World leaders react to a historic shift in U.S. policy toward Cuba. Pakistan buries victims of a school massacre by the Taliban. And U.S. officials say North Korea is behind the hacking of Sony Pictures. A panel of journalists joins Diane for analysis of the week's top international news stories.
Guest Host: Tom Gjelten
Last summer, Republican presidential candidate Mitt Romney made news when he said, “corporations are people.” A former U.S. Undersecretary of Commerce says some giant companies are now borderless super-citizens loyal to no country. Companies like Walmart and Exxon now have a financial and political reach that rivals most countries. David Rothkopf says our government policies don’t deal with this reality. And besides the battle between big business and big government, there’s competition between competing forms of capitalism. A look at the new global order of states, corporate super-citizens, and the declining U.S. brand of capitalism.
- David Rothkopf CEO and editor-at-large of Foreign Policy, author of "Superclass" and "Running the World"; president and CEO of the international advisory firm Garten Rothkopf; visiting scholar at the Carnegie Endowment for International Peace; and former U.S. Deputy Under Secretary of Commerce for International Trade Policy.
MR. TOM GJELTENThanks for joining us. I'm Tom Gjelten of NPR sitting in for Diane Rehm. Diane is back tomorrow. Back in 1722, an Englishman wrote an essay criticizing Britain's political class saying it had been captured by the business powers. Very great riches in private men are always dangerous to states, they wrote, because they destroy that balance of property and power which is necessary to democracy.
MR. TOM GJELTENCorporations, they said, have bodies, but no souls nor consequently consciences. David Rothkopf picks up that old argument in his new book "Power, Inc.: The Epic Rivalry Between Big Business and Government – and the Reckoning That Lies Ahead." Rothkopf is the CEO and Editor-at-Large of Foreign Policy magazine and a former Deputy Under Secretary of Commerce. David Rothkopf joins us in the studio this morning. Good morning, David.
MR. DAVID ROTHKOPFGood to see you.
GJELTENYou can join our conversation. We'll be taking your comments throughout the hour. Call us on 1-800-433-8850. Send us your email at email@example.com or join us on Facebook or send us a tweet. First of all, David, what a great quote, good job finding that quote from somewhere between 1720 and 1723. These issues have been around a long time.
ROTHKOPFYeah, if you look at the quotes that come, that quote came around the time of something called the South Sea Island Bubble, which was a financial crisis, a little bit akin to the kind of crisis that we've had now. And the outcry in the press was not only akin to what we have now, but you can pull some of the things that have been in The Financial Times, The Wall Street Journal or in other publications out and look at these side by side and you would think that no time had elapsed at all, except the spelling has changed a little bit.
GJELTENWell, what has changed? Because so much has changed, I mean, the issues are not -- I mean, is it really fair to sort of make that point? That we're looking at the same issues we were looking at 300 years ago.
ROTHKOPFUm, well, much has changed, but I would argue that the issues that we're talking about are about power struggle, about who controls the sort of economic system and the political system. And we've been having power struggles over who controls the economic and political systems for time immemorial. And in fact, if you go back a 1,000 years, it was a power struggle between kings and church. And the church/state tug of war was not just about religion, it was about politics and it was about money.
ROTHKOPFAnd one of the solutions to that was creating nation states and one of the first things they did to empower themselves was to create corporations that pumped money into their treasuries. And as those corporations grew, that rivalry between public and private power supplanted the rivalry that had taken place earlier between church and state and grew and grew and grew.
ROTHKOPFBut you're absolutely right. What we have now is considerably different from what we had before because as companies acquired more and more influence, they began to be able to change laws. And as they did that, it enabled them to acquire more power and rights and influence and it gets us all the way to the present where you have giant global corporations that are bigger than many states.
ROTHKOPFAnd that in the United States, for example, through decisions like Citizens United and so forth actually have more political rights than average citizens.
GJELTENOf course, and that's the Supreme Court decision that allowed corporations to spend quite freely in political campaigns. Before we get to the present moment, there's one other little story I want you to tell and that's how the idea of property rights arose because it has a very interesting sort of intellectual history, a legal history in your telling in this book.
ROTHKOPFWell, I mean, that's a long, long story, but, you know, property rights, you know, I mean, they go back to the dawn of time. I mean, that was the sort of central issue. It was who owns things and the way that you contained the power of the state was to claim more of those rights for the individual and the way that people pushed back on kings, you know, John Locke and others was to assert that people had the right to private property first and to not have that property taken away from them by the government.
ROTHKOPFI think it's kind of interesting, by the way, as you look back on these things, you know, you'll see John Locke cited as a champion of liberty and a champion of personal rights and property rights. But at the time that he was doing it, he was also sort of centrally involved in the slave trade so, you know, his views on liberty are not quite what they were cooked up to be, you know.
