Do Companies Exist? Part II

Quite a bit of feedback from last week’s post, where it has been suggested that companies (because they are made up of people) should not be seen as independent entities at all – especially for tax purposes. Many thanks to all those that took the trouble to comment on the post.

Of course, I do see companies as part of our “ecosystem” and quite independent from those people that constitute its parts – in the same way that people are quite distinct from the billions of cells that make us.

“a collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence.”
—A Treatise on the Law of Corporations, Stewart Kyd (1793-1794)

Since Stewart Kyd defined them in 1793, companies (including corporations) have existed as independent entities – on that we are all agreed.

However, many do see companies as simply a bunch of individuals – which is not correct – and this error is what dictates the desire to take away, for example, corporation taxes. Most companies act as independent entities – the decisions of the individuals involved have emergent qualities in most of them that develop a singular aspect as the company. This is clearly evident to its customers, its investors and the people (and other organisations) with which it does business. In such an environment, companies make decisions which are corporate decisions – propelled by the dynamic of the organisation rather than the individually distinct decisions of the individuals concerned.

This is at the heart of the issue over company taxation. Even if we could distinguish the impact of extra taxation on the wide range of individuals that would be hit by the additional taxation on them that would be required if there was no corporate tax, it would not be right to have companies on zero tax.The problem with this is that companies are clearly distinct entities and act as entities within an environment in which they are seen by their staff, investors, customers and others as distinct. Representatives from companies appear in conferences (as representatives, rarely as distinct individuals).

The impact of all corporate decision-making, strategy, impact on society, impact on resources is always at the organisational level and the legalistic distinction that taxing companies is difficult because they can move money around or they don’t really exist (it is really the individuals behind them) is a flawed argument and one that takes no account of the impact of companies on society and the way that society (people) see companies.

The issue for me is that it is the organisation that makes profits (sure, on behalf of investors and using staff and suppliers and satisfying customers – all people). The organisation “thinks” corporately and takes decisions corporately and lobbies corporately and impacts corporately. It makes perfect sense for that organisation to be assessed for taxation corporately. It is also SEEN to be corporate – like any emergent organising entity – just as we divide into nations, states or cities which, similarly, have different laws and taxes, moral codes and ways of living. It brands itself as independent; it advertises and markets itself as independent. Companies are born and die, evolve, grow and diminish. Such organisations are distinct in themselves – not just an amalgam of individuals.

Looking Down from Mount Olympus

With Olympics fervor at its height, it’s tough to resist Homer’s description:

“Olympus was not shaken by winds nor ever wet with rain, nor did snow fall upon it, but the air is outspread clear and cloudless, and over it hovered a radiant whiteness.” Homer, Odyssey.

Today, the equivalent of the 12 Gods on Olympus are, maybe, the G-20, or G-2, or the UN or any of the international organisations that are set-up on our behalf.

Or, maybe it’s closer to home – the national heads who make up the EU or the lesser number that make up the EZ; the 100 Senators in the US Congress.

Or, maybe they are the 1% who own 40% of the earth’s assets (financially-speaking).

Or, how about Forbes Global 2000 – the top 2000 of the world’s companies that, between them, account for $149 trillion in assets and employ 83 million people. This compared to McKinsey’s estimate of $212 trillion value of the world’s capital stock in 2011 – a huge percentage.

Icy Slopes

The Greek Gods took their place after a war with the Titans – who ruled before them. Mythology into reality – our new Gods rule in much the same way after a 20th Century where totalitarian regimes fought each other, amongst each and against  democratic nations in bloody conflict. Millions died in China, the Soviet Union, Europe, Vietnam, Africa, Indonesia and elsewhere as different theories of government battled for supremacy.

Francis Fukuyama declared it “The End of History” as liberal democracy supposedly triumphed. We know now that he was wrong (as he has himself declared). For, the winner (for now) was not democracy but a form of capitalism that promotes a new set of god-like creatures and a new Olympus where the wind does not blow and the air is clear. This new capitalism – the complete dominance of quantity no matter what type of government is in power – was relatively bloodless in its conquests, but no less callous in its purpose. Indeed, its callousness is worse than before as it is merely the “invisible hand” that drives the marketplace that has led to the victory of the new Gods.

Now, sitting upon the summit, surrounded by the icy slopes that let few into their circle, they can look down upon the rest in their eco-defended enclave.

