How Corporations Became Culturally Dysfunctional and Why Simple Solutions Won’t Fix Them

The Idea: We’ve already been told that corporations are psychopathic. There’s evidence they are also culturally dysfunctional, an inappropriate construct to do what they were designed to do, or could do. But because they’re part of a complex system, there are no easy or imminent fixes.

Joel Bakan’s book (and film, which will be shown on the CBC next week BTW) The Corporation, argues that corporations have evolved into psychopathic entities. But their reputation is not just one of anti-social behaviour. Corporations are also seen by many as lumbering, inflexible, un-innovative creatures. I thought it might be worth exploring why this is so.

Recently I’ve been studying and writing about the difference between complicated systems (those that lend themselves to cause-and-effect analysis) and complex systems (where there are so many variables the best you can do is look for meaningful patterns and correlations). Corporations were initially designed as a ‘shell’ that would allow a group of workers to collectively raise capital, add and delete members easily, and, later, to protect workers who were associated with partners who engaged in criminal, negligent or fraudulent activities from liability for those partners’ actions. The concept of ‘shareholding’ met these requirements. The interests of shareholders, initially the workers in the organization, were subordinated to the interests of creditors — the worker-shareholders ‘shared’ what was left after the corporation’s debts were paid.

Several consequences of ‘shareholdings’ were probably unanticipated. Some worker-shareholders could easily be given more shares than others, to reflect a greater time or financial commitment to the enterprise. And some workers, and even managers, could simply be treated as another class of creditor — paid a fixed return on their ‘investment’ of time in the organization, but given no ‘shares’ in the profits at all. And if some investors were willing to take the risks, they could be given shares in return for a cash infusion in the company, even if they played no active role in the corporation at all. And since they were inessential to the operations of the company, why not allow these passive shareholders to use these shares as collateral for loans, or even trade their shares with others, creating a kind of ‘stock market’ that would allow the rich gentry with lots of money they could afford to lose, to gamble with each other on which of these passive shareholdings would pay ‘dividends’ and which would be useful only as wallpaper?

The rest, as they say, is history. Corporations are no longer run for the well-being of their workers, but to maximize the profits paid to their mostly-absentee shareholders. Many corporations have no workers at all — they are merely ‘holding companies’ that own shares of other corporations. Shareholders feel no responsibility to the workers, the people who generate the value of the shares, and whose wages are increasingly unconnected to the value they produce, as the value is all paid out to the shareholders.

What has emerged as a result is hierarchy. Managers are hired by the shareholders to employ as few workers as possible and pay those workers as little as possible, and to provide the fewest and most inexpensive benefits and facilities possible, so that more of the profits are left for the shareholders. Managers are therefore remunerated in inverse proportion to the well-being of the workers and the communities in which they live. Disparity between the well-being of workers and that of shareholders grows without limit, with managers as the ‘middle-men’ to ensure that this happens and to keep workers in line. The physical slavery of early civilization, enforced by warlords and feudal fiefs, is hence replaced by economic wage-slavery, enforced by management. Not surprisingly, workers who might have otherwise been motivated to work hard out of self-interest now seek ways to do the least work possible for their wages, and counter the force of shareholders with their own self-organized bodies, unions. The education system is enlisted to convince workers not born into the privileged elite that if they work hard they too can become managers, and the hierarchy is made more multi-leveled to provide the illusion of ‘progress’ towards that goal. If the corporation is large enough this fraud can be perpetrated almost indefinitely, as workers spend a lifetime chasing the carrots up increasingly steep (and increasingly handsomely rewarded) steps of the ladder towards management. And some workers can even be given a token number of shares in the company, to bamboozle them into believeing that they are also real shareholders in the organization.

In each industry, the largest corporations, while still feigning competitiveness, merge, acquire and otherwise band together in oligopolies, acting in the best interests of shareholders to eliminate real competition so that upstarts who share the rewards of their labour more equitably with workers and with customers can gain no foothold in the market. Advertising is introduced to provide the illusion of real choice and competition.