ROTHKOPFBut those developed over time. And then, there was this kind of twist, as though almost out of a science fiction movie, a little bit like a Frankenstein twist where property rights were created. In order to preserve certain kinds of property, corporations were created and the corporations which were seen as property, powered by the state, at a certain point in the early part of the 19th century in the United States, began to develop their own rights. The property began to develop the rights of people, a switcheroo, which ultimately creates some of the problems we've got today.
GJELTENThat's exactly what interested me, David, because you talk about how in the beginning, you had this tug of war between individuals and the state and then you had a marrying, in your words, of the legal concept of the business corporation to individual rights. And that's how you got sort of the legal basis for property rights that has become so important.
ROTHKOPFRight. Well, I think marrying is a good word if I used it, but, you know, you could also use the word muddling because, you know, they came together and then they were used in such a way that corporations began to assert rights that had been ascribed and set aside for individuals in ways that ultimately encroached on the rights of individuals.
ROTHKOPFAnd a perfect example is that in the late 19th century, after the Civil War, we had the 14th Amendment. The idea of the 14th Amendment was to ensure that African-Americans, recently freed slaves, would have their rights and so forth, but most of the court cases in the United States Supreme Court that came up after the 14th Amendment were corporations asserting their rights and by winning the cases gaining more rights, more cases, in fact, than were brought on behalf of people.
GJELTENSo there's a long tradition to people saying Mitt Romney was not the first to say that corporations are people?
ROTHKOPFMitt Romney was not the first, but Mitt Romney has said it in a moment that is particularly fraught, you know, that's kind of like, you know, putting a match to tinder because this progression of leaving more to the markets and leaving more to corporations and corporations growing in size to be bigger than states and corporations gaming the system so that they're not regulated in important ways has twisted our system in a certain way.
ROTHKOPFSo that we come into the financial crisis and, all of a sudden, it wakes people up and they look back and they say, wait a minute, GDP grew for the past 10 years, but jobs fell for the first time in U.S. history for 10 years, median incomes fell, social mobility fell. The system stopped working for the people that the system was created for. And remember, I think one of the important things we have to stop and remember is corporations were created to serve the state which is to serve people.
ROTHKOPFSo that if corporations don't serve the public interest, they should not have, they do not have, in terms of their legal origin, the right, you know, and that's the kind of debate we're having here. But it comes in an interesting context and the context is that our system, our approach to it, which we thought had kind of been end of history, the final solution to, you know, the way the world was going to be ordered, began to stumble as a consequence of these crises while other systems that had a different balance between public and private power started to thrive.
ROTHKOPFAnd so the context is not just, gee, something's broke here in America, but something's broke here in America. And the way they do capitalism in China or in Europe or in the developing world is far different from American capitalism and we didn't win that contest. We've entered a new period of kind of competing capitalisms in which the real disadvantage is that American capitalism is suffering in the eyes of the global marketplace of ideas.
ROTHKOPFAnd so there's a domestic consequence and there's an international consequence to the kind of debate that Romney's remarks sparked.
ROTHKOPFAnd the difference between capitalism as practiced in the United States and these other competing forms of capitalism that you list in your book basically comes down to the rule of the state.
ROTHKOPFThere are many differences, but the way that the United States is an outlier is that we have for the past 30 or 40 years been arguing for a smaller and smaller role of the state. And whether it's the capitalism of northern Europe, which we have to parenthetically add is actually working pretty, well even as the capitalism of southern Europe isn't working so well.
ROTHKOPFWhere the capitalism with Chinese characteristics or what I call democratic development capitalism that you might find in Brazil or in India or small-state entrepreneurial capitalism that you might find in Singapore, Israel or the United Arab Emirates, in all those other systems, there's a recognition that the government has an important role to play and the balance between public and private power is tilted somewhat differently from what it is here.
GJELTENIs the line between public and private power all that clear to you?
ROTHKOPFThe line is always changing. It's like a border between two warring states, you know. Now, as it happens, and I think it's an important point that I make in the book, these are states that can't do without each other. You need to have both. You need to have the marketplace and the government. You need an appropriate balance and I think what's happened in the United States is corporations have gained a lot of power.
ROTHKOPFWe have a political system that is corrupted by money. Corporations have more money, they're able to change the system so that from a regulatory basis or political basis or whenever they gain leverage, it serves them. It doesn't serve the population at large and you get fundamental tension.
