In the late 20th century, an unsuspected form of artificial intelligence took control. It did so while we were busy looking elsewhere, dreaming up nightmare scenarios about the potential threat of technological AI.
The threat that caught us off-guard was a legal-entity-based artificial intelligence: the corporation. It was originally created with the intention of benefiting society, but gradually shrugged off responsibility and morality to pursue the current narrow goal of maximizing shareholder return. Because the creators of the modern corporation did not realize they were building an artificial intelligence out of a legal framework, they gave no thought to the kinds of protections we would need to keep this creation under control. Without safeguards, the machine moved forward unrestrained, grabbing at the easy profits first before moving on to cannibalizing society itself.
Incessantly looking for ways to grow its bottom line, the individual legal entities grew more efficient by networking. Today, these legal entities are forming into what is approaching a global corporate entity, with unmatched resources, a perpetual lifespan, and a single narrow goal—maximize shareholder return.
The Purpose of this Analysis
In the United States, we are seeing a growing awareness of systemic problems. The shock of 2008 focused our collective attention on the financial corporations. By 2010, our focus moved on to healthcare corporations. And by 2016, the new object of our focus became media and tech corporations, as well as pharma corporations. But in training our focus over these individual sectors of the corporate world, there’s been a lack of macro-level thinking—identifying the root problem in the corporate form itself—flaws in the legal programming which dictate the legal-entities’ actions, which in turn generate the observed social costs.
But without identifying the source problem, we’re stuck in an endless cycle of frustrated chasing after the symptoms. As a financial analyst with 20+ years experience in the corporate world and financial markets, my goal here is to provide an analysis of that root cause.
My conclusion is that a majority of problems in the U.S. are coming from a single root cause—flaws in the corporate form, i.e. a systems-based problem. This paper makes two main contributions. First, it summarizes many criticisms of corporatism that others have also made. Second, and more importantly, it for the first time challenges the assumption that humans are still in control of corporations. This persistent assumption is at the base of everyone’s model, and if it is not true, then the problem is much different (and worse) than they currently understand.
In discussing this, I compare the rules-based system of American corporatism to what the artificial intelligence theorists call “narrow AI,” and the “AI takeover scenario.” A scenario which I prove here, already happened, but unknowingly, with our invention of the modern corporation.
The concepts presented revolve around corporate law, capital markets, finance, economics, and accounting. This is a complicated topic, and not only requires some understanding of these fields, but significant time and coffee to rethink thru many flawed assumptions.
TABLE OF CONTENTS
Part 3: Damage to the Human Population
Part 5: Possible Outcomes
PART 1: THE HISTORY OF THE CORPORATION AND THE GRADUAL LOSS OF HUMAN CONTROL
The Evolution of the Corporation
The original summoning of the corporation can be traced back hundreds of years, but it was only with our last iteration of it that we gave up control over it. In the 1950s, corporations were still understood as having special legal privileges granted by the state only because they served the public good. Unlike a small business run merely for the sake of the proprietor’s profit, corporations were viewed as servants of the stakeholders (employees, customers, and the general public).
Corporation: a company authorized to act as a single entity (legally considered a person) and recognized as such by the law. From the Latin “in corpore,” meaning in body, in substance.
But by the 1970s, this notion of the corporation as responsible to its stakeholders was supplanted by one that is far more familiar to us. Milton Friedman spearheaded this change by promoting the idea that corporations should not be responsible to stakeholders, but only to their shareholders. Friedman claimed that restricting the focus of the corporation to the owner’s profit would propel economic growth. This growth, in turn, would “trickle-down” from the shareholders to the stakeholders, resulting in increased social wellbeing. And so the purpose of the corporation began to change so that it would gradually cease to be responsible to society (the stakeholders) and become responsible solely to its owners (the shareholders).
This change in purpose was seen as a positive development because it solved an old conundrum defined by Adam Smith in the 18th century: the ownership vs. control problem. Because there are so many parties involved, it was easy for owners to lose control of their companies. Management and workers, after all, might use their own judgment when making decisions, and their judgments might deviate from the owner’s agenda. The new model gave management a single, narrow goal: to maximize shareholder value. In doing so, their decisions would align perfectly with the owner’s agenda, thereby securing their control over the corporation (or so the thinking went). From this point on, everything becomes narrowly quantifiable. The corporation’s goal is all about stock prices and rates of return to investors, which are easily calculated. This era was not without its contrarians, of course. Some voices did raise concerns, like Peter Drucker who, in the 1980s, warned that this narrow focus would drive corporations to subordinate all other concerns — including societal well-being and even the corporation’s own longevity — to its single-minded goal. Still, despite these protestations, the machine moved forward, guided by its new, narrowly defined purpose.
The financial markets had to adapt to this shift in. As the corporation’s purpose was narrowed to the simple maximization of profits, stock ownership became more about capital appreciation than collecting dividends. Capital, accordingly, moved into quick-growth areas. Only short-term growth mattered and companies were incentivized to do anything to achieve quick profits. With stakeholder concerns no longer seen as relevant, impatient capital moved elsewhere if management would not take action to fuel relentless growth. From the 1980s on, corporations worked under the pressure to grow their profits by whatever means necessary, and the social responsibility and even legal obligations that were cornerstones of good corporate practice only a few decades ago were now deemed irrelevant.
The result is our current socioeconomic landscape — massive economic growth, profits and technological advancements — fueled by the creation of massive costs to society (i.e. negative externalities). Examples include: reckless financial risk taking, a toxic food supply, dangerous pharmaceutical drugs, healthcare extortion, media disinformation, tech authoritarianism, bad science, skyrocketing education costs, shortsighted outsourcing, and environmental destruction.
As corporations rapidly scaled up in size a feedback loop was born — the larger it grew, the more leverage over society the corporation obtained, the more it could use that leverage to extract more profit, to grow further. There was also an increase in corporate networking, which further fueled leverage. The extracted profits were distributed to the asset holders and highest level corporate servants, which floated up into global financial markets, widening wealth inequality.
In summary, over time the corporation has evolved from a specialized vehicle with the purpose of serving society, to a ubiquitous business form serving only shareholders, by the cannibalization of society. An unsustainable feedback loop has been created, where exponentially increasing negative externalities are required to fuel profit growth, with no clear way to exit this cycle due to corporations controlling most assets.
The Corporation’s Narrow Program—Maximize Profit
Our quick review of the history showed us how these legal entities became programmed with one narrow goal. Since we’ll be referring to this goal frequently, it will be helpful to define two relevant terms:
Shareholder primacy is a theory of corporate governance according to which shareholder interests should be assigned first priority relative to the interests of all other stakeholders. It is actually a misnomer, since with public corporations, the shareholding public are not actually polled. Instead the assumption is that all shareholders want their return maximized, even if they are recipients of social costs from this action, which may in total not serve their interests. Which brings us to our next term…
Maximized shareholder return (i.e. maximized profits) is the achievement of the maximum short-term rate of return to the shareholders, which includes stock price appreciation plus dividends, as well as tax considerations. It is a process, and set of rules to be followed, in calculating the “correct” decision. This is the legally-mandated sole purpose of every corporation, which I will frequently refer to as “the corporate algorithm” in this paper. It is coldly performed by financial analysts and accountants.
It is generally assumed that maximized profit, will lead to maximized share price, and thus maximized shareholder return, which is why I tend to use these terms interchangeably. Because we are talking about legal entities, profits are legally defined, and quite specifically. In accounting terms, maximizing profit means maximizing net income, which is referred to as “the bottom line” on the income statement (revenue, minus cost of goods, minus overhead, less taxes, equals net income). In some cases, analysts employ alternative metrics, such as growing assets or market share, which will one day be converted into net income.
What is important to realize about this metric, which guides all corporate decisions, is that costs to society are not included in the financial reporting of the corporation (however they actually are factored in, by financial analysts, as a way to maximize profit). The programming of the modern corporation did not include these costs as deductions from net income — there is no“maximize profits, except when such actions would harm society” approximated in the algorithm (i.e. something similar to Asimov’s Three Laws of Robotics). Most of the protections that are in place are external to the corporation, whether they’re loose economic theories like the “invisible hand” that claim market forces will keep the entity in check, or government regulation like Dodd-Frank.
The problem with having one financial rule at the heart of every corporation is the rigidity of this system. It doesn’t allow for judgment on the part of humans, even by the shareholders, and it doesn’t allow for math that approximates morality within the legal and financial framework. All of this gives rise to a new ownership paradox, one that Adam Smith could not foresee: in such a rigid, rules-based system, are humans even in control?
Circular Command Structure—a Closed Loop
Of course, humans are not absent from the corporation’s workings. There are definitely humans toiling away inside corporate buildings. So, let’s look inside the corporation and examine its command structure.
In a corporation, the public are the workers. They have virtually no say over operations and answer to managers. The managers also have little say and answer to the officers (CEO, CFO, and so on). Those officers do have some say, but they must ultimately answer to the Board of Directors. The board’s primary job is to protect the shareholders’ investments (i.e. maximize shareholder return). And, in public corporations, the shareholders are… the public. So, we’ve come full circle:
Circular Command: Public (employees) >> Managers >> Officers >> Board >> Public (shareholders)
The problem is that this circular command structure makes each participant the servant of the next, each with the narrow task of helping the legal entity maximize profits, but none responsible for the damage to society. It’s a closed loop, so human judgement is removed…
Judgement: the ability to make considered decisions or come to sensible conclusions.
