FOUR ECONOMIC RIGHTS AND RESPONSIBILITIES Tools to Make the Corporation Serve the Needs of Human Beings CARMINE GORGA October 2009 Abstract This paper identifies four economic rights and corresponding economic responsibilities in accordance with the needs of the factors of production: land, labor, and capital distinguished between physical and financial capital. Economic rights (ERs) are the creators of property rights and find their justification in corresponding economic responsibilities ERs). The implementation of these four ERs&ERs is ideally suited to make the corporation serve the interests of human beings.
Brief Bio Carmine Gorga is a former Fulbright scholar and the recipient of a Council of Europe Scholarship for his dissertation on”The Political Thought of Louis D. Brandeis.” Using age-old principles of logic and epistemology, in a book and a series of papers Dr. Gorga has transformed the linear world of economic theory into a relational discipline in which everything is related to everything else—internally as well as externally. He was assisted in this endeavor by many people, notably for twenty-seven years by Professor Franco Modigliani, a Nobel laureate in economics at MIT. The resulting work, The Economic Process: An Instantaneous Non-Newtonian Picture, was published by the University Press of America in 2002 and will be republished in a paperback expanded edition in 2010. For reviews, see http://www.carmine-gorga.us/id18.htm. During the last few years, Mr. Gorga has concentrated his attention on the requirements for the unification of economic theory and policy. For details, see www.carmine-gorga.us. He can be reached at
[email protected].
0 Electronic copy available at: http://ssrn.com/abstract=1598955
INTRODUCTION The business corporation is many things. Certainly it is the greatest creator of paper wealth on earth. But what else does it do? Critics who are appalled at the ways the corporation treats the people it encounters in its life’s trajectory might want to consider the following four economic rights and economic responsibilities as tools to make the corporation serve the needs of the people it encounters within and outside its sphere of jurisdiction. Economic rights and economic responsibilities (ERs&ERs) function as the transmission belt that carries age-old principles of economic justice1 into the complexity of the modern economic life. Economic rights and economic responsibilities are both lodged in the same person at the same time. To be understood, economic rights have to be distinguished from entitlements as well as from property rights. While treated nearly as synonyms in the literature, there are enormous differences between three entities. Here are the major distinguishing characteristics: 2 First, the content of these three entities is different. The object of property rights are marketable things, tangible or intangible things such as material goods and services. The object of entitlements are human needs, from food to shelter to health. The object of economic rights are economic needs. Second, the legal form of these three entities is different. Property rights are concrete legal titles over existing wealth; economic rights are abstract legal claims over future wealth; and entitlements are moral claims on wealth that legally belong to others. Finally, the quantity that they measure is variable. While both property rights and entitlements relate to existing wealth, and therefore a necessarily finite quantity, economic rights relate to future wealth, an unknown and elastic—if not a potentially infinite—quantity. Economic rights and economic responsibilities are the creators of property rights. Thus, as soon as one enters the field of economic rights one implicitly abandons the
1 Electronic copy available at: http://ssrn.com/abstract=1598955
divisive field of property rights and shifts the focus of observation from the government onto the entrepreneur and from the finite field of property rights to the infinite possibilities inherent in the creation of future wealth. Essential ERs&ERs come forward in response to the well-known requirements of the factors of production identified by Classical economists as land, capital, and labor—with the addition of a modern distinction between financial and physical capital. Access to these factors is essential to for the production of any form of wealth; indeed, at a higher level of abstraction, they are essential to any form of human existence.
