16 Jul 6.1 Lust, Aggression and Greed

 

Soon after the Financial crisis of 2008 unfolded[4], I was attending a conference in Bangalore, India, where the Keynote speaker was an economic adviser to the Prime Minister of India. The speaker began by observing that greed was being touted as the main reason for the Financial crisis and that such a diagnosis was completely unhelpful. He went on to say, “Of course, greed played a part in the Financial crisis because greed is the basis of our capitalist system. It is greed that drives our corporations, not altruism.” It was a frank admission of the rot in the foundations of modern industrial civilization.

My first personal experience with how large corporations behave was in 1993. We had just built our “American dream” home in Colts Neck, New Jersey, a custom home situated on over an acre of land. Our home took almost a year to build. It had a bedroom downstairs to accommodate any visiting elderly relatives and friends – it was mostly intended for our aging parents – and it had four bedrooms upstairs for us, our two children and a guest. We moved into our new home in September, just before the cold season started. I was feeling really good about our life and our prospects and a month later, I decided to buy a brand new luxury car, then drove it home and parked it in our garage.

The next morning, this brand new luxury car caught fire and burnt out a substantial portion of our home, including most of our photographs and other personal mementos. It was around 10am in the morning and our sons were playing in the bonus room above the garage while I was on the phone with a friend. Our older son, Sushil, ran out of the room and told me that there was smoke coming out of the heating vent. I thought that it must be the new heater which had just kicked in at the onset of the cold season and told him not to worry about it.

Then he ran out again and insisted that there was really a lot of smoke coming out of the vent. This time, I hastily concluded my call and found that smoke was indeed billowing out of the heating vents in the bonus room. I ran down to the garage to check up on the heater that was situated inside, opened the door and saw our new car spitting flames out of its grill, while emitting loud pops and crackles. A few unopened cardboard boxes in front of the car had already caught fire and the garage was full of smoke.

I ran upstairs to the bonus room, collected our children, hit the fire emergency button on our alarm keypad and ran out of the house to wait for professional help. A policeman arrived in 5 minutes with his little fire extinguisher, but once he saw the conflagration in the garage, he dropped it, took out his camera and started taking pictures. The fire truck arrived within 10 minutes and got the fire under control within half an hour, but the damage was done.

Riding on the heels of the fire-truck came several lawyers, who were apparently professional ambulance chasers, constantly tuned into the police radio signals. They came to solicit our business, to represent us against our insurance company, to ensure that we obtain the maximum damages from our personal tragedy.

We sent them away.

Next came the Monmouth County Fire Marshall and the Arson Unit investigator who poked through the debris in our garage and diagnosed the origin of the fire to be within the engine compartment of my new car. At which point, I called the salesman who had sold me the car to berate him. He was solicitous of our situation and was very sorry that we were yet another victim of this problem. He gave me the phone number of an Engineer in the auto company, Eric, and asked me to talk to him about the issue.

I had a long conversation with Eric, engineer to engineer, and he explained exactly what happened. Our car was apparently the eighth one to ignite, but the head office was waiting for ten cases before ordering a recall. The engine compartment in our car was too cramped as it was originally designed for a six-cylinder engine, but an eight-cylinder engine was fit into it in response to market competition. As a result, the fuel line was routed too close to the heater for the windshield washer fluid and a leak in the fuel line could cause the fuel vapors to concentrate around the heater. When the vapor concentration and the ambient temperature reached appropriate levels, the mixture could ignite spontaneously, especially if the vehicle is in a closed location where there is no air circulation to disperse the fuel vapors.

As, for example, in our garage.

The next day, there were experts from both the insurance company and from the auto company sifting through the debris of our house fire looking for clues to build their respective cases. The expert for the auto company was a Professor of Physics from the University of Pennsylvania and when he found out that I had been talking to an engineer in the company offices, he became quite animated. He must have taken steps because from that point onwards, I could never reach Eric, the engineer, on the phone.

