Justice: Paying the Real Cost of Corporate Crime

Despite it’s many advantages, a strong system of justice is necessary to make capitalism work. The underlying principles of that system are critical to making it function effectively. This article examines the principles that must lie at the heart of the judicial system, so that capitalism serves humanity, rather than enslaving it.

Originally published 2002

A capitalist economy has undeniable advantages. It gets everyone working on the problem of how to fill each other’s needs, and 10 billion heads are definitely better than one, or even several thousand. But along with those advantages come a number of significant disadvantages. The most egregious of these are pollution, harmful products, and fraudulent products.

Actually, pollution, harmful products, and fraudulent products are different manifestations of the same thing — a cost that is borne by others. In this section, we’ll take a look at why that is so, and see that the proper role of government is to act as a referee on the playing field — while the companies properly compete for business, it is up to the referees to make sure they don’t run off the field (and over the fans), in their quest to score.

Fraudulent Products

Let’s start with fraudulent products, because they are the easiest to see. We “know” they are wrong, because they don’t deliver what they promise. We have a sense of what’s “fair”, and we know that such deeds should require a refund, at a minimum, and possibly even incur punitive damages.

But if we examine the basis for our sense of justice, we can see that, at bottom, we don’t want to see someone profit at others’ expense. Partly, we are motivated by a sense of fair play. We don’t want one person to suffer because of another’s fraud. Partly, too, we are motivated to protect our future — because allowing such things to happen imperils the whole system.

For example, company A sells a great hammer. It costs a fair amount to make, but it does a great job. So we don’t mind paying for it. The money compensates the workers for their time and even provides a bit of profit, which allows the company to invest in even more hammer-making equipment.

Company B, on the other hand, sells a cheap hammer that looks like the good one. And they market it as the best thing since sliced bread. Since it doesn’t cost much to make, they make a lot of profit. But the person who buys one pays the cost — they can’t drive nails, and they have spent their hammer money, so they have no way to get a good hammer.

Here, we expect the system of justice to step in and right the situation. Through compensatory damages and punitive damages, we prevent Company B from making undue profit at others’ expense. We make them issue hammer recalls, we legislate hammer-making standards, and we don’t even care if, after fighting us tooth and nail on these issues, their advertising tells us that they’re doing all these things because they care so much about us consumers.

But the important point in all this is that we are acting to make the company pay the real costs of the products they produce. If they make a cheap hammer and sell it as a cheap hammer, we don’t much mind. They make pretty much the same profit as the folks selling good hammers, and lots of people don’t really need that good a hammer, so it’s ok. But when they make obscene profits selling bad hammers, we know we have a right to step in.

Bad Products

Next, let’s take a look at bad products. Probably the best example we have at this point is cigarettes. We know they cause cancer. Worse, they’re addictive. In recent years, we’ve started to punish those companies. There are two reasons for those actions, and they’re worth distinguishing.

The first reason is our moral outrage over the fact that the products are addictive, and that the companies, knowing this, hid that information and maliciously acted to hide and discredit that information. For a product to be both addictive and harmful, such behavior surely transgresses the bounds of decency.

But the second reason, and arguably the more important reason, is that the sales of tobacco have allowed companies to profit at others’ expense. If you are paying the price for the health care, then the real cost of that product is a lot more than the price of the cigarettes. But since you are paying that cost, they make profits far in excess of the real cost.

At this point, cigarette companies will argue that you paid your money for the benefit of the satisfaction and pleasure the tobacco gave you, so it was a fair exchange. I would argue in return that the cigarettes did indeed give you a benefit — a human benefit — and that later on people pay the human cost in terms of suffering and loss of life.

That is a question we face throughout our lives, and it is not one that should be legislated. Should I ride with a helmet or without? Should I climb a mountain or take up sky-diving? In return for the pleasure of these activities, we run the risk of injury or even loss of life. So we constantly engage in the trade of human benefit and human costs.

Note:
As we’ll see, the decision to ride without a helmet can only be supported if those making the decision pay for the increased health care and insurance costs that result. It is only the difficulty of determining who is wearing one, how much of the time, and who isn’t that motivates the existence of a standard, “all or nothing”, policy on the subject.

However, while the person buying the cigarettes derived the human benefit, it was the tobacco company which derived the financial benefit. When the person pays the human cost later in life, it is only fair that the tobacco company underwrite the financial cost.

