David Korten’s presentation to the Summit on the Future of Corporations, Faneuil Hall, Boston MA, November 13, 2007. Only One Reason to Grant a Corporate Charter (see end)
Excerpts from Interview – John Farrell and Jean Su – May-June 2021
Jean Su: A monopoly can be given to a private corporation if it actually fulfills two things. And this was part of state laws generally. One is that it allowed for just and reasonable prices, which we can get into in a little bit. And two, fundamentally, it served the public interest. We’re in a really bad spot in terms of utilities meeting that goal. We are in a climate emergency right now, and yet pumping out fossil fuels. And continuing to stifle true renewable energy sources is really not in the public interest and violates that fundamental regulatory compact. So many different actions have been taken by utilities to do this. And it’s essentially all for the purpose of not serving the public interest, but to maintain their monopoly and their status as the sole provider of energy. There are fees that are put on rooftop solar customers that totally disincentivizes them to do it. There are lobbying and trade union dues, and all of these more direct ways of blocking policy and blocking laws that would allow for people to gain that energy freedom. We see how utilities stall and stall the ability for people like you and me to get rooftop solar on by delaying interconnection, and having larger interconnection fees…I think that actually brings us to a place where I can start talking about antitrust, and actually how utilities have dealt with disruptive technologies in the past, which is really fascinating.
John Farrell: We have roads that are public, a publicly owned network that allow a lot of private companies to compete. The infrastructure is owned by a public entity that is not involved in the delivery of services (e.g., Amazon, USPS, UPS). What we have in the utility sector, generally speaking, is the opposite. We have private companies that have been given monopolies (or in some cases, we have member-owned co-ops, or we have public entities that can also be utilities), but the problem we’re seeing is largely with these private companies. Because they own the infrastructure, they’re putting up all sorts of roadblocks.
Jean Su: What Salt River Project (SRP, a private corporation, utility monopoly) did is that for any of its customers that wanted to install solar, they actually put on a 65% rate increase in any electricity that those customers would have to buy from SRP in the case that their solar on the rooftop didn’t generate 100% of their needs, which is often the case. When this rate increase came down from SRP, Solar City’s applications for solar systems fell by over 96%. So that pretty much decimated the market for rooftop solar just by this pretty egregious rate increase from Salt River Project. So the idea was definitely to decimate competition in a competing source of energy, and SRP succeeded in it, really well. Then the question became how do we fight back against this? So I kind of want to back up a little bit on antitrust history a little bit. It’s really important to note that this case is a landmark case in our current, modern antitrust jurisprudence. Nobody had challenged any utility thus far on quashing rooftop solar in this modern period. Antitrust is a really expensive piece of litigation. It requires a ton of economic analysis and technical analysis, so that’s why you see … You don’t see normal mom and pop shops bringing antitrust cases. It is extremely expensive. And so for solar companies that are all struggling to even make it, when we’ve talked to them, they have noted that antitrust is just so prohibitively expensive that they couldn’t bring these types of cases. But Solar City, because Tesla was their parent, was able to bring this case. And they brought antitrust claims against SRP.
So what is antitrust? What is illegal is if you achieved or maintained monopoly power by using anti-competitive conduct, conduct and behavior the specifically tries to decimate your competition. In the SRP case that Solar City originally brought, the district court actually found that the merits of the case and the antitrust injury were proven, and that 96% drop in the applications for Solar City was key to this because it was just a clear economic effect of the cause of the rate increase. But it went to the Supreme Court very quickly for a specific procedural issue, and the day before argument happened, Tesla ended up settling with the Salt River Project and basically closed the case. And they settled for a multi-billion dollar deal in battery that SRP would buy. And they allowed for that rate increase to stay intact. And unfortunately, it didn’t solve the issue of the discriminatory pricing that SRP had originally put in place. So Solar City settles, which is, of course, a bummer for everybody else because they’re already a big guy in town, owned by Tesla. They got themselves a nice deal, but everybody else is still screwed. What happens next?
