While listening to NPR’s Science Friday, the radio host announced that the program is supported by Ford, and then said something akin to: “who has sold over 1 million hybrid ethanol vehicles.” My first reaction to this is probably best put as OMGWTF?!?
I laughed. What brilliant marketing! Then I thought, wow, that’s so close to a lie. A lie is something that is said (or omitted) with the intent of deception. In this case, Ford wants to decieve listeners into believing that it is offering environmentally-friendly vehicles by attaching the word “hybrid” to its flex-fuel vehicle line. Technically speaking, they’re right. The FFV cars are hybrid E85/gasoline vehicles. But the word “hybrid” has a very specific meaning in today’s auto market. It means hybrid gas/electric; a hybrid drive train, not hybrid fuel sources.
I’m not suggesting Ford be slapped with a fine by the FTC or anything, but this made me think, if I person were to go around making a statement like that, what would his/her neighbors and friends think? That person would be laughed at because what they are saying is ridiculous. That person would be SHAMED into speaking a bit more honestly. If an individual is shamed, their “bottom line” is harmed because we all care quite a lot about what others think of us. Corporations (and politicians, shady marketing like this is very much like political spin) have no shame, however, because there is currently no feedback mechanism between shady marketing slogans and the bottom line.
The lack of feedback mechanisms between corporate bottom lines and what we would consider “bad” activity is a significant part of the justification for government regulations. If polluting the atmosphere is cheap and profitable, a company will do it. If hiring sweat-shop labor means higher profit margins, companies will build them.
Giving Corporations a Conscience
Government regulations no longer seem to be the sole mechanism for affecting change, however. Consider the rise of conscience investors who invest in funds that match their personal beliefs. Or, look at the recent efforts by computer makers to increase recycling programs due to pressure from grass-roots environmentalists. These are not strictly economic concerns, but they are working through the open markets. Capitalism, that soul-sucking invisible hand of sterility might give corporations a conscience they never had.
As the internet continues to tighten webs of communication and enable groups to form rapidly, it is possible that this trend will continue. A corporate brand used to be controlled primarily by the quality of the product. But in our iPod world, the appeal of the brand is about so much more than the quality of the product. Witness companies like Whole Foods Market that purchases renewable energy to power its stores, or Google who’s corporate motto is “Don’t be Evil”. These companies are going above and beyond government regulation in order to appeal to customers and thus increase their profits.
A Friendlier Laissez-Faire?
Will we reach a point where government regulations are unnecessary? I think so. The days of evil laissez-faire corporations are in many ways gone. The problem with capitalism as seen by Adam Smith was that the consumer was never perfectly informed because of the speed and distribution of media at the time. Also, consumers can base their choices on so many other factors than simply which is the cheapest (here I am strictly talking about commodities, such as energy or telephone service).
So were government regulations on the market a mistake? Well, no. Consumers need to be relatively prosperous in order to really take other non-economic factors into account in their decisions. Consider the development of South Korea and Taiwan. Rapid development and industrialization created some of the most serious environmental problems in the world in those two countries. But, as the middle class grew, so did pressure on the government to regulate pollution (among other things). Take away the middle class, and all you have is wealthy industrialists and merchants getting rich off of poor workers. Those poor workers don’t have the money to care about the environment, and the rich can afford bottled water. Government regulations have to be in place in those conditions (but the lack of support for them makes that nearly impossible).
Keeping government regulations in place for now is probably necessary, but soon we will see non-economic factors play a larger and larger role in the behavior of corporations provided the middle class remains strong. There may come a day when rapid communication and the availability of huge amounts of information will shame corporations into doing more than government regulations ever could. But until then, we have sleazy marketing slogans, and Ford’s 1 million “hybrid ethanol” vehicles.
You’re absolutely incorrect. Even if a market had perfect information available, even if every single trader in that market had perfect information (and to say we’re heading in that direction is also incorrect*), there would still always be problems and very suboptimal, inefficient outcomes for most people without an outside coordinating authority, due to problems that in some way resemble the “Prisoner’s Dilemma/Free Rider” model.\
Moreover, your rather apologetic summary of the case for laissez-faire amounts to “voting with dollars” and has all the known problems - it gives more market power to the unethical to begin with, including those who are in effect fencing for others who commit overt crimes, and who profit from a race to the bottom of labor, health and environmental standards worldwide, it doesn’t accurately assess the sociopathic legal pressure on a publicly traded corporation not to do harm if it won’t be punished adequately to offset profits, it reflects multigenerational wealth, etc.
