The Corporation

A corporation “is compelled to cause harm when the benefits of doing so outweigh the costs” (60). Harmful effects can strike people outside the corporation and are called “externalities—literally, other people’s problems” (61). Harm to the environment or to communities, and even negative consequences borne by the corporation’s workers, are considered externalities, to be paid for by others: “[T]he corporation’s built-in compulsion to externalize its costs is at the root of many of the world’s social and environmental ills” (61).

In the late 1960s, General Motors begins redesigning some of its cars’ fuel tanks to save money, placing the tanks dangerously close to the rear bumpers. GM performs a cost-benefit analysis and reckons the redesign will reduce costs by $8.59 per vehicle, minus the per-car cost of $2.40 from lawsuits due to car fires, for a net savings of $6.19 per auto “if it allowed people to die in fuel-fed fires rather than alter the design of vehicles to avoid such fires” (63).

By the early 1970s, dozens of lawsuits have been filed by victims of rear-end-collision car fires caused by the dangerously positioned tanks. One suit awards punitive damages of $1.2 billion; during appeal, the US Chamber of Commerce argues that a cost-benefit analysis is a “hallmark of corporate good behavior” and “the logic underlying it is unimpeachable” (64).

With liberalized trade rules, corporations set up sweatshops all over the world—their doors locked, the shops rimmed by barbed wire, the workers watched over and beaten by guards—to “do the bulk of light manufacturing for the industrialized West” (65). Production quotas are calculated precisely: At Nike’s offshore shops, they require “that each shirt take a maximum of 6.6 minutes to make—which translates into 8 cents’ worth of labor for a shirt Nike sells in the United States for $22.99” (66).

In the mid-1990s, when television host Kathie Lee Gifford learns of terrible working conditions and pay for workers who manufacture her clothing line, she agrees “to stop using sweatshops, to pay decent wages to her workers, and to allow independent inspectors to ensure compliance” (69). Major retailers such as Wal-Mart nevertheless continue to use sweatshops.

“All businesspeople understand that corporations are designed to externalize their costs” (72), but business leaders are beginning to recognize the dangers to people, society, and the environment. Says one CEO, “‘Someday people like me will end up in jail’” (72).

A “notorious example” (73) of corporate disregard for consequences to others is the Triangle Shirtwaist Factory fire of 1911. The doors of the sweatshop are locked, and when fire breaks out, the workers can’t escape, and “[a]ltogether 146 of them died” (73). Huge protests erupt, but not until 1938’s Fair Labor Standards Act are sweatshops and child labor banned. To this day, however, the law “is regularly and routinely violated by garment industry operators” (74), leading to injury and death. In Los Angeles’s garment district, compliance with the Fair Labor Act “is at 33 percent” (75).

Between 1990 and 2001, General Electric is penalized dozens of times for various legal breaches, including pollution, discrimination, fraud, worker safety violations, illegal sales, overcharging, deceptive advertising, and “unfair debt collection practices,” among other things (75).

By design, corporate executives and shareholders are generally exempt from liability for a corporation’s misdeeds, and “courts tend to attribute conduct to the corporate ‘person’ rather than to the actual people who run the corporations” (79). One result is that “compliance with law, like everything else, is a matter of costs and benefits” (79). Fines have little effect and are chalked up as business costs.

British Petroleum’s Alaskan oil operations are fined and put on probation for numerous violations, but production declines, the company cuts back on costs and supervision, and the violations persist despite formal letters of concern by employees. In 2002, this leads to a massive accidental explosion at BP’s Prudhoe Bay oil field that nearly kills an inspector.

BP is not alone in its mishandling of operations: The Wall Street Journal observes that “Alaska’s legislature…eager to please the industry, has gutted the state agencies responsible for regulating oil-field safety” (84).