John Farrell: A complicating factor is a state has granted a monopoly to a utility, and they are often overseen by a regulatory agency, in Arizona it’s the Arizona Corporation Commission. In other states, they call them public utilities or public service commissions. It kind of raises the bar on this antitrust thing right? It’s saying, “Oh, there’s already some public oversight here.” If these agencies are looking at the policies, at the practices of these utilities, it becomes that much harder to make this antitrust argument. So it’s kind of impressive that it already cleared that bar, that this particular case got that far because it’s even harder to bring an antitrust case against a utility
Jean Su: I think it might be helpful for me to unpack a little bit the history of antitrust law and actually the history of it in the utility space to actually help us situate the SRP case. When we entered the 1900’s, there was a huge movement for monopolization. And what we saw at that point was US Steel, Standard Oil, the railroads, all of those industries had like hundreds of mama and papa shops at the turn of the century. And then within one decade, all of those industries had been consolidated to about one to two players in those industries that completely monopolized them. And in response to that, Congress essentially passed our first antitrust law, which was the Sherman Act. In the early 1900’s, a few more would pass, the Clinton Act as well. And the whole idea behind that was actually a really remarkable and beautiful understanding of what role antitrust was supposed to play. So the heart of antitrust law is really to stop the concentration of wealth and power by private industry. And the whole kind of concept and existential idea was to restrain unrestrained capitalism because what lawmakers found at the time was that if industry essentially could accumulate so much power, they would have greater influence over our lawmaking than ordinary citizens like you and me. Trusts and the accumulation of private power in private companies was viewed as a profound threat to our democracy itself. And so antitrust was really created, that whole kind of jurisprudence and law was created to have a check on private industry and their political power. And in a way, it was designed as a counterpart, and really sibling and sister to our exquisitely architected three branches of government, which were conceptually and theoretically designed to check each other, Congress, the president, and the judiciary. Antitrust laws was this final kind of fourth way to control private industry in this country.
It was Justice Brandeis who put forward this type of idea of protecting the public interest, essentially, through antitrust. What ended up happening, unfortunately, is that in the 70’s, 80’s, 90’s, till now, we had a new school of antitrust that really dominated the jurisprudence and kind of lost this original vision of what it was supposed to be. And this was really led by the Chicago School from the University of Chicago, and eventually really embraced by Bush administration, and the Obama administration, and the Trump administration. And they narrowed the scope of antitrust to be like very exclusively about consumer welfare, and that if a company was not raising the rates of the product that you were buying, so like Amazon driving these types of cheap prices, than we’re okay, like totally fine. Like if consumers are actually saving a buck, totally great.
And so what’s happening today in the Biden administration is that there is a new revival of that Brandeisian vision of antitrust. And this is where we see people like Lina Kahn come in, who is so brilliant, and basically brought antitrust theories, like the Brandeisian vision to big tech right now. And people like Professor Tim Wu, who was also at the Columbia University Law School with Lina Kahn, and basically are perpetuating this type of new theory of antitrust. So I think it’s really important to kind of view all of this within that lens of a fluctuation antitrust history for really understanding the nuts and bolts and the spirit, and the joie de vivre behind antitrust.
just to emphasize, the origins of antitrust were to say that market power is a threat to democracy. And what we’ve essentially said with this so-called consumer welfare standard is, “Democracy, we can sell our democracy for lower prices. If I can by that TV for cheaper, the price is really the weight of my vote.” Because these companies now have so many lobbyists, and so much political power.
as Apple and Amazon were sensing a threat from the government around antitrust, boy, they staffed up lobbyists in a hurry. Like there are so many more lobbyists for these tech companies in Washington now than there were before because they’ve recognized that the government is saying, essentially, “We think you’re too powerful.” And they’re right. So I just really appreciate the overview there. And I would love to see how you tie that back into this case with Salt River Project and with clean energy.
essentially, the antitrust enforcement provisions have been pretty lame, just latent and not doing their job for the past 30 years. And so I think that’s why we’re seeing this type of scary place that we’re in right now.
