When Corporations Rule the World by David Korten

“Where corporate globalists tell of the spread of democracy and vibrant market economies, civil society tells of the power to govern shifting away from people and communities to financial speculators and global corporations dedicated to the blind pursuit of short-term profit in disregard of human and natural concerns . . . Civil society sees corporations replacing democracies of people with democracies of money, self-organizing markets with centrally planned corporate economies, and spiritually grounded ethical cultures with cultures of greed and materialism.” (David Korten)

“Human persons who behave in a similarly self-centered and destructive way [as corporations] devoid of conscience, are called pychopaths and are commonly deprived of their freedom as threats to society and confined to prisons or mental institutions. On the other hand, corporate officers suspected of sacrificing share price to acts of conscience out of concern for workers, community, or the environment, face a serious threat of dismissal.” (David Korten)

“The publicly traded, limited liability corporation is in the legal sense not a human institution. It is a pool of money, dedicated to the sole vocation of making money, on which a corrupted legal system has bestowed special legal privileges and protections not granted to real living persons . . . The human future depends on a deep economic transformation aimed at ridding human society of the pathology of the global, publicly traded, limited liability corporation.” (David Korten)

Overview

Though it will be read by some as an attack on the very concept of the corporation, the corporation is the most powerful institution for creation of value yet developed. It is the systems of governance and measurement of progress within which the corporation operates which, he argues, is in need of reform.

It consists of six parts and an epilogue. The first five parts, and three quarters of the book, are devoted to a detailed and relentless analysis of what he describes as the current crisis, its causes and its dynamic drivers. It ends with this paragraph, which summarises his argument:

“It should now be clear that the cure for the deprivations of poverty will not, cannot, be found in the economic growth of a globalized free market that weakens and destroys the bonds of culture and community to the benefit of global corporations. The necessary cure lies instead in restoring and strengthening these bonds. Our collective survival - not only of the poor and excluded but also of the relatively affluent and not yet excluded - depends on creating an institutional and values framework that advances this restoration.”

The final part sketches the directions needed - and some of the moves being made in those directions in various parts of the world - and outlines an agenda for change.

Book content

Part 1

gives the outlines of the argument. Korten argues that there is

“a threefold global human crisis of deepening poverty, social disintegration and environmental destruction’. ‘Confidence in our major institutions and their leaders has fallen so low as to put their legitimacy at risk - and for good reason. … these institutions are working only for a fortunate few. For the many, they are failing disastrously …’ (both internationally and within the ‘developed’ countries.)”

In one of several powerful analogies, he claims that

‘modern societies are practising a cowboy economicsin what has become a spaceship world ‘. … we are at once plundering our planet and tearing apart the fabric of nonmarket social relationships … It is a direct consequence of a misperception of the human relationship to natural systems.’

We act as if the wide open spaces were still out there to expand into, but he quotes detailed studies showing the extent to which our species has filled the available ecological space to the point where

‘we have little real choice other than to give the highest priority to efforts to simultaneously end overconsumption, population growth and inequality.’

Korten then addresses our obsession with economic growth - and growth which is defined in terms of GNP, which is largely a measure of the rate at which we use up resources. He points out that:

growth has done nothing to reduce the proportion of the population who live in absolute poverty;

measures of economic welfare indicate that most of us are working harder to maintain a declining quality of life (a point with which few in the ‘middle class would disagree);

‘policies that favor economic expansion commonly shift income and assets to those who own property at the expense of those who depend on their labour …’;

this form of growth is usually accompanied by devastation to the environment (and this devastation is often heavily supported by public subsidies); and relative income is more important to economic well-being than absolute income.

Without redistribution, an expanding pie brings far greater benefit to the already wealthy than the poor, and further increases the power advantage of the former over the latter.

The need is to break away from an obsession with growth, to make the distinction between growth and development and to focus on two priorities:

balance human uses of the environment with the regenerative capacities of the ecosystem
allocate available natural capital in ways that ensure that all people have the opportunity to fulfil their .. needs .. and .. to pursue their .. development.”

However, a

“powerful coalition of political interests (is) aligned behind an institutional agenda that is taking us in quite a different direction. These are the corporate interests that benefit when societies make the pursuit of economic growth the organizing principle of public policy”.