GJELTENDavid Rothkopf, he's CEO and editor-at-large of Foreign Policy magazine, president and CEO of the international advisory firm, Garten Rothkopf, and a former U.S. Deputy Under Secretary of Commerce for International Trade Policy under President Clinton and is the author of a new book. It's called "Power, Inc.: The Epic Rivalry Between Big Business and Government – and the Reckoning That Lies Ahead."
GJELTENWe're going to be talking about these issues, the issues that David raises in his book throughout the hour. You can join us by calling 1-800-433-8850 or send us your email at firstname.lastname@example.org Join us on Facebook or Twitter. Short break right now. We'll be right back.
GJELTENWelcome back. I'm Tom Gjelten sitting in for Diane Rehm. And my guest this morning is David Rothkopf. He's the author of a new book "Power, Inc.: The Epic Rivalry Between Big Business and Government - and the Reckoning that Lies Ahead." One of the issues that we have been talking about already is under what conditions and with what implications corporations are able to present themselves basically as people or as persons, with the kinds of individual rights that our constitution has given to people.
GJELTENAnd we've already, David, gotten two emails from people who want your thoughts on the upcoming Supreme Court hearing, the Supreme Court case involving Shell in Nigeria where, again, the corporate responsibility of a company is at issue. And my colleague Nina Totenberg just did a story on this, as a matter of fact. You're familiar with this story, David.
GJELTENTell us what the importance of this upcoming case of the Supreme Court is.
ROTHKOPFWell, I think it's raised a lot of attention because it creates a concern in the mind that if a corporate-leaning court, which has already had decisions like Citizens United and others where it empowers and empowers corporations, were to rule in this case that corporations cannot be sued for violations of human rights, that essentially what they would be saying is not only do these companies have people's rights, they have rights beyond that of people. Because the human rights codes and so forth that are being cited here are actually codes that individuals could be taken to task for.
ROTHKOPFIt's kind of a lose-lose situation however, because even if -- and the case has a lot of technicalities in it that go beyond that oversimplification. But even if for a moment the court said no, corporations are liable under these laws as people, it would further then underscore the doctrine that companies are people.
ROTHKOPFWell, that sounds a little bit like it's fair...
GJELTENIt's a lose-lose situation.
ROTHKOPFRight. In that sense, it's a lose-lose because, well, companies may be people, but, you see, they're immortal. The whole idea of a corporation is that it could go on and on and pass generation to generation. So that makes them people plus, right? They have more assets than people. That makes them people plus. They have more political reach than people. That makes them people plus. They are global so they can actually operate above laws and beyond laws, so that makes them people plus.
ROTHKOPFAnd that's why in the book I call them super citizens, you know, that there is this new breed out there of global actors, the top 1,000 or 2,000 companies are bigger in terms of the resources they've got than the hundred smallest countries. They've got more overseas offices than those countries have embassies. Meanwhile, those countries, they don't control their borders anymore in the age of the internet. They don't control their currency any more in the age of electronic trading and just a few convertible currencies.
ROTHKOPFThey don't have the ability to project force anymore. Only about 17 countries actually could sustain cross-border war for any period of time. And they don't have the ability to actually enforce the law anymore, which is the most fundamental thing they do. Because if you're a big company and you're in my country and I say I'm going to levy a tax on you, what do you do? You say, I'm out of here. I'm going to go to a different more favorable venue.
GJELTENYeah, you know, in theory, these distinctions, these concepts make a lot of sense to me. In practice, I have to say I'm still a little bit confused. I mean, those are really good examples of private power in a very big sense, but what about the example, for example, of a state-owned oil company? Is that a private company or is it a public -- is that sort of the public power side of the equation? Because state-owned oil companies act very much similar to privately owned oil companies, right?
ROTHKOPFThey do and the lines are blurred. Again, you know, this is -- there's this -- you know, just as with borders between countries, the border between public and private power has its own little Waziristans in it where you can't actually find the distinction. And, you know, a lot of companies like the South Sea Island company we talked about earlier, the British East India company, were originally created to serve states by pumping money into those states' budgets.
ROTHKOPFNow, you've got companies playing both sides of the coin. You've got Chinese companies that are state owned or state controlled that get subsidies from the state and compete against private sector companies and have an unfair advantage in that respect. So again, the issue is balance. And whereas the balance is clearly out of whack in the United States and I think it's harming our system in some fundamental ways, it's also out of whack in other places in the other direction. And, in fact, you know, the history of the 20th century is marked by the most extreme examples of this where in soviet communism all the corporations were controlled by the state. That didn't work either.
GJELTENRight. You know, you present this tension between public and private, a libertarian looking sort of at the same world might say that the real dichotomy is not between public and private. It's between big and small. And the issue is not the division of power between public and private, but the concentration of power between large and small.