I will say, in the electric utility sector, this is a sector that has not quite yet been touched. And in fact, that’s why SRP is actually a pivotal case for this right now. What was touched back in the day was really interesting. I have to talk about this case, because it’s a beautiful case, and it opens this all up. In 1973, there was a case called Otter Tail V. US. And John, does Otter Tail still exist in Minnesota?
The importance of Otter Tail V. US is that it established the principle that no electric utilities, even if they are in a regulated monopoly, are not immune from antitrust law. So this is the key case that shows you that electric utilities can totally be liable for antitrust violations. They are not protected because they have some regulatory compact.
So Otter Tail, fascinating. They are a private electric utility. And what happened back in the day is that in Minnesota and North Dakota and South Dakota, there were a bunch of small municipalities that had granted franchises to Otter Tail to be their retail electricity provider. But those franchises were in contracts that ended after 20 years. And so when the contract was about to expire, a bunch of these municipalities said, “Hey, we actually want to become our own retail electric provider. We want to create public power.” Otter Tail, in response, did incredible things to stop that from happening.
So the first thing they did was say, “Nope. We’re actually not going to sell you wholesale power. So actually, you can’t even … There’s no power for you to even sell on a municipal basis.” So what the munis did is then they talked to the Bureau of Land Reclamation and asked if the Bureau of Land Reclamation could sell them wholesale power, and then Bureau of Land Reclamation said, “Yes, we can.” So then those municipalities went back to Otter Tail and said, “Hey, we actually have wholesale providers. We just need use of your transmission lines.” And Otter Tail, again, said, “No. No way. Nope. We’re not going to give you use to our transmission lines. You still have to buy from us.”
And then the third thing that Otter Tail did is that they litigated these poor small towns to death. They basically did a ton of litigation that was super expensive and bankrupted these small towns from basically escaping from their monopoly power. And so the Department of Justice stepped in and represented these municipalities, and basically took Otter Tail to task and said, “Everything that you just did, those three things, are absolutely anti-competitive, and therefore they are in violation antitrust law.” And Otter Tail said, “Well, we have a regulatory compact. We’re immune.” And the Supreme Court found that that was bullocks. That was not true, that antitrust law still persisted, regardless of what the state regulatory compacts are. And that private utilities have no right to do anything anti-competitive to maintain their monopoly. So that’s a really key case.
Minneapolis, which had a climate action plan, and it was clear that it was going to be difficult to reach the goals in that climate action plan without controlling the utility companies that were responsible for so much of the emissions said, “We’re interested in exploring our options.” And it turns out that in 1973, the Minnesota state legislature added a poison pill to the municipalization statute to say that if you did want to take over from the private utility provider, you would have to pay 10 years of lost profits to that utility provider.
So Otter Tail might have lost from the federal government, but I would imagine they were responsible for getting that law passed in exchange for some other kinds of like oversight from the state regulators, but it is now virtually impossible in Minnesota. There has not been a single city that has taken over its power system from the incumbent utility since that law passed in 1973. For good reason, because unlike any other competitive market, it’s like, “Oh, I’m going to McDonald’s for lunch. And now I want to go to Burger King. But I have to pay McDonald’s for my lunch for 10 more years before I can start going to Burger King.” It’s just unbelievable.
Jean Su: Oh my gosh. That is so upsetting. Okay. There you go. Oh my goodness. Wow. Wow. Horrible.
John Farrell: You’ve established at least though that under federal law, this utility was held accountable, and that the Supreme Court established that all of these kinds of behaviors were anti-competitive and could still be litigated under antitrust, even for a utility that was given a state-granted monopoly.
