First we should decide just who is on whose back.
For those who pay attention to the visceral cacophony that passes for political debate in America, it’s no wonder that they view “corporations” as either the divine creators of all economic vitality or as organizations led by godless men who are being seduced and programmed by the devil.
Those on the political right offer the simplistic idea that the way to reduce unemployment and get the economy rolling again is to “get government off the backs of business and allow business to do what it does best.” Those on the political right see government regulation and taxation of corporations as sinister plots that clog the engines of economic growth. Their plaintive plea, offered ad nauseam, is that all would be well with the economy if only we would “reduce corporate taxes and eliminate regulations.”
On the other hand, there are those on the political left who hold to a one-dimensional view that corporations are by nature innately evil. They believe that the greedy and self-serving actions of corporations are the actual cause of the current economic problems. Their solution is to tax corporations in order to make them “pay their fair share,” and to closely regulate them to prevent their naturally recurring nefarious actions.
Neither Fish nor Fowl
The truth is that corporations are a little bit of both and we should be glad that this is true.
There is no denying that corporations have been at the center of economic development in this country. Yet, despite the contributions that corporations make to the economy and employment, they have proven again and again that — left to their own devices — they will take self-serving actions that are detrimental to all but a few.
The problem is that both the left and the right misstate and mislead everyone as to the true long-term relationship between government and corporations. It has always has been cozy and codependent, and that is not all bad. Throughout the entire history of our country, the government and corporations have always been in accord more often than in conflict. Corporations and government may not share the same objectives, but they serve each others’ purpose and are used by the other to achieve their own objectives.
The objective of government is not to make a profit, but to seek a robust, full-employment economy so that those in government can be re-elected. The overriding objective of corporations is not to contribute to the growth of the economy or create jobs, but to make as much profit as possible so those running corporations can receive the biggest salaries and most lucrative bonuses possible. This dichotomy of goals leads to corresponding dilemmas: Given the choice of a balanced budget or deficit spending in an effort to stimulate the economy and create jobs for people, what choice will (or should) the government make? Given the choice of making a profit or keeping more people employed, what choice will the corporation make?
In the past few years, the government has been piling up huge deficits trying to keep people employed. At the same time, corporations have been piling up huge profits, while laying-off thousands of workers. It is this conundrum that has created the serendipity of association between the government and corporations that has historically been central to the country’s economic growth and vitality.
Corporations have never been inclinated or had the resources necesssary to take the independent and risky actions necessary to build the country and the economy. They have always depended upon the government to provide protection, tax incentives and outright subsidies in order to enhance their profits. With the predisposition and resources but not the talent or temperament, the government has almost always depended upon corporations to take the actions that grow the economy and create jobs.
Neither the left or right want to admit it, but the economic success of our country resulted from the government and corporations riding on the backs of each other.
In the late 18th century, when the American government sought to create a manufacturing base and expand non-farm employment opportunities, it did so by imposing stiff tariffs on textiles imported from Great Britain, purchasing the land, funding the construction of factories and subsidizing the entire textile industry.
This was not an exception but rather a start of a two-century backscratching partnership between the government and corporations. Just a few examples of which included:
- Building a transcontinental rail system by offering free land and outright grants to the embryonic railroad corporations. The rail companies made millions in profits and the government got the economy stimulated and thousands of jobs created.
- In the 1960s, under the guise of landing a man on the moon, the government virtually created the aerospace industry. With the formation of NASA, the government pumped hundreds of billions of dollars into the nascent aerospace industry that stimulated the economy, created tens of thousands of jobs and earned hundreds of millions in profits for corporations.
- More recently, when inefficiency and pure bad management pushed the auto industry to the brink of failure, the government pumped billions of dollars into these corporations. The companies readily accepted the government money to save their companies while the government was motivated to save jobs. And, as most of these government-corporate arrangements have in the past, the effort seemed to work. Using government money the companies have returned to profitability and for the government 90,000 new jobs have been created by the auto industry in the past two years and the jobs of 1.7 million workers were saved.
It is not something we like to admit, but the majority of wars and military incursions undertaken by our government in the past 200 years were motivated by the desire of our government to create or protect the economic opportunities of corporations.
There is More to the Government-Corporate Partnership than Simply Government Largesse
The entire federal tax code is loaded with ambiguities (some call them “loopholes”) that benefit corporations. Those on the right like to claim that the corporate tax rate in America is “the highest in the industrial world.” They would be right if the corporations actually paid that tax rate! But, like so much babble we hear from the politicos, it is just bluster, smoke and mirrors. That corporations are overtaxed is more a myth than Big Foot, the Bermuda Triangle and the Loch Ness Monster combined. The reality is that as a percentage of total government revenues, corporations are paying less now than they did 20 years ago.
It is estimated that the current tax system provides corporations with $1.4 trillion dollars in tax breaks—not even counting the billions and billions of foreign profits that are not taxed at all. In fact, many of the very largest corporations, earning billions of dollars in profits, actually receive tax-credits or refunds. For example: In 2010, according to the Institute for Policy Studies, Dow Chemical earned $2.3 billion and reported a tax-credit of $576 million; Prudential earned $3.2 billion and had a tax-credit of $722 million and Bank of New York earned $2.5 billion in profit with an additional $670 million in tax-credits. Wouldn’t it be nice if the individual tax system worked like that?
Get the Government Off the Back of Business
Those politicians on the right love to repeat over and over again that all our financial problems would be solved if only the government would reduce or even eliminate regulations on business so business can do what they do best. And, what is it that corporations do best?
The single, solidarity objective of corporations is to make as much money as possible; in any way possible. In many corporate cultures the end does justify the means. Left to their own devices, corporations have proved over and over again that any benefit to society, consumers or employees is incidental, accidental and secondary to the interests of making a profit. Even the shareholders who have risked their capital to finance the corporation come after the executives have skimmed off huge compensation packages.
If the government had failed to regulate the behavior of corporations we could still be seeing 12-year-old children as factory workers, below subsistence pay scales, food that was not safe to eat and autos that are unsafe at any speed. We all suffered when government bought (or was sold) the idea that the economy and jobs would grow if only the regulations on banks and investment firms were repealed, so that they could “do what they do best.”
Of course, there are also examples of frenzied regulators run amok. Just as those running corporations can be mesmerized by greed, so too can government workers be hypnotized by power. Too often regulators have confused protecting the consumer with parenting the consumer. The objective of regulation should be to create a level playing field, not actually play on it.
And the moral of the story …
The truth of the matter is that America has grown strong and powerful based in good part on a symbiotic relationship between government and corporations. It has truly been a “you scratch my back and I will scratch your back” relationship. Government has achieved its objectives by riding on the back of corporations. Corporations have achieved its objectives by riding on the back of government. The system will continue to work, so long as this parallel balance is maintained with government and corporations having each others’ backs.
So the next time some cheap politician tells you the answer is to get government off the backs of business, you can agree; so long as the corporations are willing to give up all the protection, tax breaks, subsidies and incentives the government provides so they can make a profit.