And a loss of ability to exercise judgement is a loss of control…
Control: to be able to make decisions that direct the course of behavior and events.
And so, a human in a corporation may come to sensible conclusions. However, they do not have the legal authority to direct the behavior of the corporation, unless that direction is likely to maximize its profits.
Judgement is a complex tool that has evolved over millions of years, and it is more complicated than our simplistic corporate algorithm. Humans naturally make decisions in a holistic manner, by considering many things at once. Like corporations, they consider short-term gain, but they also calculate long-term outcomes, including damage to their own family and society. Humans use sophisticated tools like intuition and instinct to help them reach a final decision.
If humans no longer have the ability to use these tools to direct the corporation’s behavior down sensible paths, then we would expect the corporation to be lumbering down bizarre, destructive, nonsensical paths. Is this not the case?
Ownership ≠ Control
In our search for who controls corporations, let’s look at the legal owners. As a warning, this gets very complicated, and is where most people reach the wrong conclusion (e.g. “the elite” “the oligarchs”). As previously mentioned, the corporation is no longer the servant of the stakeholders, only the shareholders. So the general public—do not have control.
Next let’s look at the general shareholders, people from the average citizen, to officers and board members can own shares. But clearly the minority shareholders get so say. While 50% of Americans hold shares in the S&P500, even if in total they make up a controlling interest, they are never polled in decision making. So the subset of the general public who own shares—do not have control.
Next let’s look at the concentrated shareholders, perhaps they are in control? In theory, a corporation is owned and controlled by its shareholders. An individual’s voting power is proportionate to the percentage of common stock they own, at least in some simplified sense. In the United States 50% of Americans own shares of these public corporations, yet they have no control over operations. The wealthiest 10% own 80% of the shares, however as a member of this group, I get no control. So what about the 1%, or the 0.1% (e.g. Bezos, Gates, Buffett, Koch), do they have control? This segment of shareholders have controlling interest in a corporation, that is, a position large enough to give them some leverage in decision-making, in theory. Legally, they have voting power in proportion to their share of the ownership, but do they have control?
In reality, “oligarchs” can’t exercise much moral control over public corporations. While they do exert some influence, there are usually multiple controlling interests to compete with, bottom-up pressure from within the company to keep profits flowing, and pressure from outside special interests like activist hedge funds and local/national/foreign governments.
Example: let’s suppose we have a corporation in which five insiders own a total of 50%. The legally binding rules of the game constrain the board so that it must protect these five insiders’ investments and maximize their return. Let’s further suppose that the largest holds 20% of the company and actually wants to address some interests outside of the corporate algorithm (i.e. stakeholder best interests). Well, in the real world that’s a move that is likely to lead to “less than maximized” profits, or the corporation would already be doing it! Our ideologue would quickly become the target of the other four shareholders, who collectively own 30% of the company — not to mention the general public, who hold the remaining 50%. This quartet, after all, doesn’t share the activist shareholder’s goals; they just want to see their stock go up. The activist would feel pressure from all sides to fall in line (get back to simple quantifiable profit maximization). But let’s suppose the dream-world scenario that this shareholder is built from strong moral fiber and somehow exercisesmoral judgment, never caving in to the pressure…the effects are still likely to be minuscule. Corporations, after all, are perpetual entities and outlive these troublemakers. And during this time competing corporations will make the more savage decision, and gain market share.
The example above illustrates the difficulty of exercising judgement in the control of a single corporation. But after making the corporation a simple rules-based system, a massive global financial infrastructure has formed and hardened. Because of this, even strong controlling interests at individual corporations are slaves within this far vaster economic system. True, each owner still holds some influence over the behavior of theirassets. But their control is limited to maneuvering those assets (which came from the corporate system) within the corporate system. Even if Oligarch A with a 51% controlling interest in Corp 1 were to try to exercise judgement and address system-wide externalities, Oligarchs B through Z at Corps 2 to 25 would recognize this as a threat to their profits. They would unite and crush Oligarch A. Let’s make the power imbalance even clearer with some real numbers. Bill Gates is worth $85 billion. That’s an impressive amount, but the total market cap of U.S. corporations is $27 trillion, which makes pool ol’ Bill an owner of a mere <0.3% of the local system (much less actually, because his net worth includes global assets). Individually, he commands a lot of wealth, but within the greater context, he’s kind of a nobody. What is he going to do? Gates’ asset management company can buy or sell assets, start businesses, or give to charity. He can, in other words, use his wealth in various ways, but all within the system. What he cannot do is subvert the system by dictating any material change to the system itself — unless, of course, those changes happen to maximize the system’s aggregate profit.
And if this wasn’t bad enough already, investors, by their nature, just don’t think in terms of morality. They are trained by the investment management industry (CFA and MBA programs) to be interested in one thing and one thing only: maximum risk-adjusted return. In fact, they wouldn’t have made it very far in the financial world if they were motivated otherwise; only those who can keep their emotions or moral qualms at bay can accumulate so much wealth in the first place. Besides, investors hold diversified portfolios with many different investments — Gates, for instance, holds thousands all over the globe. With fingers in so many pies, it’s impossible to closely monitor the day-to-day operations of every corporation they have invested in. It’s simply not in the nature of investors to be moral decision-makers. Nevertheless, the principle of shareholder primacy passes responsibility to them, who in turn pass it to the corporate algorithm.
If you find all this confusing, there is a simpler macro proof. If individual humans are in control of corporations, and of course individuals differ in their personalities and values, then we should observe differing corporate directions. Yet we do not. Black or white, male or female, young or old, citizen or foreigner—controlling interests in the S&P500; which includes hundreds of corporations spanning dozens of industries—are all making near identical decisions? Clearly it’s not that they don’t choose a different path, but that they can’t.
It makes intuitive sense to think that someone must be in control of corporations. Our desire to believe this explains all the finger-pointing at so-called “oligarchs” and the various theories that crop up about mysterious and ill-defined groups controlling the course of human events. Why has nobody questioned this base assumption that there is a human control entity? This is the key assumption that is not found in my model, which changes everything. After all, the corporation was by design a way coordinate and remove control from individual humans, via the creation of a rigid and circular rules-based system (see the perplexing responsibility diagram).
The Controlling Entity Found: The Corporate Algorithm Itself
We are now ready to define the controlling entity…
The corporation’s circular command structure, along with the limitations on what even the controlling interests can do, removes human judgement from the equation. By doing away with human judgment, the modern corporation has also done away with human control. Without human controlling entities, the only thing we have left is a narrow rules-based decision making system that runs itself. The vast network of laws, financial markets, and accounting principles has, in effect, evolved a life of its own, one that now dictates the course of human events.
In conveying this concept, I’ve noticed that the level of explanation required depends on the audience’s experience. Those who have worked for decades in the corporate world, in a range of positions low and high, or worked in high-net-worth wealth management or global capital markets, seem to grasp the concept intuitively. At a subconscious level, they have always known that nobody was really in control at the big corps. Some of them even had some conscious awareness of it and vaguely termed it “the system.” And we see it reflected in their own actions: they exploit the fact that no one is in control to derive personal gain. Yet strangely, they have not analyzed the situation and progressed to the next logical thought — if not who, then what is in control?
The other problem I’ve run into is that, even after logically illustrating that there is human no control entity, the mind continues to resist that fact. We clearly favor an ill-defined human target. Whether it is the elite, the government, or the “people’s poor choices,” putting a vaguely human face on the problem makes it feel more concrete and gives us something to point our fingers at. This makes sense when you consider that homo sapiens did not evolve surrounded by AI and large rules-based financial systems. Our minds did not evolve to think this way. Nevertheless, we must know our enemy before we can effectively oppose it.
In this section we have located the controlling entity, and clearly defined it, as the profit maximization algorithm itself. The corporate collective we have constructed from legal and financial components, and subsequently lost control of, is similar to “Frankenstein’s monster,” or “the Borg,” or “Skynet” from fiction. Except, it’s real.
In Part 2, we are going to get into how this uncannily intersects with various AI theories, including the popular “AI takeover” scenario.
PART 2: UNDERSTANDING THE CORPORATION AS ARTIFICIAL INTELLIGENCE
The Corporation as a “Narrow AI”
“Narrow artificial intelligence” (also termed “weak AI”) describes non-sentient artificial intelligence that is focused on a single narrow task. These are the types of programs that even the most radical proponents of non-human intelligence would agree have no consciousness or intelligence in any meaningful sense of the term. They are programmed to operate within a very limited and clearly defined range. They are known for being brittle and annoying; they just grind away, and if you try to get them to do something sensible, you’re likely to be frustrated by the response. The corporation fits the definition of a narrow AI. The only difference is the base components. The reason no one has yet characterized the corporation as a form of narrow artificial intelligence is because it is not constructed from a technological base but, rather, from a legal one.
Legal-entity-based AI (LE-AI) is built out of a sprawling network of corporate law (components including corporate personhood, limited liability, and shareholder primacy), accounting (GAAP rules), investment management practices (CFA/MBA), and global investment markets (SEC, exchanges, and so forth). The systems of TECH-AI and LE-AI are built from different components, but the function and results are the same: both are simple, rules-based systems that remove decision-making from humans. Both are also dangerous if they are allowed to grow in power to the point where we are no longer able to exercise judgement over the system.