As we all know, however, pyramid schemes are unsustainable, and this one is no exception. Given enough time, workers begin to realize that the cost of living is rising faster than their wages and that their standard of living is actually falling while that of shareholders is rising astronomically. Financial corporations, seeing an opportunity to push the crumbling pyramid a bit further, start offering huge amounts of credit to workers (using deceptive advertising to understate the cost of this credit), so that workers can ‘afford’ to buy ever more of the overpriced crap the corporations are producing. Corporations turn to outsourcing and offshoring in the endless quest to reduce costs so that shareholders’ wealth can keep rising even though the market is saturated and debt levels are sky-high. Governments and media are bought by the now obscenely-wealthy shareholders and paid to parrot the fraud and hype of ‘free’ trade, ‘free’ markets and globalization, to even further deregulate, subsidize and undertax corporations, and to pass laws so that that corporations cannot be sued by workers but workers can be sued by corporations. If the growth stumbles, the stock market, which is now a Ponzi scheme that demands endless double-digit annual profit increases, will collapse, taking the whole economic house of cards built up around it with it.

The result is that today corporations are huge, anti-democratic, unconcerned about (or even averse to) the well-being of employees and the health of the environment, market-distorting and addicted to growth. In short, they are culturally dysfunctional — working at odds with the best interests of people.

Note that there was no conspiracy here, no master plan to make the lowly medieval corporation designed to allow workers to raise capital funds collectively into today’s Frankenstein monster. It has been an evolution, an emergence set in motion by unexpected consequences of the creation of the useful concept of shareholdings, and then affected over centuries by thousands of social, political, economic and cultural events and behaviours, from divine right to the New Deal, from the 19th-century error in US law that gave American and then all corporations the rights of personhood, to the end of physical slavery, the dislocation of labour in the world wars, the emancipation of women and the beginnings of the Two-Income Trap.

Complex systems, we learn from history, cannot be changed quickly or simply. The anti-corporatist, anti-globalization movement has demonstrated that. There is no panacea in legislation, new economy movements, or rioting in the streets. The effects of complex systems are not simply ‘problems’ that can be ‘solved’. Only if and when enough of us, as individual actors in this system, change our behaviours in such a way that collectively we begin to change the dynamics of the system, will those changes ripple through to the way corporations behave and the impact they have on our lives and our well-being. Barring a crisis on the scale of the Great Depression, those individual behaviour changes are unlikely to come soon, to be coordinated or even to be subject to coordinated effort. The end of slavery and the emancipation of women and the approval of the Kyoto Accord (and, as I described in yesterday’s post, the end of capital punishment in Europe and Canada but not in the US) were the emergents of millions of unpredictable and individual changes in perception brought about by millions of individual events.

There is good news and bad news here. The good news is that, while we are responsible for the emergence of the modern dysfunctional corporation (and all the other endemic social, political, environmental and economic ills of our time and culture), we should not feel guilty about it. Organization and activism are extremely unlikely to change these things, because they are evolutions of complex systems, not simple cause-and-effect ‘problems’. Just becoming aware of these things and understanding the need for change and acting individually with modest changes in our behaviour (mostly things readers of this blog have probably already done) is really all you can do, and the effect of us individually changing our behaviours could, in time, precipitate positive change to the whole system. The whole of a complex system is nothing more, or less, than the sum of the parts. You just have to let go of the illusion that anyone is (or even could be) in control and enjoy the ride. If you’ll pardon the mixed metaphor, when we reach the tipping point, the earth will move.

The bad news is that it’s futile to try to speed up the process. There’s a reason your instincts probably told you that getting out the vote for Kerry was a worthwhile effort (it almost worked — the tipping point was close), but protesting against globalization was not. There’s a reason your instincts might have told you not to even bother voting for Kerry — when it’s time, it’s time. People change slowly. That’s our nature. Unfortunately, that means that with our impact on this planet being so massive and accelerating at such a phenomenal rate, it is increasingly unlikely that we can change direction quickly enough to avert catastrophe.

So my new paradox is this: The more I learn about ‘complex thinking’ the happier I am about just blogging and talking and spreading ideas and information as my part to make the world a better place, and the less guilt-ridden I am about not doing more to ‘save the world’ — and the less hopeful I am that it will save itself in time.