ROTHKOPFWell, first of all, you know, I mean, that's a big portion of this and, you know, somebody who might sign on to that particular point of view is the world's most famous capitalist, Adam Smith, who was all for markets if they were among small actors that were equally able to compete, but was against the big British East India companies and others. He had seen that in his lifetime and so he was opposed to it. But...
GJELTENBut wouldn't he have to be opposed to big government as well?
ROTHKOPFHe might be, but here's the point I wanted to get to in terms of libertarians. When you hear, for example, Ron Paul, you know, in these debates standing up and saying, no, let's have government get out of the way -- in fact, you hear a lot of Republicans saying, if only government will get out of the way, the market will take care of itself. Smaller government means more freedom. Well, that's where big and small really comes in because if government leaves open a void, who steps in to assert themselves? Is it everybody with equal voices? No, it's the big actors. It's the elephants crushing the ants.
ROTHKOPFAnd so the big actors are better able to take advantage of a void in public power than the little guy. And so it's not just government versus business. It's not just public versus private, but it is also small versus big. And big companies pose as big a threat as big government. But we've got to kinda -- you know, I mean, American politics right now is at a kind of an (word?) of public debate, right. And it's like George Orwell's Animal Farm, four legs good, two legs bad. I'm a Republican, I'm against government. I'm a Democrat, I want markets to be constrained.
ROTHKOPFAnd we can't actually have a sensible discussion along the lines of what you're bringing up now, where there are nuances about state-owned corporations or big versus small in this equation.
GJELTENTo what extent has your thinking about this issue been informed by your own experience in government? As a Deputy Undersecretary of Commerce, you write that you were involved in the advocacy. You traveled around the world promoting free trade. You were responsible for trade policy at the Commerce Department. What did you learn from that and to what extent does what you've written in this book reflect your own experiences and thoughts from that period?
ROTHKOPFWell, you know, I would say I was kind of a true believer of the Clinton era, you know, and that we were sort of moderate Democrats who believed in free markets first and foremost and free trade as the solution to a lot of problems. And while I still believe in the merits and the powers of free trade and free markets, I recognize that we went too far. And just as we went too far in pushing for deregulation, and it was under the Clinton Administration that you got rid of Glass-Steagall and opened up Wall Street to some of the shenanigans that we suffered with, so with free trade we pushed it to the point that we stopped thinking really about the dislocations that it causes. And that a lot of players out there are playing by a different set of rules than we are.
ROTHKOPFAnd if other states are involved in making their companies more competitive, if other states are more focused on how to ensure that capital flows into their borders and people get jobs -- and we're not because ideologically, we're opposed to that, somebody else is going to eat our lunch. Our people are going to suffer.
GJELTENDoes ideology matter or are you saying we just have to do, you know, we have to fight fire with fire, do what the other guy is doing? You know, I mean, are you saying that it makes sense for the state to be more involved in the economy or are you arguing that we have to get the state more involved because other governments, other systems are operating on that basis?
ROTHKOPFWell, I remember enough of my SAT study and that some questions are answered all of the above. And in this particular case, I answer the question all the above. Ideology does matter and ideology also needs to evolve. And we live in a world in which other states are more involved in protecting the interest of their people. And in fact, in the global era, an important role for states is to look out for their people's interests. Whereas big global actors like corporations are actually stateless and don't care so much and can't be relied on to act with conscience, because actually that's not what they're created to do. They're created to serve their shareholders.
ROTHKOPFAnd so I think ideology does matter and ours needs to evolve a little bit, both because it's the right thing to do and because other people are competing with us in that way.
GJELTENWell, let me just give you an example. You know, we've talked about Latin America before and you don't write a whole lot in your book about nationalization and about Venezuela, for example. We've seen under the government of Hugo Chavez his government nationalizing a lot of enterprises in Venezuela. Has that been a good thing or a bad thing?
ROTHKOPFIt's been a terrible thing.
ROTHKOPFYou know, I think that governments going in and taking over private assets is wrong, first of all, because that's theft. And secondly, I think it's wrong because the governments have mismanaged those things and actually squandered the funds,. And thirdly, I think it's wrong 'cause they've stolen the funds. And so again, it's one of those examples of the extreme and reckless intervention of the state and to the economy.
ROTHKOPFBut I can offer countervailing instances where in the government of Singapore every two years assesses the competitive situation of Singapore brings together scientists and academics and citizens and business leaders, determines what assets they've got, reallocates those assets to advance those things and does this all around an ideology of the government has an important role to play in empowering its people to compete in the world. And that's a constructive role for the government to play.
