The Public Cost Of Private Corporations

Summary As Washington and Wall Street reverberate with ominous estimates of the cost to business of government regulation, one can listen virtually in vain for consideration of the costs of not regulating. This paper is intended to illuminate that often-overlooked side of the issue. Corporations speak loudly and forcefully, in advertisements and through their agents, of the benefits they provide to society. But they do not often speak of the damage they do -- the social costs of private corporations. The corporate profit and loss statement shows only costs internalized by the corporation. It does not measure the uncompensated costs to society, the external diseconomies. For the persons affected these represent coerced assessments, a form of hidden taxation. This analysis consolidates prior and original research to assess the aggregate national external costs that business firms, primarily corporations, impose on customers, employees, communities, and society. This total public cost of private corporations is estimated at approximately $3,051 billion per year (1995 dollars). Corporations and their agents extol the virtues and social contributions of the corporate system. The halls of Congress echo with the flowery contentions of corporate lobbyists, asserting great economic and social benefits produced by their principals and projecting great loss to communities and society if corporations are made to pay higher taxes or are constrained by even moderate regulation. The print and electronic media bombard citizens with pretentious advertising claims both for products and for their makers. Those who would challenge these claims with objective evidence have virtually no voice. Certainly they do not have the advertising and lobbying budgets of the giant corporations. In the public debate, as decisions are made by taxpayers and their representatives that may affect corporations -- decisions on corporate tax provisions, industrial policy, corporate welfare, regulations and penalties for their violation, investment tax credits, zoning exemptions, tax abatements -- no information has been available about the other side of the ledger: the aggregate costs to society of the corporate system. No information has been available that would allow policymakers to better assess whether corporate activities that cost stakeholders are the public bargains so often claimed. Corporate social costs are a burden to the public and to the nation. They are real costs to those on whom they are imposed, but the corporate accounting system never recognizes them as such. In evaluating the contribution of corporations to society, these social costs should be related to the social benefits obtained. (17) As Klein (1977, p. 5) has noted, "If the social performance associated with business institutions and business decisions is to improve, that is, if the social costs of business are to be controlled within acceptable limits, business decision makers must include 'externalities' in their planning." Accountants, as the designated scorekeepers for business performance, should reevaluate how they account for the performance of corporations. By ignoring social costs, accounting presents a distorted picture of corporate performance that can influence policymakers to be excessively generous with corporate welfare, and to be excessively prone to cutting corporate regulations that provide sensible and necessary safeguards to the public. You may read the article here: http://www.stakeholderalliance.org/corpcost.html

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