The Public Cost of Private Corporations
by Dr. Ralph Estes
----------------
Emeritus Business Professor
The American University
4400 Massachusetts Ave. NW
Washington, DC 20016-8044
----------------
Director, The Stakeholder Alliance
"The Public Cost of Private Corporations" article is available in its
entirety at: http://www.stakeholderalliance.org/corpcost.html
from the Summary:
This analysis consolidates prior and original research to assess
the aggregate national external costs that business firms,
primarily corporations, impose on customers, employees,
communities, and society. This total public cost of private
corporations is estimated at approximately $3,051 billion per year
(1995 dollars). . . .
While difficult to measure, the costs included here are
unquestionably real to those on whom they are imposed. They are,
however, never reckoned in corporate accounting's narrow calculus.
When policy issues such as corporate regulation, taxation, defense
contracting, and the system of subsidies, incentives, tax credits,
bailouts, price supports, and below market-price fees for grazing,
mining, and timber rights on public lands that is sometimes
referred to as "corporate welfare" are debated, these social costs
should be matched against the social benefits obtained.
To improve public policymaking, we should also reevaluate how we
assess the performance of corporations. A scorecard that ignores
social costs presents a distorted picture of performance that can
influence policymakers to be excessively generous with taxpayer-
funded corporate benefits, and overly lax in enforcing corporate
regulations.
In all this the ratitor urges all to keep in mind Ward Morehouse' message --
that what we are confronting is corporate subsidy abuse and extortion -- not
corporate welfare -- in the 7th point of his articulation of an eleven-point
program for ending the era of the Giant Corporation by taking the offensive
in the struggle to establish democratic control over corporations:
7. We can stop subsidy abuse and extortion by corporations through which
large corporations rake off billions of dollars from the public
treasury. Please let us not call it "corporate welfare". Welfare should
be a positive concept. This is extortion and subsidy abuse and we need
to stop it.
----------------------------------------------------------------------------
In These Times
October 30,1995
Editorial
Keeping Corporations Accountable
An accountant tallies the hidden
costs of corporate corruption.
Conservatives, and many moderates, claim to oppose welfare because
it encourages people not to work. These parasites, the argument
goes, get something for nothing, while hard-working Americans pay
taxes to support them. Indeed, Phyllis Schlafly recently said that
welfare recipients in several states live so well that they have
no incentive to clean up their acts and become useful members of
society. But even if we accept this dubious assumption, are these
recipients the only freeloaders in our society? And is the amount
we spend on them significant in the larger picture of parasitic
practices from which we suffer?
These are questions that Ralph Estes implicitly addresses in "The
Public Cost of Private Corporations," an important article from an
unlikely source: the academic journal Advances in Public Interest
Accounting. Estes' basic idea is a simple one: that while
corporations pay the internal costs of doing business, they do not
pay, or even calculate, the costs that their operations impose on
society at large.
As Estes writes, corporate accountants meticulously calculate
their internal costs, but ignore the "external diseconomies," or
social costs, that their operations inflict. These external costs
are, in effect, "coerced assessments" -- on consumers, employees,
communities and society at large. In other words, we all pay for
the damage corporations do while they deplete our commonly owned
natural resources, pollute our air and water, generate mountains
of toxic sewage and trash, produce unnecessarily dangerous
products and destabilize communities and charge us for their
constant manipulation of public opinion and the political system.
To one extent or another, we are all aware of these corporate
practices, but Estes has compiled the best available statistics to
estimate the annual cost of these practices to the American
people. Some of these are easily calculated, while others are
extremely difficult to estimate, so his total figure is only a
reasonable approximation -- and a low one at that -- because he
excludes the latter group of figures.
The figure he comes up with is $2.6 trillion (1994 dollars) per
year, almost twice the entire federal budget, and more than 10
times the annual federal deficit.
This is the subsidy that the American people, involuntarily and
largely unwittingly, give every year to the corporations that rule
over us. It is also an amount that in one year could pay the costs
of welfare, now under bipartisan attack, for the next century.
These numbers may seem exceedingly high, but Estes uses the
findings of official documents and generally recognized experts to
compile them. Thus, to calculate the cost to the U.S. economy of
disparate wage rates based on sexual and racial discrimination,
Estes uses data from the Statistical Abstract of the United States
and the Economic Report of the President and arrives at a figure
of $165 billion per year. Similarly, using standard techniques, he
figures that the total annual cost to workers of death from
workplace-induced cancer is $278 billion. Furthermore, he writes,
these estimates are only for workplace costs that have been
studied. There are, for example, no estimated costs of serious
poisonings of agricultural workers and consumers from carcinogenic
chemicals, though these run up to 1 million cases annually. Using
figures drawn from Fortune magazine, U.S. News and World Report
and Dollars and Sense, he estimates the cost to the nation of
corporate crime at $165 billion. These categories alone add up to
$608 billion in annual costs to society, and they are only three
of 12 that Estes discusses and calculates.
Corporations and their agents in the media and Washington extol
the virtues and social contributions of the corporate system,
while the public pays not only for their social irresponsibility,
but also for the propaganda, lobbying and campaign contributions
that enable them to corrupt our nation. And meanwhile, Republicans
and so called moderate Democrats bemoan the pittance that is spent
to alleviate some of the evil corporate America does. In a
democracy it is said to be people that count, but in our democracy
it is money in the hands of a few that has a stranglehold on
government and the means of mass communication. Still, our
official and deeply held commitment to democracy offers a way to
challenge corporate power.
Despite the cynicism and demoralization now so widespread, a
principled -- and popular -- politics remains possible. Indeed, it
is absolutely necessary if we are to save ourselves and the
nation.
Copies of Ralph Estes' article, "The Public Cost of Private
Corporations," can be obtained from AU Media Relations (202)
885-5950. Estes' new book, Why Corporations Make Good People Do
Bad Things[1], is scheduled for publication in January by
Berrett-Koehler, (415) 288-0260.
1. Was actually been published as Tyranny of the Bottom Line.
See the review of this on the web replete with excerpts:
About Tyranny of the Bottom Line by Ralph Estes, January 1996
from the biographical sketch subpage off Ralph Estes home page that used to
exist at American University (was at
http://www.american.edu/academic.depts/kogod/estes/webpage.htm):
Ralph Estes is professor of business administration at The
American University and resident scholar and cofounder of The
Center for Advancement of Public Policy in Washington, DC.
Ralph writes and speaks on corporate, business, and economic
issues from a progressive perspective. His op-eds and columns
appear frequently in leading newspapers and opinion magazines.
Throughout his work and as a former president of Accountants for
the Public Interest, he has sought to promote a public interest
spirit in the accounting profession and in business generally.
Professor Estes is an authority on business issues including
corporate behavior and misbehavior, stakeholder accountability,
and valuation of public, social costs. He has authored a dozen
books, more than fifty scholarly articles in academic and research
journals, and many newspaper op-eds and magazine pieces. His
experience includes auditing, advising, and consulting with
Corporate America, as well as extensive research on corporate
history and corporate behavior. Three degrees include the
doctorate in business administration from Indiana University. A
CPA formerly with Arthur Andersen & Co., he has also served as
expert witness in numerous cases involving charges of corporate
malfeasance.