The Stone City

Words Made to Last

Thursday, February 24, 2005

What Good Is a Glass Dagger?

[With apologies to Larry Niven.]

New Rose Hotel is William Gibson's "other" Sprawl story, forever in the shadow of Burning Chrome. It is also a chilling commentary on the superhuman power of corporations:
We ran. Out a service door, into Tokyo traffic, and down into Shinjuku. That was when I understood for the first time the real extent of Hosaka's reach.
Every door was closed. People we'd done business with for two years saw us coming, and I'd see steel shutters slam behind their eyes. We'd get out before they had a chance to reach for the phone.
This power may not be as reliable in our world as in Gibson's, but it is real enough to be feared.

As well as a weapon, a corporation is a tremendously useful tool -- for example, it directs contracts which are wonderful for enriching one's friends. This kind of cronyism is a subtle but steady drag on the wealth of nations, and as it gets more extreme, segues smoothly from somewhat corrupt corporations to corporatized corruption (think of Germany, Japan, South Korea, Columbia and Russia).

Yet corporations have been incontrovertibly proven to be absolutely necessary if we are to maintain a standard of living above that of, say, 17th-Century France. We wish to preserve this wealth-creating ability, while minimizing the power of the corporation as a weapon or tool.

The proximate key is transparency of operation, so that the giant's activities can be watched; but often the suitability of these activities cannot be easily evaluated unless we also have transparency of objectives. That is, the corporation's aims must be clearly stated to provide a yardstick by which its actions can be measured. This twofold transparency makes the corporation into a glass dagger, useless to the wielder.

Not surprisingly, publicly traded for-profit corporations lead the field in transparency of objectives; indeed, a frequent criticism (see yesterday's post) is that American corporations, in particular, are too transparently focused on short-term profits. Closely held corporations, and those headquartered in countries which minimize shareholder power, are far behind. Nonprofit foundations are the paradigm of opacity of objectives, though some transparency of operations is required to protect their nonprofit status.

Germany, in particular, is an interesting case here. German corporate law gives shareholders minimal power, and an eroding but still powerful web of cross-holdings among large corporations (often with shared directors) increases the opacity of objectives. One visible consequence is that German corporations consistently seek power and prestige, not profit: witness Deutsche Bank's enormously expensive expansion in investment banking, or the resistance of Mannesmann to a generous buyout whose cost left the much more profitable Vodaphone reeling.

Obviously, complete operational transparency is unattainable; investment banks cannot afford to reveal their client trades or their proprietary market positions, and technology firms cannot disclose details of their research. But a greater degree of transparency, and a small and highly restrictive set of stated corporate aims, should always be sought.

Finally, this leads me to suspect community development initiatives and the like, because they destroy transparency of objectives. As long as corporations exist only to make money, their visible actions can be judged; but a license to engage in unprofitable activity creates an opportunity for the abuse of the vast power embodied in these rich, immortal creatures.