Economies of Deception

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Two books I have recently read, Treasure Islandsand Merchants of Doubt, have each highlighted, in their different ways, how deeply rooted deception is in our current economic order.  Banks hide behind many layers of secrecy, shuttling funds around shady offshore jurisdictions, in order to get by with transactions that would never pass public scrutiny, and to hide profits from taxation.  Manufacturers have turned to the business of manufacturing doubt about the environmental impacts of their activity, systematically engaging in smear campaigns against scientists and whistle-blowers who reveal these impacts and costs, and funding “studies” to convince that everything from CO2 to acid rain to DDT to cigarettes are clean, safe, and sustainable.  

A slew of recent high-profile scandals have illustrated the same tendency.  The world’s largest company by market cap, Apple, Inc., was sued by the US Department of Justice for secretly colluding to fix prices on e-books.  More recently, damning allegations have come to light that the world’s largest company by revenue, Wal-mart, engaged in systematic bribery to gain a major foothold in Mexico, and, most seriously, that the bribery was then carefully covered up by senior Wal-mart executives.  A couple months further back, US meat-lovers were scandalized to learn that supermarkets and fast-food chains had been selling them beef padded with ammonia-sprayed “pink slime,” prompting a massive public backlash and the virtual shutdown of the pink slime industry, may it rest in peace.

 

Despite their differences, all of these episodes reveal a troubling problem in our economic order—the truth doesn’t sell.  The truth about tobacco doesn’t sell cigarettes, the truth about beef doesn’t sell burgers, the truth about e-book prices doesn’t make nearly as much profit as an artificially jacked-up price, the truth about Wal-mart’s corporate practices isn’t gong to endear them to consumers.  

This problem points to a deeply-rooted contradiction in the free market model—its hostility to the free flow of information.  For Adam Smith and other free market theorists, free access to information was a key pillar of a successful free market.  If a given exchange was to be genuinely free, and thus maximize the total benefit for buyer and seller, then buyers and sellers had to have roughly equal knowledge of the relevant information.  If I sell you a rhinestone necklace while deceiving you into thinking that it is in fact diamond, then we wouldn’t call this a properly free exchange, even if you eagerly bought it at the offered price.  The resulting transaction would not have taken place at the true equilibrium price, the point at which markets are maximally efficient.   

But of course, while maximally efficient for the market as a whole, the equilibrium price is not where either buyers or sellers would prefer to transact, since it limits the gain that either can make.  A buyer would prefer to take advantage of a going-out-of-business sale, in which a distressed merchant has to sell goods at well below the normal equilibrium price in order to get rid of them quickly.  A seller would prefer to take advantage of a naive first-time buyer, who has no idea how much something normally costs, so he can charge far more than it’s worth—hence the rip-off merchants that like to cluster around entry points for foreign tourists.  As this latter illustration shows, limited information can provide tremendous opportunities to avoid the equilibrium price and maximize gain.  

Generally, it is the seller who is in much the stronger position to make use of this information gap, since the seller usually knows a great deal more about the actual value of the goods and where they’ve come from than the buyer.  The seller may know that a product has cost him $10 to acquire, and he will have to sell it for $12 in order to turn a profit; but if he can convince the buyer that in fact the market price is $20 (say, by normally selling it at that price, and occasionally having a 50% OFF CLEARANCE SALE!), then so much the better.  This kind of disequilibrium is of course ubiquitous, but normally it doesn’t bother us that much, because it is kept in check by competition.  Assuming plenty of competitors in the marketplace, and assuming they aren’t colluding with one another (which, as the Apple case shows, is not always a safe assumption), we can count on the selling price as a whole to gravitate toward equilibrium, especially if we are willing to be shrewd shoppers and only buy things when they’re on sale, recognizing that the sale price is likely to be closer to the real price.