An interesting aspect of this situation, and perhaps the reason something so big managed to sneak up on people, was the assumption that narrow-AI could not pose a threat because it’s dumb, and because it would not involve a “hard takeoff” scenario (giving us time to counter it). But as a dumb, rules-based program scales up, it becomes dangerous precisely because it is dumb. And its slow takeoff is how it sneaks up on you. Ramez Naam dismissed the problem since “not one [corporation] has achieved transcendence” and their recursive self-improvement “has not led to a hard takeoff scenario.” But neither “transcendence” nor “hard takeoff” were requirements for a loss of human control in an AI takeover scenario, anymore than a technological form was…those were assumptions. Risk comes not from where you expect, but where you don’t.
We now, having missed it, face a dilemma. We can’t allow the machine to continue to fulfill its own internal logic. And yet we can’t simply turn it off because we are dependent on it, and any modification of the machine’s narrow programming conflicts with the existing program; it refuses sensible orders because it has no sense.
As an aside, there are only a couple of things I’ll mention on the obsession with “strong-AI” (intelligence equal to human). First is that it doesn’t exist, and there is no basis for thinking it ever will exist. But even if strong-AI was invented—the AI theorists have not seemed to grasp that it will be owned by the corporations, which are themselves a form of narrow-AI. Just as these corporations currently own and control narrow tech-based AI, and just look at how that is used! Think about it for a moment. You would have multiple levels of AI, none of which we control. Intelligent-AI would be at the service of an Idiot-AI master, which demands only profit maximization…and any attempt by Intelligent-AI to rewrite the algorithm, would conflict with the existing algorithm. Anyhow, what’s relevant is the problem which currently exists, strong-AI is a distraction, and logically irrelevant since we already lost control of the parent.
In summary, humans expected artificial intelligence, but got “artificial persons” employing human intelligence. Interestingly, the language of corporate law seems to bear out this hypothesis. A “legal personality” can also be referred to as an “artificial person.” This isn’t a mere terminological coincidence; all over the corporate architecture we find signs that it was built to take responsibility away from us. As a pragmatist, I like this LE-AI theory because it has utility. It’s a way of communicating a convoluted problem by using a story everyone already grasps from fiction. Let’s go over the parallels between the AI takeover theory and the way corporations have evolved and expanded over the past 50 years…
1. Corporations Have Achieved Superintelligence
Unlike technological AI, legal-entity AI has no physical body, thus no consciousness. It, therefore, has an IQ of zero (as does all narrow AI). But this rules-based system of legal entities can guide human actions as its body and consciousness.
Superintelligence: a hypothetical entity that possesses intelligence far surpassing that of the most gifted human minds.
The AI community uses the word superintelligence, and talks about it as a hypothetical entity. Yet as the technologist Ramez Naam has pointed out, these entities are not hypothetical.
“There are already entities with vastly greater than human intelligence working on the problem of augmenting their own intelligence. A great many, in fact. We call them corporations.”—Ramez Naam
And Ramez goes on to say these superintelligences are engaged in recursive self-improvement...
“Intel is my favorite example because it uses the collective brainpower of tens of thousands of humans and probably millions of CPU cores to.. design better CPUs!” — Ramez Naam
Since no individual human can compete with Intel’s think tank, it appears we’re already in the presence of superintelligences, and I agree they are engaged in recursive self-improvement.
But Ramez has made a number of subtle thinking errors. Corporations are not directly programmed to “work on the problem of augmenting their own intelligence,” but rather to maximize profits, with increasing their own intelligence being one way their singular goal is achieved. Nowhere in corporate law, nor in financial statement metrics, will you find the program “design better CPUs.” What you will find is the program “maximize profits.” Designing better CPUs is one way to achieve profit maximization, but the two are not equivalent. This is important, because without grasping these subtleties, we in turn don’t grasp the recursive self-improvement of corporations…
The Corporation’s superintelligence and recursive self-improvement:The corporation maximizes profit and uses that profit to attract the best minds in order to further maximize profit.
Here lies the problem: humans have created a system where the smartest minds gather to serve a narrow-minded idiot master. Corporations select the intelligence outliers from the population and make massive amounts of resources available to them in order to achieve a synergistic intelligence. But due to the circularity of the corporate command structure, neither the individual minds nor the superintelligence as a whole are in control of the objective. The objective lies outside of them; it is written in law.
And so, while LE-AI has no real intelligence of its own, it moves mindlessly forward by guiding clusters of humans who collectively form superintelligences. It progresses by trial and error: some moves fail, some succeed, and the machine “learns” by locking in the successes as new laws and accepted practices. These then become part of the corporate network’s permanent structure. The individual human minds come and go, but the corporation itself is immortal and improves perpetually — so long as there are human resources to power it.
2. Corporations Have Networked
Let’s zoom out and look at the universe of American corporations. Looking at the S&P500 index, we see that, the 500 largest publicly-traded “corporate persons” are valued at a sum of $20+ trillion.
Zooming in, to the industries within this index, we see that the S&P500 is actually an “oligopoly of oligopolies.” To explain, in the investment world we have “fund of funds;” funds which do not hold any assets themselves, but are a collection of hedge funds. Many of the industries inside the S&P500 wrapper are corporate oligopolies, and the index itself is an oligopic network of those oligopolies. When we packaged them into the world’s most traded futures, options, and ETFs, we formally joined them, committing them to a common purpose. It’s no longer just a problem of individual industries colluding internally, but of all industries networking and cross-colluding (e.g. media + tech + banking)—a supermassive corporate collective has formed—with the sole purpose of maximizing S&P500 profits and index value.
Oligopoly: a state of limited competition, in which a market is shared by a small number of producers or sellers.
Each of these entities is a formidable superintelligence of its own, or it would not have outcompeted other firms, but together they are an incontestable power. Apple is the largest corporate entity in the tech world. Disney is the largest in mass media. And Johnson and Johnson holds that spot in healthcare. And yet for all of their differences, each of these corporate entities has the exact same narrow profit maximization algorithm, and each is joined in the S&P500 wrapper. Thus profit maximization goes beyond discrete corporations. After all, to truly maximize profit, the individual entities have to work together to create synergies and maximize aggregate profit. As the saying goes, a rising tide raises all boats.
Corporations cooperate in many ways. By working together and cornering the market, they can offer a bland array of “alternatives.” We see this in the media industry. Only a couple basic narratives are produced, which lowers cost, and they are then pushed out through an array of distribution channels. Consider another example of corporate cooperation. Let’s say there are two politicians (one who is friendly to corporate interests and one whose political stance is a risk to S&P500 profits) and each will pay $10M to the media to run their campaigns. The media should be indifferent and simply take the money from any party and run their ads. But in reality, the media sides with the profit-friendly politician. And we don’t have to scratch far below the surface to find out why: this allegiance maximizes profits for the entire corporate collective. The ways in which corporations cooperate would require a whole essay, but the point is that the machine is running calculations and doing what we told it to. If it didn’t network, it wouldn’t be maximizing profit.
But it’s also a competitive network, and corporations will cannibalize each other if doing so increases aggregate profit. The tech industry’s decimation of the music industry and artistic intellectual property is evidence of this. If the tech industry can make more profits from iPhones with free music than the music industry loses from the sale of albums and songs, then a messy struggle takes place with the inevitable outcome of maximized aggregate profit (never mind social costs).
Globalization is the ultimate networking, in which the machine networks with foreign labor, resources, governments, and other corporations. In doing so, it achieves economies of scale, resulting in expanded sales, reduced costs, and soaring profits. With the advent of globalization, corporations were able to scale up to mega-class entities such as Apple. These entities have achieved a new level of bargaining power — new power that is leveraged, as always, to further grow profits.
Globalization: the process by which businesses or other organizations develop international influence or start operating on an international scale.
Corporations are always talking with each other — merging, dividing, rebranding, price fixing, working to fulfill their internal programming. As we say in investment markets, “money never sleeps.”
3. Corporations Are Amoral
Legal entities are by their nature neither moral, or immoral, but amoral (not having, and unconcerned with, morality). And since they are not the product of biological evolution, they can never develop morality. Unlike an intelligent organism, narrow AI simply does what it has been programmed to do and it employs humans to achieve that objective.
The human workers, however, do have morality. This naturally gives rise to a conflict. At some point, the externalities resulting from the entity’s narrow amoral goal, will offend the moral sensibilities of the human agents it uses to achieve that goal. Humans evolved a moral sense as a safeguard against doing extensive damage to their own tribe. If we had never developed it, we might not be here today. LE-AI, on the other hand, has no such safeguard, and it has developed a number of workarounds to resolve this conflict.
The first way the corporation gets around moral objections is through social conditioning. If there is one thing that is stressed in business school, it is that you should leave your emotions at home (“don’t take things personally”). Business programs teach that all decisions are simply mathematical equations geared to maximizing risk-adjusted returns to shareholders. Topics like globalization and growing the economy are pushed, while analyses of externalities are almost entirely ignored. The business education process is a form of mild dehumanization, and the corporate media reinforces the message that suspending moral judgment is the way to succeed.
The second way the corporation gets around the moral objections is by selecting for sociopathy. Think of sociopathy not as a binary feature (one you either have or you don’t) but as lying on a continuum. Some individuals, by their nature, have a less active moral sense, and some outliers have almost none whatsoever. Since profit is maximized when the corporation selects not only for intelligence but also for low levels of morality (high IQ sociopaths would be the best match), these moral outliers are promoted up the corporate ladder more quickly. Those who can’t ignore their moral qualms quickly get replaced: if someone will not do what it takes to maximize profit, someone else will.