FOUR ECONOMIC RIGHTS AND RESPONSIBILITIES Guided by economic needs, a minimal set of economic rights and corresponding economic responsibilities is as follows. 1. We all have the right of access to land and natural resources. This is a natural right. It belongs to us just in virtue of our humanness. Land and natural resources are our original commons. They belong to us all. This is an essential right, because without the possibility of exercising it, we are deprived of the possibility of participating in the economic process. And without this participation, we are marginalized; we are made dependent on the good will of others. The most direct way of securing this right in the complexity of the modern world is neither through squatting nor through expropriation; rather, it is through the exercise of the responsibility to pay taxes for the exclusive use of those resources that are under our command—with a corresponding reduction of taxes on buildings and man-made improvements on the land. Land taxation is the economic bridge between hoarding, namely the accumulation of idle land, and the right of access to that land with its natural resources. Paying taxes on the value of land and natural resources
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gradually encourages dis-hoarding, hence it lowers the price of the land, and correspondingly opens up the resources of that land to all those who need them and can make use of them. Worrisome hoarding is especially that which occurs both downtown and in the belt surrounding major cities and towns. It is to leapfrog over this belt that people go to the suburbs in search for affordable land, thus creating overstretched lines of communication and protection and overlong commuting lines—with consequent waste of fuel that overtaxes nonrenewable resources, the ozone layer, the pocketbook, and the nervous system. Paying taxes on land value is a most fair form of taxation, because it implies returning to the community part of the value that is created, not by the individual owner, but by the community. Land that sits idle does not produce income, true; yet, it produces capital appreciation over time: Rare is the case of capital loss; and even when that occurs, the relative loss tends to be smaller than the loss on other assets. This pair of ERs&ERs meets the requirements of the first plank in the theory of economic justice: participative justice. To see how this pair of ERs&ERs meets also the requirements of distributive and commutative justice, let us simply consider that, if one avoids taxes, the total tax load is not going to be distributed fairly among the population. And if one avoids taxes, one obtains something—i.e., private control over a quantity of resources—for which one does not offer proportionate compensation to the rest of the community. When fully explored in its dynamic elements, it will be seen that the eventual implementation of this first set of economic rights and responsibilities leads to the creation of a just and sustainable national economic policy concerning the utilization of land and natural resources—as well as a just and sustainable fiscal policy. Many great
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economists, from Adam Smith3 to eight Nobel laureates in economics, concur that to raise taxes on land values is a fair and efficient policy. This first pair of ERs&ERs is also one of the essential tools to make the business corporation serve human needs. The specific ways are most varied and depend on the local situation. The most common and important way is for the community to obtain a return for the investment it has made to raise the value of all land: this rubric goes from the building of access roads to the creation of top-notch educational systems. The second and hidden way is for the community to get a yearly return on the capital appreciation of the value of the land. The third and most blatant way is to start the process of redressing the most surreptitious way the business corporation has acquired control over the lives of the people: It is a way of gradually eliminating all forms of “depletion allowances”. Another way might be to start delving into the economic consequences of such accounting tools as “asset depreciation.” 2. We all have the right of access to national credit. Since national credit is the power of a nation to create money, and since the value of money is given by the value of wealth left over by past generations and the creativity of every person in a nation, national credit is the last frontier, the last commons. Without access to credit today one is made economically impotent. Worse, since this advantage is granted to the privileged few, it is automatically denied to the majority of the population who are henceforth condemned to pay a higher rate of interest, if they obtain credit at all. Of course, such a loan should be extended only on the basis of the responsibility to repay the loan. And these loans will have a high chance of being repaid because they ought to be issued at cost and issued exclusively to individually owned enterprises, Employee Stock
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Ownership Plans (ESOPs), and cooperatives, as well as states and municipalities, and issued exclusively for capital formation, namely for the creation of new wealth—not to buy financial paper, consumer goods or goods to be hoarded or to cover administrative expenses of states and municipalities. Capital credit liberates people, while consumer credit enslaves them. When fully explored in its dynamic elements, it will be seen that the eventual implementation of this second set of economic rights and responsibilities leads to the creation of a just and sustainable national economic policy concerning the utilization of our financial resources. Interestingly, this monetary policy of low interest rates and devotion of credit to worthy business projects was advocated both by Keynes4 and Adam Smith.5 This second pair of ERs&ERs is also one of the essential tools to make the business corporation serve human needs. The common practice of the Fed and most central banks is to grant access to national credit, not to human beings, but solely to business corporations; and not only that but restricting this access to financial institutions: these are corporations that foster the creation of paper wealth, and in the process strangle the effort of creation of real wealth. By the nature of things, investment bankers know nearly nothing about the process of creation of real wealth; and yet, by granting them the privilege of access to national credit the nation is automatically granting them the final say of what real wealth is created and under what conditions: It is here that the source of the tyranny—as distinguished from the discipline—of the “bottom line” is to be found. Moreover, by prohibiting the use of national credit for the purchase of goods to be hoarded, the local community is spared the affront of allowing the business corporation to
