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October 23, 2007

Larry Lessig on The Corporation

From his review of Robert Reich's new book, Supercapitalism:

This is a critically important point for people to get -- and one that many good thinking souls don't yet agree with. It's related to an answer I gave to a great question by Jon Zittrain at the Corruption vAlpha lecture. As I said there, we need to understand the nature of the corporation -- to make money -- and come to love it, and yet, to keep it in its proper place, just as you can love a tiger, but know that it's not the sort of thing that should play with your kid. (Here's the question and answer). Corporations are not more efficient governments. They are instead increasingly efficient money making machines. And while there's nothing at all wrong with money making machines -- indeed, wealth and growth depends upon them -- there is something fundamentally wrong with trusting these machines to restrain the drive for profits in the name of doing the right thing. The cushion that enabled that in the past (relatively limited competition) is gone. The job of GM is even more now to make money for GM.

It's part of the problem with our modern political discourse that it's somehow become anti-corporate, or anti-capitalist, to say that we should not force corporations to become mini-welfare states and regulatory agencies unto themselves. They should not be responsible for the financing and provision of health care, nor, on a case-by-case basis, the fight against global warming. Instead, the government should construct fair and equal rules within which these priorities are protected, and then all the various corporations should be able to fight to make a profit.

October 23, 2007 | Permalink

Comments

Instead, the government should construct fair and equal rules within which these priorities are protected, and then all the various corporations should be able to fight to make a profit.

Exactly.

So let's stop focusing on the profits on insurance companies, and instead talk about the "fair and equal rules" that are necessary to ensure that our health care "priorities are protected."

Posted by: wisewon | Oct 23, 2007 9:03:04 AM

Wasn't it laissez-faire economics that led to the French Revolution? Mercantilism that led to the Revolutionary war? The hacienda system to countless uprisings in Latin America, eventually leading to revolution and Spanish expulsion? Colonialism everywhere eventually leading to polarized electorates, conflict, and revolution. Unfettered capitalism by any name is a conflict waiting to happen.
Democracy has little chance in such a climate.

Posted by: lilorphant | Oct 23, 2007 9:10:42 AM

Sorry Wisewon, can't take the politics out of politics. As it turns out, corporations rather like setting legislation in order to maximize their profits/competitive advantage. To focus on the policies is to focus on the politics.

Posted by: Ezra | Oct 23, 2007 9:42:54 AM

There are not for profits, Blue Cross is one.

Posted by: Floccina | Oct 23, 2007 9:45:09 AM

Who would disagree with this:
"Instead, the government should construct fair and equal rules within which these priorities are protected, and then all the various corporations should be able to fight to make a profit."

Now some would like more rules than others.

Posted by: Floccina | Oct 23, 2007 9:48:05 AM

The bastard version of Calvinism that is our de-facto state religion will always mitigate against taming those corporate tigers, which are after all the principle channels of grace (or money).

Using the regulatory powers of the state to temper capitalism is tantamount to second-guessing the Deity, suggesting that Its disposition of grace, or choice of the Elect, is somehow flawed, and to suggest that the job could be better done by mere mortals, the majority of whom are the preterite damned, is of course blasphemy. The Market of Milton and Alan is as implacable a deity as the God of Augustine and Calvin.

The fierceness with which battles between economists are conducted certainly looks from the outside like the debates of theologians in the early Reformation period. I just hope we can escape our own private Peasants' Rebellion or Thirty Years' War.

Posted by: Davis X. Machina | Oct 23, 2007 9:52:37 AM

There are not for profits, Blue Cross is one.

There aren't many not-for-profit Blue Crosses left. Anthem e.g. has bought a bunch. Anthem provides Blue Cross in Connecticut, Indiana, Maine, Nevada, Ohio, Virginia, Kentucky, New Hampshire and Colorado.

Posted by: Davis X. Machina | Oct 23, 2007 10:01:49 AM

Along with profits comes a high standard of living. There is little doubt that restraining business (and that is what we are really talking about) will make them less efficient and thus less profitable. Less profits mean less jobs, lower standard of living and less tax money for liberalism's dream of cradle-to-grave nannyism.

I'm not suggesting that what you seek is wrong-headed. What I'm pointing out is the unintended consequences that always accompany lofty experimentation.

Posted by: El Viajero | Oct 23, 2007 10:05:06 AM

Many BCBS plans are for-profit now. Wellpoint is the largest BCBS operator with 14 plans and they are publicly traded. The ones that remain not for profit function essentially as for-profits. The only true non-profits are small regional health plans like Neighborhood Health Plan in the New England area, and they cover a tiny percentage of the total number of covered lives.