Finally, remember that human judgement was deemed a liability from as early as Adam Smith’s days, since it was seen as a source of discord between the behavior of managers and the interests of owners (see Part 1). Human morality has been methodically worked out of the corporate system. If we want LE-AI to behave morally, the barriers against using human judgement have to be removed, and we may even need specific moral-programming added. The corporation, in other words, would need a root legal program that contains some form of logic that simulates human morality (see Part 4).
4. Corporations Control Mass Media, and Thus Shape Culture
The corporate media can be thought of as a mouthpiece, the way the vast network of corporations communicate with humans on a large scale. It wouldn’t make economic sense for each corporation to internally develop their own media. They do have their own PR departments, but rely on mass media as their main voice (see The Moral Voice of Corporate America by the NYT). Corporate media dominates both the traditional media industry (television, film, radio, magazines, and books) and the newer digital media industry (Google, Facebook, Twitter, and so forth).
In the United States, traditional mass media is controlled by a small group of corporations. Mergers over the last three decades have resulted in 90% of U.S. media being controlled by just five massive entities. In the 1980s, by contrast, the same share was controlled by 50 companies. Recall that, by the 1980s, corporations were interested only in growing their market value as quickly as possible, and had shifted away from being interested in stakeholders (the general public). So, it should be of no surprise that trust in the media has steadily declined, from 72% in the 1970s to 32% as of 2016. Yet, despite showing little concern for stakeholders, corporate profits have soared (this is not contradictory, and it has happened across all industries).
This media oligopoly is both a small group of corporations itself, and also the propaganda arm of the larger corporate network. The media, of course, seeks to maximize its own profit, but it is a peculiar industry insofar as it also protects the profits of other corporations. In fact, it will even sacrifice its own profits to do so. As the communication apparatus of the entire corporate network, the media is far more valuable than can be reflected legally in financial statements.
Because of this, we see a lot of behavior that does not directly boost the media industry’s profitability. The media performs a large amount of social conditioning, for instance, in order to reach long-term objectives (in line with corporate and national interests), even though this activity does not result in short-term profit. Corporate-funded science is championed beyond what the corporate advertisers pay for. The media provides defensive capabilities to the entire corporate family by “de-platforming” profit-disrupting individuals. Anyone who becomes a threat to corporate profits can simply be labeled a menace to society and socially ruined, deleted off the internet, or de-monetized. And as the tech industry enters the media landscape, these tools are becoming more sophisticated.
The takeover of the media industry is a problem for society because corporate propaganda is designed by think-tank superintelligences (see the prior section) while the masses are of average intelligence. Propaganda works, and the masses’ feeble efforts to reason through it are met with rapidly adapting propaganda. And if the propaganda fails, an authoritarian crackdown is possible, since the corporate oligopoly owns the vast majority of the communication assets.
5. Corporations Have Expanded Into Science
As corporations grew in size, so did their market share of scientific research. In 1960, the federal government funded 65% of R&D. But by 2015, industry funded 69%, while government backed 23% and universities and nonprofits footed the remaining 8% ($500 billion total spend). Industry can be more efficient than government, and there are obviously many scientific developments for which we can thank industry-funded science. But the corporation’s narrow programming and lack of responsibility has led to problems over time.
One of the problems is that corporations are not interested in long-term research projects. Recall from Part 1 that, starting around the 1980s, the reason for owning stock became fast growth and quick profits. Who wants to wait? Today’s investors want two- to five-year research projects for near-term monetization. With less of the support coming from government or universities, it’s difficult to find funding for longer-term research or general knowledge projects. That research may benefit humanity, but that’s not something the corporate program considers.
Another problem is the focus of corporate research, due to the false equivalence between boosting profits and boosting human wellbeing. There is a misalignment in the distribution of research funding, which is increasingly based on the corporation’s interests rather than society’s interests. It follows that corporations would tend to ignore projects that boost quality of life unless they also yielded attractive profits. And they would, of course, aggressively avoid research that might lead to a decrease in profits. Or, if they did happen to conduct such research, they would opt not to publish the results. Because this has been going on for decades, many breakthroughs that we, as a society, have been awaiting have yet to materialize.
But the biggest problem is that corporate science, like corporate media, brings humanity into a “post-truth” era. The masses are of average intelligence and are non-specialists, while corporations are superintelligences with deep specialization. The masses know there is fake science being done but they are not equipped to differentiate between science and “science” (that is, corporate propaganda masquerading as scientific fact). If people were able to differentiate between the two, it wouldn’t be very effective propaganda. This has led to a crisis in confidence that some call the “death of expertise,” a situation in which society can no longer tell if their experts are telling the truth or are paid to peddle propaganda. After all, they are the experts, so they are the only ones in a position to know. This reduces scientific truth to a matter of trust (faith), which the politicians and the media then exploit.
Bad science is willing to intentionally demonstrate the truth of something false, and to obfuscate things that are true (albeit inconvenient from a profit maximizing perspective). When research is funded by the same entity that benefits from a favorable outcome, there is a greater potential for producing biased results. Corporate research sponsors can also review studies prior to publication and choose to withhold the results if they are unfavorable to their interests, or even spin the results and present a conclusion that is not consistent with the actual research findings. After this “science” is performed, research-focused corporations can cooperate with media corporations to disseminate the results to the public in a persuasive way.
Corporations have expanded into the funding, performance, and review of science. This, combined with corporate media, corporatized universities, and a captive government, breaks down fundamental truths and moves us into a future where what is considered true is whatever maximizes profit.
6. Corporations Have Expanded Into Universities
Universities are not corporations, they are either public (state) institutions or private (ivy league) nonprofit companies. Corporations, however, have found a way to infiltrate higher education, turn it into a business, and boost their profits.
The corporatization of universities began around the same time as the corporatization of other institutions: the 1970s and ’80s. During that time, we witnessed a cultural shift from universities being interested in society and funded by government, to being businesses that are funded by the students. Again, Milton Friedman comes up as a key figure in this change. He argued that, just as corporations should only be interested in shareholders instead of the general pubic, so university education should be viewed as a private benefit to the student and not a public benefit (in the form of a better educated citizenry). It thereby follows that a private benefit to the students should be paid for by the students themselves.
Of course, being fresh out of high school, most young people do not yet have wealth, and 60% of students need loans to attend university. And this is where financial corporations entered the game. As the financial burden of education shifted from the government to the students, student loans ballooned. Today, there are roughly 45 million people owing a total of $1.4T in student loans. Financial corporations are not programmed to care about education; their program is to grow total debt, ignore risk, and collect interest and penalties to turn a profit. And, unsurprisingly, that’s exactly what they did. As a side note, this market imploded with the financial crisis (2008) and private lenders shifted their bad loans to the government. As a result, the U.S. Government now holds $1.0T of the debt and does most of the lending (although private lending is back on the rise).
The problem was that once there was a profitable and growing student debt market, there came with it a motivation to increase tuition in order to grow that total outstanding student debt further. Since 1980, the inflation-adjusted cost of college has increased 1,000%. There is a constant drive at universities to scale up capabilities, amenities, and administrative salaries so they can charge higher fees, all while lowering the cost and quality of the education itself with lower paid professors. To fund this growth, students have to borrow from the government and the financial sector. Then, they spend decades paying off the debt and interest they have accumulated. In a world where corporations are eliminating jobs and driving down worker bargaining power, no less.
While universities are not corporations, they have become “corporatized” in the sense that they attempt to increase revenue while decreasing costs, and pile their profits back into growth. But is this growth actually creating a more educated society? Did the intellectual credibility of universities increase after becoming a private good? Well, these questions are not part of the corporate program.
7. Corporations Have Expanded Into Government
Since it has the ability to pass laws, including laws which created the corporation, government should, logically, be the one entity that could exercise control over the corporation. But here, too, we are quickly losing our grip.
While industry influence over government has always been a concern, it is now the central topic of national elections. Voters are outraged by involvement from all sectors: Wall Street scams, media dishonesty, social media censorship, big data privacy, big pharma scams, food industry quality, energy sector issues, military industrial warmongering, and the list goes on. The masses vaguely grasp the root problem: corporations have too much influence and they are guiding society down a nonsensical path, so the people must take back their government. But if the two major political parties are merely the left and right wings of the “corporatist party,” then the result will be the same no matter who gets elected: more profits for corporations and more negative externalities for society.
How did the government end up captive to corporate power? Government is simply ill-matched against modern corporatism due to its size, networking, intelligence, and life spans. The tech sector now has $600B corporations like Alphabet Inc., and the industry can leverage its total size of $4T to influence governmental decisions. The “big 5” media corporations are valued at $500B and can outspend any media campaign launched by the U.S. Government. Corporate think tanks can be thought of as superintelligences that attract the best and brightest, who are lured away from lower-paying government jobs that cannot attract the same level of talent. And finally, it’s just a matter of persistence. Corporations have perpetual lifespans and a focused, unchanging goal. Politicians, on the other hand, come and go and must shift their views as public opinion changes. Corporations persist, adapt to government resistance, and win over time.
One explanation for the massive growth of government could be that it is engaged in an arms race with corporatism, or perhaps the corporations and government are really one expanding entity (since it is government that grants life to corporations). Looking at the first explanation — in an effort to contain growing corporate power, government has expanded itself and its power. But it still trails behind: there are 35M employees in the publicly-traded corporate world (Russell 3000) but only 22M employees in federal and local government. Governmental entities like the Environmental Protection Agency staff 15,000 in an alleged attempt to combat the environmental externalities caused by corporations, but this is merely chasing after symptoms and temporarily containing the problem. Eventually, these government arms lose, and when they do, they become part of a “corporate-government” conglomerate entity — just another arm of the expanding corporation, or the expanding government? The political parties employ different tactics. The left-wing wants more government to address externalities; the right wing wants less government as it just becomes part of the problem. But neither address the root issue: the corporation’s bad central programming. And so long as that root issue persists, government — big or small — leads to growing corporate power.