But rather harder to exorcise is the suppression of unsavory information about a product—if it comes from an unethical source (e.g., blood diamonds or Nikes), or contains harmful ingredients (e.g., Coke, a Big Mac, or tobacco), or else is just useless for its supposed purpose (e.g., a high proportion of patented medications and hygiene products, for which dirt-cheap natural substitutes are often far more effective).  Any of this information might cause the consumer to pay far less for the product, or reject it altogether (which would, of course, force the price down for those still willing to buy).  While we might be able to rely on McDonalds to sooner or later make it clear to us that Burger King is systematically overstating the cost of beef, by underselling them if they price it too high, it is in neither McDonalds’s nor Burger King’s interest to be forthcoming with us about the unsavory backstory of that beef, just as, competitors though they may have been, everyone in the tobacco industry could agree to work together in manufacturing doubt and disinformation about the dangers of smoking.  Collusion in the suppression of information is the order of the day.  

 

What all this suggests, of course, is the dependence of any kind of free market on a robust moral order, the dependence of The Wealth of Nations on The Moral Sentiments.  When the pursuit of profit becomes a self-justifying end, truth becomes a readily dispensable commodity, because truth will not maximize profit.  And as truth is exchanged for profit, a genuinely free market is exchanged for a war of all against all, in which consumers and producers are locked in an endless battle of trying to deceive and outwit the other.  If a free market can work, it can only work within a vigorous shared commitment to truth and honesty that runs deeper than any desire for gain, an integrity that “swears to its own hurt.”  Whether such a shared commitment can be counted on in any society, much less in our current culture that is at war with the very idea of truth, is an open question, and one that needs to be faced more honestly by the proponents of free market orthodoxy.

If Corporations are People…

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After a spell of travel-induced inactivity, I return with some more half-baked musings loosely inspired by Nicholas Shaxson’s Treasure Islands.

If corporations are people, then shouldn’t they pay the same taxes as everyone else?  Why should corporate tax rates generally be lower than personal income tax (the US is an exception here, though exemptions and loopholes mean that many companies pay far less than the 35% rate)?  If corporations are people, then why can they relocate from one jurisdiction with relative ease, without having to go through immigration and naturalization?  Why, for that matter, can they split themselves into pieces and be in several countries at once?  I certainly can’t do that.  If corporations are people, then why can they live forever?  And why shouldn’t they be beholden to those who brought them into being (viz., the government—”The state is the only institution in the world that can bring a corporation to life.  It alone grants corporations their essential rights, such as legal personhood and limited liability….Without the state, the corporation is nothing.  Literally nothing.”—Joel Bakan, The Corporation)?  My parents had enormous authority over me through my first eighteen years, but corporations, we are told, should be free from regulation by the legal regime that brought them into being.  

If we’re going to push the concept of corporate personhood to insist on “human rights” like “free speech” for corporations, then perhaps we should be consistent.  As it is, corporations are not simply persons, but highly privileged persons provided by law with opportunities and powers unavailable to most people.  

 

On a related note—

If competition is the essence of a free market, then why should the market be exempt from the constraints we apply to other forms of competition?  If I wanted to participate in the Olympics, then I would have to go through a rigorous selection procedure to ensure that I was a legitimate participant and would have to meet relevant national and international codes and standards merely for the opportunity to compete.  Once I was in, I would be subject to general rules established to minimize opportunities for cheating, bribery, etc., and to extensive tests to prove that I was not using performance-enhancing drugs.  To comply with regulations against such drugs, I would have to avoid even a number of perfectly legitimate drugs that contained restricted substances (as Andreaa Rudican so tragically learned at the 2000 Olympics).  In addition, my particular sport would be governed by a lengthy list of rules that established the manner in which I was to compete and restricted me from taking any unfair shortcuts or conduct that would unfairly sabotage my rivals.  These rules would be enforced by referees who would closely oversee the whole event and would be authorized to nullify my results or eject me from the competition if necessary.   