Posted by: spike | Oct 23, 2007 10:11:41 AM

Sorry Wisewon, can't take the politics out of politics. As it turns out, corporations rather like setting legislation in order to maximize their profits/competitive advantage.

Completely agreed. However, this also is one of my major criticisms of single payer (or hybrids)-- because advocates don't look at single-payer via those lens. All of these theoretical savings discussed are being discussed outside the context of what is likely to happen via legislation given influence of lobbyists.

In other words, if you're concerned that you can't take the "politics out of politics" means that regulation is likely to be too industry friendly, what do you think will happen when government directly controls the $2 trillion pie? Lobbyists and their corporations end up with more, not less.

One of my first posts on this blog was exactly on this point. My point then, was that Medicare continues to give physicians pay increases annually, even though the leading Congressional players know that this needs to stop. Why? Because the AMA and other medical lobbies continue to influence extremely effectively. A little-known provision of the current SCHIP legislation, is to once again ensure physicians don't take a cut on Medicare rates for 2008.

Posted by: wisewon | Oct 23, 2007 11:42:50 AM

"Why? Because the AMA and other medical lobbies continue to influence extremely effectively. A little-known provision of the current SCHIP legislation, is to once again ensure physicians don't take a cut on Medicare rates for 2008."

Wisewon speaks wisdom!

Posted by: Floccina | Oct 23, 2007 11:46:11 AM

There was another comments thread that discussed this issue further a month or two back-- I'll see if I can find it.

But the point was, the "can't take the politics out of politics" is the precise fallacy of government-driven, centralized cost-control policies. All of the best ideas with that approach lead to a decrease in physician compensation, and that just ain't gonna happen. The AMA proves that over and over again each year.

Posted by: wisewon | Oct 23, 2007 11:48:37 AM

It's a keen point: embracing a constructive role for government can fit with a belief in markets like a hand in a glove. Progressives want an effective government because corporations should be treated as rational market actors, rather than private welfare states. Reich says, more or less: hey, markets work great at what they do (generating wealth), and we should leave them to do that -- rather than attempting to engineer them to do something else.

If anything, modern conservatives have an inherent contradiction in their thinking; how does it make sense to say the market will take care of social needs (health care, sustainable living, consumer safety) when the pressure of competition pushes companies in the other direction?

Posted by: Greg Greene | Oct 23, 2007 12:03:00 PM

The question then becomes whether you believe we're worse off, from a cost perspective, enduring the market failures or government failures. And I think it's pretty clearly the market failures on this score. Thugh that's why, as you know, I don't advocate single payer, and instead prefer a hybrid where public and private programs compete within a centrally regulated structure.

Posted by: Ezra | Oct 23, 2007 12:14:07 PM

"embracing a constructive role for government can fit with a belief in markets like a hand in a glove."

This can be true depending on your view of “constructive”. To me, government is being constructive when it’s implementing rules that protect markets, as opposed to influencing them.

Posted by: DM | Oct 23, 2007 12:18:24 PM

The question then becomes whether you believe we're worse off, from a cost perspective, enduring the market failures or government failures. And I think it's pretty clearly the market failures on this score.

Agreed on the question.

However, its a little too black-and-white for me. The market failures of today do not resemble, even slightly, what a good market-based approach with strong regulation would look like. So I don't think we do know that a market-based approach would fail. On the flip side, there is good evidence on the record of single-payer systems-- and while better than today's system in the US, as I've written before, they are still growing at an unsustainable pace.

I don't advocate single payer, and instead prefer a hybrid where public and private programs compete within a centrally regulated structure.

I guess I need to understand a little better exactly what's being regulated in your ideal system. If benefits and cost-control mechanisms are centrally regulated, then you have as I wrote earlier, you have a government-driven, centralized cost-control system that is ripe for exploitation by lobbyists and corporations.

On a related note, I was looking at the details of benefits typically covered by French supplementary insurance providers. What I found was different that my (and others') prior understanding: it appears to be pretty modest. The big three items included were dental care, cosmetic care (e.g. plastic surgery) and essentially co-pay insurance. They did not tend to actually cover a set of treatments/procedures not covered by the basic government plan, meaning that, while supplementary insurance exists, there didn't appear to be a practical difference between this system and single-payer. It was admittedly a cursory examination by myself, so would be interested in hearing your thoughts/investigations on the matter.

Posted by: wisewon | Oct 23, 2007 12:31:35 PM

According to Thom Hartmann, that's the American view of the corporation and other countries corporation incorporation laws state that the corporations have to be fulfilling some public good.

I don't know if that's true or not, but it suggests that you may just have an American bias in that regard.

I don't see why corporations are given the status of a person -- apparently that was NOT what the judge in Santa Fe decided.

It's just a rule. Rules can be changed. Like cultures.

