Tag Archives: Koch Industries

Reward And Punish

I recently stumbled upon a report issued (and constantly updated) byJeffrey Sonnenfeld, a professor at the Yale School of Management identifying the U.S. companies that have–and have not– withdrawn from Russia in the wake of Putin’s invasion of Ukraine. The report separates the companies into four categories:

1) WITHDRAWAL – Clean Break: companies completely halting Russian engagements;

2) SUSPENSION – Keeping Options Open for Return: companies temporarily curtailing operations while keeping return options open;

3) SCALING BACK – Reducing Activities: companies scaling back some but not all operations, or delaying investments;

4) DIGGING IN – Defying Demands for Exit: companies defying demands for exit/reduction of activities .

The date I logged on, there were 34 companies “digging in.”Unsurprisingly, Koch Industries was–and remains– among them, and there are calls to boycott goods like Bounty paper towels, that are produced by Koch subsidiaries.

American pundits sometimes seem divided between the tiresome ideologues who  believe the market  can solve every problem known to humankind, and the equally tiresome scolds who want to replace capitalism entirely. Actually, both the unwillingness of some companies to forego profits in order to help pressure Russia to withdraw, and the calls to boycott those companies, display what we might think of as the yin and yang of capitalism.

Ignore, for the purposes of the ensuing discussion, the fact that the American economy has devolved into crony capitalism and corporatism, a situation that deserves its own analysis.

America’s most pervasive and longstanding economic error has been one of categorization–determining what goods and services should be left to free  (appropriately regulated) markets, and which by their very nature must be collectively supplied by government. Other western nations have long understood that the provision of effective and accessible health care, for example, is incompatible with a market approach. (Market transactions require a willing buyer and willing seller, both of whom are in possession of all information relevant to the transaction–an impossibility with respect to health care.)

On the other hand, there is no reason for government to be involved in the manufacture or sale of most consumer goods. The genius of a properly operating capitalism is its ability to provide us with a multiplicity of products and sources of entertainment. Government  agencies would be highly unlikely to invent the iPhone…or Netflix.

If we are to have a properly operating economy–not to mention a properly operating government–we need to distinguish between the consumer goods that are most efficiently provided by the market, and the social and physical infrastructure that must be provided by government.

A good example is education. Efforts to “privatize” public education rest on the mistaken assumption that education is just another consumer good–that schools exist only to provide children with the skills to compete–or at least operate–successfully in the economy. That assumption entirely ignores what has been called the “civic mission” of public education–the role of our public schools in the transmission of democratic norms, and the forging of a common American identity among children from  diverse backgrounds.

So what does all this have to do with Ukraine?

When we look at Sonnenfeld’s list of companies that have placed profit above morality, we see the dark side of capitalism–its tendency to incentivize greed over concern for the human consequences of economic (mis)behavior. (It is encouraging, and worth noting , that the list of companies that have elected to remain is far, far shorter than the list of those that have pulled out–often at considerable cost.)

When we look at the calls to boycott the products of the companies that have elected to “dig in,” we see the power consumers can wield in market economies. Consumers “vote” with our dollars, and if enough of us choose to do so, we can punish companies engaging in behaviors of which we disapprove. A number of such boycotts have succeeded in the past and there are several websites enumerating those successes.

When it comes to mega-businesses like Koch Industries, it’s admittedly difficult: their products are pretty much everywhere. (Here’s a list.) Others–like Subway– are much easier to spot.

Bottom line: market economies provide consumers with the ability to reward good behavior and punish bad behavior–but just like democracy, delivering those rewards and punishments requires an informed  and engaged populace.