Enough - Part 2
Are companies legally allowed to say - enough?
Photo by Markus Spiske on Unsplash
If we are going to move to a post-growth economy in which we live within planetary boundaries, not only will we as individuals have to become comfortable with having enough, corporations will have to become comfortable with having enough.
The problem is, I’m pretty sure that is illegal.
I’m pretty sure that is illegal for a corporation to say; “No thank you, we don’t want more profit because that might hurt the planet that we live on and ultimately make that planet an unlivable hellscape.”
Public companies - those with publicly traded shares - have a fiduciary duty to put the interests of their shareholders first. A fiduciary duty is just a fancy way of saying you owe a duty to put that other party's interests above all others, including your own.
Public companies in the United States (the jurisdiction I am most familiar with) and many others require publicly traded companies to put the interests of shareholders above all others by law.
This means that the maximization of shareholder value is the first priority of most publicly traded companies, and any environmental good deeds that a company does, can only be done if those good deeds don’t get in the way of making the most money possible.
Enough is not an option.
This means that the companies that we need to scale back their activities in order to save us from an environmental apocalypse - are not legally allowed to do so.
Saving ourselves through taking a degrowth path is likely illegal.
I freely admit that I am no lawyer, and I hope I have this wrong, but the simple logic I’ve laid out in about 250 words above is a common sense reading of whether or not companies are legally allowed to say “enough”. I explored the question of whether deegrowth is even legal about a year ago, and I didn’t find a satisfactory answer, but noted that culture needed to change before law could catch up.
Please dear readers, if you have the law-talking skills that I lack and know better, please let me know.
Also, I would love to see a big international law firm tackle the question of “is degrowth even legal” in a big shiny legal white paper. We need legal scholars to weigh in on this question so that we can see in a hundred page legal white paper the absurdity of a legal system that will not let us save ourselves because it could hurt shareholder wealth in the short-term.
Profit, not profit maximization.
Profit is not a bad thing.
Companies need to make a profit so that they can produce a product or service that meets a need in the communities in which they operate. To give a simple example, think of a bakery in the town that you live in. The bakery needs to make a profit, so that it can continue to operate. It needs to make a profit so that it can pay the rent, pay for electricity, pay for materials that go into its bread, and pay employees to work at the bakery. The people in the town are provided with the service of the bread from the bakery. The people of the town need to eat, so they gladly pay for the bread, as long as it is a reasonable price that allows the bakery to make a profit. If the bakery went out of business, the people of the town would get their food from somewhere else, but those other places would need to make a profit in just the same way the bakery did in order to stay open.
Yes, the people could grow all their own food, and the government could just provide all the food, but most of us would agree that having an economy where companies like the bakery exist is a more efficient way to provide the essential service of food to people. The bakery also has value as a place that brings the community together. The bakery provides jobs, people meet there, people in the town likely know the owner of the bakery and employees and may feel good about supporting a local business.
The point of this thought experiment is that the bakery making a profit serves the owners of the bakery and the community. If profit is a motivation, everyone can win.
Now let's look at an example in which the bakery tried to maximize profits. There can be any reason behind this, but for the sake of this argument let’s say that the bakery is part of a larger corporation that answers to shareholders.
The bakery’s first mission in this scenario is to maximize profits. That ultimately means that the bakery wants to sell the lowest quality goods for the highest price that it can in that community. That means paying its workers as little as possible, using the lowest quality ingredients it can get away with. This might rise to the level of the corporation behind the bakery lobbying the federal and local governments to adopt laws that allow the bakery to pay people less than a living wage and to be allowed to use ingredients that are known to be unhealthy but are cheaper than healthier options.
Yes, this is an oversimplified version of reality, but there are companies in the United States that pay less than a living wage, because they know the federal government - which means taxpayers - will pick up the bill for assistance programs for employees. It is also true that consumers in the United States eat many ingredients in their foods that are banned in other countries because of safety and public health concerns. Those ingredients are allowed in American foods because companies can maximize their profits by putting cheap fillers, dyes and chemicals and other things in our food that aren’t really healthy to be consumed in large quantities.
For example, if you live in the United States check the label on the bread you eat. Odds are it is made with “enriched wheat flour”.
Enriched wheat flour is a type of processed flour made from wheat grains that has had certain nutrients added back after the milling process. During refining, the bran and germ are removed, resulting in a finer flour with a longer shelf life. Longer shelf life means more profit, because it won’t go bad as quickly as other bread. Consumers like this, but are uninformed about how unhealthy it is for them.
Enriched bread compensates for some nutrient losses, but it’s not as healthy as whole grains because it lacks fiber and certain vitamins. Fortified and enriched foods have high sodium, fat, and sugar content.
Enriched breads are banned in Europe because certain chemicals in them are considered carcinogens. In the U.S., enriched and bleached flours are legal and standard in many store-bought breads. Europe has food bans that are not in place in the United States, including trans fats, artificial colors, and certain genetically modified organisms.