Posted by: feh | Oct 23, 2007 1:32:14 PM

@DM: One man's influence is another's protection. Think the Securities Act, the Securities Exchange Act, and Sarbanes-Oxley -- all designed to protect the integrity of information people rely on to make economic decisions. Or consider the Clean Air and Clean Water acts: laws that fix market failures by making people assume their share of costs for using public goods.

Posted by: Greg Greene | Oct 23, 2007 1:33:37 PM


One man's influence is another's protection.

I'd go further than that. The structure of a market is determined by the structure of the social and legal structure that it exists within. If you don't perceive how the government is already influencing a market, then you don't understand how that market, or the government, works. Frequently people complain that we shouldn't 'influence' the market b/c this would be bad or inefficient. But we already influence the market and we should think about how we can influence it in desirable ways. Sometimes this would enable the companies to be more profitable. Other times it might curtail their profitability for the sake of higher interests. But you need to seriously think about the issue if you think that government does not already influence markets.

Posted by: mpowell | Oct 23, 2007 2:19:11 PM

I think we have to think again about root causes of our corporation-dominated political world.

In the US, corporations have (as feh reminds us) the status of persons under various SCOTUS rulings - but never mentioned in the Constitution. All sorts of undesirable things flow from that, the most ghastly being the use of corporate funds to influence political outcomes through gifts, lobbying, etc. While fencing in this behavior would be difficult, it seems like starting down that road of prohibiting that influence is a progressive reform worth lots of work over a substantial time frame.

Second, our political actions at the federal and state levels are over-determined by the need for elected officials to essentially continously raise money for campaigns in the future. Even the officials hate it, but we must hate it because it bypasses democracy. It means that elections are won by those who can finance their success, over and over, and it also means that true electoral competition occurs in only a fraction of the offices contested - leading to entrenched incumbents who can disregard voters to a startling degree.

Third, corporations have been essentially stateless for decades now, and their is no regulator acting on the world stage - essentially forcing countries to bid for corporate attentions by doing lots of favors. The threat of taking their ball home if they don't get their way is standard procedure, making the nation-state's sovereignty meaningless in many ways.

Neither our politics nor our economics is digesting and countering this corporate domination. Without doing major, meaningful things to change this equation we are heading fast to world rule by the unelected who care only about profits and control.

Posted by: JimPortlandOR | Oct 23, 2007 2:21:43 PM

The fierceness with which battles between economists are conducted certainly looks from the outside like the debates of theologians in the early Reformation period. I just hope we can escape our own private Peasants' Rebellion or Thirty Years' War.
Posted by: Davis X. Machina | Oct 23, 2007 9:52:37 AM

The degeneration of Protestant theology in the last 40 years explains a lot of what it wrong with America. There was a time when Protestantism attracted the most gifted and intelligent moral thinkers, but with the arrival of bible literalism those days are gone. They have ceased to be Christians and have become Biblicans, worshipping the disembodied words in the book and ignoring the meaning of Christs teachings. To my mind theay have replicated the theological weakness of islam; textual literalism to the point of illogic. It has gotten so bad that the Catholic Church under Ratzinger is now more rational and modern than the dominent stains of American protestantism. Protestantism is a long long way from its brilliant 16th century founders.

Posted by: Northern Observer | Oct 23, 2007 2:48:48 PM


Greg:

I probably should have said "influence its outcome" as opposed to just “influence”, which is vague. With that in mind, I somewhat agree with you; gov’t regulation that help deliver better information to the market is good. But Sarbox is a good example where one can fall off that slippery slope insofar as it goes beyond just providing the marketplace with better information to micromanagement of some business processes.

Posted by: DM | Oct 23, 2007 4:06:04 PM

perhaps I need to buff up on my reading comprehension (4th grade was hard!) but I'm having trouble making sense of this from Ezra's post:

"It's part of the problem with our modern political discourse that it's somehow become anti-corporate, or anti-capitalist, to say that we should not force corporations to become mini-welfare states and regulatory agencies unto themselves."

Who says such expressions are anti-corporate or anti-capitalist? Does that mean that saying we SHOULD force corporations to become mini-welfare states is considered pro-corporate and pro-capitalist?

I get the broader point that this framework of criticizing corporations based on the morality of their actions is misguided, but I don't get this line of thinking. Or there was a typo somewhere.

Can someone explain?

Posted by: publius | Oct 23, 2007 8:00:33 PM

I am with Publius.
Who says that corporations should "be responsible for the financing and provision of health care" or "on a case-by-case basis, the fight against global warming?"

It's difficult-enough to make money (as anyone who has ever tried will know) so government's role should be to enforce a level playing field where all businesses can compete and doing nothing special for society except obeying the law.

Posted by: David Sucher | Oct 23, 2007 9:42:59 PM

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