John Farrell: So ignoring the fact that they then just ran to the state government and potentially lobbied them to get things to make the market less competitive, let’s get back to the focus that you had there. Sorry for that little thing, but I had never heard this story about Otter Tail before. And it just makes so much sense.
Jean Su: Yeah, it makes total sense. Great. I mean, this is a really great insight into the utility playbook. We use everything we can to maintain our monopoly. Okay, so that happened in 1973. And there wasn’t much antitrust play really in the electric utility space until now, where we’re seeing new disruptive technologies from regular household owners who really pose a competitive threat to utilities. So the Salt River Project, as I said before, Tesla settled for a really sweet deal. Then what happened a couple of months later is that a group of normal, every day, rooftop solar citizens came together and sued SRP alone.
And so that is a class action. And again, John and I are amici in that case, meaning we’re friends of the court and here to offer our thoughts and arguments against SRP for violating antitrust. So it’s obviously the same fact pattern that’s being sued upon. And these are rooftop solar owner for whom rooftop solar became economically un-viable, essentially because of these rates.
It basically, where it is right now is that it is in the 9th circuit. And so we’re pending a decision right now. One thing to note is that there’s questions basically about proof of antitrust injury. And we think it’s pretty clear because of basically the penalization that rooftop solar owners are getting for having rooftop solar. The other issue that is really interesting at play is the one that you were talking about, John, about this idea of states and where states are in all of this in terms of antitrust law.
So there’s generally an immunity that comes with state action. It’s actually called state action immunity. And the principle is that states are somewhat immune, or like actions, essentially, that are sanctioned by states are immune from antitrust law if you can prove that there is enough state supervision, or state permission of certain actions from happening. And the SRP case is actually really wonderful. We fully briefed this issue about state action. And essentially, the district court in both cases, on both Tesla and this new class action, both found that state action immunity did not apply here. It’s because, first of all, the state … Arizona as a state did not authorize the quashing of rooftop solar.
In fact, all of their laws on the books very much emphasize and encourage competition. And it encourages rooftop solar. So there is no like Arizona state of approval to quash rooftop solar. That is like totally antithetical to the overall laws that are in that state. But the second prong of that test though is a question about active state supervision. Is the state actively supervising and saying yes to SRP doing these types of actions? What we brought forward, and this argument was accepted by the court, was that the Salt River Project, even though it is public, and even though it made all these arguments about how Arizona is somewhat supervising this, they actually are very much a private corporation, and past law cases have actually adjudicated that explicitly that they are essentially a private corporation.
Their sense of democracy in their system is actually a weighted voting system where only property owners are allowed to vote in anything with SRP. And on top of that, it’s weighted by how much property you have. So renters, like normal people in the Salt River Project territory don’t have any voting rights. And if you do have a voting right, it is weighted towards those who are rich and nothing else. So it essentially is private, and therefore, that other argument that the state supervises, it fails as well.
This essential question of state action immunity is one of the biggest barriers to pursuing antitrust violations against normal, private utilities because a lot of what they’re doing is arguably state sanctioned because utility commissions may be approving things like rate increases and things like that on top of rooftop solar. But that actually is definitely an area of flux. There are cases, also from the 1970s, that totally challenge that idea. And test have been created to try to measure how much state action was involved, how dominant was state action or approval in the things that is inherently challenged as anti-competitive.
So I don’t think that it’s foreclosed at all that private utilities are somehow immunized from antitrust by putting up a state action immunity shield. That actually has to be seen on a case by case basis where we have to prove how state action is not dominating the actual anti-competitive behavior.
we have this really strong legal tradition in this country that has been sort of unexercised, this like unexercised muscle that helps to protect our democracy. And we need to use it some more.
There’s certainly a threat to democracy and to economic competition, but in the utility sector, what we have at stake really is, like you said, the motivation for you being in this, and for many of us is that we have a climate crisis.