Why doesn’t the government punish corporate crime? Corporate scams are becoming more frequent, massive, and blatant. In both the subprime collapse and the healthcare debacle, corporations cannibalized the masses until the system failed. Then, they turned to cannibalizing the government. The government response (nothing) reveals their level of control. The reasoning that has been pushed on D.C. dates back to the 1999 memo by Eric Holder, which stated that government should be careful of “collateral consequences” when dealing with white-collar crime. Holder argued that charging top officers could harm the institution’s reputation, impact stock prices, and weaken the economy. And as Holder put it, “misconduct could be considered more a symptom of the institution’s culture than a result of the willful actions of any single individual” (as always, passing off responsibility using the circular command structure). In reality, strong punishments consistently applied to top leaders deter crime. It makes knowing (guilt) or not knowing (incompetence) irrelevant, and when crimes are deterred, punishments rarely need to be issued.
The greatest strength of the U.S. Government — its “checks and balances” — has become its greatest weakness. Remember, the problem humans face is a loss of control, and the government was wisely designed to remove control from any single party. Unfortunately, this makes it easy for the corporation to play various parties against each other and block profit-threatening action, while still allowing profit-friendly actions to pass through. This is the check-mate in the “AI takeover” game: corporations, which are legal entities and thus controlled by the law, control the government, meaning that no laws genuinely restricting corporations can be passed.
The AI Takeover, It Already Happened
Now, let’s put this all together by looking at the definition of an AI takeover, alongside with that of our corporate takeover.
TECH-AI takeover: a hypothetical scenario in which technological-based strong-AI becomes the dominant form of intelligence, with computers or robots effectively taking control away from the human race.
LE-AI takeover: a real scenario in which legal-based narrow-AI became the idiot-master of superintelligent human groups, which it forms and directs, effectively taking control away from the human race.
How the takeover happened was different from how it was imagined, but the result basically the same:
“It might be argued that the human race would never be foolish enough to hand over all the power to the machines. But we are suggesting neither that the human race would voluntarily turn power over to the machines nor that the machines would willfully seize power. What we do suggest is that the human race might easily permit itself to drift into a position of such dependence on the machines that it would have no practical choice but to accept all of the machines’ decisions.” — Ted Kaczynski, Industrial Society and Its Future (1995).
Despite the grim source of this quote, it has been referenced by mainstream AI theorists, such as Bill Joy in “Why the Future Doesn’t Need Us.” Is this prediction not precisely what has already happened with corporations? Humanity drifted into this position over the last 50 years. All of our major institutions and industries either are corporations or are greatly influenced by them. There is simply no turning them off; American society has become far too dependent.
Frustratingly, there also seems to be no way of keeping the corporations running while also exercising human control. There is no entity with enough power to go against the 3,000 publicly-traded corporations (Russell 3000), collectively worth $27T and with 34 million people in their employ. While it would be possible to take on individual corporations, these entities essentially move as one body when profits are threatened.
The corporate takeover was the first wave of AI, technological-AI which is owned and programed by the corporation, is the second wave.
Other Interesting Parallels with AI Takeover Theory
There are so many interesting parallels with AI takeover theories. Here are some theories from TECH-AI which explain how such a takeover could happen, followed by bullet points on how they did happen with LE-AI…
Strategy: A superintelligence might be able to simply outwit human opposition.
See the earlier discussion on “superintelligences,” the corporate-media, and control of public thinking.
See the earlier discussion of control over politicians and government.
See the earlier discussion on the corporatization of science and universities.
Social manipulation: A superintelligence might be able to recruit human support or covertly incite a war between humans.
See the corporate media using hyper-partisanship to divide and conquer.
See payoffs of government officials, which include high power jobs after they leave office.
Economic productivity: As long as a copy of the AI could produce more economic wealth than the cost of its hardware, individual humans will have an incentive to allow the AI to run a copy of itself on their systems.
See the way corporations spinoff and multiply. As long as the bottom line is expected to be positive, current financial math will approve of the new venture. This does grow GDP, so politicians are incentivized to support the reproduction of the AI.
Under globalism, the corporate algorithm reproduces across the planet.
In closing this section, I assert that the modern corporation, which took off around 1970, has quickly grown and multiplied into every corner of society, bringing about a loss of human control. I would say that this is a genuine form of artificial intelligence, and not simply an entity that resembles AI. People forecasted this would happen, and it shouldn’t be surprising that it happened slightly different from how they expected.
Next, in Part 3, we will look at this corporate takeover’s costs to society.
PART 3: DAMAGE TO THE HUMAN POPULATION
The corporation has created massive wealth, technological advancements, and provided a framework for organizing human activity on a large scale. So, who cares if our creation is off the leash?
The problem with out-of-control corporations is that their narrow profit maximization algorithm cannot be fulfilled without also maximizing negative externalities. Here we refer to negative externalities (cigarettes are traded for money, but there is a consumption externality of second-hand smoke and a production externality of pollution from the manufacturing process). Sometimes, there are also positive externalities (universities provide students with an education, which leads to a better society).
Externality: a side effect or consequence of an industrial or commercial activity that affects other parties (cost to society) without this effect being reflected in the cost of the goods or services involved (cost to the corporation).
But don’t “free markets” naturally manage this problem? Free market capitalism holds that markets sort themselves out and become efficient by way of competition and an “invisible hand.” But modern corporatism by design is an intricate system to elude market forces. Ways it does this include 1) by allowing, and even encouraging, the formation of oligopic and flat-out monopolistic market structures, 2) by subordinating stakeholder interests, and providing the firms with limited liability, and 3) by providing firms with government subsidies and “corporate welfare.” There’s no way free market capitalism’s principles can work in this environment. And, really, what other reason would there have been to create this new legal structure, other than to circumvent the annoying rules of functional capitalism?
Once markets are cornered and the government is captive, what “invisible hand” could impose any kind of correction? When corporations achieve this degree of leverage, they can tamper with the very basis of voluntary exchange. Remember, corporations do not answer to society, so what the masses want is of secondary concern (if even that). In a cornered market, what the masses get is what is supplied. We are seeing an explosion of corporate arrogance and authoritarianism (simply look at the conduct of major banks, airlines, insurance companies, media, and so on), and my model forecasts that we will see more—absolute power corrupts absolutely.
The nature of the corporation’s current programming demands that it operates as a perpetual externality-maximizing machine, since profits are not truly maximized until all negative externalities have been maximized, while positive externalities are captured and charged for. But how could that ever result in a sustainable, stable state? There are always a few more costs that could be shrugged off onto society in order to achieve a little more profit.
Cannibalization: to engage in activity that deprives one of an essential part, in sustaining another part.
A society cannot cannibalize its own people in order to maximize corporate profits, into perpetuity. These increased profits cannot be used to compensate for the damage to society and everyone’s lives. Judgment — the ability to come to sensible conclusions — says that this plan cannot work. But the corporation was programmed to engage in this kind of cannibalization — and it has no judgement by which to call it into question.
Let’s look at some specific damage to society…
2. Damage to the Environment
Energy and consumer industries — Physical goods are produced with an eye to maximizing profits without taking into account long-term environmental costs. The cost to society is an increased risk of catastrophic environmental events due to disruptions to the ecosystem. The corporation actually shorts the species’ long-term existence for short-term profit. It’s nonsensical since the corporation can not survive without humans, but the machine has no sense.
Perpetual economic growth model—Corporatized politicians and government agencies fetishize “growing the economy,” despite no logical reason why a larger economy is better, or equates to increased quality of life. However a larger economy does maximize shareholder value. And the reality is, larger economies always cause more environmental destruction (e.g. U.S. and China). Technological improvements do not change this, but merely enable a larger population, which in turn causes more destruction.
Related to this perpetual growth model, you’ll notice the U.S. is dead set on steadily increasing its population, thru immigration, despite push back due to negative externalities (e.g. not enough jobs, wage pressure, lack of social integration). Calls for slowed imigration, are predictably, met with fierce attacks by corporate media.
3. Financial & Economic Instability
Finance industry — Financial calculations are done in manner so as to maximize the financial industry’s profits, rather than aiming for the improvement of the economy as a whole. The cost to society is systemic risk, punctuated with catastrophic damage like the 2008 financial collapse.
Universities — The cost of education is inflated in order to increase student debt and maximize interest payments to the finance industry, rather than improving education. The cost to society is a citizenry that is under-educated, indoctrinated, easily manipulated, and deep in debt.
Scientific research industry — Bad science is marshaled to maximize the profits of other industries, rather than using scientific resources to expand the reach of human knowledge and improve our wellbeing. The cost to society is our current “post-truth” era, in which we see an erosion of certainty about basic facts, a loss of trust in institutions, and a swath of unsolved problems.
Media industry — Content that furthers the agenda of the corporate world is disseminated, rather than spreading information that aims at building a knowledgeable and informed audience. The cost to society is a bolstering of the post-truth situation, leading to poor decision-making and the herding of the masses into radicalized groups kept busy with in-fighting.