Indeed, on the one hand capitalists like to create simple models that show things like coops and worker-controlled industry and socialism can’t work, and ignore the fact that every disincentive in their model has an analog in any capitalist venture. For every worker in a coop who has an alleged incentive to shirk individually and do the minimum because the individual rewards aren’t enough, even though the group would benefit collectively from the best work, there’s a corporation that won’t follow ethical standards because the immediate tangible benefits of defecting and being a free rider are too great. In both cases, however, a trusted outside coordinating authority can spell the difference between mutual cooperation and general benefit. That’s why American liberals mention regulated capitalism so much.
Contrariwise, capitalist apologists ignore the fact that the information-gathering and disseminating prowess of an unregulated market is not as good as that in a partly or largely regulated market if planners have modern data acquirement and processing facilities and a reasonable staff. The proof from ignorance people like von Hayek and von Mises pushed is actually no longer tenable, if it ever was. Even in their lifetimes there was never an observed trend of governments or the masses going to corporations for reliable data and away from government sources, even for labor or econometric data. One good reason is that capitalism as an ideology pretends that advertisement is part of a process that reflects needs but not one that alters them or even creates them, and models society accordingly. That wouldn’t even pass muster at journalism school. It’s exactly why capitalism, with its nondisclosure agreements and tendency to pay for results that are what the buyer wants in advance, is a poor source for the bulk of our basic science research. Even monarchs had issues like religion and prestige that kept them from focusing on the bottom line as a corporation does. There’s no incentive for a corporation to cooperate and help the general level of information become more accurate, no matter what Milton Friedman said, and we see signs of that everywhere in our increasingly privatized (and legislated by corporation-driven agendas) world, particularly in education.
*The perfect information thing is laughable. If you want to focus on the US, where a lot of the supercorporations are still nominally based, people are more busy than ever, and the amount of market disinformation is greater than at any previous time.
Marion,
Thanks for your response to my piece. I had to reread the article, as it’s been a while since I wrote it, so I’ve had the chance to approach it from much the same perspective you had.
I have to say, your arguments about whether or not capitalism is an efficient system to produce and fairly distribute wealth is much beside the point of my piece. I cannot say that I am well versed enough in economics to judge the veracity of your statements, however I can speak to your flippant dismissal of the central theme of this article.
The article is about how information availability forces corporations to acquire something like a conscience. The idea is that in a transparent society, shame is a more powerful motivating factor than heavy handed (and, I know enough of economics to say this: inefficient) government regulation. There are many examples I could give to illustrate my point, but consider these two:
1) Computer companies increasingly offer end-of-life recycling services for their machines. Apple Inc., however, does not. Apple is currently facing a growing wave of criticism over this lack of environmental stewardship, and will be forced to alter its practices quite soon.
2) Terrapass, a company that I’ve discussed at length in these pages, is overseen by another corporation whose purpose is to verify that the services promised are actually being rendered.
So, here we have two examples of the power of a transparent society. In the first, grassroots movements will eventually shame Apple into changing its ways because a negative image will affect its brand, and thus its bottom line. In the second, corporations provide oversight for other corporations. One could, of course, ask who is overseeing the overseers? Well, at some point that accountability falls upon the populace, just as it does in a democratic government.
Again, thanks for your comments, I wish I was better able to address the meat of them. I believe that perfect transparency would change corporate behavior, just like it does governmental behavior. I don’t think the day when the need for government oversight will disappear is near by any means, I just think that it is theoretically possible that it may someday.
Market disinformation is the most worrying thing under capitalism. The more influence you hold by way of money and marketing the more sway you can hold over the public. Corporate money risks becoming a proxy democracy where every dollar is a vote. However with freedom of information through the internet people are becoming more informed, eg no matter how much money mobil throws at it global warming increases in acceptance worldwide. The trick is we still have to determine what is real or true and corporate money does far to good a job at hiding this, unfortunately the USA is especially vulnerable to lobby groups where for a measly half million in campaign fund you could get the president of the USA on your side. That is really dangerous.