Of course, no doubt we could complain in some cases about bureaucratic overkill, obsessive and demeaning drug-testing, and hyperactive refereeing.  But surely we would all admit that without extensive rules setting both the terms of participation, the nature of the game, and the legitimate means that could be employed in competition, most of the organized sports that we love would be impossible.  If sprinters could dope as much as possible, they might be incredibly fast, but no one would bother to watch—the races would no longer be athletic competitions, so much as medical experiments in responsiveness to drugs.  If football players could do whatever they wanted to get the ball to the end zone, then football would degenerate into rugby.  Ok, just kidding—even rugby has rules, and plenty of them.  Football would degenerate into a brawl.  

To be sure, in an amateur pick-up game, referees will probably be unnecessary, and even rules can be somewhat loose and flexible; general goodwill and commitment to gentlemanliness may ensure that competitiveness does not get out of hand.  But the higher the level and the higher the stakes, the more precise rules are necessary—exactly when does the race start? exactly what comprises the strike zone? when is a foul a flagrant foul?—and the less one can rely on the participants to self-regulate.  Indeed, the employment of outside referees should not be seen as an insult to the integrity of the players, but as doing them a favor—with an outsider charged with making sure the rules are followed, the players can focus on playing the game, rather than always watching the other players out of the corner of their eye for violations.  They can rest assured that, even if they get carried away by emotions in the heat of competition, there’s a reasonably objective third party who will still judge clearly.

 

Free marketeers love to invoke the idea of competition.  Competition is what makes capitalism work.  But then they are prone to turn around and deny that this competition needs the kind of rules and refereeing that any other competition needs.  And yet, if anything, in business, the stakes are far higher than in football or gymnastics.  A trophy or a gold medal might be exciting, but in the end, how much depends on it?  But businesses are engaged in creating and destroying people’s livelihoods; indeed, in developing countries, business competition can be a matter of life and death for some people.  And yet, we are assured, even if football players shouldn’t be allowed to regulate themselves, corporations should.  Again, if markets are all about competition, then let’s get real and start treating them like one.

Leviathan or Puppet?

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One of the favorite rhetorical weapons of the Right is to point to the sheer page count of federal legislation, particularly the Federal Tax Code.  They are especially fond of pointing out that the tax code is longer than the Bible, though there seems to be considerable haziness on the precise margin.  This is often presented as damning evidence of the overgrown power of the federal government, a sprawling, all-consuming monster that has its tentacles in everything.  Of course, no one would deny that there is a lot of truth to this picture.

But reading Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens, it occurred to me that another interpretation is possible.  Perhaps the sheer length of US tax regulations is more a sign of impotence than omnipotence.  Think about it.  

In a nation with a strong, respected, generally-accepted authority (perhaps a mere hypothetical), laws ought to be able to be fairly concise.  The law can say “Thou shalt not do X,” (where X is a fairly clear and generally-accepted concept), without too much further elaboration, and can generally accept that people will by and large try not to do X.  But suppose people feel disinclined to obey; they will start saying, “So what counts as X anyway?” Or, “They won’t be able to convict me of X if I just do it this way…”  To cope with this loss of authority, this lack of concern for the spirit of the law, the law will have to become ever more complex and detailed, trying to plug every hole in the dam.  We might suggest the principle, “Where words are many, authority is probably absent.”  Of course, this becomes a vicious cycle, since the increased regulation simply provides further incentive to try to dodge the law and search for loopholes.  

Treasure Islands suggests that this is exactly what has happened with our tax codes.  Eager to avoid taxes, companies and wealthy individuals used accounting tricks and offshore tax havens to get off scot-free, and governments responded with ever more complex tax codes to catch the fleeing money, usually with only very short-term success.  Even worse are those cases where the complexity and absurd length of the regulations is a result of lobbying, so that governments are not merely struggling to maintain control but have capitulated entirely, allowing corporations to all but write the tax codes for them.  

It’s for this reason that, while sympathetic in principle with a dramatically slimmed-down tax code, I have so little patience for the gimmicky proposals that get trotted out every election cycle by the GOP, such as Herman Cain’s absurd “9-9-9” plan.  “We can get the tax code down to just a few pages and still bring in just as much revenue!”  For how long?  A week?  The current code started out at just a few pages too, and you can guarantee that as long as multinational corporations and wealthy individuals remain as powerful, mobile, and creative as they now are, that any tax code that wants any slice of their money will have to grow like kudzu just to keep up.  