And utility companies are the center of that because it is their decisions, ostensibly approved by public regulators, that have led us into this, because it is in our utility sector, and like building heating and cooling, gas utilities, electric utilities, what have you, that are generating all this climate pollution. And so I think one of the key questions that we have to have here is like is antitrust even enough? It gets us to challenging this question about are monopolies acting in anti-competitive ways, but I guess I would maybe go even further and say to what degree is having a monopoly utility even the right market structure anymore? We created this market structure. This didn’t arise out of random behaviors.
we pass state laws in like every state basically establishing what utilities would serve certain customers. We have the option then to change that. And I guess my question for you is what is the right approach to this? How do we address the climate crisis? How do we address our crisis of racial inequality, which obviously shows up, whether it’s in the pollution impacts of the fossil fuel system, or the cost, the economic cost of fossil fuel system. When we still have these monopolies, we talk about the work equity, for example. Let me just frame it around this. Equity is both a financial term, in terms of who has the money, as well as a term that we use to describe broadly, like how do we distribute benefits? In the utility sector, we have concentrated equity and ownership into these private monopolies. Is that even sustainable when we’re trying to address these bigger issues?
Jean Su: So, John, I totally, 4,000%, am on the same page as you. I think that this original idea that monopolies are here to serve the public interest has completely been undermined by everything we’re seeing today. I like think about it in a framework of energy violence essentially. And I see it come out in at least three ways that our current utility sector is doing that. The first is obviously the horrific pollution that is killing and poisoning communities, especially communities of color, across this country. The second, of course, is energy burdens, which not that many people talk about yet. And it’s not even a normal issue in rate cases. And that is essentially the burden of your energy bill over your entire income, and as our friends at ACEEE have really exposed, obviously black and brown communities suffer far higher energy burdens than their white counterparts.
And then the third really important part of energy violence is the impacts that low wealth communities feel from climate disasters. They are actually disproportionately in flood zones and in hot spots, all because of public housing and other redlining and inherently racist property divisions that have been made across the country. So the point of this is that our energy system is racist. There is nothing in our country that is not racist. And I think that putting those two pieces together really should make people think about how do we change our energy system to be anti-racist, because inherently it is mired in that issue and the climate emergency issue at large.
And so I think I absolutely agree with you. I don’t think antitrust is enough. I think we are in a moment where we really need to question the system. The foundational principles of monopoly utilities no longer makes sense because they are not serving the public interest. John and I, we also work on utility shutoffs. And I think that is actually a really incredible and heartbreaking issue to highlight this on. Electricity is a basic human right.
But more so than Texas, during this entire COVID period, millions of families have been shut off because they could not afford it. And because of that, they did not have access to medicines that they needed. They did not have access to air conditioning that was life saving, or heat that was life saving in all of these places. And mind you, they’re in bad housing as well, that is not energy efficient and does not protect people against these forces.
So given that electricity is a human right, and that it is a life and death issue, why is it that we have given private corporations the ability to govern that access? Why is it that they solely, a private corporation, whose sole interest is to reward shareholders, why are they in charge of life and death in this country? They are in charge, and that is a huge problem. So that particular area of law makes it very clear that utilities need to change, and that we need an entirely new system. I do not think that corporations whose sole mission is to generate shareholder profits is acceptable anymore for delivering a basic human right.
And one of the really shocking things that we’ve seen from the financials coming out throughout COVID was that all the top 20 electric utilities increased their shareholder dividends, some as high as 17% over 2020. Every single one of those electric utilities also increased their executive compensation packages. And when we look at the average CEO compensation package to average employee salary, we have ratios that are up to 200 to 1.