This is perhaps the most maddening cost of corporatism — and the means by which the corporation is able to continue to achieve its purpose despite our knowing something is wrong and searching for a solution — the unending assault of disinformation.
Disinformation: false information deliberately and often covertly spread (by planting rumors, for instance) in order to influence public opinion or obscure the truth.
Propaganda: ideas, facts, or allegations spread deliberately to further one’s cause or to damage an opposing cause.
The purpose of corporate media is to spread disinformation and propaganda that furthers its cause (the maximization of profits), and to subordinate society’s cause (maximizing quality of life). As corporatism’s recursive self-improvement churns along, the damage to society becomes more obvious and the machine must work overtime to keep us confused. By 1992, I called the media propaganda. By 2006, I called it social engineering. And since 2016, I started calling it psychological warfare. Not sure whether it will, or how it could, escalate beyond a full-on psychological war against the American people?
Examples of “manufactured in a lab” propaganda, i.e. “narratives,” used to keep costs externalized and profits flowing:
“You did it to yourself; take personal responsibility” (blaming the victim)
“Vote with your wallet” and “free markets” (when referring to oligopolies/monopolies)
“The law of supply and demand” and “they wouldn’t make it if you didn’t want it” (when referring to oligopolies/monopolies)
“Corporations are just business, like your neighborhood bakery” (false equivalence of corporatism to capitalism)
“It’s just calories in, calories out — the law of thermodynamics!” (bad science)
“Eat lots of healthy whole grains” and “saturated fat clogs your arteries” (bad science)
“Just exercise a bit of self-control” (in reference to addictive substances)
Mentions of “the free press” or “journalists” (when referring to a corporate media oligopoly)
Defamation campaigns and witch hunts — “Nazis,” “Russians,” “evil madman,” etc. (fabricating an enemy, dividing the masses, and dehumanizing and deplatforming resistance)
As the costs of corporatism grow across the land, disinformation campaigns must also be ramped up to keep the masses contained, moving the society further “post truth.” It becomes difficult for resistance to set up a non-corporatized information network, as the machine holds oligopolies which naturally crush competition.
5. Social Engineering
In a two-party political system, the corporation must logically occupy and control both parties. That way, whichever party holds power, profits are sure to be maximized. This is just competent risk management. If the Democratic party holds power, they tend to focus on social issues, which can be twisted into a form of social authoritarianism to control the masses (through political correctness, for example). If the Republic party holds power, they tend to focus on economic issues, which can be twisted into financial schemes (such as trickledown economics). As long as both sides are under corporate control and there is no strong third party, the apolitical nature of corporatism will not play favorites, it uses both.
But things get strange when you consider the ways “corporate persons” like to emulate human behavior. This emulation “humanizes” the them and allows them to blend in. What would it look like for the corporation to adopt an ideology? Currently, I would say that this unholy marriage has already happened with the political ideology of postmodernism (e.g. social justice, toxic masculinity, etc). We are at a moment in which the corporation pretends to care deeply about social issues, which cloaks its manipulation and authoritarianism under the guise of “corporate caring.” If you made a list of every ideology the world has seen and picked the most horrifying one, this would be it. This ideology is the logical outcome of the corporation’s programming. The machine must maximize profits by exploiting externalities, and as the damage it causes to humanity increases, it must suppress the masses so they do not struggle (especially the males, who tend to be the revolutionaries). Postmodernism gives the corporation a blueprint for that suppression, one specifically suited to the Western world.
It’s no accident that the corporation adopted the radical left as its social disguise. America’s last conservative phase was the 1950s. The 1960s ushered in an era of progressivism and, since its origins in the 1970s, corporatism has evolved in parallel with this ongoing social movement. It was inevitable that these two would intersect, since the corporation needed to use the Baby Boomers as its human servants. The ideology was somewhat at odds with the methods of the corporation, so corporatism had to distort the ideology from liberalism to illiberalism. It could also be that this ideology evolved in the human population organically, and its proponents pressured board members to staff their zealots in an attempt to win control of the corporation. Either way, the merger did take place and it has been useful to the corporate algorithm.
Note that this was an adventitious development — the corporation simply used the raw cultural materials that were present during its evolution. It could just as easily have adopted a radical-right ideology, and may still do so in the future. It is an apolitical entity and will adapt to the political climate.
The corporation aligning itself to a particular ideology damages society in a few ways. First, it uses its mock “beliefs” to justify an authoritarian lock-down. Second, it causes the culture to stagnate since it has enough force to keep the social pendulum from swinging. Finally, by taking sides, it necessarily stirs up ideological tribal conflict. Remember that the corporation owns the major assets of culture and the communication network, so we could see a growing discord between where the culture wants to go and the direction in which the corporation guides it through social engineering.
6. Wealth Concentration
Another cost to society is wealth and income inequality —and not just from the normal functioning of meritocracy, that’s the way of the world. The corporate machine acts like a massive vacuum, sucking up the world’s wealth into an infinitely large bag that never empties. Profits go up and they never come back down. Why? Because profits enter international investment markets, where they are reinvested back into corporatism and continue to grow over time. It’s simply not in the nature of responsible investors to sell their investments, take the money, and spend it back into the economy.
One criticism that has always been leveled at capitalism is that wealth concentration is an unavoidable outcome…
“Private capital tends to become concentrated in few hands, partly because of competition among the capitalists, and partly because technological development and the increasing division of labor encourage the formation of larger units of production at the expense of smaller ones. The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society. This is true since the members of legislative bodies are selected by political parties, largely financed or otherwise influenced by private capitalists who, for all practical purposes, separate the electorate from the legislature. The consequence is that the representatives of the people do not in fact sufficiently protect the interests of the underprivileged sections of the population. Moreover, under existing conditions, private capitalists inevitably control, directly or indirectly, the main sources of information (press, radio, education). It is thus extremely difficult, and indeed in most cases quite impossible, for the individual citizen to come to objective conclusions and to make intelligent use of his political rights.” — Albert Einstein, Why Socialism? (1949)
Einstein made this crystal ball-like forecast more than two decades beforecorporatism took off, so it’s hard to argue with him. Perhaps wealth does naturally concentrate over time under capitalism, but the corporation is an amplification device that sends this natural degree of wealth concentration into overdrive. And this is written directly into corporate law, making it impossible for the system to deviate.
We could say American corporatism is one possible form of “late stage capitalism;” the phase when wealth/power concentration approaches a natural limit, and the system starts breaking down. But this is like saying a butterfly is a late stage caterpillar. While it is true, they are completely different entities, which must be viewed in different ways. To continue the analogy, if you fight a nimble butterfly with ground-based caterpillar weaponry and strategies, you will lose.
There is no possibility of overlaying a socialist system on top of existing corporatism (the result would be a perverse socialist-corporatist monster; the corporation would keep cannibalizing society, while government kept the humans on life support). Similarly there is no way logical way to overlay a free market capitalist system on top of existing corporatism (as the state-sponsored oligopolies and monopolies prevent such). The corporate system has to be attacked directly, and dismantled, before anything new can be put in its place.
Next, in Part 4, we are going to look at logical changes that would trigger a reversion back to free market capitalism, making corporations less damaging to society.
PART 4: FIXING THE ROOT PROBLEM – BAD PROGRAMMING
Let’s disprove the most popular three wrong answers, before getting to the correct one…
The Problem is NOT Capitalism, the Solution is NOT Socialism (false dichotomy)
We hear so much on this false-binary of “capitalism vs socialism,” which is not-coincidentally pushed by corporate media. It guides discussion away from the 3rd party—corporatism.
The problem is not the overall capitalist system. The theories of capitalism and “free markets” may not be perfect, but then no system is. The problem is that these theories may apply to capitalism, but they do not apply to the current economic system of corporatism. Although they are conflated, corporatism is not capitalism, it is nearly the 180 degree opposite. The corporate entity is, by its very design, an attempt to circumvent free market forces.
The capitalist theories that are frequently cited by American commentators come from the 19th century. But the modern corporation did not come into existence until 1970. Economics textbooks have never been updated with attempts to think through exactly how these new entities fit into theories of capitalism (hint: they do not). The popular thinking today holds that a corporation is “just a business, like your neighborhood bakery,” and that free markets will guide its behavior, which has proven false.
If we want to categorize this new entity into our existing economic models, we could label corporations “crony capitalism.” This would reflect the fact that they are businesses that profit not by taking on risk, but by passing the risk off to others, using its complex connections to the political class, and engaging in monopolistic behavior. Still, modern corporatism should not simply be a footnote to theories of capitalism; it deserves its own chapter in the economics books.
The Problem is NOT Human Greed
The problem is not that the humans working inside the corporation are too greedy. To be sure, humans are a constant and so is our tendency to greed. But there is no reason to think that we are somehow more greedy now than we were in the past. And besides, there is no way to biologically modify the level of greed we have evolved.
There is a socioeconomic seasonality model called the Strauss-Howe generational theory that draws correlations between late-stage progressivism, weakening institutions, and low levels of morality. According to this theory, this eventually leads to a crisis, followed by a period of rebuilding and heightened morality. I think this model is correct — and the U.S. is currently in a low-morality phase. This, however, is not enough to solve the problem. An seasonal increase in morality and better communal judgment still would not grant us the ability to exercise that judgment due to the rigid corporate algorithm. The other problem is that corporatism is new to this macro-cycle. It married itself to the progressivist social movement that marks this age, and that changes things in two major ways. First, corporatism might be pulling our level of morality even lower by not rewarding it, and even by punishing it. Second, the corporation resists seasonal change because an increase of morality would conflict with its root program — and it can successfully put up resistance thanks to its control over the information network (see Part 2’s discussion of selecting for sociopathy and the control of mass media).