Consumed: A Book Review

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It took me more than a year to finish this book–sometimes, that should tell you something about me, but in this case, that should tell you something about this book.  While Barber’s overall thesis is compelling and important, his presentation of it seemed calculated to alienate any possible allies.  Pompous and blustering, he writes most of the book’s 339 small-font pages in a breathless, melodramatic tone of fervent moral passion and outrage (I suppose the subtitle should’ve warned me adequately: “How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole”).  Now, this would understandable as an occasional device.  The subject is one that calls for moral passion and outrage, and I, for one, am sympathetic to the desire to indulge in rhetorically-charged passages chock-full of unusual polysyllabic words.  But intense rhetoric is only effective as an occasional device, as a departure from the benchmark of more restrained rhetoric.  Unfortunately, for Barber, the bombastic was the benchmark, from which he almost never departed.  And as you can imagine, that begins to grate on one. 

As part of his tirade against consumer culture, he seeks to include pretty much every example and phenomenon he can think of, regardless of whether it’s relevant or compelling.  Instead of a focused account of some of the most alarming trends and damning evidence, Barber is determined to offer a comprehensive account of everything that is wrong with the world today under his heading of “infantilization.”  Couple that with the fact that he seems to have been too pompous to have accepted any advice from his editor, and one has to endure many pages of irrelevant or laughably overblown laundry lists of complaints.

And yet, I did the book the honor of reading till the end, because I believe his overall thesis is compelling and very important.  Barber argues that a vast distance separates the consumer capitalism of our own day from the productive capitalism of yesteryear which pundits continue to laud, idealistically imagining that our economic system today is scarcely different from that of 100 years ago, and that today’s critics of capitalism can be answered by appealing to capitalism’s virtues of yesteryear.  As a somewhat nostalgic, rose-tinted view of capitalism’s past, Barber’s portrait leaves me skeptical, but as a diagnosis of our contemporary condition, I think he is spot-on.  Originally, says Barber, capitalism served to meet genuine human needs, and it did a really excellent job of this; now, however, with genuine material needs sated in the West, capitalism has had to turn to *creating* artificial needs and wants that it can satisfy.  Not only that, but although there are still many places in the world with genuine needs, urgent needs, it is far less profitable to service these than it is to continue to feed the pathological desires of consumer society.  

This leads to the phenomenon which Barber calls infantilization, which constitutes the heart of his argument.  Producers, eager to create as much demand as possible to a strategy of infantilization, market to children, and try to turn us all into children.  After all, children have far less sales resistance, far less ability to discriminate what they really want and really need, far less ability to make rational decisions about what they can afford and what they can’t, so it’s much easier to sell to children than adults, easier to get them hooked on brands and products.  Barber chronicles the sinister ways that companies have sought to take over childhood with commercialism, barraging children not only with a surfeit of children’s products, but also colonizing childhood prematurely with the trappings and products of adulthood.  Not only that, but it pays to keep adults in a perpetual state of childlike neediness and dependency, to establish habits of impulse buying and brand addiction that people will never outgrow.  Some of Barber’s examples of the phenomenon of infantilization (e.g., the popularity of Pixar, which makes “children’s movies”) are quite poor, and even hurt his thesis, but overall, as I say, it’s compelling.  Of course, it’s important to note that Barber does not treat this simply as some big conspiracy on the part of manufacturers (although occasionally he comes off that way), but as an overarching social phenomenon of regression and loss of self-control in which we are all complicit.  