Right now, AES itself has a ratio of 178 to 1. That means the average employee at AES is making 1/178th of their CEO’s salary. So when you think about antitrust and this idea about guarding against the concentration of power and wealth, and really protecting democracy and everyday citizens, the utility sector has completely exemplified why it is such a problem that private corporations are the way they are in the electricity sector right now.
is I think what’s fascinating about the arc of antitrust, and to arc of the utility sector is that we have fundamentally, whether it’s in the regular economy, the broader economy with the consumer welfare standard of antitrust, or in the utility sector with public regulatory commissions in different states, we’ve essentially said that letting private companies accumulate a lot of wealth and power is okay as long as we have some public, government run oversight.
And I think it’s really ironic because it’s on the one hand, the evidence, as you just laid out, suggests that it’s insufficient. So for a progressive, you would look at that and say our government is not strong enough to do this, or it has been insufficient, and we need a different path. But also, for a conservative, you should look at this and say why do we want the government to have to be even bigger, or more powerful in order to confront this when we have strategies like antitrust that allow market forces, competition, to help to reduce the market and political power of these giant entities. So I just think it’s really interesting in terms of where we’ve gotten, where we have established this system that if you said, as you’ve illustrated so vividly, does energy violence on people through this private monopoly ownership. And I don’t think folks from any section of the political spectrum could look at it and say, “Yeah, we’re getting the outcomes that we want from this.”
Jean Su: Right, exactly. And I think the question becomes, and this is what ILSR specializes in, what does that new electricity system look like if we do want to deliver on equity and anti-racist outcomes and climate solutions. What does that exactly look like? Cory Bush’s resolution emphasizes and encourages public power.
we’re not looking to replicate bad models. Actually, we’re looking to create an accountable democratic system of public power that could help us achieve the outcomes that we want.
And so I don’t know if the answer is necessarily the federal government takes over everything, or munis, or communities and community ownership, which is so beautifully articulated by ILSR every single week. And I think there’s different iterations of it. And I think the important part is to figure out what is it that we need out of our energy system to feel that it is working? And how do we design the systems to get us there? And I think maybe one thing that a lot of people can accept is that private corporations are not that path. But what are your views on what is our ideal system?
John Farrell: I’d love to have that conversation, but I think ultimately, to take us back to that analogy I provided earlier about the roads, that the problem really is that the way that we’ve set up the market structure is that it’s currently a privatized system, and we could make it a commons. We could still have lots of private companies generating electricity, coming up with clever services, aggregating customers like OhmConnect does, building power plants that are big, or building small power plants on homes and businesses. But the problem is that the system upon which we build all that is not a commons, which is really different from most of the rest of the way that our markets work.
On the internet, I can go and find anybody and buy something. I have choices in the grocery stores that I go to and the kinds of brands of butter that I buy. And none of those distributions systems is controlled all by one single entity that has a perverse and self-interest in doing it in a particular way. So I don’t know, I think antitrust, as you’ve outlined here, could be a really important tool to get us there. But I think that ultimately, the problem is that we have these companies who are controlling the way that the system operates, not just running a business.
Jean Su: Yeah, absolutely. And I think also these kind of seemingly like God-given monopolies actually is very anti-capitalist spirit in the American spirit itself. These franchises are granted for 100 years. They’ve been there for 120 years. So we actually don’t have corporations that are competing on merit. There’s actually like no good competitor to actually get them into good shape. So I actually think it’s super ironic that essentially I think these God-given monopolies actually are very anti-capitalist in the way that America likes to compete. So yeah, they’re not winning because of merit. They’re winning and they’re lazy. And they got there because we gave them a territory to rule over.
John Farrell: For sure. Well, Jean, thank you so much for joining me to talk about the role of antitrust in the energy sector, and thank you for your work standing up for more competitive markets and a more just and equitable energy system.
Jean Su: Great. And thank you, John. And I will say one thing that my team wanted me to tell you and relay to you is that our team actually, we birthed ourselves, our energy justice team at the Center, about a year and a half ago. And in our strategy planning, one of our main missions was literally, quote, to be more like John Farrell, and to just be a voice of justice and firmness in this space. And we really deeply appreciate your work on everything you’re doing every day. So thank you.