How the War Was Won

 

The titanic struggle was won on the back of the primacy of goods – developing the ability for ordinary people to secure their basic material needs and then onwards to “choice” and leisure and luxury. This has been wonderfully accompanied by the ability of business to promote their products so that demand could be developed without the consumer realizing it. This ability to influence demand (so brilliantly described in Galbraith’s “The Affluent Society”) has led to a victory of quantity over quality in the West and will do so elsewhere.

The victory was made easier by Governments’ willingness to adhere to the 19th Century economic theories that made “growth” and GDP the concepts upon which all governing was placed – but, placed them in simulations which cannot reflect reality. Mathematicians and econometricians have extended the fallacy – we live for numbers. The evidence for this can be seen so well in Russia and China. For most of the 20th Century, both held out as anti-capitalist bastions as the world moved to strengthen democracy. Neither has succumbed to democracy – Russia is a gangster-elite State, China is a legalist, centralized State. But, both yielded wholeheartedly to the market.

Who Won the War?

Many argue that the democratic West won the war (as Fukuyama attempted to suggest) but this is wrong. The western form of liberal democracy with its desire to provide representative government, elections and low corruption levels (comparatively) as well as supposed access to education and upward social mobility is losing out. It is arguable that even in those countries that still pursue these ends, there is now a vastly worsening separation between rich and poor and a hardening of social structures – with far less mobility.

In China and Russia, elites have won the war and their instruments of war have been capitalist – as their citizens climb up Maslow’s hierarchy of need from the very bottom, quantity of goods is supreme no matter how they are derived. As Jonathan Fenby describes in “Tiger Head, Snake Tails” this is, in China, despite rampant corruption, ecological degradation and vast differences in wealth between elites as well as complete indifference to the vast population when their houses are demolished to make way for new buildings or motorways (for example).

Who Lost the War?

Millions of lives were lost in the 20th Century as nations defended themselves against the onslaught of totalitarianism. But, a new totalitarianism has taken root right beneath our noses.

It is the totalitarianism of the elites that control the markets – markets fed by a constant diet of GDP statistics and growth targets.

The losers are (in Orwellian-speak) supposedly the winners – the mass of the population that has grown “wealthier” throughout the latter half of the 20th Century.

So, it seems to be a benign revolution but the problems are becoming clearer by the day.

In Greece, home to Mount Olympus, the country is in its fifth year of recession. In Spain, 24.6% of people are now officially unemployed. In most countries, the gap between the wealthy and the rest is growing steadily.  Economic strains are now working their way around the system as growth (measured traditionally in 19th  Century models) stalls outside of newly developing nations (yet, who believes the measures coming from China?). Today’s youth in the developed west are unlikely to be “wealthier” than their parents in pure GDP terms.

But, we should not be focused on pure numbers. Economic growth is also threatening the ecology of the planet at an alarming rate. Whether or not fossil fuels are near their end, the effects on the planet are growing and recent changes to our weather patterns merely the first signs. Our damning footprint is ever more etched on the planet and real risks are emerging that the life styles we live now may not be available for long. As Rumanian economist Georgescu-Roegen surmised over fifty years ago, maybe we can’t change and will simply go out in a puff of smoke.

Maybe, though, society will not, for ever, tolerate the new totalitarians, the new Olympians.

The Gods were not immortal

 

Of course, nothing lasts forever. The Greek Gods did not survive (except in mythology) and neither will the current ones.

The problem is that we are engrained with the belief that quantity is the key to good life (which it may be up to a point) and have lost a connection with what society is about. Mass production has led to greater wealth but, as Galbraith saw 60 years ago, society cannot be all about quantity.

Maslow, developing his Hierarchy of Need as a marketing tool, expected that we would go beyond quantity to some form of self-actualization. We have definitely not managed that yet but we have some signs that societal self-actualization is possible.

A major problem in the way of this is that different countries are at different stages of economic development. China has a massive population still well down the material scale and there will be no let-up in the leadership’s drive for “growth” to stem the dismay of their people on all other issues. In Africa, the longing for material wealth is as strong and who can blame them bearing in mind the economic and social torment they have suffered?

So, initiatives like Zero Impact Growth being developed by John Elkington and his Volans company are worth considering.