This pattern of infantilization carries with it a corollary, which is the other key theme of Barber’s argument—”privatization.”  Barber uses this term not in its common narrow sense of handing over government functions to corporations (though that is part of it), but as a wider problem of the destruction of the public, the atomization of society, and the consequent loss of corporate moral agency (note that “corporate” here and following does not mean “relating to a corporation”).  Although I’m not sure that he cites her at all, Hannah Arendt’s fascinating discussion of the “privation of the private” in The Human Condition provides an excellent foundation for his argument here.  He argues that we have made such an idol out of personal choice and freedom that we find ourselves powerless to oppose all kinds of things that almost no one wants and almost everyone considers harmful–unrestricted pornography, aggressive marketing of junk food to children, etc.  Indeed, he points out in a section that should be of great interest to conservative Christians how this demographic finds itself in a ridiculous quandary.  On the one hand, conservative Christians are most concerned about many of the things the culture is throwing at our children, and the ways that the ubiquity of media and the aggressiveness of advertising make it impossible to escape from, and yet conservative Christians are most likely to eschew any public means of combating this onslaught, and are reduced to each fighting their own losing battles as tiny enclaves.  In the interests of freedom, we have actually accepted a great loss of freedom, since to resist some evils and protect some freedoms, it requires corporate agency–to remain free, we cannot each rely solely on our own resources.  Barber offers a compelling apologia for regulation, understood not as the officious meddling of power-hungry bureaucrats, but as the collective decision of citizens to stand against and rein in forces that undermine society and morality.

Now, we are naturally inclined to suspect that Barber is simply going to take us out of the frying pan and put us into the fire, substituting the evils of big government for the evils of big market.  This knee-jerk suspicion is often unfair, because there is a genuine place for government in restraining rapacious markets.  But in this case, we are right to be a bit suspicious.  Barber is almost as eloquent in eulogizing “democracy” as he is in decrying consumerism.  He has this rosy idea that somehow if we all stepped up to the plate and were willing to be “citizens” again, and engage in real democracy, exercising our corporate moral agency, then everything would be alright.  Given the depth of the cultural malaise that Barber identifies in this book, I’m awfully skeptical.  For this reason, the last two chapters, trying to offer a way out of our current predicament, are the weakest.  

 

For all this book’s weaknesses, however, I would definitely recommend reading the first four chapters, if you can handle that much of the hypertrophied rhetoric.  For a more disciplined treatment of some similar issues, read Naomi Klein’s No Logo.  And for a very concise and thoroughly theological overview of many of the same problems, read Cavanaugh’s fantastic Being Consumed.  And, of course, for a primer on the nature and importance of corporate moral agency, read Richard Hooker. 🙂

The Problem in a Nutshell

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The contents of this post are probably nothing new if you’ve this blog for awhile, but as people back home sometimes get baffled and think I’m a left-wing loony, I’ve been thinking of a way to encapsulate where I’m coming from politico-economically in a nice, neat (though none too eloquent) nutshell.  So here’s a try:

I’m for a free market, or more importantly, a free society, which includes a free market.  Freedom requires the removal of oppressive constraints.  But oppressive constraints are precisely what are put in place by large and powerful entities determined to retain and advance their power.  We live in a world full of massive, extremely wealthy and powerful entities.  Our government is one, to be sure.  But when there’s ten bullies on the block jockeying for position, you don’t get freedom just by taking out the current top bully–rather, by doing this you invite the nine others to come in and take his place, and woe to you if they turn out to be less benign than the first.  If we’re going to live in an age of massive, centralized multinational corporations, then unfortunately we’re going to need massive, centralized governments to keep them in line (though unfortunately, these will often collude with the corporations, rather than restraining them).  You focus just on removing the governments and you don’t get freedom, you just get regime change–indeed, from a constitutional regime to an unrestricted one.  Conservatives talk as if freedom will be attained simply by removing one bully from the equation–the government–and leaving all the others untouched.  But if they get their wish, they may find that the government was, for all its foibles, the only thing maintaining some semblance of freedom from all the other bullies on the block.  So if we’re going to talk about freedom, let’s start talking about how to shrink all the bullies down to size, something that will require laws and constraints–things which, believe it or not, can be aids to freedom, rather than chains.

Now, I realize now that that’s really only half of what needs to be said, so I suppose I’ll try to work up a Pt. 2: The Solution in a Nutshell.  Heh, that should be fun…