John Farrell: Well, thank you so much. I really appreciate it. And the feeling is mutual. It’s been great to partner with you on so much of this work. So thanks again, Jean.
Only One Reason to Grant a Corporate Charter
It is fitting that we hold this conversation on the future of the corporation in historic Faneuil Hall, the Cradle of Liberty. Deliberations in this very room more than 200 years ago were the first step on a long walk away from a king named George that launched a new nation and led ultimately to the end of monarchy. May the success of our forbears inspire us in our deliberations on the future of the private-benefit corporation.
The Big Picture
I recall my business school professors many years ago calling us to look at the big picture to identify the systemic cause of whatever immediate problem symptom captured our attention. We would do well to apply this wisdom as we look ahead to the role of the private-benefit corporation in a profoundly troubled 21st century. We must identify the deep systemic causes of the social and environmental crises unfolding all around us—no matter how troubling the resulting conclusions may be. Here is the big picture in brief outline.
- Consumption: Growth in human consumption resulting from a combination of population growth and growth in consumption per capita is depleting the natural life support system of the planet, disrupting hydrology and climate systems, and threatening human survival.
- Inequality: Unconscionable and growing concentration of financial power in a world engaged in an ever more intense competition for a declining base of material wealth is eroding the social fabric to the point of widespread social breakdown.
- Institutional Pathology: The most powerful institutions on the planet, global financial markets and the transnational corporations that serve them, are dedicated to growing consumption and inequality. They convert real capital into financial capital to increase the relative economic power of those who live by money, while depressing the wages of those who produce real value through their labor. They offer palliatives that leave the deeper cause of our potentially terminal environmental and social crises untouched, because they are the cause.
Our future depends on a dramatic cultural and institutional transformation to reduce aggregate consumption and achieve an equitable distribution of economic power.It requires an epic institutional transformation to:
- Reduce aggregate human consumption.
- Redistribute financial power from rich to poor to achieve an equitable distribution of Earth’s life-sustaining wealth.
- Increase economic efficiency by reallocating material resources from harmful to beneficial uses. Examples include reallocation from military to health care and environmental rejuvenation, from automobiles to public transportation, from suburban sprawl to compact communities, from conversion to reclamation of forest and agricultural land, from advertising to education, and from global financial speculation to investment in self-reliant local economies.
- Invest in the regeneration of the living human, social, and natural capital that is the foundation of all real wealth. This requires reversing the current process of converting the real wealth of living capital into the fictitious wealth of financial capital and accepting the resulting negative returns to financial capital. It may take us awhile to recognize that just as increasing financial capital at the expense of living capital makes us collectively poorer, increasing living capital at the expense of financial capital makes us collectively richer.
- Accelerate social innovation, adaptation, and learning by nurturing cultural diversity and removing intellectual property rights impediments to the free and open flow of beneficial knowledge.
These are imperatives of the 21st century and it is difficult to identify a constructive role in addressing them for the private-benefit corporation—a term for any corporation chartered solely to serve the narrow and exclusive private financial interests of its investors and top managers.
The Private-Benefit Corporation
The private-benefit corporation is an institution granted a legally protected right—some would claim obligation—to pursue a narrow private interest without regard to broader social and environmental consequences. If it were a real person, it would fit the clinical profile of a sociopath.
The basic design of the private-benefit corporation was created in 1600 when the British crown chartered the British East India Company as what is best described as a legalized criminal syndicate to colonize the resources and economies of distant lands to benefit wealthy investors far removed from the social and environmental consequences. That design has ever since proven highly effective in advancing the private interests of the world’s wealthiest people at enormous cost to the rest.
The private-benefit corporation uses its economic power to privatize (internalize) gains and socialize (externalize) cost. The resulting concentration of wealth creates an illusion that wealth is being created, when the actual consequence is a net destruction of real wealth It is an institutional form best suited to achieving outcomes exactly the opposite of those we humans must now pursue.
