Solution for Subproblem B - How to Achieve Social Proper Coupling - Corporation 2.0
This solution element challenges the very core of modern civilization. Today's industrialized societies, whether democratic or not, are based on the implicit goal of short term maximization of corporate profit. That's why we see the stock market index on the front page of so many newspapers and websites. That's why industrialized societies see maximum economic growth as vital to a nation's well being and any disruption of that growth as the worst thing that can happen short of war.
If the human system's goal is short term maximization of profits, then all sorts of side effects are guaranteed, like the environmental sustainability problem, the recurring wars problem, the recurring large recessions problem, excessive economic inequality, and institutional poverty. These problems occur because not solving them increases profits.
All this would change if we can resolve the root cause of the social proper coupling subproblem. Two social life forms are improperly coupled.
The analysis found that the root cause of this subproblem is mutually exclusive goals between the top two life forms in the human system. Corporatis profits has the goal of short term maximization of profits. Homo sapiens has the goal of the long term optimization of quality of life, for these living and their descendents. These goals are so mutually exclusive they cannot both be achieved at the same time. One life form will win and one will lose. Presently Corporatis profits is winning and Homo sapiens is losing. Proof of this may be found in the many unsolved problems whose solution would benefit the common good of The People.
Further proof Corporatis profits is winning lies in the many problems whose solution would benefit corporations. These are rapidly solved, such as:
Lack of an international body that runs the world according to the wishes of Corporatis profitis. Solved by creation of the World Trade Organization. It has far more power than the United Nations.
Lack of a world wide political ideology that supports the goal of Corporatis profitis over Homo sapiens. Solved by control of the conservative party in the US, Canada, Australia, England, and other nations, as well as the media and portions of the educational system and bodies of science, like economics.
Lack of laws giving corporations the powers they need to be supremely dominant over people. Solved by centuries of corporate judicial activism. The result is summarized in The Competitive Advantage of Two Life Forms.
Study the table. It's like the poker player with a winning hand. With the right bluff (deception) and careful study of the other players, he manipulates the betting so a big pot accumulates. Then the call comes. He lays down his hand and says "Read 'em and weep."
How can Homo sapiens turn the tables and gain the winning hand? By finding the correct high leverage point to resolve the root cause.
The root cause is mutually exclusive goals between large for-profit corporations and people. How can we best resolve the root cause?
This is straightforward. If corporate and people goals are incompatible, then one or both goals must be changed until they are in agreement. Since democracy is of the people, by the people, and for the people, it makes little sense to compromise and change the goal of people.
Therefore the solution is to change the goal of the corporate life form to one that aligns with that of people. As long as the top goal of corporations remains unchanged, the system will behave about the same because the goal of the dominant agent in a social system determines the general behavior of the system. Therefore the high leverage point is correctness of goals for artificial life forms. Since the one causing the problem right now is Corporatis profitis, this means we have to reengineer the modern corporation to have the right goal.
That's our central solution strategy: reengineer the modern corporation to have the right goal, one that supports the goal of Homo sapiens.
Corporations were never designed in a comprehensive manner to serve The People. They evolved. What we have today can be called Corporation 1.0. It serves itself. What we need instead is Corporation 2.0. This life form is designed to serve people rather than itself. Its new role will be that of a trusted servant whose goal is providing the goods and services needed to optimize quality of life for people in a sustainable manner.
Moving to Corporation 2.0 is radical change. The definition of radical is: "1. of or going to the root or origin; fundamental: a radical difference." 1 Radical change is required to resolve root causes. There is no other way.
The purpose of this solution element is to design Corporation 2.0 such that its goal is in full alignment with the goal of Homo sapiens and it can continue its role as producer of the goods and services needed by humanity. This element pushes on the high leverage point of correctness of goals for artificial life forms. Once those goals are correct, the system will automatically zoom towards proper coupling at such high speed it would seem shocking—if we hadn’t already anticipated it with our simulation graphs.
Corporation 1.0 is the New Dominant Life Form, Corporatis profitis. Corporation 2.0 will be the New Super Servant, Corporatis publicus. Its goal is to serve its creator and master, Homo sapiens¸ as best it can. Its role is to do that by providing needed goods and services. This is the role of a trusted servant. It must be trustworthy because it has so much potential power.
This takes us back to where we were long ago, in the country that pioneered the modern corporation: 2
At the time of America’s founding, corporations were created by state charters only to serve the public good. As an 1832 treatise on corporate law put it, “The design of the corporation is to provide for some good that is useful to the public.” Or as the Pennsylvania legislature in 1834 declared, “A corporation in law is just what the incorporation act makes it. It is the creature of the law and may be molded to any shape or for any purpose the Legislature may deem most conductive for the common good.”
Updating the modern corporation from version 1.0 to 2.0 will be the largest feat of memetic engineering attempted since the invention of modern democracy. Given the large, intricate body of corporate law and the pivotal importance of corporations in the industrialized world, this could be overwhelmingly difficult. However, if we follow this principle it will be easy:
The goal of a system’s dominant social agent
determines the goal of the system.
If that goal conflicts with those of policy makers then the system will exhibit high systemic change resistance. No amount of pushing and poking to force the system to fully accept a new solution will work. But once the goal of the system’s dominant agents agrees with a preferred solution policy, the system will “want” to adopt the new policy and then solve the problem as fast as possible. The system will snap from the old to the new mode as a rapid phase change occurs.