As time went on, it became quite obvious to me that the good Professor’s objective was to find an alternate story for the fire. He filed a report implicating the heater in the garage. In his version of events, the heater which was in a corner of the garage, caught fire and then threw flames at the car, which was in the center of the three-car garage. The car, of course, was the main fuel for the fire as the policeman’s photos captured flames bursting from the center of the garage first.

Once the professor filed his report which allowed his temporary employer plausible deniability, the insurance company sued the auto manufacturer and the resulting case dragged through the courts, requiring lots of depositions over the next four years.

Six months after the fire, we received a notice from the auto manufacturer announcing a recall on the car to put a sleeve on the fuel line to prevent fuel vapor leaks from causing a fire. The design flaw to be corrected was the proximity of the fuel line to the heater for the windshield washer fluid compartment. This was the exact same problem that Eric had described to me six months earlier and I deduced that two other cars must have caught fire since our incident. I called the telephone number on the recall notice and informed them that the vehicle in question was already burnt to its shell.

Four years after the fire, the insurance company sent us a check for 30% of our deductible as they had concluded their legal case with the auto manufacturer for 30 cents on the dollar under a no-fault settlement. Despite the recall notice, the auto manufacturer continued to deny that our house fire was caused by their product, based on the good Professor’s report.
In the beginning, I was deeply disturbed at the lack of transparency of the auto manufacturer and the lack of academic integrity of the Professor. In retrospect, however, I feel that the Professor was just doing the job that he was asked to do and the corporation had no choice but to dissemble as it did because of the culture that it is ensconced in. If they had admitted to the culpability of their product for the house fire, it is likely that ambulance chasers would have come out of the woodwork to sue them for numerous other fires. In the litigious system that has evolved in the United States of America and throughout the world, ethics and morals would seem to be luxuries for corporations. But, despite the dissembling, the corporation was obviously working on the problem internally and took steps to correct it. This is similar to what corporations did when they were confronted with the stratospheric ozone hole problem due to the use of chlorofluorocarbons (CFCs) in the seventies and eighties[5]. While they were attacking the scientists who had discovered this problem, they were busy working on alternatives internally. Once they found a suitable alternative, they acknowledged the problem and changed course.

However, corporations, especially large ones, tend to put profits above morals. In the Nation’s investigative article, “The Secret History of Lead[6],” author Jamie Lincoln Kitman begins, “The next time you pull the family barge in for a fill-up, check it out: The gas pumps read ‘Unleaded.’ You might reasonably suppose this is because naturally occurring lead has been thoughtfully removed from the gasoline. But you would be wrong. There is no lead in gasoline unless somebody puts it there. And, a little more than seventy-five years ago, some of America’s leading corporations–General Motors, Du Pont and Standard Oil of New Jersey (known nowadays as Exxon)–were that somebody. They got together and put lead, a known poison, into gasoline, for profit.” As an anti-knock agent, the compound, tetraEthyl Lead was added to gasoline instead of an equally effective compound, Ethyl Alcohol, because these companies had the patent on the lead additive while everyone knew how to make Ethyl Alcohol or “moonshine” already. This one sordid act committed by these corporations led to millions of people being exposed to lead poisoning in the affluent world. Lead contamination of the environment continues to this day with leaded gasoline still being sold in the Global South and in Eastern Europe as corporations pursue their profit motive, disregarding the public good. In America, corporations are laying off older workers and hiring younger ones at much lower pay, since experience doesn’t count for much any more: knowledge and experience are freely available on the internet. Other corporations are laying off local workers and hiring guest workers from foreign countries at exploitative wages instead. The “public good” has been slowly eroded from the charter of the corporation under the guise that the public would determine whether the corporation is good or not through their purchases.

Even after the environmental movements in the sixties and seventies achieved several landmark victories with the passage of the Clean Air Act, the Clean Water Act and the Endangered Species Act in America, corporations grandfathered in escape clauses that they have clung to even today. A friend of mine, who used to work for a large chemical corporation, told me of a factory on the banks of the Raritan River in New Jersey which the corporation ostensibly has kept open until now. Except that there is just a single employee whose job it is to open the factory in the morning and close it in the evening, just so that the corporation can comply with the terms of the Clean Water Act. The factory had dumped carcinogens in the surrounding land for years and the corporation knew that it would take a lot of money to clean it up, but as long as the factory was still “open,” the corporation could defer the clean up under the terms of the Act.

