The Failings of Corporate Capitalism
In the two decades or so since the demise of the Soviet Union, many people have proclaimed that socialism and communism have been defeated and that capitalism has won. Well, this is true, and yet it isn’t. Pure socialism and communism (which were invented by those who suffered under pure capitalism) indeed lost the economic war. But they lost not to pure capitalism, but to a modified form of capitalism that we’ve practiced since the mid-1930s founded on the New Deal – the legislative incarnation of the Social Gospel. So, in a sense, pure capitalism was also defeated in America and in Western Europe many decades ago, not by communism and socialism, but by modified capitalism. It’s on this modified capitalist system that the western world’s prosperity in the post-WWII era has its foundation.
The working class peoples of the western world rejected pure capitalism. They voted to modify it and were, for many decades, delighted with the improvements. Of course, those who witnessed the change from pure to modified capitalism are no longer living, so today many of us take for granted the better life that modified capitalism has brought. To better appreciate our present system, it’s important to examine the flaws of pure corporate capitalism, the system that Republican Christians insist we return to.
Flaw #1 – Socialized Losses
As I stated earlier, the corporation is effectively a non-living person who bears the responsibility when things go bad, but who pays its owners profits when business is good. When things go awry, the great sacrificial act of the corporation is bankruptcy. When a corporation goes through Chapter 7 bankruptcy, its owners are forgiven their debts and the corporation bears the debt burden for them, kind of like Jesus does with our sins. But unlike Jesus, corporations are not human beings (nor are they the Son of God), so they cannot bear anyone’s debt burdens. Therefore, what happens in bankruptcy is that those to whom the business is indebted bear the debt burden, even though they did no wrong.
For example, if a life insurance company goes bankrupt in pure capitalism, its policy holders, who have been paying premiums for years, receive no benefit when they have claims (all states today have guaranty funds that pay policy holders up to a certain amount when their insurer becomes insolvent; but remember, this is “big government,” not pure capitalism where the government avoids involvement in the business world). Even though the policy holder entered into a contract with the insurance company and has upheld his end of the deal by paying premiums, the insurance company can break its contractual promise to pay his claims by going bankrupt and out of business. Without corporate liability protection from the government, the insurance company owners would have to sell personal property to pay claims to the policyholders. But thanks to corporate liability protection, the owners are relieved of responsibility for their risky business decisions; they get to keep all of the money the corporation has paid them (through dividends) when business was good, while their customers are left holding the bag, having paid out money for services they were promised but never received. To put it another way, a business owner can make millions of dollars when the risks he takes pay off, but when his risk-taking blows up in his face, and he owes millions of dollars, he gets to keep the millions he’s already been paid by the corporation, while society is stuck paying what he owes.
This is stealing.
Unlike a thief taking your purse, corporate owners steal your money ahead of time by over-paying themselves, while not leaving enough money in the corporations’ reserves to cover expenses when hard times arrive (which they inevitably will, sooner or later). In this manner, they steal from their creditors, customers, and suppliers through bankruptcy. In the case of creditors, they steal bank depositors’ money that was leant to them to grow the business. In the case of suppliers, they owe money for supplies received but not yet paid for. In the case of customers, they may owe services the customers already paid for, like car warranties. In every case, society bears the debt burdens that should be the business owners’ responsibility. In other words, the corporate model socializes losses when business goes bad, while privatizing gains when business is good.
Some may say that government bailouts, like those received by many banks, AIG, GM and Chrysler in 2008 and 2009 are also examples of socialized losses. Indeed they are. Many people make the mistake, however, of thinking that the owners of these companies would have been held responsible for their debts had the government not bailed them out. This assumption is incorrect. These companies would have filed Chapter 7 bankruptcy and gone out of business, and the owners and executives would have walked away with the millions they had already earned, while creditors, customers, and suppliers would have effectively paid their debts for them. Also, the financial system would have completely frozen, as it did in 1932, and millions more people would have lost their jobs than actually did. Everyone would have paid the price but those responsible for the failed companies.
The Bible, on the other hand, repeatedly calls for justice, as we discussed in the chapter on God’s Law. A definition of justice is “full liability.” As I’ve already stated in this chapter, if someone owed a debt in ancient Israel, they were fully responsible for paying it; if money was stolen, the thief had to pay it back and be punished. In fact, Exodus 22:7 says, “…the thief, if caught, must pay double.” However, under corporate “limited liability” protection, the thief gets to keep what he has stolen, and society is denied justice. Therefore, “limited liability protection” is the definition of injustice. And injustice is of Satan, not of God.
Not only is corporate liability protection injustice, but it’s the worst kind of injustice. Proverbs 22:16 says, “Oppressing the poor in order to enrich oneself, and giving to the rich, will lead only to loss [NRSV].” Corporate liability protection steals from society to “give to the rich” and encourages their irresponsibility; thus it violates this verse’s message. Republican Christians repeatedly label taxation of the wealthy to help the needy as “stealing”. However, with the Bible’s calls to seek justice for the needy, we have cause to believe that such “stealing” is permissible. But nowhere does the Bible indicate that it may be right to steal from society to enrich the wealthy.
So do we abolish the corporation for justice’s sake?
If we could go back in time and snuff out liability protection at its inception, it might not be such a bad idea. Our lives today might then resemble those of the Amish, and they seem reasonably happy with their agrarian, small trade lifestyle. However, from where we stand today, our socio-economic world is built on corporations. We rely on them for gasoline, the internet, telephones, airplanes, major appliances, and much more. The layout of our cities, infrastructure, agriculture, and so on, differs greatly from what it would had corporations never existed. Ending corporate liability protection would end corporations, collapse our economy, and destroy the society we know and depend upon. Millions, if not billions, of lives would be thrust into poverty in an economic crisis more severe than any the world has ever known. So I think we should stick with corporate capitalism.
What’s important here is acknowledging that corporate capitalism is not righteousness in and of itself. It is not a morality. It is not from God. It is not sacred. So when a Republican Christian calls you an evil socialist because you believe in “stealing” from the rich to help the poor, you can counter that he or she, being a corporate capitalist, believes in “stealing” from society to enrich the wealthy. So now that you’ve established that you both support “stealing,” you can abandon the “what’s right” argument and move on to a discussion about “what works” for the majority of the population. Of course, I’ve already covered “what works” in pure corporate capitalism. Now let’s take a look at what doesn’t work (i a later post).