the problem of scarcity.

An alternative is to see scarcity as an institutional, historical and social, phenomenon. In particular places, at particular times, the existing set of economic and social institutions makes certain goods and services scarce. Thus, for example, oil is scarce because of the particular configuration of the energy industry, the personal car and truck culture, the government-sponsored expansion of the highway system, and so on. That’s what makes oil scarce. Similar stories can be told about the scarcity of water, arable land, good public transportation, high-quality mass education, and so on. Their scarcity is the product of particular sets of institutions in particular societies.

Why is that important? Because, as against the assumption of mainstream economists that scarcity is always with us (and therefore can’t be changed), the idea that scarcity is an institutional phenomenon means that changing economic and social institutions can change or eliminate scarcities.

The same applies, of course, to abundances. Right now, we’re living in a society that has created a surplus of labor (and, as a result, stagnant wages), which is part and parcel of capitalism’s law of population. If we get rid of capitalist institutions, then we can create a new law of population, one in which the labor workers perform and the value they create are not turned against them.