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Corporate criminality: Myths and misdirections

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

Dale T McKinley hates capitalism. He says “the history of corporate capital is a history of criminality”. But he makes things up as he goes along, and as a result gets everything exactly wrong.

The entire architecture and edifice of government foundationally requires the constant appropriation, control and eventual destruction of people and planet. As such, criminality is at the heart of its construction. The history of government is a history of criminality.

That paragraph is a lot more defensible than the version Dale T McKinley wrote in Daily Maverick recently: “The entire architecture and edifice of corporate capital foundationally requires the constant production, reproduction and eventual destruction of people and planet. As such, criminality is at the heart of its construction. The history of corporate capital is a history of criminality.”

I’m not even sure what it means. How does corporate capital produce, reproduce and destroy people? Do companies f**k us, and then babies happen to feed the corporate meat grinder?

McKinley starts with two quotations that seem profound, but aren’t: “’Corporate crime costs the United States more annually than all other crime taken together’ – Richard D Hartley (2008),” and “The position of large corporations in the global economy provides the most mouthwatering opportunities for illegal profits” – Michael Woodiwiss (2005)”

The first is a trivial truism that provides entirely the wrong context. The second also states the obvious, but makes a glaring omission.

Most crime happens where things of value can be found and misappropriated. Whether it’s cash, your car, or intellectual property, thieves go after things that have value to them. It so happens that the vast majority of the world’s value is contained within the capitalist system of production. It is, therefore, quite logical that “corporate crime” will be a high-value enterprise.

What McKinley neglects to do is to compare the value of corporate crime with the total value of corporate production. That would make a useful comparison.

If it is a large share, his claim that “the history of corporate capital is a history of criminality” may be defensible. If, on the other hand, corporate crime amounts to a small fraction of the total value that corporations produce, he is generalising from exceptions to the rule.

Unfortunately, he does not provide any data sources for his claims. In fact, data which could substantiate his claims does not even exist. Nobody reports on the extent of “corporate crime”. In fact, nobody even knows how to define “corporate crime”.

Organisations are not easily identifiable in court records, since criminal cases are more often made against individuals, rather than corporations. In some jurisdictions, like Germany, corporations cannot even commit crimes; crimes are committed by individuals, whether they act alone or in concert with each other.

Often, “corporate crime”, such as the fraud at Enron, is more properly interpreted as crime committed by individuals against the corporation and its customers and investors. Sometimes, “corporate crime” is used to refer to organised crime, inasmuch as organised criminals establish companies to facilitate their crimes. Sometimes, “corporate crime” is used to refer to white-collar crime in general.

In the absence of data, we have to rely on guesstimates. Most such guesses involve a few hundred billion dollars, albeit that they are limited to the US. That sounds like a lot, but maybe it’s not enough. Let’s suppose that corporate crime, however you’d care to define it, accounts for $1-trillion of losses to the US economy. And because the US economy accounts for roughly 20% of the globe’s economy, let’s suppose that all corporate crime, however you wish to define it, amounts to $5-trillion per year. That is an astonishingly generous assumption, but it would still amount to only 5.75% of the world’s total production.

Of course, any percentage is too high a percentage, but 5% or 6% cannot by any stretch of the imagine constitute evidence that “criminality is and indeed must be, at the heart of (capitalism’s) construction and lived reality”.

Good governance is perhaps the most important condition that free market capitalism needs to thrive. The World Bank defines good governance as “the traditions and institutions by which authority in a country is exercised for the common good. This includes the process by which those in authority are selected, monitored and replaced, the capacity of the government to effectively manage its resources and implement sound policies, and the respect of citizens and the state for the institutions that govern economic and social interactions among them”.

If McKinley’s view of capitalism was correct, you’d think that criminality would thrive the easier it was to do business in a particular country. But that is not true. Corruption is strongly correlated with how difficult it is to do business.

Companies that operate in the informal sector, where there are few rules, face limited growth opportunities and diminished productivity. Countries with less corruption exhibit higher levels of innovation. Corporate crime, simply put, is bad for business.

Almost all parties that witness corporate crime – be they investors, employees, competitors or business partners – would stand to benefit from preventing it, stopping it, or exposing it.

When employment involves “systemic ill-treatment and abuse”, it invariably happens in countries that permit less economic freedom, allow less free-market capitalism, enjoy less capable governance institutions, and have more corrupt states. There is a reason why sweatshops and child labour happen in communist Vietnam and China, and not in capitalist Britain, Sweden or Germany.

Research shows that the larger a corporation is, the less it is affected by corruption. That includes not only public corruption such as bribery, but also embezzlement, corporate fraud and insider trading. The larger the company, the better its internal governance procedures. There are exceptions, but they’re notable by their rarity. There’s a reason we still hold up Enron as an example. That kind of corporate crime simply doesn’t happen all that often.

Of course, the vast majority of corruption actually involves not just the private sector, but the state. Many, if not most, of the “the most mouthwatering opportunities for illegal profits” emerge from the relationship between corporations and the government.