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purchase local land on speculation of future gain, all the while escaping the discipline of paying land taxes. A penny of tax evaded is a penny paid by someone else. Needless to say, granting access to national credit solely under the suggested conditions, one liberates the energies of the entrepreneur; one frees the entrepreneur from the stranglehold of the investment banker, the banker who uses “other people’s money” for the benefit of the few. And then, by granting access to national credit to states and municipalities—to cover, not administrative costs but expenses for capital projects—one lowers the financial burden of local residents, who are then free to devote their financial resources to build better schools and better public parks and playgrounds. 3. We all have the right to the fruits of our labor. This right should not be limited to the right to obtain only a wage. It should be extended to cover the other major fruit of economic growth over time: capital appreciation—as well as being subject to capital loss, of course. The only justification for reserving capital appreciation for stockholders, the owners of a corporation, and excluding employees and workers from it, can be found in the fact that loans are given only to owners of past wealth (the Catch-22 of today’s economic reasoning: “save and invest and you too can become rich”—as if this proposition were either economically feasible or ecologically sustainable). But from now on this right can be extended to people who do not have prior wealth through the right of access to national credit—especially by legally transforming workers into owners through individually owned enterprises, Employee Stock Ownership Plans (ESOPs), and cooperatives. Of course, this full right should be extended only in correspondence with the responsibility to offer services of value equivalent to projected compensation. And there will be an outpouring of such services because, while in a command and control
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economy workers are requested to check their brain at the factory gate, in a socially responsible economy workers/owners are legally, socially, and psychologically empowered to exercise their brain fully at their work post. Indeed, by linking costs of production with individual producers, current incentives to overextend business enterprises and to overexploit land, natural, and financial resources will be abated. When fully explored in its dynamic elements, it will be seen that the eventual implementation of this third set of economic rights and responsibilities leads to the creation of a just and sustainable national economic policy concerning the utilization of our labor resources. The treatment of wage behavior, warned Franco Modigliani,6 is the Achilles heel of modern macroeconomics. Gradually transforming workers into owners will heal this major weakness in modern economic theory and practice. This third pair of ERs&ERs is also one of the essential tools to make the business corporation serve human needs. Only if workers and employees become owners of the corporation, only then will they preserve their constitutional rights of free speech and assembly when they enter the premises of (their) corporation. Only if workers and employees become owners of the corporation, only then will they acquire a chance of obtaining a fair share of the wealth they contribute to create. The program of a “living wage” is a dream that cannot be realized otherwise. Since the corporation is not a person, to make the corporation a responsible citizen through outside pressure is a dream that will never be realized. Only if people within the corporation are responsible persons, only then is there a chance—not the automatic assurance—for the corporation to become a responsible entity, an entity that serves human needs. Processes of production today are too technical, too complex to be understood from the outside. Our only hope is that they
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be understood by people who deal with those processes day in and day out. These persons, by necessity, are the insiders. 4. We all have the right to protect our wealth. This right seems to be universally accepted, except in one case that matters most: in the case of the trustification process, the process used especially after the Civil War in the United States to create corporate trusts and repeated in a hundred subtle variations ever since. (People feel free, not only to acquire shares of the stock of one corporation, but free to use that stock to acquire another whole corporation by all forms of trusts, mergers, and acquisition. The very idea of the corporation, forever a public entity, has thus been privatized and monetized.) There are two ways in which corporations grow: One is through internal growth, and this approach ought to be protected in no uncertain terms; the other is through external purchase and, with limits, this manifestation ought to be prohibited in no uncertain terms. Why? Because this prohibition is the only certain way to protect the wealth of present owners. And if it is assumed that most stockholders of the modern corporation are happy to have their shares bought and sold on the market, it must be granted that growth-bypurchase takes wealth away from workers who have contributed to create that value—and many times, in the trustification process, lose their work site as well. All in the name of efficiency—a misnomer that stands for private financial gain generated at the expense of shifting costs onto the shoulders of the community. These costs range from the cost of cleaning the environment to costs of keeping workers alive through medical care and food stamps. Of course, this right ought to be purchased only at the cost of the responsibility to respect the wealth of others. These are two-way streets. We cannot even attempt to restrain the Pac-Man economy, while we use Pac-Man instruments.
