On Wall Street: Are Corporations Inherently Immoral?

That Zbig Brzezinski is discussing the gross discrepancy between the rich and the poor, where he predicted some years ago that, because of the growing distance between the rich and powerful (who have become the “rich and shameless”) and the poor and powerless, the nation would confront a massive movement for more distributive justice, it occurred to me that what he has to say can only be adequately appreciated against a background of familiarity with moral theory and why there is a case to be made that corporations are inherently immoral. Brzezinski believes we are moving into a major era of social and political unrest, where the attitude of the multinational corporations, as the economist who discusses this with him explains, is that they don’t care about nations, morality, or anything apart from profit margins, which reflects their corruption to their very core.  As a former professor of philosophy who offered courses on the nature of morality, I want to explain how it affects our understanding of human relations and political developments.

The latest decision by the Supreme Court to open the floodgates of corporate funding for political advertising as a form of “free speech” represents one of the most contemptible decisions in the history of the court, which only matches — in the magnitude of its stupidity and inconsistency with the principles of the Constitution, which the justices are sworn to uphold — the decision to stop the recount of the vote in Florida, which gave the election of 2000 to George W. Bush. We have been reeling from the consequences of that decision — which not only subverted democratic procedures in the country but unleashed untold evils in the form of massive tax cuts for the rich, the loss of civil liberties, and wars of aggression involving violations of international law, the UN Charter, and even the Constitution itself. It was hard to image how the court could have done anything worse — until it gave us this decision.

The propensity of corporations, including our banks and mortgage institutions, to maximize benefits in the form of profits should lead us to expect that more corporate influence in political campaigns will not make matters better but almost certainly worse. Indeed, the thought has crossed more than one rational mind that, if corporations as prominent as AIG, Goldman-Sachs, and CitiBank, not to mention Halliburton, Raytheon, and other giants of the military-industrial complex, are now going to exert even more influence in political and economic affairs, then perhaps the only reason we haven’t heard of more cases of corruption of this kind in the past — apart from the occasional savings and loan scandal, for example — has been a function of ignorance, where we haven’t known because our nation’s press has failed to keep us informed.

The underlying reasons, however, may run deeper than that. One problem that has arisen within this context has been a matter of understanding what the word “corporation” should be understood to mean. The alternatives range from that of a nexus of contracts to a person, where the first reflects a function of corporations (to enter into contracts) and the second a legal fiction (since a business is not a person). One place to start to come to grips with this problem is the dictionary, which offers the following conception(s):

Imagine my surprise to discover that, contrary to my sincere belief that corporations are not persons, there are definitions, such as 4 above, according to which a mere part of a person can qualify as a corporation, especially since I had never before thought of myself from that point of view! The evidence in my case may be indisputable, but the sense at stake here is not 4 but rather 1, which identifies corporations with a group of people who are organized for the conduct of business by entering into contracts, which assigns the function (entering into contracts) with those who exercise it (the owners).

The owners of corporations are not necessarily the same as their officers or employees, of course, except in cases in which the officers or employees own stock in the company. A rather important distinction must therefore be drawn between “stockholders”, who are the owners of the company in the strict sense, and “stakeholders”, who are persons or other entities having interests that may be affected by its conduct of business, for better or for worse. That includes employees, customers, creditors, and suppliers as well as stockholders, not to mention the community, the environment, and the world.

Just to sharpen our focus and avoid misunderstanding, the conception of corporation that appears to matter within this context can be captured by the following definition:

Although this definition may appear to be neutral with regard to the question before us, it fails to take into account the historical context of the times. As Marjorie Kelly, The Divine Right of Capital (2001), has astutely observed, the standard conception of corporations–the prevailing paradigm within American society–accepts the crucial principle that “the only social responsibility of the corporation is to make a profit”,which was initially enunciated by a Nobel Laureate in Economics, Milton Friedman, which might be encapsulated by the slogan that, when it comes to corporations, “Greed is good!”

Lest we not recognize the importance of this principle, Kelly elaborates its meaning:

Indeed, according to Kelly, prominent philosophers, including Karl R. Popper, have characterized (what he calls) “the totalitarian theory of morality” as maintaining that “good is what is in the interest of my group; or my tribe; or my state”. Thus, such states, for example, are permitted to attack other states, or to do violence to their own citizens, if it benefits the ruling tribe. Or, alternatively, such corporations are permitted to attack other corporations, or to do violence to their own employees, if it benefits the stockholders. These states and corporations are exploitative and corrupt.

