Sunday, February 26, 2006

The 'Corporate Axis of Evil'

by Tom Bozzo

This post, "Life Takes (plenty of bullsh*t from) Visa," at The Columnist Manifesto is a great "Oscar Madison" rant, with an arc from the "nauseating contradictions" shot through Olympics sponsorships, to the petty annoyances of credit card terms that mean big money for card issuers, to the legal ramifications of the microscopic print in the card agreements, and finally issuers' need to act as easy credit pushers to maintain their profits. I encourage you to read the real thing, and not just my summary.

Oscar concluded by nominating an "axis of corporate evil" consisting of:
This led to a "Wuuuuuuh?" moment. I asked in a comment, where was Big Tobacco? Isn't a lot of (most?) financial intermediation good for us on balance? What of the array of financial wheeler-dealers and their array of highly-paid consultants, hollowing out the economy and inflicting inhumane work practices on everyone else in the name of investor profits? (Which is sold to the general public as some variation on "always low prices.")

Oscar responded with a post featuring his indictment of the pharmaceutical industry:
We know tobacco companies push a product that causes harm when used as intended; the evil of pharmaceutical corporations is more insidious and wide ranging, and largely off the radar screen. Let's start with their live human subject testing on unsuspecting people in Africa -- see The Constant Gardner. And their aggressive use of patents, the effects of which will not fully reveal themselves for years to come. Let's talk about their manipulation of consumer consciousness promoting widespread experimentation with drugs by millions of people in our society, their brainwashing of the medical profession, their hostile takeover of objective scientific research, and their dominance of health care policy. I'm certainly speculating here, but in 50 years, they're going to make the tobacco companies look puny.
In this, and a comment that much of what you'd think of as beneficial banking instruments existed when the industry was more stringently regulated than it is now, I think this debate is onto the meta-truth of the situation. These corporate "evils" have, as a common thread, a failure of society, through government, to impose sensible restrictions on corporate behavior.

Looming particularly large in Oscar's accounts are the combination of deregulation and weak enforcement of competition laws. A lot of corporate "evil" amounts to firms doing what comes naturally when they have market power to wield. Allow formerly competitive industries, like credit cards, to consolidate into oligopolies, and it should be no surprise that fees and contractual terms that once didn't exist, everyone finds annoying, and have no obvious connection to costs aren't competed away.

Oscar's point about Big Pharma's patent monopolies is a good one. The standard defense of the high (relative to competitive market) drug prices is that they're necessary to fund pharmaceutical research. That argument barely passes counterfactual muster. It's really only true to the extent that there's no choice but to incur the large fixed costs of drug R&D and testing privately, in which the pharmaceutical firms must recover their costs to stay in business. Of course, when needed, it basically serves as a threat as well as a PR pitch.

There's a good case to be made that the patent quid pro quo is failing — Dean Baker makes it, noting that we pay about $80 billion in monopoly profits to drug patent holders in return for a bit more than $20 billion in actual research, some of which is wasted (from society's perspective) on copycat drugs. That the distortion is so large suggests that it might be a good idea to regulate drug patent monopolies.

Government and foundations already spend at least as much on pharmaceutical research, and I've noted that there's little reason to believe that government funding directed through university research labs couldn't play a much bigger role in the process. A good point Baker makes is that if the high prices were due to an explicit cost recovery tax, conservative and libertarian economists would be turning themselves inside out decrying the magnitude of the market distortion. I have a hard time believing that our hard-working academic researchers would need anything near $80 billion to provide that $20 billion in research.

Corporations are not as blameless as Jessica Rabbit — "I'm not bad, I'm just drawn that way." At least pending the arrival of the DVD of The Corporation from Netflix (#2 in our queue), my inclination is to liken corporations more to an underparented toddler or, perhaps, a carnivorous wild animal. Who's really to blame when a wristwatch gets flushed down the toilet or a leg gets bitten off?

In this case, the blame traces back to the corporatist-deregulatory revolution that began to gather in the seventies — airline deregulation happened under Carter — though it was in Reaganism that the ideology of laying off corporations for the laissez-faire vision of the greater good receieved an enormous boost. Having moderated a bit under Clinton, who had to battle the Gingrich Congress and still was too corporatist for a good chunk of the left (leading, in part, to the Nader disaster of 2000), it's under Bush that the project has reached its apotheosis.

In the executive branch, corporate flacks and lobbyists occupy appointed positions overseeing the firms and industries they once worked for, and will work for again. In the legislative branch, the "K Street Project" of DeLay, Abramof, and other Republican miscreants set up a cycle of not especially legal bribery in which campaign contributions and executive perks for legislators were traded for the opportunity for corporations to write their own legislation.
With the $20 bill dropped on the sidewalk, should we be surprised that it's picked up?

This could be regarded as weak on corporate amorality. Indeed, it doesn't take a PhD in ethics to figure out that there's a difference between pricing a luxury car according to what the market will bear, and pricing a life-saving medicine that way. My point is that society should no more trust corporations to internalize the social externalities of all forms of profit-seeking behavior than you should trust a tiger not to eat you. But we are awash in messages that corporate interests are the true democratic-social interests (cf. Thomas Frank), and it falls to the likes of The Onion to sell "I Just Love Corporations" T-shirts by way of satire. Bushism and Reaganism make it a self-fulfilling prophesy.

(See also here and here.)
Well argued -- I agree!
Ahh...the corporation
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