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When fully explored in its dynamic elements, it will be seen that the eventual implementation of this fourth set of economic rights and responsibilities leads to the creation of a just and sustainable national economic policy concerning the utilization of our physical capital resources. This anti-trust policy, combined with the transformation of workers into owners and the extension of stock ownership among consumers, will render moot many irksome questions of monopolistic enterprises. Let there even be monopolies, if natural monopolies there must be—provided their profits are widely and fairly distributed among all those who contribute to the economic viability of the enterprise. This fourth pair of ERs&ERs is also one of the essential tools to make the business corporation serve human needs. Only if corporations are prohibited from purchasing other corporations, only then will they concentrate their attention on the infinitely intricate matters of modern technical methods and processes of production. Only if corporations are prohibited from squandering their financial resources in purchasing other corporations, only then will they have the will and the means to satisfy all the human needs of their employee/owners. And, indeed, only on these conditions, one can foresee the day in which corporations will decide that the best way to build customer allegiance is to share year-end profits with them. Only then will nine tenths of current anti-trust laws become unnecessary. Overcharging and overpricing will then be considered as temporary accounting dysfunctions to be cured at year end. Only then will come to an end the greatest accounting dysfunction of them all, that of allocating profits among the few and shifting costs onto the many. Privatization of profits and socialization of losses has to end. Only then will capitalism function for as close as 100% of the people as possible. Today, we do not have capitalism; at best, we have 5% capitalism.
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CONCLUDING COMMENTS Much more ought to be said on these vast topics. Somewhat more detailed analyses of this program of action are in fact presented in various publications by this writer.7 And more extensive treatments can be found in the writings of Benjamin Franklin, Henry George, Louis D. Brandeis, and Louis O. Kelso—with their works, necessarily all their works, read in rapid succession and not any of them as a stand-alone effort. Intellectually, economic rights and economic responsibilities perform functions outlined in the conception of “general abstract rules” by Hayek,8 the “original position” by Rawls,9 the “reverse theory” by Nozick,10 and the “Principle of Generic Consistency” by Gewirth;11 practically, they will function as Gladwell’s12 “tipping points”. Ultimately, it was a poet, Vincent Ferrini, who caught the essence of economic rights and economic responsibilities by identifying their ability to provide “the answers to universal poverty and the anxieties of the affluent.” 13 Here one sole point can be emphasized. Economic rights and economic responsibilities are our best hope to make the corporation serve the needs of human beings. Operating as tipping points in our modus vivendi, ERs&ERs will set in motion a process of economic interdependence that respects the reality of business affairs, and the reality of human relationships. Recognizing that most people and most businesses always act morally, the increasing number of “bad apples” that at times seem to receive all the attention (and envious support) of a superficial intellectual world will be recognized as dangerous exceptions, perhaps ostracized, but certainly no longer applauded. Once the tendencies of these people are kept in check, all wealth will be distributed, not equally— that is meaningless utopianism—but fairly. Hence, there will no longer be any need for
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redistributive programs, which are an expression of double utopianism (first, people as if living in la-la land are allowed to accumulate much, no matter how; and then they are expected to peacefully discharge their ill-gotten wealth). Preserving their current wealth, the rich will grow richer at a steady but slower pace; and the poor will no longer be poor, because they will have all they need. Lacking fuel at both ends, violent oscillations in the business cycle will be abated. We will thus recover the essential truth of economics. This is the truth that there are two conditions of growth: economic freedom and economic justice, as concrete expressions of freedom and morality. Both are essential. The relationship between the two is quite clear: While freedom does not necessarily bring justice with it, justice unavoidably brings freedom. One can abuse freedom by denying freedom to others, one can never abuse justice. Hence, the initial condition of freedom for all is proof positive of the existence of economic justice in the land. The import of economic justice and economic rights and responsibilities is simply stated: We must prevent injustices from occurring; once an injustice has occurred, there is nothing that can be done to undo the dastard deed. This is the bosom of realism.