This is an approach to growth with zero impact on the planet and ultimately to give back more than is taken out. Where others seek to quantify (and there are dangers in the approach of quantifying everything), the Elkington approach is to develop a maturity matrix as follows:

Maturity Level Definition from ‘The Zeronauts’ Analogy: Characteristics of a company on that level
No strategy and goals No definition The company barely understands the relevance of restructuring its actions towards sustainable solutions and hardly reports on sustainability. Furthermore, no strategy has been defined and no targets have been set.
Eureka Opportunity is revealed via the growing dysfunction of the existing order. The company understands the relevance of restructuring its actions towards sustainable solutions. No considerable actions have been taken yet and almost no strategies and targets have been set. The company does already understand the relevance of the topic though, has started reporting and communicates plans to ameliorate its sustainability performance in the future.
Experiment Innovators and entre­preneurs begin to experiment, a period of trial and error. Although the company has started its first inno­vation efforts and internal programs in certain sustainability areas and has developed initial policies and strategies, no concrete milestones and an overarching future vision have been defined yet.
Enterprise Investors and managers build new business models creating new forms of value. The company has developed a short- to mid-term strategy ( ≤ 2020) for specific areas and has set measureable targets. Nevertheless, almost no long-term milestones have been defined. Furthermore, they do not communicate an over­arching future vision.
Ecosystem Critical mass and part­nerships create new markets and institu­tional arrangements. Measureable, ambitious (zero) targets based on a mid- to long-term vision (≥2020) are set. Nevertheless, a conjoint approach and some collaborative aspects are still missing since the holistic zero impact growth vision has not been (fully) adapted.
Economy The economic system flips to a more sustainable state, supported by cultural change. The company has fully adapted the zero impact growth vision. Measureable zero targets that have been adapted jointly are set out for each field of action. A clearly defined strategy is in place on how to achieve these targets, with defined short- and long-term milestones. The underlying benchmarks are clearly defined.

Maybe there is some fight left and the reality behind the model is clear – we can’t fight the invisible hand but maybe there is a chance for society to develop some self-actualisation behind the corporate drive towards zero impact growth where the planet survives along with humanity.

That doesn’t impact on the gap between the wealthy and the rest as the focus is on economics and sustainability. Inequality is as important a problem as ecology. Numbers should be seen for what they are – where money is one aspect of our lives not the only one. Demos, a UK think-tank has just published: Beyond GDP – New Measures for a New Economy.

It is an attempt to seek a rationale for economics beyond numbers. Briefly it posits that:

  • GDP does not distinguish between spending on bad things and spending on good things.  By this measurement, the BP oil spill in the Gulf of Mexico “positively” contributed to the economy just like the many good and services that people actually want or need.
  • GDP doesn’t account for the distribution of growth. Our total national income has doubled over thirty years, and so has the share of national income going to the wealthiest households, but average households have seen little or no income gains. GDP doesn’t care if growth is captured by a few or widely shared.
  • GDP doesn’t account for depletion of natural capital and ecosystem services.  If all the fish in the sea are caught and sold next year, global GDP would see a big boost while the fishing industry itself would completely collapse.
  • GDP doesn’t reflect things that have no market price but are good for our society, like volunteer work, parenting in the home, and public investments in education and research.

Two studies that show on this morning after that wonderful Danny Boyle-inspired Olympics night – where values were keenly shown as more than just money – that the slopes of Mount Olympus are slippery but not completely impassable: a Danny Boyle-inspired dose of self-actualisation.

Locked out of Power and Making a Noise

How do we contribute to society and how do we influence the future?

 

There is a dangerous gap opening up between people and institutions that current forms of democratic parties and other organisations set up to channel views to those instruments of power are not able to bridge. The problem is manifold:

Political parties which dominate most democratic societies are filled with professional politicians who have little (or at best moderate) understanding of the real world outside of politics;

Civil service bodies and public sector institutions are (as they have always been) full of careerists who are no longer “tempered” by the social reality that broadly based political parties would provide;

Campaign organisations are also full of careerists who work their way up the system internally and may have little real association with society outside their own silo of interest.

Corporations (especially large, multinationals) have a tremendous power in a world dominated by numbers – growth objectives – and can fund large campaigning groups of their own.

Ever-Changing society

There is no equilibrium in society although it feels like stasis has been reached. Different bodies are continually evolving as the environment changes politically and socially and economically. The problem is that entrenched interest groups (drawn from those sectors above) continuously work to make their positions more secure.

In the past, four, main sources of change were developed to open up society to change:

Political parties

Campaign groups

The media

Communications

But, mainstream sectors have succeeded, in the main, in wrapping the first three groups into that mainstream. There is a dependency on each other and a difficulty in breaking through with new ideas and attempting to force through decisions on even the most important issues.

