“Corporate Ethics”

Remember, that’s not an oxymoron, it’s a contradiction in terms. Bet you’re thinking that with a headline like that, I’m gonna talk about the Ken Lay indictment. Nope. Too obvious.

Instead, I want to draw your attention to yesterday’s settlement between the FTC and the weasels at Gateway Learning (and by the way, if you were ever thinking of using the Hooked on Phonics program — Gateway’s signature product — I suspect you may rethink that decision shortly).

It seems that Gateway — after gathering a whole slew of personally identifiable data from its website — names, addresses, children’s ages and genders, etc. — decided to change its so-called “privacy policy” (perhaps more accurately called a no-privacy policy) to allow it to share all that data with marketers at will. Now, the only reason it became a legal issue is that the original privacy policy, under which the data had been collected, specifically disallowed any such sharing without explicit customer consent. No effort whatsoever was made to actually contact any of the existing customers to either inform them of the change or allow them an opportunity to opt out of such sharing.

That’s a pretty big problem — especially when you consider they’re gathering data about children. So you’d think the FTC would have thrown the book at them, right? Hardly. The case was settled for $4,600 — exactly the amount that Gateway allegely made from the original sale of data.

Well, wait a minute, you say (or I imagine you do, anyway); it’s not like they made a whole lot of money off of this sale — why should the fine be any bigger?

Let’s look at it from a corporate perspective. The FTC has just demonstrated by example that if you’re caught illegally sharing private, personally identifiable information, at worst you’ll have to pay back the money you got. Since the chance of being caught is less than 100 percent, your expected return on such a venture is clearly in the positive. Why not share the data, whatever your professed “privacy policy”?

There have, to date, been few efforts made to truly protect consumer privacy on-line. Opponents to any such legislation argue that industry self-regulation will work best. Of course, there’s a slight flaw in that reasoning: Judging by historical precedent, “industry self-regulation” never works. Why? Because in a capitalist system, there is no such thing as corporate ethics. They do not exist.

That’s not to say that some perfectly ethical people don’t run major corporations. I’ve met a few myself. But by its very nature, capitalism makes no allowance whatsoever for ethical behavior — it’s all about profit; all other considerations are insignificant. Now, in theory, competitive capitalism should produce behaviors that work to the benefit of society: Not just lower prices, but corporate behavior that consumers find palatable. After all — again in theory — consumers have the power to “shop elsewhere,” thereby motivating companies to change objectionable practices.

But only a blind fool could claim that this is how things work in the real world. First of all, we don’t have a truly competitive business environment — not even close. While the handful of major corporations that control any particular industry may not explicitly collaborate in unpalatable practices, there is sure as hell an implicit agreement to avoid “rocking the boat” until it becomes absoutely necessary. If my major competitor and I rely on child labor in, say, Pakistan, to produce our products, it is not in my interests to change that policy. Why? Because in the short term, I’ll be cutting my available labor pool down substantially, and therefore I’ll have to pay more, hurting my immediate bottom line.

But let’s assume for the moment that I’m a visionary CEO able to think beyond the immediate quarterly figures (a stretch, but we’ll allow it for the sake of argument). In the long term, should my strategy not prove viable — after all, objection to child labor is hardly the only factor in a consumer’s decision — my competitor will have a substantial advantage, and I’ll be out on my ass with nothing more than a multimillion-dollar severance package. But even if it does prove advantageous, I will have achieved at best a temporary advantage over my competitor, who will doubtless follow suit. Once he also abolishes child labor, we will both be paying more for labor — and doing so into the foreseeable future. Who wins in that situation?

In the end, that’s the major problem I have with the Libertarian outlook (or at least the version of it espoused by the party itself). The basic theory underlying it is perfectly sound — a government does not have the right to legislate against the rights of individuals until such time as the individual’s actions impinge on the rights of others. (We disagree about government’s role in providing overall benefit to society, but their position at least makes perfect sense.) Unfortunately, the tough part comes in figuring out where that line is drawn between acceptable individual behavior and harming others. Capitalism, as I’ve argued, is (or has the likelihood of being) harmful to others. Not that it’s all bad, by any means. To a degree, it does provide a number of benefits to society. But to pretend that in all cases it will do so is woefully naive. So even were I to accept the “hands-off” position (which I do almost wholeheartedly on social issues), I would say that absent governmental regulation of capitalist behavior, we will have crossed that line by miles.

I’m sorry, but a mean CEO-to-average-worker salary ratio going from 42:1 in 1982 to 301:1 in 2003 ($155,769 per week for the CEO, $517 per week for the worker) is in no respect ethical behavior. And there’s no chance that “industry self-regulation” is going to change that. It’s the “hands-off,” “greed is good” approach that got us there.

The moral of the story? Fire the asshole who’s acting as this nation’s CEO.

You knew I had to be getting around to that eventually, right?