In this instance, the cost of profit maximization is your health if you live in America. But companies are required to seek profit maximization. If your health stands in the way of profit maximization, tough.
The best example of profit maximization at work.
The clearest example of profit maximization run amok was slavery in the world, but primarily the United States. Slavery meant free labor. As anyone who runs a business knows, labor is often your highest expense. If you could get that labor for free, and that labor was not allowed to leave the job - well you could have a very profitable enterprise.
The only problem was, that you had to destroy and debase millions of lives to do so. That wasn’t a problem people worried about for a long time. But they eventually did. When people finally got around to righting that wrong, it placed a deep scar in America that has not completely healed nearly 150 years later.
Will we have to fight a war that tears the country or the world apart, just so companies are legally allowed to say enough, and put people above profit maximization?
History tells us that yes, such a change is likely to lead to a tumultuous and potentially violent time. Corporations have invested a lot of time and money in setting up a legal system that protects profit maximization ahead of human wellbeing. They won’t give that up without a fight.
What do you think?
lots to comment on here; 1. an argument can be made that profit is not good for the environment, as any expansion of means to make more claims on resources (which are already overstretched) is adding harm to harm. 2. profit is not necessary for a business to operate successfully. The baker doesn't need to make a profit. The baker needs to cover their expenses, including their labour, and perhaps some reserve for a rainy day. Covering such costs allows the baker to continue contributing to the community and provide a meaningful role, and livelihood, for him or herself. For the baker to make a profit they would have to cover all these legitimate costs, and still make more - unnecessary to operate successfully. Profit only comes into play if the business wants to expand or reinvest (or be greedy). Degrowth requires reducing business activity, not expanding it. Yes, in a planned degrowth, some business activities may legitimately expand while others contract, as long as there is a reduction in total material throughput. But even in such circumstances, profit is not necessary, just increased prices to cover the increased costs of expansion. Part of planned degrowth is also about decentralizing production, relocalizing and downscaling. There will be few if any real needs for corporations which evolved to do grand things beyond what a small operation could accomplish. 3. there are already corporate models that do not require the prioritization of profit for shareholders: cooperatives, B-Corps, and privately owned businesses that see their role as serving their communities, and in return, having a livelihood. Having a clear understanding of the scope, scale and speed of ecological destruction we are currently doing, along with the social disruption that goes along with it, helps us understand the need for degrowth, and eliminating profit from the way we operate an economy.
I agree that a corporation that does not make enough profits to keep its shareholders happy faces class-action suits from its shareholders. But there is no "corporate police force" going around, arbitrarily enforcing this.
However, there are a number of ways around the investor dilemma.
Many states have different forms of incorporation that do not put "investor profit first". For example, the activewear company Patagonia is a California "Class B" corporation, which allows things like employee benefits and environmental concerns to supersede investor profit as a business motive.
Another form of incorporation that subsumes investor profit is the cooperative. I'm most familiar with British Columbia's Cooperative Associations Act, having personally formed two of them and being closely involved with two more. This is wonderfully flexible mechanism, supposedly separating control (membership shares) from financing (investment shares). In BC, investors have only limited influence as a super-majority in matters involving significant asset liquidation.
But such laws are full of holes, and letting investors have *any* control is a slippery slope.
Our co-op was sued by an investor using the obscure and vague "oppression of shareholder" clause in The Act.
A more infamous case is the "sale" of BC's Mountain Equipment Cooperative, which sold itself to a California private equity company by selling all its investor shares, while redeeming NONE of its member shares, stiffing its five million members of $25 million. This decision was made by the cooperative's board, and was never presented to members. (https://gripped.com/news/mec-sold-the-death-of-an-ideal/) Afterward, they had the nerve to attempt to keep "Cooperative" in their name, which took a court order to change!
To show the depth of this hole, if such a decision were made by the members rather than the investor-heavy board — say, for the purpose of formally becoming a non-profit — it would have required the approval of 75% of investment shareholders.
You can take investor profit out of the organization, but you can't remove it from today's zeitgeist.
The "investor mind-set" has infected retirement. Virtually everyone who has non-state retirement income participates in corporate investment income of some kind.
Case in point: my brother, an avowed liberal Democrat, limited his involvement in politics to voting. But when his retirement income went down 10% due to Trmp tariffs, he got out on the protest line! Paradoxically, it may be investor rights that bring Trmp down.
In a world of nature-forced degrowth, this may change, but the whole reversal of the growth curve is going to cause a lot of pain and suffering before the downward slope stabilizes.
"Profit is not a bad thing."
I'd be careful of that. The zeitgeist is that "profit" means "passive income". I've come to view passive income (beyond interest related to inflation) as immoral, and the cause of most of humanity's problems, and have divested of everything but co-op shares and interest-bearing credit union accounts. This means my retirement is much less, but it is "enough".
That's going to be a tough nut to crack for the general public.
For one thing, the downslope of the growth curve is likely to result in widespread deflation. Cash may become king, and banks may begin charging *you* interest for holding your money.
Interesting times ahead!