The global economy has exacerbated this problem – as international needs lead to massive international organisations that succeed always in taking decision-making away from the individual.

Improved communications have through history succeeded in transforming the ability of individuals to learn more and have a greater say. The printing press was followed by the telephone, which was followed by the fax machine and the mobile telephone and the internet. Mass communication is now available that provides the ability for all of us to understand more of what is being done in our name. Social systems such as Twitter enable communication in an instant; mobile telephony and digital technology allows information in microseconds. This has had repercussions in events like the Arab Spring but the rigidity of social norms fights back most often.

Society’s complex underpinning will see some new emergence develop from this – but, what is it likely to be and how can the individual become involved rather than be part of a sector that more clearly matches that of Orwell or Huxley’s nightmares?

The drift to Centralised control

Maybe it’s a natural occurrence – that as organisations develop, they coalesce and form groups and associations that begin to meld into international committees that appear completely remote from most of us.

This is certainly true of political parties, true of sports associations (like FIFA or the International Olympic Committee), true of international organisations (like the UN, WTO), major NGO’s and charities, political groupings such as the EU, international corporates (such as the banks). Most people don’t know most of these organisations and many (like FATF – the Financial Action Task Force) have for years seemingly gloried in their anonymity.

With the rise of the internet, we were meant to discover more but that same rise has meant that less spending goes into traditional media organisations like campaigning newspapers. This has meant a reduction in in-depth investigations and analysis and much-reduced investment by newspapers and other media outlets in providing the type of information we need as individuals in society to keep the massive organisations on their toes.

In a major sense, the rise of the internet has had consequences that were not envisaged and has led to a major centralization of power structures – more immune from investigation than before.

We must not be misled by the closure of the News of the World in the UK after the hacking enquiry – the NotW was a scandal rag that was part of the new world of celebrity. Its loss is not great.

The loss of whole departments where the main task was to investigate and analyse how society works (and where it does not) and the rise of the internet as a news medium (and comment in 140 characters) shows that, so far, what has emerged is leading to centralization not the reverse.

Does Centralised control matter?

Democratic society is supposed to provide individuals with the ability to influence the way our society is run. So, centralized control does affect us all. While the drive to consumerism may suggest that we would not mind if we were ruled like in China (more goods supplied to keep the population quite), I suspect that this tendency does not appeal to all of us. Centralised control does not stop at Tiananmen Square – it has no controls. “”Unlimited power is apt to corrupt the minds of those who possess it” (William Pitt the Elder) is borne out through history and the idea that we can allow others complete freedom to guide us through life is obnoxious to most of us I suspect.

What are the options for decentralising?

The centralization of sectors of society needs to be continuously prodded. That can be done both internally (i.e. within those instruments of power) but mainly externally (from other organisations and / or individuals).

Working within is tough – the structures bind staff to their culture and it is very difficult to break out. A feature of British politics has been how the Liberal Party (a party for the individual within a coherent society and always opposed to centralization and totalitarianism) has become (especially since it became the Liberal Democrats) so bound up with the EU project – a centralizing force that is now seen to be breaking up.

External pressure may now be the only way to elicit change and to change the environment so that something less centralized can emerge.

The Centre for Civil Society in Australia is a good example of an organization that has been set up to prod society. www.civilsociety.org.au

The Centre for Investigative Journalism in London is another. http://www.tcij.org/

NGO’s like Global Witness are important contributors. www.globalwitness.org

All such organisations are set up to prod (some quite heavily) the existing structures – they are all dependent on external funding.

We need some creative destructionism – in the same way that Apple created new products that tore at our desire for more than pure functionality (although Apple is now part of that central structure); in the same way that Google tore into the online world and is now a core of that central structure – within the non-economic sphere, the way we live outside of numbers and products.

There are some options that remain that can assist in developing society so that we learn the lessons of the 20th Century – where communism and fascism drove the world to and then away from totalitarianism. Those lessons are now in danger of being unlearned – where the danger of unbridled centralism of society is occurring without (thankfully) war, but just the same potential results. We could wake up and find the world run from the centre. Maybe it is already and the drift to unequal wealth distribution a symptom.

That suggests more of an effort is needed to point a finger at our structures and the best way to do this is through our participation – and through some independent organisations, especially in investigative journalism, which can expose, fight for freedom of speech, help to analyse the impact of centralised decisions on society and expose fraud and corruption: many groups, many individuals wanting to open up the closed doors.

Does a tree that falls in a forest make a noise?