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Corporate charity: sense of guilt or what?

Published on 17th Nov, Edition 46, 2014

 

There is something sure sinister about the corporate charity. ‘Give away a few millions out of the billions earned unscrupulously’ is the common refrain. Why do the corporations and the corporate bosses value charity so dearly? It’s a question deeply rooted in psychology than economics. Some may say that charities are tax deductible and therefore offer a way to the giver to attract public attention for a small price.

Globalization is a recurrent theme. The world has suffered more than once from the excruciating pains of this economic-cum-financial disease. The 21st century globalization and its firebrand techniques to accelerate the flow of wealth and income from the rotten league of ‘skunks’ to the pious cabal of elites have attracted a lot of criticism from the damned foes of capitalism, (James Patterson in his novel ‘Toys’ has divided the entire world into two categories: ten percent elites and ninety percent skunks).

Joseph P. Quinlan has identified four central tenets of the most recent globalization, namely industry deregulation, unfettered global capital flows, trade and investment liberalization and the primacy of the private sector. These tenets are heavily loaded in favor of the corporate sector. Added to this is the benefit of a sea of cash that has emerged after the abolition of fractional reserve system in 1971.

Quinlan writes in his book Last Economic Superpower:

“Yet with the end of the gold standard in 1971 and the subsequent shift toward floating exchange rates in 1973, capital now had the opportunity to roam the world to find the best returns. While in 1973 the total pool of offshore capital available to the international financial markets was roughly $160 billion, by the early 1980s the numbers were exponentially higher. Gross international capital flows totaled $500 billion in 1980. Again, sheer numbers demonstrate the soaring growth of global capital markets. Between 1990 and 2007, the global bond market grew from $18 trillion to $78 trillion. The global equity market surged from $8.3 trillion to $55.5 trillion over the same period. Combined, the size of the world equity and bond markets was more than double the level of world GDP in 2007, one year before the great financial crisis.”

The corporate galore enriched the top bosses and those around them, not the average corporate worker. In 2007, Lloyd Blankfein, CEO Goldman Sachs earned $73.7 million in salary and perks. Niall Ferguson writes in his book The Ascent of Money:

“Other Wall Street CEOs also made serious money-According to Forbes magazine Richard S. Fuld at Lehman Brothers earned $71.9 million, James Dimon at JP Morgan Chase $20.7 million, and Kenneth D. Lewis of Bank of America $20.1 million just ahead of Charles O. Prince of Citigroup ($19.9 million), John Mack at Morgan Stanley ($17.6 million) and John Thain of Merrill Lynch ($15.8 million). Yet Lloyd Blankfein was far from being the financial world’s highest earner in 2007. Angelo R. Mozilo of Countrywide Financial was paid $102.8 million. And even that pales into insignificance alongside the vast sums earned by some hedge fund managers. The veteran speculator George Soros made $2.9 billion. Ken Griffin of Citadel, like the founders of two other leading hedge funds took home more than $2 billion.”

What is unusual about the guilt of such ruthless makers of money as George Soros, Bill Gates, Warren Buffet and others? Why should they feel apologetic for the money they have earned using their skill and brain power. Yet they do! They know deep down their hearts that speculation and investment are zero sum games. Their profits are someone else’s losses. And the ‘someone else’ is the group of less gifted, less blessed and less resourceful people. It is less investment skill and more the force of big money that overpowers the small money. The following excerpt from David Reynold’s book America, Empire of Liberty precisely illustrates this point:

 

“America’s Mr. Steel was an immigrant from Scotland called Andrew Carnegie. His advice was to ‘put all your eggs in one basket, and then watch that basket’.

Carnegie of course was preaching what he had practiced, for these were the methods he had used to get to the top (although to give a rounded picture, he should have also mentioned the benefits of insider trading, crony capitalism and screwing down wages). His generation of industrial titans – men like John D. Rockefeller in oil and Cornelius Vanderbilt in Railroads, became known as the Robber Barons. Ruthless when making their money, they were, however, munificent philanthropists in later life,  perhaps to expiate their guilt. According to Carnegie, the capitalist should aim to give away his fortune during his lifetime. He did not quite succeed – $30 million still remained when he died in 1919  but he had already given away a staggering third of a billion dollar.”

This was about the yesteryears capitalists. The modern ones are not that na-ve. See what the Economic Hit Man John Perkins has to say in his book Hoodwinked, under the caption Modern Robber Barons:

“As a philanthropist, Bill Gates seems to be a man of impeccable integrity. His family had given nearly $30 billion to charity by 2008. However, the Bill and Melinda Gates Foundation has been severely criticized for investing its endowment in companies that are accused of contributing to poverty in the very Third World countries where the foundation’s stated goal is to relieve poverty. Such investments include pharmaceutical companies that refuse to sell their medicines to the developing world at appropriate prices and a variety of corporations that contribute heavily to pollution. The foundation’s response to public condemnation of these investments was to announce a review of its policies in 2007 and then to quietly issue a statement saying that its portfolio was based on maximizing returns, not judging corporate actions.

As a young founder and CEO, Bill Gates had a reputation for brutally beating down competitors. He and Microsoft have been attacked in many countries for business practices that at best are morally questionable and at worst illegal.”

The master speculator George Soros is famous for earning a fortune by shorting on pound sterling in 1992. Besides being an investor, he is a well-known philanthropist. According to an estimate, he had given away, by 2003, more than $4 billion. He runs the Open Society Foundation. In his book Soros on Soros, he has replied two questions in the following manner:

Q. Why do you give away many millions of dollars in Eastern Europe? Do you have a guilty conscience? Are you hoping to make up for something?

A. Not at all. I do it because I care about the principles of open society and I can afford it. It is a unique combination.

Q. But you are widely accused of earning unconscionable profits as a financial speculator. You took money from every British taxpayer when you speculated against sterling.

A. Profits, yes; unconscionable, no. When you speculate in the financial markets, you are free of most of the moral concerns that confront an ordinary businessman.

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