The age of corporate heroes and systemic mismanagement

With the huge power of platforms, virtual money, global financial behemoths, tax havens, in the absence of any corresponding taxing or regulation, we are going down the drain. A powerful way of understanding how rich world-scale corporations, headed by well-trained executives, continue to build this slow-motion catastrophe, is to have a look at the numerous studies of the leaders and their decision-making process. It is not stupid, it is well-oiled, and it is disastrous. – Ladislau Dowbor

We are all looking at the dark clouds ahead, and rightly worried about our kids, or even ourselves. It all depends on how far we are looking, but it only darkens as we reach a more distant horizon. It all seems very strange because we are at the same time awash with fantastic news on technological and scientific progress, which show us how opportunities to make a better world are growing, and taking note of the climate change, biodiversity destruction, contamination of water throughout the planet, and the exploding inequality. The digital revolution is in the hands of the very few, generating impressive private power at the top, while democratic decisions are fragmented into so many countries, with analogic-age complex discussions. Particularly important, political decisions at the level of nations are migrating into the hands of the corporate world, while global regulation is simply absent. Bretton Woods was in 1944, no updates.

Gathering statistics on the growing threats is vital, but so is the capacity to look back several decades, because the strength of the historical flow becomes apparent. A few years ago, I picked the Straight from the Gut book by Jack Welch, typical well-funded and distributed airport literature, and was amazed at how beautiful an image a man can make of himself when one knows the disaster he brought to General Electric. Ethics is mentioned every few pages, but not the settlements the corporation had to pay for so many frauds. How far can we go in image-building, in justifying almost anything? Well, it is part of the money.

You wash corporate money through tax havens, and the brand-name and executive-names through communications control. Big business works simultaneously on the economic money-making process, on the control of politics, the judiciary, the press (their marketing funds them), and on military initiatives. With what speed Trump managed to bring corporate taxes down from 35 percent to 21 percent. How easy was it to make corporate funding of politics legal in 2010! Ironically, it was called Citizens United. The narratives are fundamental, and we gobble them so easily.

In contrast to Welch’s self-glorifying book, David Gelles wrote a sobering history of The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland. A calm business analyst from the New York Times just brought the facts down to earth, and the result is an impressive understanding of how these things work. Not just bad guys, but a system of natural selection based on the one-track maximization of shareholder returns. This approach to economic analysis is fundamental because the challenges are structural, they concern the heart of how economic decisions are made and show us how outdated the institutions can be. The institutions are fundamental, to our legal framework, but they belong to another age.¹

Our discussions on communism, socialism, capitalism, and the composite names we invent to bring them down to reality, such as extractive capitalism, parasite capitalism, or even state capitalism for China. We are now trying to look for hope in names like progressive capitalism (Stiglitz), democratic socialism (Piketty) and so many definitions that only show how deep is the systemic change we are facing. To put it short, the invisible-hand fairy tale now seems downright stupid, it is a justifying narrative for corporate greed. What we inherited from Friedmann’s simplifications is rubbish in the face of the ESG demands. OECD and the UN are seeking a global tax system corresponding to the global dimension of the corporate world (BEPS2). Defining a new Global Green New Deal, a new Bretton Woods, and a new global financial architecture (Paris, June 2023) are mobilizing so many institutions, social organizations, universities, and even early-bird corporations.

But back to David Gelles. Under Welch’s lead, (1981 to 2001) General Electric moved from producing useful home appliances to managing finance. As the rest of corporate America followed Welch’s lead, finance became the fastest-growing part of the US economy. A simple example is that since 1982, “rather than investing in new products and services, or their employees, companies could now use their profits to simply repurchase their own shares, driving their stock prices up…That left very little for investments in productive capabilities or higher incomes for employees. (66) The resulting issue is that “Corporate profitability is not translating into widespread economic prosperity.” (65) Thomas Piketty’s hugely useful books just put the lights on, in economic analysis: nowadays, financial rent-seeking pays much more than productive investment.

Someone has to pay for the money financial rentierism makes. This involves the stalled income of 50 percent of Americans at the bottom of the social pyramid. It also involves third-world countries drained of their natural resources to pay for debt, and the resulting 800 million going hungry in the world. Inflation is another powerful mechanism, as it is mainly “profit-inflation” rather than “cost-inflation”, as seen in the graph above.² The financial rentierism system has grown into a growing number of economic activities, which are still active but reoriented to shareholders’ gains maximization, whatever the externalities, environmental, social, or political, as shown in Brett Christophers’ book on Rentier Capitalism: who owns the economy and who pays for it.

The richness of Gelles’s approach is that as the analysis simply follows the steps of the GE transformation into a financial behemoth, draining riches rather than producing them: we follow the concrete impacts of Reagan and Thatcher’s deregulation and privatization moves, allowing a free-for-all financial globalization, the 1999 Clinton burial of the Glass-Steagall regulation, and the financial control both on productive activities and politics. And the similar dynamics at Boeing, BlackRock, PayPal, and others. A new economic culture actually emerges, and I have doubts about calling it capitalism. It certainly is part of the digital revolution and the consequential information society.

