Author Archives: UChicago Political Union

UCPU Debate: Corporate Greed

Resolved: Corporate Greed

The latest UCPU debate covered Corporate Greed. Parties argued this controversial statement and provided arguments for and against the role of corporations in our society. Below, each party has provided a summary of their thoughts.

Party: Progressives | Aaron Brogan

Is corporate greed good?

Greed is like fire, it has built everything that we have but it can take your house away. Corporate greed is good, but that assignment of valence is conditioned on a narrow understanding of what corporate greed means. Corporate greed is the desire to maximize profit. This definition seems wrong. “Isn’t greed aberrant?” some might ask. No. The desire to maximize incomes alone responds to criminality and social pressure by adjusting the maximum profit, and the parameters of achieving that maximization accordingly. Those considerations balance the utility of increasing profit with the disutility of societal or governmental retribution. For this reason, the consequence of greed is equilibrium, where the greedy take as much and only as much as society allows. This may manifest aberrantly, but greed is a constant, only the parameters in which it operates are variable, therefore if greed is “bad” it is because society does not respond to it appropriately. Greed is the impulse that creates. It was not the lackadaisical lotus eaters who built this city, it was greed.

Corporate greed produces an equilibrium outcome defined by the actions a government and society take to counteract it. Corporate greed is narrowly focused on dollar values and so relatively easy to track, understand and define through regulation. It is true that corporations have outsized power in society, and so corporate greed may manifest as aberrant, but this is always the consequence of aberrant societal permissiveness. Since greed will maximize profit, it will be linearly responsive to disutility stimulated by government action, and so easy to shape.

But why is that good, one might ask? Imagine two scenarios. First, greed is not the norm. In this case, aberrant behavior must still be regulated, just because greed is not the norm does not mean that society can stop punishing wrongdoers or attempting to enforce standards. Those norms set an effective cap on social surplus. As long as there are regulated markets and illegal goods, it exists. Without greed, literally the imperative to maximize profit, some firms will not maximize profit (to the margin of the cap). Now imagine the alternative, with greed. In this case, the cap is the same, since in either case aberrant behaviors are societally objectionable, but with greed every firm maximized up to the cap. Scenario two is necessarily preferable to scenario one, aberrant behavior is treated the same in either case, but with greed economic slack is minimized.

This argument is not meant to say that the manifestations of greed in the United States are always positive, but those aberrant occurrences have been the consequence not of greed but of gross incompetence or poor regulation. It was not greed that caused Lehman to collapse, since clearly maximized profit could not result from the firm’s dissolution. That was the result of incompetence, stupidity and poor regulation. Those things are bad. If lobbies caused regulation to fail, that is not greed’s fault, but the fault of the weak kneed ninnies in government.

By saying that greed is bad, you moralize what should properly be regulated. The difference is that morality is capricious and therefore pernicious. It is unaccountable, unverifiable, and difficult to enforce. Morality stigmatizes where regulation checks. Greed is not bad, it should be harvested, and it should be guided by appropriate regulation. This path will lead to the optimal social outcome. Greed can only drink your milkshake when it is unchecked. Like fire, greed giveth and it taketh away. Greed maximizes, it drives, it stimulates, and it creates. Greed is good.

Party: Democratic Left | Michael Howland-Dewar

The Democratic Left emphatically believes that corporate greed is not in fact good. Indeed, the Democratic Left believes that corporate greed is inherently ill-intentioned. Beyond the definition of greed itself as an immoral desire in excess of possible need (particularly for money), corporate greed is particularly pernicious. To compete in a given industry, a company needs to look to the following “forces”, as defined by Harvard Business Professor Michael E. Porter:

  1. Competitive intensity within the industry.
  2. Threat of substitute products
  3. Threat of new competitors
  4. Bargaining power of suppliers (this refers both to a corporation’s workforce and entities it purchases supplies from)
  5. Bargaining power of consumers

In each of these cases, a corporation wants to put the other parties in the worst possible position. A corporation is in its best position to maximize its profits if there is little to no competition. A corporation best maximizes its profits if no one else can enter the market, or a new (and perhaps more innovative) product can disrupt sales of the corporation’s current product. A corporation can maximize its profits best if its workforce cannot protect itself against wage cuts, and if consumers are ill-informed about, and powerless to react to price changes of, the products they are buying from the corporation. In sum, a corporation profits most when we all lose the most.

Publicly traded corporations are the worst perpetrators of these errors in two important respects. First, a corporation’s ultimate responsibility is to produce maximum dividends for its shareholders. Therefore, it is compelled to work towards the aforementioned goals to the best of its ability. No matter how moral any CEO or board is, no matter how much compassion they possess, they are most secure in their jobs when their workers are underpaid, their consumers deceived (or tied into unfair contracts), and the competition crushed. Second, the size and complexity of public corporations obfuscate their moral culpability. While a Mom and Pop Shop in a small town may be regulated by Mom and Pop’s sense of community responsibility, corporate decision making is so bureaucratic and convoluted that no one person has any sort of moral culpability. The only thing that shines through the boards, committee reports, and convoluted chains of command is the responsibility to shareholders and Porter’s Five Forces.