Viewed in that light, we can see the folly of judicial settlements that indemnify tobacco companies against all future financial burden for the harm their products cause. Sure, we make billions now. But what happens next century, or the century after that?

The point here is that as long as a company is paying the real costs of the products they make, whether in the form of hammer parts or tobacco-induced cancer, we don’t much mind if they make a profit. The profits only become unreasonable when a company’s products force others to pay the costs.

That principle is most easily seen in the case of fraudulent products, which is why we started there. It is also implicit in the tobacco law suits, although it must be teased out from it’s affiliation with the addictive nature of tobacco. But it is when we examine the impact of that principle on our future economic system that we really see its benefit.

From tobacco, let’s move on to alcohol. Alcohol, too, has costs ranging from lost work days and automobile accidents to family strife and hospitalization for liver damage and recovery from addiction. These are real costs — costs which are not currently being met by the alcohol industry, which therefore makes it a very profitable business to be in.

This situation exists only because of our lack of sophistication. In the case of fraudulent products, the costs are fairly easy to calculate. So our judicial system acts to right the wrongs they cause. But in the case of bad products, the complexity of the system coupled with the time-delay before the cost is incurred hampers our ability to establish justice.

We have tools at our disposal, though, that can right these wrongs.

In particular, we have the potential for doing statistical analysis. We also have the capacity for taxation, in addition to legal action.

Imagine for a moment that the Surgeon General’s office had a direct pipeline into the IRS, and that special taxes could be levied which would earmarked for specific purposes. Suppose, too, that they had access to medical data from hospitals, as well as financial data from the Security and Exchange Commission (SEC).

Now suppose that the Surgeon General’s office crunches that statistics, and finds that X percent of disease Y can be attributed to a product like alcohol or tobacco or some such, and that combining the financial reports shows that company B is responsible for Z percent of the sales of such products. (Further analysis might also show that company B’s products are N percent more harmful than company A, or that certain of its products are more harmful than others, but will ignore those complexities, for the moment.)

After doing the appropriate statistical analysis, the Surgeon General’s office has sufficient data to levy a tax on company B for X* Z percent of the health care costs of that disease, where X is the percent of the disease attributable to that product category, and Z is the percent of those products represented by company B’s sales.

The proceeds from that tax could then be funneled directly to the insurance programs that pay those costs, with the result that the company making the profits is also covering the real costs of the products they sell, instead of leaving others to pay those costs.

Of course, the company might go out of business, were they made to pay such costs. Where would be the harm in that? On the other hand, they might also be able to make a small profit. In that case, it would be hard to argue against their continued existence. Despite the fact that their products cause a degree of harm, because they would be taking responsibility for that harm and paying the costs.

Of course, we would still have to worry about business’ coming into existence, making a lot of money, and then going “bankrupt” to avoid paying the price down the line. To combat that possibility, we would need good systems for “finding the money”, no matter where it goes.

For example, if the profits went into Swiss bank accounts or executive salaries, we would simply have to track it down and get it back. Pretty soon, most business people would get the idea that it makes more sense to sell beneficial products that have real value, and not have to worry about someday having their wealth confiscated.

To my mind, such a result would only be of benefit to humanity. It would return ethics to business, as a result of good refereeing.

Note:
Coming from the other direction, it might also be possible to use education to improve the sense of ethics among people in general, before they ever get into business. Such a development would meet with immediate and widespread approval. The details of such a proposal, however, have yet to be determined.

Pollution

At this point, we have examined fraudulent products and bad products, the final case to be examined is the issue of pollution. Again, we will see that the issue of paying the real costs is the central concept of justice necessary to making a capitalist system work to the benefit of its members, and reduce the potential for detrimental results.

Again, we resort to statistical analysis of real costs, coupled with taxation and earmarked funds. We know that various pollutants play a role in cancer and other diseases. And the more science learns, the more accurately we can trace effects. So we start taxing food producers for the pesticides and hormones they use, and we start taxing business for their air and water pollution.

It only makes sense, when you think about it. If you have to buy your own water and pay the hospital bills for cancer, then the company makes its profit at your expense. In cases of simple cause and effect relationships, the judicial system provides mechanism for compensation. But in cases of larger, more complex systems, the companies “get away with it”, because we are not sophisticated enough to make them pay the bill.