REFERENCES 1
CARMINE GORGA, Economic Justice, in CATHOLIC SOCIAL THOUGHT, SOCIAL SCIENCE, AND SOCIAL POLICY: AN ENCYCLOPEDIA (2007). 2 CARMINE GORGA, Toward the Definition of Economic Rights, J. OF MARKETS & MORALITY, 2(1): 88–101 (1999). 3 The Wealth of Nations, esp. Bk V, Ch 2, § 75 (1776). 4 JOHN MAYNARD KEYNES, The General Theory of Employment, Interest, and Money, 320–324, 340, 351–353, 376–377 (1936). 5 THE WEALTH OF NATIONS, esp. Bk II, Ch 4, § 15 (1776). 6 Introduction, in THE COLLECTED PAPERS OF FRANCO MODIGLIANI, VOL. 1: ESSAYS IN MACROECONOMICS, XIV (Andrew B. Abel, ed., 1980).
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CARMINE GORGA, A SYNTHESIS OF THE POLITICAL THOUGHT OF LOUIS D. BRANDEIS (Graduation Dissertation, U. of Naples 1959). Carmine Gorga, Not Simply a National Fund, but a Stabilization and Development Fund, MONDO ECONOMICO 19(14): 14–16 (1964). Carmine Gorga & Norman G. Kurland, The Productivity Standard: A True Golden Standard, in EVERY WORKER AN OWNER: A REVOLUTIONARY FREE ENTERPRISE CHALLENGE TO MARXISM (Dawn M. Kurland, ed., 1987). Carmine Gorga, Bold New Directions in Politics and Economics, THE HUMAN ECONOMY NEWSLETTER, 12(1): 3–6, 12 (1991). Carmine Gorga, Four Economic Rights: Social Renewal Through Economic Justice for All, SOCIAL JUSTICE REV. 85(1-2): 3–6 (1994). Carmine Gorga & Stuart B. Weeks, Fisheries Renewal: A Renewal of the Soul of Business, CATH. SOC. SCIENCE REV. 2: 145–161 (1997). Carmine Gorga, supra note 1. CARMINE GORGA, THE ECONOMIC PROCESS: AN INSTANTANEOUS NON-NEWTONIAN PICTURE (2002 and 2010). Carmine Gorga, supra note 2. 8 FRIEDRICH A. HAYEK, THE CONSTITUTION OF LIBERTY 153 (1960). 9 JOHN RAWLS, A THEORY OF JUSTICE 12, 72, 136, 538 (1971). 10 ROBERT NOZICK, ANARCHY, STATE, AND UTOPIA 238 (1974). 11 ALAN GEWIRTH, Economic Justice: Concepts and Criteria, in ECONOMIC JUSTICE: PRIVATE RIGHTS AND PUBLIC RESPONSIBILITIES 19 (Kenneth Kipnis and Diana T. Meyers, eds., 1985). 12 MALCOLM GLADWELL, THE TIPPING POINT: HOW LITTLE THINGS CAN MAKE A BIG DIFFERENCE (2000). 13 VINCENT FERRINI, Gorga worthy of note, GLOUCESTER DAILY TIMES, Dec. 11, 2002, at A6.
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