ROTHKOPFAnd I think one of the problems we've got today is there are people who've gone out there and they've said the choice is free markets or state capitalism.
ROTHKOPFYou know, that's not the choice. The whole idea of state capitalism creates a kind of a stalking horse. You know, it's created to oversimplify so you say, well, look, you want communist Chinese? You want, you know, you want to be Hugo Chavez? That's state capitalism. And the only alternative to that is let the corporations make the rules. There's a much bigger spectrum and we need to have a conversation about what the appropriate place we want to be between those two ludicrous extremes is.
GJELTENOkay. Another big issue that's come up in the last year is the case of Solyndra where the Obama Administration intervened very aggressively, it appears, on behalf of one company. And it ultimately went bankrupt. What are the lessons to be drawn from that experience?
ROTHKOPFWell, I think the main lesson to be drawn from that experience is that money is the toxin that's killing American democracy and that, you know, we have a system that is as fundamentally corrupt as any third world government. They carry cash to government officials in brown paper bags or suitcases or Swiss bank accounts. We do it much more sophisticated and in a white-collar way. And that leads to the kind of conflict of interest that produces the kind of wrong decision that Solyndra is involved with. And that corrupts the government's ability to actually make wise decisions about allocations of assets.
GJELTENI'm Tom Gjelten. You're listening to "The Diane Rehm Show." So you would not argue that that case shows that governments are not good at picking winners and losers, which is the argument that many people are making on the basis of that case.
ROTHKOPFGovernments have a mixed record of picking winners and losers. But, you know, for the people who say I want government out of the marketplace because that's not the American way. I would suggest they say, well, what about the canals that were funded by the country and that knit the country together? What about the railroads that were funded by the government and knit the country together? What about the internet that was funded by the government? What about the benefits that came out of the space program?
ROTHKOPFWhat about the benefits, you know, radar and telecommunications and all of these things came out of various defense contracts and later led to these things? There's a role for government to play. It needs to be counterbalanced in an appropriate way. And I think, you know, I'm taking a strong stand here against extremism.
GJELTENWell, good for you. David Rothkopf, his book is "Power, Inc.: The Epic Rivalry Between Big Business and Government - and the Reckoning that Lies Ahead." And I want to go to the phones now. You can join the conversation, 1-800-433-8850. And let's go first to Kevin who's calling us from Salt Lake City, Utah. Good morning, Kevin. Thanks for calling "The Diane Rehm Show."
KEVINThank you. First, I don't think there's any enmity at all between private and public. And I think on the grand scale -- and the best proof that to my understanding not one banker or one of the industrialists that caused this current economy debacle has been imprisoned. And that's an interesting contrast with Clinton who put, I think, 1100 savings and loan executives in prison.
KEVINAnd then, briefly, a second item is regarding the term free trade that was just tossed around. I have a DVD downstairs, instructor for college, this was on CSPAN, stating in plain English the purpose of the 450 foreign U.S. military bases is to enforce trade. So if anyone doesn't realize that that's a tax, the military's a tax, a hidden tax on taxpayers to provide us with throwaway items at Walmart, well, they're quite naive.
GJELTENDavid, you write about the lack of prosecution of -- okay, Kevin just hung up on us -- the lack of prosecution of individuals that were involved in the financial scandal and you were upset by that, weren't you?
ROTHKOPFYeah, I still am. I think that, you know, that if you really believe that, you know, or if you really want a good illustration of how over the top the power has become of some of these people, look at the Wall Street situation. During the Clinton years, they came in and they said, please don't regulate us. We will regulate ourselves. You know, not that these guys would ever get in a self-regulating taxicab or brush their teeth with self-regulated toothpaste, but they said, we're special. Let us regulate ourselves.
ROTHKOPFSo the government gets off their back and then what happens? Greed takes hold. They've abused things. They go too far. They get into a hold and they go to the government and they say, you know, you've really got to bail us out here. You know, we wanted you to get out of our hair before, but we've changed our mind. We'd really like a check right now 'cause the systemic risk of our failure is so great that your people will be hurt.
ROTHKOPFSo the government then writes a check and says, okay, we'll bail you out here. And then, to really show power as soon as they started getting back on their feet and making profits, they went to the government and immediately said, please get off our back again. We really don't need you. Stay out of our hair. And they pushed back on regulation. And for all the complaining and whining about Dodd-Frank, which I consider to be a kind of anemic financial reform bill, they essentially came out and they said, you know, oh, this is too much.
ROTHKOPFAnd they pushed back and have enabled themselves to get to a situation now where a couple years after this crisis, we've got more too-big-to-fail banks than we had before this crisis. We've got plenty of mortgage issues that were the root cause of this problem unresolved. The global derivative markets are unregulated. So, you know, they've managed to play the system so well that you have to believe they're actually calling the shots.