The only legitimate reason for a government to issue a corporate charter giving a group of private investors a legally protected right to aggregate and concentrate virtually unlimited economic power under unified management is to serve a well-defined public purpose under strict rules of public accountability. This defines a public-benefit corporation, which can be chartered as either for-profit or not-for-profit. The private-benefit corporation is an institutional anomaly, a creation of monarchy that properly shares monarchy’s historic fate.
A New Economy
The work at hand necessarily goes well beyond redesigning the private-benefit corporation to hold it accountable for its harms. We need to bring forth a new economy designed to value and nurture life in all its many forms and unleash the full creative potential of the human species to this end. Organization theory suggests that such an economy will necessarily be decentralized, self-organizing, and grounded in principles of cooperation and mutual caring free from the distorting influence of the massive concentrations of centrally controlled and managed economic power the private-benefit corporation makes possible. This suggests a planetary system of self-reliant community-based economies comprised of locally rooted, human-scale enterprises that engage in balanced, rule-based fair trade at the margin.
As with any other segment of public life, markets must have a framework of rules defined and enforced by democratically accountable governments to secure the public interest. The freer the economy from distorting concentrations of economic and political power subject to abuse by the ethically challenged, the smaller such governments can be.
Business enterprise is integral to any economy. Business enterprises, however, may take many legal forms that confer no special rights or privileges beyond those of any natural person and properly limit the concentration of unaccountable economic power. These forms include cooperatives, partnerships, sole proprietorships, and special for-profit corporations with charters designed to balance public and private interests.
Each of these legal enterprise forms is more consistent with the beneficial function of markets than are global-scale transnational private-benefit corporations with internal centrally planned economies larger than the economies of most nations. Breaking up the larger private-benefit corporations into smaller component enterprises either rechartered as public-benefit corporations with clear public purposes or converted to non-corporate enterprise forms is an essential step toward restoring beneficial market discipline and responsible, rooted private ownership.
So where do we look for leadership in the monumental undertaking at hand? As continued denial of the reality of global climate change became untenable, private-benefit corporations turned from denial to an effort to turn the crisis into an opportunity to increase their profits. They are implementing energy cost savings and promoting carbon-trading schemes, ethanol subsidies, government guarantees for nuclear power, coal gasification, carbon sequestration, and other measures that treat symptoms within a business as usual framework of economic growth and financial returns to the already moneyed. Cutting costs through energy efficiency is clearly a positive contribution, but it must go well beyond the easy reductions that produce a quick increase in the financial bottom line.
Private-benefit corporations are not touching any proposal that would limit aggregate consumption or their own power. In its present form, the private-benefit corporation is incapable of voluntarily sacrificing profits to a larger public good. Yet this is exactly what would be required for them to provide leadership in reducing aggregate consumption, increasing equality, and redirecting the economy from producing what is profitable to producing what is needed for healthy children, families, communities, and nature.
Capitalism, which means quite literally rule by financial capital—by money and those who have it—in disregard of all non-financial values, has triumphed over democracy, markets, justice, life, and spirit. There are other ways to organize human societies to actualize the positive benefits of markets and private ownership. They require strong, active, democratically accountable governments to set and enforce rules that assure costs are internalized, equity is maintained, and market forces are channeled to the service of democracy, justice, life, and spirit.
Leadership in advancing the deeper institutional changes essential to the human future must come from awakened citizens working from outside the existing institutions of elite power. This work begins with exposing the myths that blind us to the irreconcilable conflict between capitalism and democracy and to the potential of community-centered, life-serving market alternatives based on principles of responsible citizenship, community, and equity.
We are the people to whom the founders of our nation referred to as “We the People.” We are the ones we’ve been waiting for.
This is an expanded version of a presentation given to the Summit on the Future of the Corporation, Faneuil Hall, Boston, MA, November 13, 2007.