The Conservative answer is to point out that corporate greed has (to their mind) brought about the greatest prosperity ever known to human kind. Millions have left poverty since the seventies, when many of the controls on corporate greed disappeared entirely. Moreover, Conservatives argue that because corporations respond to consumer demand (in the debate, Max Samels cited Chipotle’s use of free range chicken in response to environmental and animal cruelty concerns from consumers) they implement moral policies as a way to maximize profit. However, would anyone actually expect Chipotle to act morally without being forced to?

This is the point that Conservatives routinely ignore: the societal benefit that emerges from corporate activity only happens when corporations don’t get their way. If left unchecked, corporate greed produces deadly smog in London, breaks American strikes with rifle fire, and skimps on factory safety in Bangladesh. To me, at least, you assess whether someone (or something) is good or bad based on what it does when left to its own devices. By that light, how could you say that corporate greed is good?

Party: Conservatives | Sam Preston

The “Revolutionary War” is aptly named, not only because it featured rebellious domestic forces, but because the War established an innovative government system that oversaw the development of a world superpower. Instead of granting King’s divine power, the founders envisioned a government “by the people, for the people,” where elected officials were held accountable to their constituents. Still, the founders understood that democratic values alone could not thwart corruption as “men are not angels.” Consequently, these brilliant men devised a government framework that took man’s innate ambition into account; our Constitution distributes power to three distinct branches of government and provides a checks-and-balances system to ensure no branch can bully the others. The theory behind these safeguards was simple—man’s lust for power is unquenchable. The only means of protecting individual liberty was to devise a political structure that acknowledged this certainty. The founders thus successfully incorporated man’s vice into a framework that has curtailed tyranny for over two hundred years.

The maxim “greed is good” does not entirely capture this reality. Greed, for a lack of a better word, is inevitable and successful societies accept this political reality. Similarly, in order for our society to prosper economically, we have to invest in an economic system that employs man’s greed for the betterment of society. Capitalism is that system. Before we become overly encumbered discussing our current economic situation, I believe we should investigate the theory behind how free markets provide an arena for selfish actions to contribute to the greater good. Kenneth Waltz in his article “The Anarchic Structure of World Politics” provides a nice summary of the principles expounded upon in Adam Smith’s Wealth of Nation’s, the most famous work championing laissez faire capitalism:

To expect for the unexpectedly favorable outcomes of selfish acts, the concept of the market is brought into play. Each unit seeks its own good; the result of a number of units simultaneously doing so transcends the motives and the aims of the separate units. Each man seeks his own end, an, in doing so, produces a result that was no part of his intention. Out of the mean ambition of its members, the greater good of society is produces.

Consequently, the price for a pound of steak is not based on “the benevolence of the butcher.” Instead, the price is determined by the actual demand for the product combined with economic actors’ abilities to satiate that demand with the proper supply. Since everyone desires to capitalize on popular sentiment, however, many actors will enter the market, lowering both prices and profit margins. Capitalism is the most efficient means of deriving prices that benefit both purchasers and producers, as it pits competitive actors against one another in order to protect consumers.

Obviously, this is a painfully barebones explanation of free market capitalism that fails to capture the complicated intricacies of how the United States’ economy currently functions. We require laws that prevent monopolies. Legislation needs to minimize harmful externalities that the free market doesn’t otherwise account for. Companies should be subject to laws that forbid discrimination and hazardous work environments should be prohibited.  In addition, even if greed is the main driver of economic growth, charity work should be integrated into our market-based capitalism to fight inequalities. President Clinton provided an overview of how this can be achieved in a 2012 op-ed.

However, even if I do not possess the economic background to discuss the proper level of government intervention in our free market economy, I can state with confidence that capitalism is an efficient system with proven results to combat poverty and hunger. The American-led post-war movement to integrate world economies, promote free markets, and reduce trade barriers has produced astonishing results on a global scale. In only 36 years, these efforts have led to an 80% reduction in world poverty, which is certainly one of the greatest achievements in human history. Free markets take advantage of man’s natural selfish inclination by enhancing competition, promoting entrepreneurship, and incentivizing hard work. Consequently, fair prices are set and barriers to employment are lowered.

Our founding fathers understood that men are driven by selfish goals. With this knowledge, they devised a political system that allowed politicians to be ambitious while providing the necessary safeguards to prevent tyranny. Similarly, a successful economic system has to account for man’s yearning to help himself and manipulate that natural inclination to benefit the public good. Capitalism, when regulated correctly, does just this.

Greed, for lack of a better word is good.