This works because goals create balancing loops. Such loops balance the formidable power of reinforcing loops by regulating them to behave as desired. If a system has the right balancing loops on the system’s key reinforcing loops, then the rest of the system can do anything it wants because the system as a whole will pursue the right implicit system goal.
If the root cause is the wrong goal, then the solution is the right goal. The goal of Corporation 2.0 would be providing the goods and services needed to optimize quality of life for people in a socially, environmentally, and economically sustainable way. There is no need for pursuit of profits in that goal. In fact, the newly engineered Corporation 2.0 should have no incentive to maximize profits, since that causes the corporate dominance loop to appear. Therefore Corporation 2.0 should be non-profit. This is a radical change. But once you understand the analysis it's fully justified.
Retained earnings would be allowed. These internal profits are necessary to build the assets necessary to carry out the corporate life form's new goal, which can be summarized as "optimize quality of life for people." Dividends to owners or stockholders would no longer be allowed. Gone is the perverse incentive to maximize short term dividends at the expense of all sorts of terrible side effects.
The monumental benefit of Corporation 2.0 being non-profit is the corrosive impact of short term profit maximization disappears as a fundamental driver of the human system. The new way of corporate thinking will run about like this: “I’m no longer going to argue my company must resist anything that hurts my profits, because that’s no longer my bottom line. Instead, my new bottom line is to serve the needs of people. If my government or my fellow citizens propose a way to do that better, and I can’t think of an even better way, then I’m all for it.”
With one simple change to the law, everything changes. All a state or nation needs to do is pass legislation about like this:
Corporate law is hereby amended to redefine allowable types of non-federal corporations. The type widely known as for-profit is no longer permitted. This leaves the other type, non-profit, as the only allowable type. This act shall take effect on the last day of this year.
The five defining characteristics of the modern for-profit corporation have until now been: (1) separate legal personality, (2) delegated management, (3) limited liability, (4) transferable shares, and (5) investor ownership. Hereafter the last three characteristics are prohibited except in the case of non-profit worker cooperatives. For-profit corporate stock may no longer be bought or sold. Nor may dividends be paid on it.
The intent of this law is to align the goal of the modern corporation with that of Homo sapiens, whose goal is to optimize the common good for all living people and their descendents.
To implement this intent, all for-profit corporate charters shall be revised to be non-profit and shall include this statement:
This corporation is an artificial life form created by humans to serve their needs and is thus not a natural person. Nor is it an artificial person. It is an artificial servant. The overriding goal of this servant shall be to serve the needs of its human master to the best of its abilities, by providing goods and/or services that benefit the common good first and its customers second. No other goal shall have a greater or equal priority.
To allow a smooth ten year transition that does not disrupt the welfare of the people, a percentage of corporations, chosen at random, shall be converted each year. This shall start at .125% in the first year and increase to .25%, .5%, 1%, 2%, 4%, 8%, 16%, 32%, and finally 36.25% in the tenth year. For-profit corporations are encouraged to convert earlier than the year they are selected, since this will enhance their reputation as a trustworthy servant and thus increase their likelihood of survival.
At the end of each year, for that year’s converting corporations all their stock shall change to the equivalent of loans by shareholders to corporations. Loan value per share shall be calculated as the tangible book value of a corporation divided by the total number of shares. The full principle of these loans shall be paid off to loan owners over a period of thirty years. During that time interest on the remaining principle shall be paid quarterly at a rate of, for each stock, the average dividend rate for the last five years for common shares and the stipulated dividend rate for preferred shares divided by average share value.
This is of course only a rough illustrative example in plain English.
The hodgepodge of different incorporation laws in the states of some countries should be replaced by uniform national laws. This eliminates the tendency for a race to the bottom among states to break out, as states compete for more revenue via weaker incorporation laws. For the same reason, uniform international law should eventually be implemented.
A powerful hypnotic fallacy promoted by the corporate life form is that profits are necessary to motivate invention and entrepreneurs towards efficiency. What they really mean is profits in their present form of dividends to outside owners. There are other approaches, namely a non-profit approach.
Non-profit corporations can do anything for-profit corporations can do. This has been proven by many non-profits. An outstanding example is the Mondragon Corporation of Spain, a highly successful worker cooperative of 100,000 members: 3
The Corporation’s companies manufacture consumer goods, capital goods, industrial components, products and systems for construction, and services to business. [including] refrigerators, washing machines, ovens, dishwashers, and boilers... chip removing and sheet metal forming machine tools... automation and control products for machine tools, packaging machinery, machinery for automating assembly processes and processing wood, forklift trucks, electric transformers, integrated equipment for the catering industry, cold stores, and refrigeration equipment.... [for the auto industry] brakes, axles, suspension, transmission, engines, aluminium wheel rims, fluid conduction, and other internal and external vehicle components. ... business consultancy services, architecture and engineering, property consulting, design and innovation, systems engineering for electromechanical installations, and integrated logistics engineering.
The Mondragon Corporation, thousands of credit unions and agricultural coops, hundreds of thousands of NGOs, and more are an example of what a solution to the corporate dominance problem would look like. Each is living proof this solution can work... because it already has worked. All we need to do is scale up this already proven solution.
Thus Corporation 2.0 is not as radical a change as it may seem at first glance. It's a solution that's already been tested. There it sits on the shelf, just waiting for its time to come.
"Nothing is stronger than an idea whose time has come." ~ Victor Hugo
(3) The Mondragon Corporation material is from the Wikipedia entry on the topic.