Book review: Life Inc.
Life Inc.: How the World Became a Corporation and How to Take It Back by Douglas Rushkoff.
Corporations were invented a few hundred years ago--created to increase the wealth and power of favored businessmen (and the governments that favored them). They have become such a universal feature of our economy that few people give much thought to their origins--or how our economies are structured to suit them. But exactly that is the topic of Douglas Rushkoff's new book.
Rushkoff beings the book with an anecdote: After being mugged outside his apartment, he posted to a local internet forum so that his neighbors would be aware of what had happened. His neighbor's reaction, though, surprised him--how dare he post about such a thing in public? Didn't he know such talk would lower property values?
Maximizing economic value
Property value, of course, is a pretty abstract concept. Unless you're planning to sell (or refinance) your property, its market value should be of little interest--certainly of less interest than the presence of muggers working the sidewalk in front of your home. And yet, Rushkoff's neighbors clearly felt otherwise. Rushkoff's analysis: They were thinking like corporations.
Corporations are legally required to try to maximize their economic value. A board of directors that didn't do so would be failing in its fiduciary duty to the shareholders. People, of course, have no such legal obligation--and yet, as Rushkoff's anecdote shows, people often behave in that way as well. How come?
That's the story that Life Inc. tries to tell, and a fascinating story it is. He talks about the earliest chartered corporations--monopolies licensed by the crown--and how they were designed to extract value from the periphery (India, Asia, Africa, the Americas) and bring it to the center. With a few exceptions, corporate charters no longer grant monopolies, but by now the whole structure of the economy is designed to favor corporate thinking and to facility its original purpose of drawing the value in to the center.
Local money versus centralized money
One of the most interesting pieces of the tale is the story of money.
Over most of history, the things we think of as classical forms of money, such as gold and silver coins, were mostly used by governments and traders. They were used to finance long-distance trade, because they held their value--even when the trader was 1000 miles from home. Close to home, though, they didn't see much use. Peasants are largely self-sufficient, and most of what they can't produce for themselves they can trade for locally.
Even locally, though, some form of money is very handy--it's easier than barter for all the reasons that people have always preferred money. Since gold and silver were largely monopolized for governments and international trade, throughout the middle ages local money (in various forms) was very important. Instead of being backed by gold or silver, local money was generally backed by agricultural products such as grain or tobacco.
In practice, local money produces a very different result from centralized money. Since agricultural products deteriorate with age, there's no good reason to hoard money. The smart thing to do is to spend it on some productive asset--land, buildings, livestock, tools--or at least on something that can be made more valuable with labor. The result of people following that logic is thriving local businesses, producing goods with local materials, fully employing the local labor.
In fact, according to Rushkoff, the period of the middle ages when local money circulated side-by-side with centralized money brought Europe to a peak of affluence it had not seen since the Roman empire, and would not see again until the industrial revolution. It was in this period that the great cathedrals were built--among other reasons as productive assets: as tourist attractions to bring in pilgrims.
There are many good bits to the book. I particularly liked a couple of great examples of the same thing I was talking about in my article that described modern corporations as specialized venture capital firms. He talks about being hired as a consultant by a company that called itself a major American television manufacturer--except that the TVs were outsourced to Korean manufacturers, the design to a design firm in San Francisco, the marketing to a New York agency, and fulfillment and delivery to a major shipping company.
I also liked this bit:
During the famous dog-food-poisoning crisis of 2007, worried consumers called their dog-food companies for information. Were the brands getting their chow from the plant in China responsible for the tainted food? Many of the companies couldn't answer the question. They had outsourced their outsourcing to another company in China that hadn't yet determined who had gotten which food. The American companies didn't even do their own outsourcing.
The core of the book is this analysis: The economic structures that worked so well for extracting wealth from the colonies and bringing it to the capitals of Europe are still at the heart of modern corporate structure and modern economies. And, because they were designed to draw wealth from the center, they continue to have that effect. And, since the rules were designed to favor corporations over ordinary people, people come in second unless they act like corporations.
The thing is, people aren't corporations. When they try to complete on those terms, they lose. The ones who do it better than others might come out ahead of their neighbors, but they still lose to the corporations.
There are always two parts to a book like this. First, there's the analysis of the problem. Rushkoff has done well here. He lays out the case that there is a problem, and offers a compelling analysis that the economy is structured in such a way that only corporations can win. The second is to propose solutions.
Many people have suggested that the solution is simply for people to out-corporate the corporations. After all, corporations are made up of people, and when you get to the bottom of it, people do all the work anyway. Rushkoff says this won't work--when we try, we will always end up competing with one another:
Instead of working with one another to create value for our communities, we work against one another to help corporations extract money from our communities.
The solution, Rushkoff says, is to reconnect locally in our own communities. When we move local interactions outside the realm of the money economy--when we interact with one another as friends and neighbors--we deny the corporations the opportunity to extract value.
That doesn't mean it's easy, though:
The psychological hurdle to cross is the inability to accept that ten thousand dollars of one's time spent making a local school better will create more value than thirty thousand dollars of one's money spent on a private school. The money guarantees a great education for our own kid, the time improves the school for everyone's kids. Still plagued by internalized competition and self-interest, most of us are not quite ready to chose the better path, or to convince our neighbors to join us in the effort.
The best bits of the book are the stories about the history of corporations and the history of money--which is sad when it's a description of the problem but happy when it's examples of ways things can work better.
The stories of present-day efforts to return to interacting with one another as people rather than as corporate-style economic entities are not quite as compelling--largely because their very nature is to be local to a specific time and place and circumstance. They can serve as examples--even as models--but unlike deciding to act as a purely self-interested individual (which an individual can just do), interacting like people requires that others do the same.
As I say, the analysis is compelling--and the recommendations are compelling as well, even if it's a bit daunting to see a path to following them. The book is an excellent resource for anyone who wants to know how the economy got to be the way it is, and how we might do better: Life Inc.: How the World Became a Corporation and How to Take It Back by Douglas Rushkoff.