McKinley admits as much: “At the centre of this journey is the ideological and financial ‘capture’ of dominant political parties in power and thus also, of the institutional purpose and policy direction of national states. This has been most often and effectively realised through the individual and class corruption of politicians as well as state bureaucrats and officials.”

By blaming capitalism for this state of affairs, he misdiagnoses the root of the problem. When a public official becomes corrupted, the problem is not that there was a corrupter to do the corrupting. The corrupter, guilty as he or she may be, is merely a symptom of a corrupt system, not a cause. When a policeman helps a criminal to commit a crime, is it not the policeman who committed the greater crime?

The problem of official corruption is that officials are corruptible. And officials are corruptible, not just because they’re human, and motivated by personal profit, but that they wield power that can be profitably corrupted in the first place.

The more power is granted to the state, the more corruptible the state becomes. The more steps there are in the process to start a business, the more corrupt a country is likely to be.

Key to this realisation is that the state has a monopoly on force, which is a far greater power than any corporation, no matter how large, could possibly wield on their own.

McKinley is right to point to government corruption as a great evil, and the nexus between government and corporations as being the root of that evil. But the solution is not to abolish corporations or bemoan the evils of capitalism. The solution is to break that unholy relationship.

Left to their own devices in a well-governed country with a free market, corporations can only ask people to buy from them, or work for them. They can persuade, cajole, or even pay you to work for them, or buy from them, or invest in them. But they cannot force you to do anything. You are free to choose.

The state, by contrast, has the power to force people to do things, on pain of death. The state enforces its laws – however minor, and however unjust – by claiming a monopoly on force. You don’t have the right to choose. And the state doesn’t just strongly recommend things.

Just try resisting arrest after refusing to pay a parking ticket, and see whether or not the government uses the threat of death to enforce its will. It enforces all its laws and administrative actions, whether just or corrupt, at the barrel of a gun.

Corporations might wish they had the power of the state, and they might try to buy the power of the state. But the solution to that problem is to make it harder, and ideally impossible, for corporations to gain control of the government’s power. That means reducing the size, scope and power of government. The less power the state has, the less power there is corrupt.

McKinley’s rhetorical argument for suggesting that corporations are inherently criminal leaves much to be desired. He skips right over criminality in terms of the law, to “activity and behaviour that is criminal in terms of what is decent, just and equitable in human, social and ecological terms”.

McKinley fails to describe the activity and behaviour of which he disapproves, but even had he done so, it is by his own definition not criminal. Just because McKinley dislikes something does not make it criminal.

I disapprove of lots of things, and there are likely significant areas where my disapproval does not overlap with McKinley’s disapproval. Whose subjective moral judgement are we to accept as the defining characteristic of criminal behaviour?

I think McKinley’s view of capitalism is criminal. I have good reasons for thinking so. Free market capitalism has delivered the greatest, most sustained period of progress in human health, wealth and happiness, for the greatest – and ever-expanding – number of people in the history of humanity. Socialism, by contrast, has produced only misery, famine, despair and death. It has left behind it a wake of destruction. Even in terms such as environmentalism, socialism was much worse than capitalism ever was. So I consider it deeply immoral to reject capitalism as criminal, the way McKinley does.

Whose opinion of what is “criminal in terms of what is decent, just and equitable” trumps whose?

Writes McKinley: “The most basic, underlying reason for (the history of capitalism being a history of criminality) is that the very raison d’etre of corporate capital is its insatiable drive to extract surplus value and accumulate ever-increasing profit by finding new and inventive ways to further exploit and commodify both human and natural resources.”

Yes, well, no. That’s just casting aspersions. The very raison d’etre of corporate capital is its drive to profit by finding new and inventive ways to produce the things that people need and want.

This is a good thing. Profit is what motivates us to do things for other people. It motivates us to produce more than we consume. It motivates us to trade our surplus with others. It enables the division of labour, so that those most skilled at a given function get to perform that function, while benefiting through trade from the specialised skills of others. This division of labour and voluntary mutual trade is what increases the average prosperity for everyone.

McKinley cites some examples of corporate criminals in South Africa: “Such stand-out corporate luminaries as JCI’s Brett Kebble, Fidentia’s Arthur Brown, Tigon’s Gary Porritt and Steinhoff’s Markus Jooste.”

If he follows the news at all, he would know that “luminaries” is the wrong word to use for such people. Everyone else, in business and elsewhere, strongly condemns their actions. More importantly, he can name these people not because corporate criminality is common, but because it is rare. All these people earned reams and reams of coverage in the media, because what they did was so unusual, detestable and shocking.

They do not represent capitalism any more than a male child molester represents men, or a female adulteress represents women, or a young drug addict represents the youth, or a sports cheat represents a sport (well, except for cycling), or a white racist represents whites, or a black robber represents black people. McKinley stereotypes from exceptions in an equally wrong-headed and offensive manner.

If criminality lies at the heart of anything, it must lie at the heart of the state, which claims a monopoly on the right to kill people. The history of capitalism, by contrast, is more properly thought of as a history of freedom, choice and prosperity.

But then, McKinley is a left-winger who works with a decidedly Marxist organisation, so I might as well not have bothered writing this for all the chance that I’ll change his mind. DM


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