Part 2 has four chapters which trace:

the rise of the power of corporations as dominant organisations with global reach, alliegance only to the bottom line and accountability to no government;
the impact of the deeply flawed and twisted economic ideology which has gained dominance, which appeals to the market theories of Adam Smith and Ricardo, but is in fact a gross distortion of those theories;
the decline of democratic pluralism; and
the ‘illusions of the cloud minders’ - this last being another of his powerful analogies, in this case taken from an episode in Star Trek which depicted a planet which ‘had been colonised by rulers who successfully detached and isolated themselves from the people and the localities of the planet’s surface on whose toil their luxuries depended”.

The theme of Part 3 is that the interests of globally based multi-national or transnational companies are profoundly at odds with human interest. It is they which are the main drivers of globalisation, which in practice is the denial of the right of

“local people, acting through their governments to govern their own economies in the local interest. Government should respond instead to the needs of the global corporation. These bodies have alliegance only to their own bottom line.”

Global companies are able to hold national governments to ransom or to cause them to bid against each other to produce conditions in which corporate private costs of operation are passed to the taxpayer to the benefit of private corporate profits, often at the same time destroying local cultures and the local and global environment.

Korten catalogues the ways in which the corporate elites build a consensus round corporate global interests.

“The greater the political power of corporations and those aligned with them, the less the political power of the people and the less meaningful democracy becomes.”

The alternative, that of localising economies and dispersing economic power, is being very actively opposed by the corporations through the power of business lobbies and through exerting enormous marketing pressure to build a culture of self indulgence through the media and through vigorous efforts to influence school curricula.

He then proceeds to an analysis of the impact of two of the three great international instruments of globalisation - the World Bank and the International Monetary Fund - (and later goes on to deal with the World Trade Organisation, the successor to GATT). Again without going into the detail of his arguments or the evidence which he presents (but remember that he spent many years working for organisations and in areas which gave him a very intimate understanding of the effects at grass roots level), he concludes:

“If measured by contributions to improving the lives of people or strengthening the institutions of democratic governance, the World Bank and the IMF have been disastrous failures - imposing an enormous burden on the world’s poor and seriously impeding their development. In terms of fulfilling the mandates set for them by their original architects - advancing economic globalisation under the domination of the economically powerful - they both have been a resounding success. … They have arguably done more harm to more people than any other pair of non-military institutions in human history.”

A separate chapter catalogues the potential and emerging reality of damage through the WTO.

Part 4 is entitled A Rogue Financial System. The core of the argument is that money has become delinked from value and has become almost a pure abstraction. Investment decisions have become concentrated in the hands of a few investment managers , investment horizons have shortened dramatically and financial markets have largely abandoned productive investment in favour of extractive investment.

At the same time probably over 90% of the unimaginable volume of money changing hands daily (estimated at somewhere between $800 billion and $1.2 trillion) is quite unrelated to the needs of the productive economy. This speculative money depends on volatility and the sheer volumes make it almost impossible for national governments to intervene effectively to influence trends.

He concludes:

“With a system so out of control that its best and soundest institutions cannot protect themselves from flagrant fraud and abuse by their own staff, it takes an enormous leap of faith to assume that these institutions are capable of self-regulation in the public interest. …..
… as corporations have delinked from the human interest, the institutions of finance have delinked from both the human and the corporate interest. Financial institutions that were once dedicated to mobilizing funds for productive investment have transmogrified into a predatory, risk creating, speculation driven global financial system engaged in the unproductive extraction of wealth from taxpayers and the productive economy. ….
…Among its more specific sins, the transmogrified financial system is cannibalizing the corporations that once functioned as good corporate citizens, making socially responsible management virtually impossible …”

Part 4 ends with two chapters on “Corporate Cannibalism” and “Managed Competition”, which argue that globalisation strengthens tendencies towards global scale monopolisation and that this is being accentuated by the growing range of joint ventures and strategic alliances. The section ends:

“The world’s corporate giants are creating a system of managed competition by which they actively limit competition among themselves while encouraging intensive competition among the smaller firms that make up their periphery. It is all part of the process of forcing the periphery to absorb more of the costs of the ‘value added’ process so that the core can produce greater profits for its own insatiable master, the global financial system. ….

The underlying patterns of the institutional transformation … are persistently in the direction of moving power away from people and communities and concentrating it in giant global institutions that have become detached from the human interest.”

Part 5, the last in this gloomy catalogue of what is going wrong with our global society, is entitled “No Place for People”. The argument is that these trends are generating a ‘race to the bottom’ - a world in which nations and communities are pushed into competition to attract investment by reducing wage and living standards.