GJELTENWell, David, you make the argument in this book that a private power is becoming too big. After the break, I want to show you this chart that shows total public spending in the United States and how it's increased from 1950 -- increased to 2015. But first, we're going to take a short break. We'll be right back.
GJELTENWelcome back. I'm Tom Gjelten sitting in today for Diane Rehm. And I'm here today with David Rothkopf who has a new book out called "Power Inc.: The Epic Rivalry Between Big Business and Government - and the Reckoning That Lies Ahead". And David, the reckoning that is going to come, in your prediction, is that the advocates -- if I can over generalize, the advocates of private power may need to be reined in.
GJELTENBut I'm asking has the power of private economic producers really increased that much vis-a-vis the government? Because I have here this chart, that I told you about before the break, showing total public spending in the United States from 1950 to fiscal year 2015. In 1950 it was around 15 percent of GDP. It's now up above 22 percent. It was actually up as high as 25 percent. So public spending, the public sector as a part of the U.S. economy, has grown quite dramatically in the last 65 years. How can you then argue just the opposite that private power is what is on the increase vis-a-vis government?
ROTHKOPFWell, there are a few ways that I can do it. I'll start by saying most of that public spending, the vast majority and the growing segment of it, is actually not spending that the government has any choice on.
ROTHKOPFSo, you know, if it's entitlement spending and you're obligated by law to spend it, that's not a source of power. That's actually a source of obligation. And the amount of spending that the government actually has any control over, you know, where, you know, senators can vote on it one way or another and really make a difference, is getting smaller and smaller and smaller.
GJELTENSo this chart doesn't show the balance of power between public and private?
ROTHKOPFRight. Exactly. And simultaneously you've got corporations growing over the course of that period, from being a tiny fraction of the economy to the situation now where you've got a couple thousand that are bigger than most of the countries of the world. You've got corporate power growing in terms of a series of a sequence of court decisions and regulatory pull-backs and other things that open up space for them to grow.
ROTHKOPFAnd you've got the system, obviously, being changed in a way that individual citizens have less social mobility over the course of the past several decades. They have less median income over the course of this past couple of decades. So as GDP grows, the share of it that's actually going to individual citizens is shrinking. And I think those are better metrics of power than just an aggregate number like that which is easy to simplify and distort.
GJELTENYou've seen that before, haven't you?
ROTHKOPFIt's the first time it's ever come up.
GJELTENOkay. All right. David, this is an email that we got from Richard who points out that, "one of the results of the growth of enormous corporations is their philanthropy. But while corporations can be praised for dedicating resources for the public good what are the risks for a nation when this philanthropic process is not part of a democratic process?"
ROTHKOPFWell, first of all, the philanthropic process isn't part of a democratic process. It's a part of the, you know, a few empowered individuals making, you know, decisions that, you know, are guided by whatever their own personal perspectives are. The Gates Foundation puts as much money in the field every year as The World Health Organization. That's a great thing. You can't complain about it, but they're not...
GJELTENWell, wait a second. Is that a bad thing?
ROTHKOPFI just said it's a great thing.
GJELTENNo, but is it...
GJELTENSo you're saying they spend money more efficiently or more wisely than the WHO?
ROTHKOPFNo. I didn't say that.
ROTHKOPFI said they put more money into the field or actually roughly as much money in the field as the WHO.
GJELTENBut how well do each of them spend it?
ROTHKOPFWell, let me finish the point. My point is that they're not accountable to anybody.
ROTHKOPFAnd therefore, they're essentially spending money to serve their own priorities and not necessarily the priorities of the world. And a perfect example is The Gates Foundation spent a ton of money on vaccines in Africa. Sounds like a good thing. But Africa didn't have the absorptive capacity, didn't have people to administer the vaccines. So it could make a good decision, but it can have a negative consequence.
ROTHKOPFFurthermore, this whole notion of corporate social responsibility which is wonderful is a smoke screen. The reality is that I think the average amount that a corporation spends on CSR philanthropy is .01 percent...
ROTHKOPF...of their revenues. So it's a tiny, tiny fraction. It's not even, you know, tithing of somebody in a church. It's really, you know, dropping a penny in the tin cup of the guy along the street as you're walking along the way. And almost always it's done to serve another objective, a political objective, you know, to offset some NGO complaint or to do something else.
ROTHKOPFYou know, we shouldn't rely on organizations that are legally obligated to do nothing but serve the interests of their shareholders by increasing profits to serve the interests of the public at large because they're actually legally proscribed from doing that. That's not what they're there to do. And so we need public mechanisms to provide for the public.
GJELTENI hope you understand I'm just trying to play devil's advocate with you.
ROTHKOPFI do understand.
ROTHKOPFI saw a smile on your face. The listeners didn't, but I saw it.
GJELTENAll right. We're gonna go to Mark now, who's calling us from Barrington, R.I. Good morning, Mark.
MARKGood morning. I just wanted to ask your speaker if he is in anyway affiliated with or associated with the Program On Corporations, Law And Democracy. It sounds like you could be on the board of directors from what I've read of their (word?).
ROTHKOPFI accept the job offer.
GJELTENTell us, are you affiliated with it, Mark? Tell us what it is.
MARKWell, this is an organization that's been around since 1995. It was created to instigate conversations and actions that context the authority of corporations to define culture, govern our nation...
MARK...and otherwise affect our politics.
MARKAnd it's an interesting -- I had one question, if I may.
MARKThe assumption that corporations are humans seems to drive all of the corruption that you allude to. And can that be rethought in any meaningful way and essentially render a lot of this corruption mute?
GJELTENWell, that's a constitutional issue, isn't it? Which means that, you know, it's kind of up to the courts to decide that.
ROTHKOPFI think it is. First of all, let me make a point. One of the reasons that I think Mitt Romney has said corporations are people is because people run corporations. You know, they're not, you know, there is a human component. And corporations do a lot of good. The problem is that almost always when left to their own devices greed takes over, the objective to maximize profits takes over and that can have a consequence that's contrary to the public interest.
ROTHKOPFWe need to have a system where there is something that can offset that. And we've got two sets of problems there. And you're right to point out that one of them is a national constitutional legislative problem about what our laws are and a regulation so that we can contain and counterbalance that authority.
ROTHKOPFBut a bigger problem happens on the global stage, where so much of this action takes place out in the transnational space where there aren't regulations and where nation states are reluctant to cede sovereignty upward to create global regulatory mechanisms, whether these are mechanisms that take care of global derivatives markets or carbon emissions or health standards. And that's one of the big problems of our age.
ROTHKOPFThese companies are global actors and states aren't. And the international institutions we have were all created after World War II to be weak, essentially not to be effective in this space. And this is almost precisely the situation you found in the United States after the Civil War when big national companies grew up to take advantage of a new national market, but there weren't any laws to roll them in.
ROTHKOPFAnd so you ended up with Standard Oil dominating. And you ended up with the trusts and we had to reset the legal system in the early part of the 20th century to try to offset that. We don't have a mechanism to offset that on the global stage. So I think the problem there is even greater.
GJELTENI wanna go now to David, who's calling us from Jacksonville, Fla. David, have you been following this conversation and what's your thoughts?
DAVIDYes, I have. And I've really enjoyed the conversation and I intend to buy David Rothkopf's book. It sounds like a...
GJELTENOh, he'll like that.
DAVID... (word?) . I'm in my 60's. And I'm looking back over the last 40 years. And when I was in college 40 years ago in the late '60s, at that time I was very anti-business, extremely liberal and I just saw corporations and businesses as being really evil, quote, unquote, for lack of a better word. During the past 40 years, becoming a family man, so to speak, I've began to take a look at the reality of the way the world really is.
DAVIDAnd so when I heard Mitt Romney say that corporations are people, I think I was dismayed to see the criticism that was offered toward that comment because over the last 20 years ,I've realized and I've become sort of a shareholder, using my investments, as a small investment person, shareholder. And I'm gonna reveal ignorance here because I'm not an expert on anything really. But I saw that as I'm -- being a shareholder, I see myself as being one of those people in a corporation, so to speak.
GJELTENAnd you identify with a corporation in that sense.
DAVIDYeah, because without the corporations where is this country? Who in the world pays the most taxes in this country? Who supports our school systems? But the money from corporations and the taxes that they pay? And also, what about small corporations, are they in that same category? I'm talking about small farmers who, you know, but and I’m gonna get off base a little bit here, but estate taxes and the death tax. People have earned that money.
GJELTENAll right. David, you...
DAVIDWhat is wrong with success?
GJELTENYeah, well, we've been talking here a little bit, David, about big and small, as well as public and private.
GJELTENDavid Rothkopf, do you wanna respond to caller David on this issue?
ROTHKOPFWell, first of all, let me start by agreeing with your point that "Power, Inc." is a great book and you should buy it. But in terms of the broader issues that you raise here, you know, you're absolutely right. Corporations play a vital role in society. And you as a shareholder of those corporations ought to be proud of the contribution that's made to job creation and economic growth that's made by corporations.