A similarly rich contribution is Christopher Leonard’s study on the Koch industries, and how Charles Koch gradually took over so many areas of activities, with huge buy-outs based on fortunes made on natural resources of the land: oil and gas. While Gelles’s study of GE shows the contamination of many other areas of the American and world economy, Leonard builds a historical detailed analysis of how decisions were taken, how the money was made, and how Unions were broken. Particularly important, how Kochland managed to derail the climate-change regulations and legislation, how it built political elections manipulation in every State, and how easy it was for this machinery to obtain key policy changes from Bush, to fragilize Obama’s environmental policies, or to obtain changes in corporate taxes from Donald Trump.³

The creation and funding of Think Tanks as important political manipulation instruments, such as the American for Prosperity, the Tea Party and so many others, changed political democracy for good. The manipulation of world prices and financial flows through derivatives, a shadowy place for most people (over $600 trillion, while world GDP is around $100 trillion) and other mechanisms become clear because they are presented as they are being created and used by one of the biggest corporations in the world. The control of universities through big money also is better understood. And the permanent teaching by Charles Koch on what he called Market-Based Management, heavily justifying the money-extracting machinery as superior ethics, is impressive. They all create their narratives.

While virtual money (97 percent of world liquidity) allows for global-scale manipulation, freedom from taxes and regulation, and the accumulation of giant fortunes at the top, part of the systemic change we are living is in the communications department. Just like money, information has gone virtual, what we mostly read, billions of us, is basically on screens, and information, liberated from material support, bathes the world’s electromagnetic environment in marketing, fake news, fake or real journalism, books, Greek sculptures, pornography, sambas or tangos, and so many hate and emotional messages. This is a revolution. It is the “attention economy”, the fight for our feeling and understanding. It is in anyone’s hand but actually controlled by a few hands.

The technological basis of communication has been transformed, but also its economic basis. I do my best to sell my books and decided to put them free on my website. But the big money and the trillions of dollars in communication come from marketing. “The business of journalism is an increasingly less lucrative industry. Most revenue comes from digital ads running on news sites—so rather than selling the news to consumers, it’s the time and attention of consumers that is being sold to advertisers. Furthermore, some of the best quality content is locked up behind subscription-based paywalls.”⁴ Every time we purchase anything we are paying for the corresponding marketing costs included in the prices. When buying a Johnson & Johnson product, for example, 27 percent of the costs are the marketing expenditures, included in the price we pay. It’s a wonderful formula, we pay them to interrupt a film they say is offered to us free of charge. Narratives are fantastic, and with the communications revolution, they have become a giant industry.

Max Fisher wrote The Chaos Machine: How the Social Media Rewired Our Minds and Our World, an extensive analysis of how this new world works.⁵ Written in 2022, it brings us the many recent researches from universities and other institutions. Putting them together, a new understanding of this universe emerges. We can make everybody an income source, by selling ads: “In a 2014 memorandum, Microsoft’s CEO states that “more and more, the really rare commodity is the human-being attention.” (161) YouTube states it has managed to create “a collective identity”:

The fact that they managed to analyze and to organize billions of hours of video in real-time, and then direct billions of users by the net, with this level of precision and consistency, was incredible for the technology, and demonstrated the sophistication and power of algorithms (272).

Ads are priced according to outreach. Thus, the algorithms are directed to identify, and spread, the messages that are most likely to be reproduced, commented and spread around, reaching more people. The algorithms identified that what works is emotion, particularly hate, feelings of belonging to a group, eventually against others, strengthening a feeling of identity. The resulting political and racial polarization led to massacres in different parts of the world, showing the social media universe is leading to a global cultural transformation.

I suggest that a general understanding of our challenges, in the environment, inequality, financial chaos, democracy erosion, and ideological polarizations, can be better understood through case-by-case analysis, particularly with concrete activities of the giant corporations that have taken over control of so many key areas, money, energy, infrastructures, communication, even politics. In my view, this is much more than capitalism plus a qualifier, we are rapidly drifting to another mode of production, with much more economic, cultural, and political power concentration, and a systemic change in how humanity is building its future. This is not market economics, nor free competition to serve us better. It is a war between giants, at the service of major shareholders. In terms of the overall social organization, taking apart China and a few others, we have neither market regulation nor adequate planning. Free markets? Freedom without responsibility is a sham.

My personal message? Instead of gaping with admiration at the Welches, Kochs, Musks, Bezoses, Zuckerbergs, and the like, nodding at the narrative that the richer the richest get, the more we mortals will be gratified with the trickling down, I suggest we follow Lula’s advice: The poor in the budget, and the rich on the income tax. This means both public regulation and the market, not corporate heroes feeding absentee shareholders and asset managers.

Notes

¹ David Gelles, The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland, Simon&Schuster, 2022; A beautiful read on how GE manages international relations through the American Judiciary can be found in Frédéric Pierucci and Matthieu Aron’s The American Trap, Hodder Stoughton, 2020.
² IMF, Europe’s Inflation Outlook, June 26, 2023.
³ Christopher Leonard, Kochland: the Secret History of Koch Industries and Corporate Power in America – Simon & Schuster, New York, 2019.
⁴ Visual Capital, July 29, 2022.
⁵ Max Fisher, The Chaos Machine: How the Social Media Rewired Our Minds and Our World, Little, Brown and Cy., New York 2022; I used the Brazilian translation.