Blog author: jcarter
Friday, February 27, 2015

the-corporationWhat makes a company great? To find the answer, Jim Collins’s 21-person research team (at his management research firm) spent five years reading and coding 6,000 articles, generating more than 2,000 pages of interview transcripts, and creating 384 megabytes of computer data. His research identified 11 companies that met the criteria for transforming from a “good company” to one that had achieved “greatness.” Collins wrote about these companies in his book, Good to Great, which became a massive bestseller, selling over four million copies.

But the companies themselves didn’t always fare as well as the book about them. Circuit City went bankrupt in 2009, Fannie Mae was involved in the home mortgage scandal and was delisted from the New York Stock Exchange in 2010. Wells Fargo had to receive a government bailout in 2008 to keep from shutting down. As economist Steven D. Levitt noted in 2008, the returns on those 11 companies was not so great: a portfolio of the “good to great” companies would have underperformed the S&P 500.

Collins’s book sold well (and continues to do so, 14 years later) in large part because Americans of all stripes have an almost religious belief in the almost unlimited power—for good or ill—of corporations. We like to think that companies know what they’re doing and can largely control their futures (and ours). This is part of what Megan McArdle refers to as “corporation theology“:

[T]he belief that if a corporation is doing something, that thing must be incredibly profitable. This is no less of a faith-based statement than the Immaculate Conception of Mary. Yet it is surprisingly popular among commentators, not just on the right, but also on the left.

An example McArdle gives is the decision by Wal-Mart to raise the minimum wage they’ll be paying their workers. Many people on the right view this move as claim, “Wal-Mart is doing this because it’s good for its business.” But as McArdle notes, maybe it is and maybe it isn’t: “Never ignore the possibility that Wal-Mart could be completely wrong.”

This same quasi-religious belief in the power of corporations is found on the left. McArdle asked an author of an anti-obesity book if he could show her studies that showed fast-food advertising causes kids to increase their consumption of fast food.

The author seemed taken aback, almost confused by the question. It emerged that they hadn’t looked at any actual studies, but corporations spend huge amounts of money advertising to children, so obviously, it must do something.

This left-wing writer was evincing considerably more faith than I have in the American corporation. Corporations do dumb stuff all the time — for decades, even. Moreover, advertising has multiple purposes. It can of course induce you to consume more of a product, but frankly, no matter how much Pepperidge Farm advertises, it’s probably not going to dramatically increase America’s consumption of prepackaged cookies. So why does it advertise? Because it wants you to choose a Milano instead of an Oreo or one of them newfangled biscotti.

One of the problems with heresies is that they often get confused with other ideas, some which are true and good and worthy of championing. For example corporation theology tends to cause people to confuse “markets” with “business.” The result is that many people assume that being pro-market means being pro-business and that being anti-business requires being anti-market. But there is no obvious or necessary correlation. Being pro-market does not mean being pro-business and being anti-market does not require being anti-business. (The jury is still out on the question of whether you can consistently and equally be both pro-business and pro-market at the same time.)

Those of us who believe free markets are an essential aid in increasing human flourishing should be careful to distance ourselves from the heresy of corporation theology. We have enough problems convincing people of the value and essential need for free markets; we don’t need it tied to the magical thinking about the god-like powers and abilities of corporations.

Defending the Free Market: The Moral Case for a Free Economy

Defending the Free Market: The Moral Case for a Free Economy

Father Sirico argues that a free economy actually promotes charity, selflessness, and kindness, and why free-market capitalism is not only the best way to ensure individual success and national prosperity but is also the surest route to a moral and socially-just society.

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  • Paul Frantizek

    Good read. I have a copy of ‘From Good to Great’ sitting somewhere, detritus from my days working as a salaried-drone at a Fortune 500 company (which – surprise, surprise! – ultimately ended up going bankrupt). Horrible work, shockingly superficial in its ‘analysis’ which, of course, is the key to its popularity among the corporate management class, encouraging as it does faith in the infallibility of modern, technocratic business management methodology.

    Bigger picture, I would cite neoliberalism – which is the ideology which underpins this corporatism – as a distinctly American heresy, with its boundless faith in 1) The application of so-called ‘market principles’ by a technocratic elite and 2) The moral rightness of universal inclusion in its market based system.

    The universal inclusion aspect is key since it’s the justification for exporting this ideology in the name of ‘free trade’ (See: practically anything written by Tom Friedman and Fareed Zakaria or the Obama Administration’s recent attempts to justify terrorism with their ‘jobs’ meme).

  • Arbuthnaught

    I think every person should look at every human institution and relgious institution as subject to human failings in any potential decision, major or small. As someone who follows the business press, I find it hard to imagine anyone with a naive view of corporations, though there are lots of daytime tv watchers………
    Having said that , I don’t see anything wrong with corporations in a *general sense* seeking to encourage higher values. If someone wants to start a company based on their religious views, in a free country that should be their right. However, no one should be surprised when any corporation has failings
    If I remember correctly Wells Fargo was summoned to the famous meeting with Treasury Secretary Paulson and the other big banks and was told in no uncertain terms to take the loan. Wells Fargo did not want the loan. Wells Fargo wanted to repay it early and was not allowed to. While I despise large banks, in this instance I think you must have been thinking of another large bank………