For diseases like cancer, there are many contributing causes. There are multiple pollutants, and multiple sources for those pollutants. There are even contributing factors in our food supply. It will take serious statistical crunching to figure out the costs, attribute those to costs to various toxic factors, and further break down those factors and partition them out among the companies who contribute them. But that work must be done, so that the real costs of those products are paid by the producers, rather than by others.

After all, the company that is using pesticides, herbicides, and growth hormones are making better profits — even if the food provides less benefit and causes more harm. Similarly, some preservatives and “nutrition-free” foods like all-white, stays-fresh-forever bread create their share of health problems. But if their suppliers pay the freight, then everything averages out statistically, at least.

Perhaps more importantly from the standpoint of justice, individuals who exercise the wisdom to choose good products are not left paying exorbitant taxes to cover the health care costs of those who didn’t. Instead, those costs can be paid by the producers of the detrimental products.

But, some might argue, increasing the tax burden on food producers will undoubtedly raise food prices. Absolutely. But I would argue in return that the outcome would only be beneficial.

At the moment, producers of non-organic foods are, in effect, subsidized by the fact that the real costs of their products are paid by others. As a result, such foods are cheap compared to organic foods. Because they are cheap, it is difficult for organic foods to gain market share, and therefore capture the volume that keeps prices down.

But if the real costs are allocated where they belong, then the economic disadvantage that accompanies organic foods starts to dissipate. Instead of organic foods being a lot more expensive, they are only a little more expensive. They might even be less expensive.

Given the choice, and given that the financial costs were virtually the same, which would you choose? No doubt about it. You’d go organic every time, both for the improved flavor and for the security of knowing that you won’t be paying the human costs somewhere down the line.

As matters stand, you don’t have that choice. But if the real costs were allocated fairly, you might well have such a choice. You might see fast food restaurants serving organic food, because the cost is the same and customers prefer it. And you might see more and more food suppliers gravitating towards organic foods, for the same reason.

The Hydrogenation Process

Before leaving this subject, let’s take a look at the partially hydrogenated oils. Arguably, these food products qualify as pollution, as bad products, and as fraudulent products.

Partially hydrogenated oils contain high percentages of trans fats, and trans fats are implicated in the majority of degenerative diseases that exist in modern industrialized society. It also holds significant responsibility for obesity, and the diseases that attend that malady. In enlightened, health-conscious countries like Holland, partially hydrogenated oils have been banned for decades.

Space does not permit examining the specifics in this article, but when the statistical analysis takes place, partially hydrogenated oils will share much of the responsibility for cancer with tobacco and pollution, and it will share much of the responsibility for heart disease and atherosclerosis, as well. So, when the real costs are calculated, this harmful substance is poised for a severe reckoning.

For more details on this subject, see:

Ensuring Adequate Nutrition

And what about the produce and other foods which are devoid of nutritional content. It must certainly be possible to factor out the diseases that result, and the resulting health costs. The funds society derives from those calculations could be used subsidize the medical system, of course. But they could also be used to subsidize a national vitamin & mineral program, to help offset the damage done by the harmful products to precisely the degree they are sold.

When it comes to the nutritional content of food, some interesting possibilities arise if individual farmers are left out of the calculations. In any case, the impact of any one farmer would be very small, so even if they were using every pesticide and herbicide in existence, their individual bill would still be fairly small.

But the huge mega-corporations which have all but taken over the farming business would face a huge bill. To the degree that their profits result from an economy of scale and a bottom-line focus on efficiency, to that degree the profits would be rightfully theirs. But to the degree that they are cutting corners and harming the uninformed consumer, to that degree their profits would be forfeit.

In addition to leveling the playing field with respect to organic and inorganic foods, such a move might well help to tip the scales back towards individual farmers, who tend to be a lot more conscientious than the industrial lot. A consequence of that move would be to put life back into our small towns, due to the improved prospects for making a good living.

Summary

The principle is simple: If, as a society, we face the consequences, then it is society which deserves the profits, not individuals. To the degree that the consequences have costs, to that exact degree do the profits belong to the society as a whole.

With sophisticated statistical analysis and unprecedented integration of financial and medical data, the real costs of a product can be calculated. When those costs are recuperated through taxation, as well as through judicial compensation, the health of industrial populations and their quality of life figures to improve substantially.

Copyright © 2002-2017, TreeLight PenWorks

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