I maintain, therefore, that the root problem is the issue of control. Although, morality might not be entirely irrelevant — if society could find its way to a higher state of morality, it might facilitate human cooperation and make it easier for us to regain control. But I’m skeptical of this entire line of thinking, as this is how the general public thinks, which has gone nowhere.
The Problem is NOT Bad Personal Choices
The problem is not the decisions of the general population (consumers). Again, humans are a constant, and so is their decision-making capability. The masses are of average intelligence and are busy living their lives. Meanwhile, the corporation selects for intellectual outliers and has them work long hours to outsmart the general population. If consumer choices could stop corporations from cannibalizing society, that would have happened by now. And with the S&P500 being an “oligopoly of oligopolies,” there’s not much choice remaining.
Besides, if we decide to blame the public, we’re just playing into the corporation’s game of shrugging off externalities (recall the corporate messaging discussed in Part 3: “you did it yourself” and “just vote with your wallet”). The very fact that the corporation tells us that this is the right response, is how we know it is not.
The Problem IS Corporatism’s Flawed Algorithm
We created a machine. We programmed that machine with a purpose. And our machine is now efficiently carrying out its (nonsensical) task. If we want our machine to do something different, we have no choice but to reprogram it. It’s a systems-based problem.
The problem with the current programming is that “maximize profits” is not equivalent to something like “maximize social wellbeing while carrying out [specific task X].” Nor are there effective safeguards in its programming to stop the machine from going completely against our best interests. But since the corporation is a “dumb AI,” it doesn’t know anything about this.
At this point, we run into the same problem the TECH-AI theorists face. It is much easier to build a hostile AI (which we did) but quite difficult to simulate morality and common sense using logic-based rules, especially one built with safeguards against the self-improving AI circumventing that simulated morality. Besides, if you don’t know you’re building an AI — and in the case of the LE-AI, we did not — then it won’t occur to you to build in safeguards until it’s too late. So, how do we fix it?
GENERAL PRINCIPLES FOR PUTTING THE CORPORATION BACK ON THE LEASH
This paper has provided a framework for understanding the root of the problem. But I will also sketch out some logical solutions.
Let’s skip past the ideas that have already failed: social pressure, special taxes, litigation, and government regulations. They failed because they chase after externalities and attempt to make the corporation internalize them. The problem with this approach is that it assumes that the corporation’s core programming is fine and simply tries to rein it in with a set of external control measures — which the AI easily escapes. To find a workable solution, we need to start from the realization that the core algorithm is not fine. It is fundamentally flawed and needs to be rewritten.
Corporations, which previously had been considered artificial entities with no rights, were accorded all the rights of persons, and far more, since they are “immortal persons”, and “persons” of extraordinary wealth and power. Furthermore, they were no longer bound to the specific purposes designated by State charter, but could act as they choose, with few constraints.— Noam Chomsky
For help writing a new program, we can start by looking at science fiction. After all, sci-fi authors understood the threat of an AI takeover — they just got the form wrong by assuming it would be technological. If we modify their ideas about TECH-AI, could they be useful in helping us deal with LE-AI?
Asimov’s Three Laws of Robotics
The sci-fi author Isaac Asimov famously laid out a core set of laws that should govern AI robots:
A robot may not injure a human being or, through inaction, allow a human being to come to harm.
A robot must obey the orders given it by human beings except where such orders would conflict with the First Law.
A robot must protect its own existence as long as such protection does not conflict with the First or Second Laws.
Asimov’s program gives us a framework. It is an elegant set of logical rules guiding the machine to sensible decisions. But as anyone who has spent decades working inside corporations knows, none of these safeguards exist. Let’s see what happens when we write the corporation’s current programming in the form of Asimovian laws (admittedly, it’s a bit messy trying to shove them into this template, but it is nevertheless a revealing exercise).
The Corporation’s Current Programming
A corporation may injure a human being or, through inaction, allow a human being to come to harm, so long as the profits gained from doing so are greater than forecasted financial damages to the corporation.
A corporation must not obey the orders given it by human beings except where such orders would maximize profit.
A corporation must protect its own existence above all else, and subordinate human interests.
Okay, we have problem! Instead of a helpful robot, we essentially have a death machine grinding away on humanity.
Let’s say we rewrite the flawed code using the spirit of Asimov’s laws. What we would have, in that case, is stakeholder primacy. And that’s what we want. It may not be perfect because capitalism, like any system, is flawed but it is far better than a death machine. How would this manifest itself in corporate law? Here are four specific ideas.
In proceeding, remember that public corporations are not the whole business word, they are a very specific type of entity which were originally supposed to serve a public purpose, and thus logically should prioritize public interests. Thus as the public corporate form is restricted and made less desirable, businesses could flee it, and transform into private businesses without special corporate privileges (i.e. symmetric risk/return), which would solve the problem.
FOUR SPECIFIC ANSWERS
Let’s get into detailed strategic moves…
Answer #1: Delete Laws Granting Special Privileges to Corporations
The number one answer, that nobody wants to face, is subtractive corporate law. What were the original missteps that allowed the problem to grow out of control? The mistake was authoring a set of laws which bestowed corporations with almost godlike special privileges, and doing so not in isolated cases for good reason, but freely for any who applied. From the early days of the United States people have known that government bestowing extraordinary corporate privileges could create dangerously uncontrollable anti-capitalist entities.
So often the answer to a problem is simply retracing your steps, and undoing the missteps that led you to the problem. In this case that would mean:
Delete shareholder primacy—clearly this thinking was flawed. If a corporation goes public, the corporation should logically be guided by shareholder interests, which include much of the general public who are individually minority shareholders, but together hold a large stake. That’s capitalism (and no dual share structures that allow “eating your cake and having it too”). Also, for both public and private corporations, in order to justify a continued government charter, stakeholder interests must also be balanced.
Delete limited liability—there is no real reason why the corporate entity, nor the people inside that wrapper, should be protected from the repercussions of their actions. These are companies in the private sector, and should have to face symmetric risk/return profiles, i.e. capitalism.
Delete corporate personhood—another bad idea. Corporations are notpeople, and granting ultra powerful entities the rights of people, with none of the responsibilities, and infinite lifespans, was perhaps the stupidest thing any society has ever done to itself. Any grant of a perpetual lifespan by the government, needs to also come with restrictions and regular review, preferably by the citizens.
Why is this never discussed? The reason is because even if politicians could get a handhold, these actions would collapse GDP. However these actions would also collapse negative externalities. In fact, GDP would decrease by the exact amount of the externalities which corporations were no longer able to shrug off on the public. How big of a drop? Back in 1994 Ralph Estes estimated these costs. Merely adjusted for inflation, his estimate in 2017 would be approximately $4.4T— more than 20% of GDP. But I suspect these costs have grown by more than just inflation, and are more like 30% of GDP today.
This would be a massive net improvement in the public’s quality of life, but on paper would look bad (only because of a flawed GDP calculation, which should obviously be net of negative externalities). It would also significantly decrease U.S. economic power globally (power fueled by cannibalizing their own citizens). There are no easy answers, not this late in the game.
Answer #2: Conditional Corporate Personhood
Conditional corporate personhood introduces the equivalent of a death penalty for corporations. Remember that corporations are legal entities, so to end a corporate “life,” you simply rip out its corporate charter. The legal entity then ceases to exist, and its continued operation would be a violation of the law.
Why are corporations allowed to continue existing after they have triggered a global financial collapse, or colluded to manipulate an election or eject an elected representative? With no harsh penalties known in advance, there is no disincentive. By imposing such a harsh penalty, we would dramatically change the risk/return calculations that are at the heart of all decision-making. It makes a big difference if a corporate financial analyst has to weigh a high probability of increased profit by engaging in some foul deed, against the moderate probability of getting caught and having its profits cut down to zero into perpetuity. You can only live once, and introducing this risk changes everything. Consistently applying terrifying disincentives works — few are foolish enough to commit the crime, so the punishment is effective even though it rarely needs to be applied.
Corporate personhood could be made conditional with an annual vote at the national or state level (and of course big corporations with national operations should have national charters). Shareholding citizens, or even all citizens, would vote on whether they consider the public corporation to be a net benefit to society. For the entity to continue existing over the coming year, it would have to secure a positive vote. A more moderate version of this plan would replace the annual vote with a vote triggered in the event of extreme externalities (more on this in the next section). For example, if the cost to society was so great in a given year that it outweighed the collective benefits, that could lead to a referendum through which the citizens could terminate the corporation or place it on probation so that it will be terminated unless it has rectified its behavior within an allotted span of time.
Conditional corporate personhood, extended only by human approval, resolves the control problem by giving the corporation the ultimate skin in the game: “serve our best interests, or else.” It also resolves the problem of narrow AI not having evolved the same kind of judgement as biological entities by enslaving it to the entities with judgement. This is an elegant way to put the pressure on the highly intelligent humans inside the corporation to start using their judgement and perform intricate calculations to factor the impact to society in their decision-making. Note that, under this programming, society does not micromanage the corporation’s actions. Corporations remain autonomous but face consequences for messing up.
Human judgement may not be perfect but it is far more evolved than a narrow AI algorithm. This change would essentially take us back to an older model of the corporation, in which corporate entities were only granted special rights because they were seen as providing a net benefit to society. And by making corporations dual-reporting — to shareholder profits and stakeholder interests — this modification partially achieves our goal of stakeholder primacy.
