Thursday, February 10, 2011

Egyptian Democracy in the Hands of Corporations

The situation in Egypt has made headlines around the world and a lot of the focus has been on the Mubarak Regime and its role in suppressing the Egyptian people and, in effect, democracy. But less obvious is the role of the private sector in propping up the regime in the 30 years of oppression and more strikingly in the last 2-3 weeks.

The controversial role of business in Egypt is largely based on the military industrial complex that has proliferated in the U.S. and globally in the last couple of decades. Egypt has been and continues to be the second-largest recipient of U.S. foreign aid. Roughly $2 billion per year is funneled to the Mubarak regime, the majority of which is used to buy military equipment from U.S. companies like Lockheed Martin, Boeing, and General Dynamics for things like F-16 aircraft, M-1 tanks, aircraft engines, missiles, guns and, as we’ve all seen, tear-gas. These weapons are of course justifiability used under the 30-year Emergency Law where the Egyptian government has power to sharply circumscribe perceived dissidents who may disagree with the regime and its puppet masters from the West.

More recently though is the enabling role that many companies have played in supporting the regime’s recent crackdown on protesters. Narus, a U.S. subsidiary of Boeing Corp., provides the Egyptian government with the technology to conduct “deep packet inspections” to identify and track down dissident voices while Vodafone supported the regime by shutting down phone and Internet services. One can draw parallels to IBM's role during WWII in providing Nazis with punch card technology to manage the millions of prisoners slated for execution.

So what? It’s not the role of business to engage in political activism, is it? In the case of weapons manufacturers, this is simply the free market playing its role. A country needs military equipment, they use money received from foreign aid to buy that equipment and it just so happens that U.S. companies are the top producers of this equipment. This is merely the invisible hand doing its job. In the case of telecommunications companies, they are simply responding to the demands of their customer – the Egyptian government – in the same way that RIM yielded to governments in the Middle East demanding access to confidential blackberry communications. Many market fundamentalists would certainly put forward this very convincing argument.

But there are at least two problems with this logic.

First, it makes no sense to argue that companies have no right to act as political activists when for decades they have been playing a deliberate role in influencing political decisions. Anyone who argues that companies are mere recipients of market trends is not considering the rather pervasive role many companies play in directly or indirectly changing the rules of the game in their favor. Companies of the military industrial complex like Lockheed Martin, Haliburton, and Xe (formerly Blackwater USA) have played a very influential role in pushing for foreign policies that support the war in Iraq and Afghanistan. (President Eisenhower warned of this exact scenario in 1961). To now say that we shouldn’t expect companies listed above to get involved in politics is sheer double-talk.

Second, the above logic is predicated on the assumption that the primary purpose of business is to create financial returns on capital, the negative consequences of which are left to government and other organizations to address. But this view of business was not always paramount. In the early 1900s business students were taught that the role of the firm was to consider economic and noneconomic factors in their decision-making including those expectations imposed upon business by society. This implied that managerial decisions were to be based on values internal and external to the firm.

But after World-War II, influential thinkers argued that business should focus on its economic foundations and leave all other social responsibilities to government and charity. Organizations like the Ford Foundation and popular luminaries like Milton Friedman further pushed the role of business to be all about profits in support of shareholders’ interests. This represented a direct challenge to the original approach to business set out in the early 1900s and it’s pretty obvious who came out on top.

The impacts Vodafone, Narus and Lockheed Martin have had on the very foundations of democracy highlight the need to revisit the boundaries of private sector responsibility and accountability. As the prolific business scholar Kenneth Andrews warned in The Concept of Corporate Strategy, failing to do so locks us into an environment where we spend our energy keeping watch over “corporate behavior, ferreting out problems, designing and revising detailed laws to deal with them, enforcing these laws even as they become obsolete” and suffering the public disservice that persists as companies work to delay appropriate regulation (quoted in Christensen et al. 1978).

Should IBM have provided punch cards that were instrumental in enabling the Nazis to keep track of prisoners? Should Lockheed Martin and other military equipment manufacturers be selling equipment to a regime that is fundamentally destructive to democracy? Can they claim innocence as mere providers to the market when they lobby heavily to make sure that there is indeed a market for military equipment? Does this not mean that they are complicit in the suppression of democracy when such lobbying encourages the Obama Administration to support a Mubarak-type regime?

Many of my business students would argue that business has no role in political activism and should focus exclusively on shareholder wealth-maximization. But the Egyptian uprising has further illuminated the fundamental flaws with this logic and more generally the relationship between business and politics. There are indeed a large number of politicians who have benefited directly from this rather large oversight and would rather afford companies the flexibility to engage in this behavior. But because companies are engaging in political activism for this very purpose, they are not only complicit in their harm to society but active players. Some would argue that this is indeed the greatest market failure of all time.

Protest photo by Dylan Martinez Reproduced under Creative Commons License

Tank photo by Associated Press Reproduced under Creative Commons License

IBM Photo by Edwin Black Reproduced under Creative Commons License

Keyboard lock photo by TechWorld Reproduced under Creative Commons License

Reference: Christensen, Andrews and Bower (1978): Business Policy: Text and Cases: Homewood, IL: Irwin

1 comment: