Corporations, their influence and government regulation

Had a chat with a good friend recently about free enterprise and government regulation, and I thought I should share my thoughts on this topic.

I believe that corporations brought about lots of changes in the way we live, play, learn & work (and quite a number of other verbs) over the past 400 years.

• We go to work in a car/train/bus produced by one of the half-dozen or so corporations
• Most of us work for corporations (after government, aren't corporations the largest employers?)
• We listen/read/watch news/movies/ broad-casted by corporations
• We communicate using phone-calls/sms/internet-chat using phones/laptops produced by corporations
• the water we drink, the food we eat, the clothes we wear, the medicines we take, the energy we consume and the list goes on....

Whether we like it or not, corporations are playing a major role in our everyday lives - wherever you live in the world.

It is also possible, human evolution got a big boost by these corporations. First it is the monarchies that set the pace of evolution, then it is the religion, and now it is the commerce (or corporations) that is ruling the world. 

• Who could motivate millions of people to work hard toward a common cause under their own free will? Religion and Monarchies provided the impetus for our ancient cousins, but neither could match the motivation supplied by the current day corporations. Unlike their ancient brothern, the current day corporations invest huge amounts of money & time to figure out what motivates the minions without coercion (salary, power, title, bonus, stock, awards, travel, houses, cars, gym, parties, sense of empowerment, self-actualization and what not - talk to your HR if you are in doubt).
• Who is willing to sell products and transfer technology without any national/ethnic/religious boundaries? Advances made by governments are never shared with other nations (competitive advantage in cases of war), while everything is for sale for a price when corporations are involved. Profit maximization motive makes sure that corporations engage in cross-border commerce. I think this global, multi-national aspect of the corporations can be the biggest factor for speedier evolution:
• it made transfer of all kinds of technology to remotest parts of the world possible
• it brought the entire world under one umbrella - think about economies of scale & efficiencies in everything that we do
• in the end, it is possible corporations hold the key for peace between religions/nations/ethnicities - because war is not good for commerce
• Who could make more efficient resource utilization than corporations? Maximizing stock-holder value combined with the invisible hand of Adam Smith - makes sure that corporations and thus societies employ the most efficient utilization of the factors of production.
• per-capita of US is around $45K ($14trillion/330million), per-capita of India $1K ($1.2T/1.2B)
• per-capita of a Microsoft Employee is around $600K ($60B/100K) 
• This means - from a productivity stand-point - each Microsoft employee ~ 13 US Citizens or 600 Indian Citizens (I am comparing GDP to corporate revenues here - possible gross-profit is a more accurate comparison - in which case Microsoft per-capita is down to $500K)
• Think about moving the CEO of Microsoft to India, give him absolute power and ask him to run it like Microsoft (with slightly different metrics) for 10 years - I am sure India would be a much different country (I am not advocating that CEOs will be good at public policy, but I am assuming they are good at placing the right incentive structure in place and in improving organizational efficiencies)

In lots of ways, each one of us - is much better off because of the corporations than without them.We are living much longer (pharmaceutical, food, clothing, housing & security industries), we are more connected (telecommunications), we can visit more places (airlines, automobile & hospitality industries), we know more about each other and about the world (telecom/internet, media & news industries), we are enjoying more (media & entertainment industries) than our brothers who lived on this earth only 100 years back.

If somebody asked you to build your own car/refrigerator/house from scratch with absolutely no help from anybody (imagine Will Smith in "I am Legend"), I would doubt if you can build any of these in your life-time.

So what is the problem? In spite of all these advantages, there are problems posed by some of the corporations. Some of these corporations are becoming too big for our own good ("market failure") with a possibility of causing serious damage to our way of living, and for our future generations. Like what was said of the monarchs of the ancient times - absolute power corrupts absolutely; in the case of corporations: absolute stock-holder value maximization corrupts absolutely.

There are quite a number of instances about the unethical excesses of corporations for profit maximization at the cost of their employees, their stake-holders, and their neighborhoods - from the early days of corporations    (1600s: British East India Company, Virginia Company) to the recent financial crisis (Merrill Lynch, Bear Stearns, Lehman Brothers, AIG, Wachovia, Washington Mutual, CitiBank, Goldman Sachs etc.).

There are instances where corporations are involved in human-right violations, coercion of the work-force, violating labor laws, inhuman working conditions to regime changes, supporting brutal regimes, controlling corrupt governments, enacting favorable laws,  to polluting rivers, dumping industrial waste, endangering the ecosystem, exposing populations to dangerous chemicals, to collusion, anti-competitive practices, tax-avoidance, and other corrupt practices.

I have quite a number of examples to cite here - showcasing how corporate negligence effected/killed thousands of people, how corrupt governments were bribed to let the perpetrators go scott-free etc..
But the most important debate should be on how we can regulate these corporations, and to avoid market failures - whether it be through government controls, or social activism, or removing informational advantages or through putting the right incentive structure in place.

I think I should leave this to my next blog topic.