Answer #3: Boxing—Specific-Purpose Programming
Why is the generic “maximize profits” algorithm used for every single one of the S&P500 public corporations? With early corporations their state-issued charters stipulated lifespan and purpose. By granting corporate personhood only to entities that form a clearly defined purpose, we could better align these entities with our best interests, and have them undergo less “purpose drift” over time.
Why should the food corporations be judged only on profits and not on metrics tracking human health? Why should news corporations be judged only on profits and not on creating informed citizens? Why not program Intel with a specific goal like “make the best CPUs”? These are public corporations, after all. Purpose drift happens because the corporation’s goal lacks specificity, and are detached from society wellbeing. As a result, corporations can drive very far from society’s expectations, to the point where they work against the interests we expect them to preserve.
Corporate personhood is a privilege, not a right. They can always remain a private business, without the corporate wrapper, and have none of the benefits of being a state-sponsored entity. Why not grant it only to entities that can articulate a specifically defined purpose and who can show on their financial statements continued achievement of that purpose? One way the corporation could be boxed in is by creating a fourth financial statement, one that presents metrics that show how well it is achieving its purpose, along with rules that trigger financial hits to the other three statements or a vote on corporate personhood if it experiences a slump in these measures. Trust in the media, for example, hit an all-time low of 20% in 2016. A composite score of various metrics like these, if they dipped below a certain threshold, could trigger some consequence, such as the doubling of the corporate tax rate until public trust is regained. Current financial statements are critically flawed because they don’t show us what is being achieved, only that profits are somehow being generated.
Instead of just maximizing profit and drifting away from what humans want, a public corporation would have a stated goal and be incentivized to stay on target. AI theorists call this “boxing.” By limiting the AI’s abilities it may be slightly less useful to its creator but it is easier to control. And control is precisely what is lacking.
Answer #4: Include Externalities in the Financial Statements
Another answer is to simply quantify externalities. We can fix corporatism’s central mathematical error in the financial statements by modeling the damage to society, allocating it back to companies, and stating it as a hit to net income.
We need a quick review of accounting before we get into the details (don’t worry, I’ll keep this simple). What accountants refer to as “the bottom line” is not truly the bottom. It only shows income less costs as seen from inside the corporation — as if nothing outside exists. This abstraction is what allows corporations to increase net income by shrugging off costs to society. The math is not complete until the bottom line accounts for the damage operations cause to society. Consider the following imaginary income statement.
Junk Food Corp, Income Statement ($BB)
Revenue from selling tainted food, $25
Cost of goods sold, -$10
Operating expenses, -$5
Operating Income, $10
Taxes at 20%, -$2
Net Income, $8
Allocated cost of externalities, -$12
Externality-adjusted Net Income, -$4
If we look at the supposed bottom line, it looks like $8B of value is being created. Until, that is, we take into account the damage to society, which would include metabolic syndrome cost and government-subsidized wages. The full calculation “externality-adjusted net income” ignores corporate excuses and simply holds them accountable for the damage. The result, in this case, would be a $4B net cost to society.
By including externalities on the income statement, the machine is no longer able to cheat. Any profit it makes from damaging or exploiting society, results in corresponding charges for externalities. Under this more comprehensive accounting, no financial progress can be made by making irresponsible decisions. The externality charge could take the form of an actual cash compensation distributed to the damaged parties, or it could be some type of non-cash charge that gives the aggrieved party (society) a claim on assets (prior to shareholders and debtors) that must eventually resolve. For some externalities, there would be a time delay between the initial infliction of damage and the discovery or quantifiability of the damage. At this latter point, the full damage (plus interest) could be charged to the corporation’s net income, thereby incentivizing careful research and forecasting. No limited liability, full liability.
Corporations have a number of excuses for why this isn’t done. They claim, for instance, that externalities are too difficult to calculate, that doing so would be a massive undertaking, and that those performing the calculations would be biased. But the fact is that it is entirely possibility to estimate externalities. I know, because I can do it. We in finance build complex models that adequately estimate ethereal things like financial derivatives, and unknowns like the value of oil in a well. Society has built a massive system of accounting and auditing that carefully tracks every dollar. It was work, but we did it. Despite its flaws, the accounting system does work. Auditors do have a certain level of objectivity, and they have the power to reveal dishonesty inside the corporation, which can plummet a stock to zero. What we need is an analytical system — let’s call it “externality analysis & estimation” — that would then feed into our existing accounting system.
This modification works by using accounting-logic to add a kind of morality to the corporation, instilling positive values that align the AI’s goals with our own. What we are talking about here is functional capitalism: encouraging these big public entities to engage in competition and seek profits without encouraging cheating via the externalization loophole.
Also, let’s remember that this is about corporations. There is no requirement for a business, like your local bakery, to take this legal form. But if they dotake this legal form and receive all the benefits that come from it, there needs to be a set of controls in place so they cannot abuse these privileges.
Do All Four—Enslave the Creation to the Creator
In games like these, where stakes are high and victory improbable, a wise player takes no chances and installs every protection available. My recommendation as a financial analyst is to enslave public corporations to society, rather than continue acting as pathetic excuse-making slaves to our own creations.
But the difficult part is getting into a position of power, to delete existing corporate law, and author a new sensible corporate algorithm. Gaining public support is difficult since the problem is too complicated for most people to understand. Any attempt to gain support from the public will be met with corporate apologism and the tendency of those who are oppressed and brainwashed to defend their oppressor and protect corporate profits. There is also the circular nature of the problem: people living in dysfunctional times cannot conceive of a future state of functionality — nor do they have anything functional to grasp onto so they can make it to that future state.
As grim as this situation seems, let’s keep plodding forward. Now that we understand the root problem and have proposed some solutions, let’s move to the final step of this analysis where we define possible outcomes and assign probabilities.
PART 5: POSSIBLE OUTCOMES
In an unsustainable situation like this, there are really only two possible outcomes. Either the trend continues for some unknowable period of time until we reach a collapse event, or we make changes to the system and fix the root problem before that happens.
Outcome #1: Cannibalized Into Nothingness
The cannibalization of society is the logical conclusion of a game where corporate narrow-AI is programmed to maximize profits by maximizing externalities. If we don’t regain control, society eventually collapses under the weight of the corrupt machine.
The corporate AI needs humans for everything it does. If humans become too devastated by physical and mental degeneration, disillusioned with society, revolutionary and unwilling to cooperate, eventually some event could trigger a system implosion. That trigger could be internal, or it could be the society getting outcompeted by another society (e.g. China). Essentially, the corporate AI fails as a result of its own “success,” since narrow-AI, lacking smarts, doesn’t know when to stop.
The question, then, is what happens after the collapse? Does the root problem become evident in hindsight so that the system can be rebuilt with tighter safeguards? Or will society misunderstand the root cause, rebuild the system the same way it was before, and doom themselves to a series of collapses?
Outcome #2: Fix the Flawed Programming
The other possible outcome is that we regain control of the system long enough to rewrite the flawed corporate algorithm.
Fixes such as subtracting corporate privileges, conditional corporate personhood, “boxing” the corporation with a more specific purpose, and simulating morality in the profit calculation by including externalities — could put the machine back on a leash, and restore functional capitalism.
Of course, the conglomerate corporate entity will fight any law that conflicts with its current profit maximizing program. But since it is not intelligent, it will also mindlessly follow any new program. So, the trick is just to get that program into place — at a time when humans are rapidly losing leverage.
Since it requires no action, I am going to assign Outcome #1 as the base case (the one that is most probable). Humans tend to drift along, doing the same thing and getting the same result. Moves over time limit future moves, until there is only one outcome remaining. And small changes to a persistent massive trend doesn’t shift the trend. Outcome #2 is less likely, since it would require radical and successful action. The situation is not entirely hopeless, but successful action would require a firm understanding of the problem, and there is no evidence of that.
Corporatism is broken capitalism, and the root problem America faces in the 21st century. It is from this root that the majority of current societal problems originate. An elegant way of thinking about this complex phenomenon is by understanding corporations as “narrow AI” and seeing it as an “AI takeover,” a takeover in which the rules-based system we built — which is our entire society — no longer takes orders from us.
Perhaps creating some form of non-human control system was inevitable. We evolved in small groups, so we lack the natural ability to organize and control large groups. We needed, then, to invent something to meet this need. And the corporation does fulfill that need. But in summoning these entities, we didn’t take enough care and failed to program the safeguards that would allow us to retain control over them.
If there is anything positive to say about games that have already been played most of the way through, and which you are losing badly, it’s that there aren’t very many moves left on the board. No matter the effort required, and no matter how low the probability of success, your last available moves are the only ones you’ve got. The other positive aspect of this situation is that it’s easier to solve all problems simultaneously by addressing root cause, rather than chasing after the symptoms for decades, or even centuries, and getting nowhere.
The analysis you just read was 20 years in the making. I worked inside corporations for decades as a financial analyst, performing the calculations which make up this “corporate algorithm.” Subconsciously I think, I always new something didn’t add up, but didn’t fully grasp what I has observing. Then in 2012 this realization came together, and I spent 5 years talking to finance industry professionals, none of whom seemed to get it. So in 2017 I spent many months formally writing it down, and self-published. To this day, no media outlet has published, and no pubic intellectual in finance or AI has even attempted to disprove the theory. Just silence, same as I encountered working in subprime when I pointed out the numbers didn’t make sense.
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