This is the system that we have set up. The corporation is supposed to look out for shareholder interest exclusively and these days, for large corporations, it is just the return on investment for a few large mutual and pension funds that matter the most. It is in these shareholders’ interest for the corporation to externalize as much of the cost of producing goods as possible. Then the government is supposed to box in the activities of the corporation, to look out for the public good. Meanwhile, the corporation will do all it can to throw off the shackles of such government regulation, also to promote shareholder interest, such as, for example, by financing the elections of the lawmakers. When the Supreme Court of the country is also stacked in favor of the corporations, the interest of the shareholders can be well and truly addressed.

Of the three cardinal sins in most religions, Lust, Aggression and Greed, the modern corporation has to openly flaunt all of these or perish; Lust to promote its products, Aggression to try and squash its competitors and Greed to execute on its fundamental objective, to maximize its profits. An executive team that fails to commit these cardinal sins on behalf of the corporation will most likely get fired by its board.

According to the Bhagavad Gita, Lust, Aggression and Greed are the three gateways to Hell on Earth. Yet we have such powerful entities in our modern culture that are built around these very same characteristics. For we were somehow duped into believing that this is how components in natural ecosystems behave, in a crassly self-interested, hyper-competitive manner. And that somehow, the net result is benevolent to the whole ecosystem, to the whole society. This is an absurd, cherry-picked distortion of Adam Smith’s original formulation of the objective function of capitalism: Enlightened Self-Interest. Our modern Caterpillar culture has forgotten the “Enlightened” part and is pursuing just the “Self-Interested” part. With narrow, unenlightened self-interest as the primary goal of commerce, the resulting economic system is what I call “Catapilism,” an anagrammatic distortion of Capitalism. Adam Smith himself warned against such distortions 250 years ago when he said, “An investment is by all right-minded people to be commended, because it brings comforts and necessities to the citizenry. But, if continued indefinitely, it will lead to the endless pursuit of unnecessary things[7].”

In its section on Adam Smith’s “Invisible Hand of the Market,” Wikipedia has highlighted the distortion of Adam Smith’s formulation in Paul Samuelson’s popular Economics text book for example, showing Smith’s original text and Samuelson’s cherry-picked selections in bold[8]: “As every individual … therefore, endeavors as much as he can, both to employ his capital in the support of domestic industry, and so to direct that industry that its produce maybe of the greatest value; every individual necessarily labors to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the general [Smith said “public” not general] interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security, and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, [as in many other cases] led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.“

And, voila’, we have found a theoretical basis for promoting Lust, Aggression and Greed in the very foundation of modern industrial civilization. We each act in our own self-interest, maximizing security and wealth for ourselves and our own children and assume that somehow it translates into a prosperous world through the invisible hand of the market. When we attempt to construct a just society on such a basis, we are essentially attempting to prove that all our religious texts are just plain wrong. It seems to me that as long as we believe in such absurdities, we will continue to commit not just atrocities, but also hara-kiri.

 

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[4] http://en.wikipedia.org/wiki/Late-2000s_financial_crisis

[5] Reiner Grundmann, “The Protection of the Ozone Layer,” UN Vision Project on Global Public Policy Networks, 2000. http://www.gppi.net/fileadmin/gppi/Grundmann_Ozone_Layer.pdf

[6] Jaime Lincoln Kitman, “The Secret History of Lead,” Nation, 2000. http://www.thenation.com/article/secret-history-lead

[7] Attributed to Adam Smith by Charles Handy, founder of the London Business School. Please see, e.g., http://dotearth.blogs.nytimes.com/2008/02/06/the-endless-pursuit-of-unnecessary-things/

[8] Please see section on “Abusing Smith’s statement of an invisible hand,” at http://en.wikipedia.org/wiki/Invisible_hand