If Popper is correct, then corporations certainly appear to be inherently immoral. But is he correct? The answer depends upon which theory of morality is correct. There are many claimants to that role, including subjective theories, family-value theories, religious-based theories, and culture-related theories, according to which actions are right when you (your family, your religion, or your culture) approve of it. So if you (your family, your religion, or your culture) approve of incest, cannibalism, or sacrificing virgins to appease the gods, such actions cannot be immoral. They are moral, necessarily.

All of these approaches make morality a matter of power, where right reduces to might. If someone approves of killing, robbing, or raping you, you have no basis to complain on the ground that those actions are immoral, if subjectivism is correct. Similarly for family, religion, and culture-based alternatives. Every person, every family, every religion, and very culture is equal, regardless of their practices, respectively, if such theories are true.

As James Rachels,The Elements of Moral Philosophy (1999), explains, on any of these accounts, the very ideas of criticism, reform, or progress in matters of morality no longer apply. If attitudes about right and wrong differ or change, that is all there is to it, even when they concern your life, liberty, or happiness. If some person, family, or group has the power to impose their will upon you, these theories afford you no basis to complain.

Philosophers have therefore sought to establish some less-relative and more-objective framework for understanding morality, including what are known as consequentialist and non-consequentialist theories. According to consequentialism, an action is right if it produces as much GOOD (usually taken to be happiness) as any available alternative. But the problem remains of deciding FOR WHOM that happiness ought to be produced.

According to Ethical Egoism, for example, an action is right if it brings about as much happiness for you personally as any available alternative. Consequences for others simply don’t count. So Ted Bundy, John Gacy, and Jeffrey Dahmer, for example, are home free–morally speaking–though few juries would be likely to be impressed by the argument that killing gave them more happiness than any available alternative.

According to Limited Utilitarianism, moreover, an action is right when it brings about as much happiness for your group as any available alternative. This is good news for The Third Reich, the Mafia, and General Motors. If no available alternative(s) would produce more happiness for Nazis than territorial acquisition, military domination, and racial extermination, then those qualify as moral actions if Limited Utilitarianism is true.

Classic Utilitarianism, among consequentialist theories, is the only one that dictates encompassing the effects actions have upon everyone rather than some special class. But this virtue does not guarantee the right results. If a social arrangement with a certain percentage of slaves, say, 15%, would bring about greater happiness for the population as a whole — because the increase in happiness of the masters outweighed the decrease in happiness of the slaves — then that arrangement would qualify as moral. Necessarily!

So if theories that qualify manifestly immoral behavior as “moral” ought to be rejected, perhaps a non-consequentialist approach can do better. According to what is known asDeontological Moral Theory, actions are moral when they involve treating other persons with respect. More formally expressed, it requires that other persons should always be treated as ends (as intrinsically valuable) and never merely as means (instrumentally).

This does not mean that persons can never treat other persons as means, which usually happens without thereby generating immorality. The relationship between employers and employees is clearly one in which employers use their employees as a means to conduct a business and make profits, while employees use their employment as a means to make a buck and earn a living. Within a context of mutual respect, this is moral conduct.

When employers subject their employees to unsafe working conditions, excessive hours, or poor wages, however, the relationship becomes exploitative and immoral, which can also occur when employees do not perform their duties, steal from their employers, or abuse the workplace. Similar considerations apply to doctors and patients, students and faculty, or ministers and congregations, which may explain our dismay at their betrayal.

If these considerations are correct, then it would appear to be the case that corporations qualify as limited utilitarian entities. When exemplified by states such as Germany during The Third Reich, they qualify as instances of what Popper calls “the totalitarian theory of morality”. Since corporations are not states, however, it would seem to be more appropriate and less prejudicial to classify the morality exemplified by these entities instead as limited utilitarianism. Since they satisfy the conditions that define an indefensible moral posture, it seems to follow that they also qualify as amoral, at least in the sense that their behavior does not have to satisfy conditions of morality.

The conclusion that corporations are inherently immoral appears very plausible, but it might be a good idea to investigate the matter further to ascertain whether or not corporations can be moral, in which case they are not necessarily inherently corrupt. If we assume the prevailing paradigm of corporations as profit maximizing entities, then since profits are generated as the difference between net income (as a function of prices for products or for services) and net costs (of producing those products or services –schematically, where profits = ( prices-costs ) — the principle of profit maximization implies the obvious desirability of inflating prices and deflating costs.