“Standards are being harmonised internationally - towards the lowest common denominator.”

Social responsibility is inefficient in a global free market - people are unnecessary and the costs of keeping them are inefficient - and all these trends are reinforced by the power of a remote financial market to enforce short term efficiency on managers if they want to retain their jobs.

“It directly creates a world in which social bonds are destroyed and people and human values have no place.”

It is with some relief that the reader returns from the relentless catalogue of evidence supporting his critique of current institutions, policies and beliefs to Part 6, which outlines his prescription. This is based on six principles, which are explained on pages 272-3 of the book:

The principle of Environmental Sustainability
The principle of Economic Justice
The principle of Biological and Cultural Diversity
The principle of People’s Sovereignty (or the Principle of Subsidiarity which is the principle that things that should be handled by the most local level of administration possible; central high-level government should only be involved in handling things that cannot be dealt with effectively on a more local level)
The principle of Intrinsic Responsibility
The principle of Common Heritage.

“The appropriate organizational form for the ecological era is likely to be a multi-level system of nested economies with the household as the basic economic unit…… Embodying the the principle of intrinsic responsibility, each level would seek to function, to the extent that it is reasonably able, as an integrated, self-reliant, self-managing political, economic, and ecological community.

The argument is that this form of organisation works to maximise sustainability, maximise local community involvement, and minimise the incentive to externalise costs.

Instead of forcing localities into international competition as a condition of their survival, a localised global system encourages self-reliance in meeting local needs. Instead of monopolizing knowledge for private gain, it encourages the sharing of knowledge and information. Instead of promoting a homogeneous globalized consumer culture, it nurtures cultural diversity. Instead of measuring success in terms of how much money we make, it encourages measuring success in terms of health y social function. ……. the Ecological Revolution is …… a struggle of people against an economic system running out of control.

The last Chapters, entitled Good Living, An Awakened Civil Society, and Agenda for Change, sketch what is involved in a move away from the promotion of overconsumption towards sustainable living, towards sustainable production of food and use of materials and away from a focus on jobs towards a focus on providing sustainable livelihoods. Korten documents some of the things already being done in various parts of the world and the way in which citizen networks can produce desirable change. He gives an overview of alternatives to the current tax system which would improve governance of corporates and discourage externalising costs, and suggests radical reform of the World Bank, IMF and WTO. His suggestion is that every citizen needs to do what is possible to reclaim our power and reinstitute human values.

Important excerpts from the book

We presently live under two competing system of (global governance: The Bretton Woods institutions and the United Nations. The former is primarily aligned with the corporate interest and the latter is primarily aligned with the human and natural interest.

The Bretton Woods institutions - the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO), previously the General Agreement on Tariffs and Trade (GATT) - are major institutional players in rewriting the rules of the global economy to circumvent democracy to rewrite the economic rules to favor the concentration of wealth and power.

All three claim to be dedicated to the cause of the poor and the disadvantaged. But look at their policies and actions and you find the World Bank, the IMF, and the WTO consider the ideal country to be one in which all assets and resources are owned by foreign corporations producing for export to generate foreign exchange to repay international debts. Their favored country has no public services. Power, water, education, health care, social security, and financial services are all owned and operated by foreign corporations for profit on a fee for service basis. Food and other goods for domestic consumption are all imported from abroad and paid for with money borrowed from foreign banks.

… civil society tells the story of a world in deepening crisis of such magnitude as to threaten the fabric of civilization and the survival of the species a world of rapidly growing inequality, erosion of relationships of trust and caring, and a failing planetary life support system.

Where corporate globalists tell of the spread of democracy and vibrant market economies, civil society tells of the power to govern shifting away from people and communities to financial speculators and global corporations dedicated to the blind pursuit of short-term profit in disregard of human and natural concerns.
Civil society sees corporations replacing democracies of people with democracies of money, self-organizing markets with centrally planned corporate economies, and spiritually grounded ethical cultures with cultures of greed and materialism.

In the eyes of civil society the corporate global economy is a suicide economy that is destroying the foundations of its own survival and the survival of the species. They see a corrupt political process awash in corporate money and beholden to corporate interests rewriting our laws to provide corporations with massive public subsidies while eliminating the regulations and borders that hold corporations accountable to some larger public interest. They see the World Bank, IMF, and World Trade Organization as leading agents of this assault against life.

References

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