ROTHKOPFThe question is has our society gone off course a little bit, to the point that we don't regulate corporations appropriately, to the point where they're able, actually, to resist appropriate regulation, as perhaps was manifest in what happened on Wall Street where the opportunity was created for greed to get a hold of things in such a way that it cost the country trillions of dollars in lost growth. And cost millions of people their jobs.
ROTHKOPFAnd to just take that example, although we could use examples regarding emissions and the consequences for climate change, we could use examples regarding health related issues in countries around the world or corporations that were fostering political and supporting political regimes that committed crimes against their citizens or corporations elsewhere in the world that have promoted corruption. There are areas where if corporations are left to their own devices they will go too far and harm the interests of people.
ROTHKOPFAnd all I’m saying is we need to recognize that. We need to recognize that there are approaches to achieving a better balance than we currently have here now. And that this really begins with coming up with a new set of rules in the United States to offset the corruptive force that money plays and globally, to recognize that we don't have a system of -- we don’t have a political ideology to deal with the political and economic realities of the 21st century.
GJELTENI'm Tom Gjelten. You're listening to "The Diane Rehm Show." And David, just in the interest, again, of devil's advocacy, one of your points about corporations is that they are not accountable for what they do. But they do have to worry about reputational risk. And reputational risk can be a very big factor for a corporation, right? On the other hand, you sort of imply that public organizations are more accountable, but, boy, if you look at some of the national and international bureaucracies around the world, it's hard to see where the accountability is. So respond to those.
ROTHKOPFI think, as an average citizen, you want maximum accountability from all concentrated areas of power. So that means corporations need to be accountable to their shareholders, they also need to be accountable to the people of the countries in which they operate. And that means either through systems of law, which the Supreme Court case might actually make more difficult, regulatory systems, tax systems and otherwise.
ROTHKOPFI think the same is true for governments where, you know, having an effective democracy makes them accountable. Having a cronies system that allows the money of the few to put incumbents into place and have them never leave office, that's not accountable system. Having big global bureaucracies is not an accountable system. So I think, you know, you put your finger on one of the core issues and solutions here. And that is maximizing accountability to the public at large. When a system doesn't do that it needs to be fixed.
GJELTENBut doesn't concern about reputation, corporate reputations enter in here somewhere?
ROTHKOPFIt does, but if concern about corporate reputation was sufficient to guide companies in the right direction you wouldn't have belching emissions, you wouldn't have pollution off the shores or in the rivers of countries, you wouldn't have products that were being sold that were dangerous products, you wouldn't have mortgage schemes that could threaten the growth of financial markets. Look at what happened on Wall Street. They went in, they blew up financial markets and then they came down to, you know, Washington when they were called before the United States Congress and they said, get out of our hair. We don't need you guys.
ROTHKOPFSo, you know, they didn't seem to be that concerned about, you know, their reputational risks at that moment. They were more concerned about how much money they could make in a short period of time. And they almost felt, I think in that case, invulnerable.
GJELTENOkay. One last call. This one goes to John, who's calling us from Detroit, Mich. where you're voting in a Republican primary today. Good morning, John.
JOHNHey, thank you for taking my call. And I think that David has done a great -- illustrating a few different examples of how -- regarding the comment about corporations are people. And I -- just one thing I haven't yet heard brought up or discussed is, you know, when people in this country, and all over the world for the most part, commit a crime they're subject to laws and have to serve time in prison. That's some sort of a punishment that people here as citizens are (word?) to.
JOHNAnd when it pertains to crimes committed by corporations, whatever they may be, I would say a good majority of those types of crimes, if committed by people to a degree, would be subject to serving prison time or jail time. And I just -- that would be brought up more as a differentiator between...
JOHN...corporations versus -- I know that there are some other discussions out there about how they're different, but I heard...
GJELTENOkay. All right. I think we got it, John. John, we just have a few seconds left. David?
ROTHKOPFIt goes back to your point, Tom, about accountability. And I think corporations need to be liable for their actions in courts, but they have big batteries of lawyers and they've got big budgets and so that creates a barrier there. They are global so they can leave a country. That creates a barrier there. They can help pick political officials and they can help influence the way judicial systems are formed. That helps give them invulnerability there, too.
ROTHKOPFBut the flip side of this, by the way, very quickly, is, you know, government leaders aren't accountable either. Look at Assad in Syria.
ROTHKOPFTo the point they don't become accountable to global standards, we've got a problem also.
GJELTENDavid Rothkopf, he's the author of "Power, Inc.: The Epic Rivalry Between Big Business and Government." I'm Tom Gjelten sitting in for Diane Rehm. She'll be back tomorrow. Thanks for listening.
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