Costs themselves tend to be a function of the cost of natural resources, the cost of human labor, and (local, state, and federal) taxes. To increase profits, therefore, at least three broad avenues of approach are available related to decreasing costs, namely: (a) decrease the cost of natural resources; (b) decrease the cost of human labor; and (c) decrease the cost of (local, state, and federal) taxes. Alternatively, increase prices to the optimal point where sales produce maximal profits, where the term “profits” should properly be construed broadly to include such forms of profit as retained earnings, stock options, reinvestments in companies, and such).

The modes of operation that tend to maximize profits thus include (a) decreasing the cost of natural resources by, for example, (i) exploiting the environment, (ii) converting public land to private use, and (iii) evading the expenses of pollution cleanup or costs of environmental restoration; (b) decreasing the cost of human labor by, for example, (i) paying minimal wages, (ii) offering minimal benefits (health coverage, dental plans, and such), and (iii) opposing the organization or diminishing the influence of labor unions that engage in collective bargaining.

Alternatively, (c) decrease the cost of taxes, for example, by (i) resisting paying corporation taxes, (ii) seeking to reduce income tax rates and (iii) attempting to abolish inheritance taxes; or (d) increase the price of your product, for example, by (i) reducing competition, (ii) promoting monopolies, and (iii) manipulating markets (by contriving shortages, disseminating misinformation, and the like). These techniques are morally acceptable to corporations because, as limited utilitarian entities, they are obligated to consider the consequences for no one but themselves. The consequences of their acts for others simply do not matter.

Indeed, the situation is so drastic that corporations operating as limited utilitarian entities can even resist supporting the social safety net that has been developed since the days of The New Deal, including unemployment insurance, workmen’s compensation, Social Security, Medicare, Medicaid, and similar programs, which tend to defeat profit maximization for at least three reasons: (1) they increase the cost of (local, state, and federal) taxation; (2) they create alternatives to low-paying, menial jobs; and (3) they thereby empower the workforce with options.

The current trend toward globalization appears to extend the reach of American corporations around the world, where the potential benefits are enormous as a new form of (or a new name for) colonialism and imperialism, for example, by (1) reducing the cost of natural resources; (2) reducing the cost of labor; and (3) reducing the cost of (local, state, and federal) taxation. Thus, it should come as no surprise that the diminution of sweatshops in the United States should be taking place with a commensurate increase in sweatshops around the world!

It should be apparent that, when their conduct is controlled by the principle of maximizing profits, corporations are inherently corrupt. The problem results from the operation of corporations on the basis of Friedman’s principle rather than from the definition of corporations themselves. Consequently, it may be said that corporations are inherently amoral, which means that they can, but are not obligated to, operate on the basis of principles of morality that involve treating other parties with respect. The situation can be changed, therefore, only by adopting a different paradigm than the prevailing corporate paradigm.

Kelly, for example, suggests that corporate responsibilities should be redefined to maximize benefits, not merely to stockholders, but tostakeholders, where the responsibilities of corporations include taking into account the consequences of their actions for the parties that they affect by not violating their rights. From a moral point of view, this is analogous to abandoning limited utilitarianism and adopting deontological principles as binding on corporations in their relations with stakeholders and only seeking to maximize profits to an extent consistent with deontological morality. This represents a change in corporate paradigms.

The stakeholders, remember, include every party with interests that are affected by the actions of the corporation, that is, which is causally affected, for better or for worse, by its mode of operation, including employees, customers, suppliers, and stockholders, but also the community, the environment, and the world. This approach forsakes short term gains for long term planning, where decisions are made taking into account the answers to questions such as the following three:

Such a change represents a shift toward corporations that serve the public good and do not merely promote private greed, as we have seen in the case of AIG, Goldman-Sachs, CitiBank, Halliburton, Raytheon, and other monsters who seek to benefit themselves regardless of the consequences for individuals, society as a whole, or even the best interests of the world. It would be nice if we could count on our own Supreme Court to maintain a certain Constitutional balance in matters of this kind, but that, alas, appears to be asking for too much.

When the economist with whom Zbig is discussing the Wall Street movement and the social unrest and economic inequalities that underlie it, therefore, pay special attention to the point he makes about his conversations with the CEOs of transnational corporations, who could care less about the people and the nations where they reap their profits.  The core of morality is treating other persons with respect, but to limited utilitarian entities of this kind, the value of any individual is his net worth and how much money they may be able to extract from him as a consumer.  Nothing else matters–and we are going to be paying the price.

Jim Fetzer is a former Marine Corps officer, the founder of Scholars for 9/11 Truth and McKnight Professor Emeritus at the University of Minnesota Duluth. This is an updated and revised piece previously published in OpEdNews (25 January 2010).