Why corporations are like Burmese pythons

CATEGORY: BusinessFinance2Last week, many Americans were stunned to pick up their newspapers and learn that AIG was suing us taxpayers for saving them. We shouldn’t have been. That’s what any corporation would do. Indeed, the directors of AIG had to consider it or else get sued themselves.

Corporations are the Burmese pythons of the economic ecosystem.

Burmese pythons are the giant snakes now taking over Florida. Not native to Florida and relatively recent arrivals, they are nonetheless thriving, growing to tremendous lengths and having babies by the basketful. In the process they are driving out the native species and terrifying parents of toddlers and owners of small dogs. Pythons are successful because the indigenous species are not large enough or strong enough to challenge them. We humans did not realize the threat they posed until we woke up one morning and found a 200 lb snake in the swimming pool. That’s why today Florida kicked off a state-wide Burmese python hunt, complete with prizes.

Which brings us back to corporations. Corporations are so successful, and so ubiquitous, that it would probably surprise most people to learn they are a very recent introduction into the economy. While most economic entities—companies, countries, trading blocs, markets, etc have been around for thousands of years, modern corporations were started in 1855 in England with the passage of the Limited Liability Act. And in just over a century, they had already grown to the point where they could strangle and devour small nation-states (ARAMCO in the Middle East, United Fruit in Latin America, Rhodes in Africa). Now corporations are becoming large and bold enough to challenge large countries.

Corporations are advantaged in the economic ecosystem because of five factors.

First, they are dictatorships, not democracies. Dictatorships are inherently advantaged over democracies in terms of speed and action. In the short term, the advantage created by minimizing discussion allows for rapid decision-making and follow-through. Of course dictatorships tend not to be advantaged over the long term because they are have succession and resource allocation issues, and in fact we have seen many very large and successful corporations fail or atrophy, e.g., Kodak, GM.

Second, limited liability gives them the ability to grow to tremendous size. Before the corporations act, if a company failed, creditors could come after the investors for their money. As a result, investors were very careful what they invested in and very careful of the obligations that company took on. Investors did not want to own giant companies with potentially giant downside risks. However, with limited liability, the potential downside was capped. Capital flooded into these new entities. And it turned out that capital was the natural constraint on company size. Before that, those needing capital had to take it out of their own pockets or get it from tight-fisted bankers. Once the capital constraint was removed, companies turned into corporations and exploded in size.

Third, and back to the python analogy, corporations are remorseless in pursuit of a very simple set of goals. Pythons want to reproduce. Corporations want to grow profits for shareholders. Just like the human species, a nation is juggling dozens of objectives, and economic goals are only a few of the many. Simple goals are a tremendous advantage in a Darwinian economic world, in part because…

Fourth, corporations are mobile, both literally and figuratively. If Alabama, say, is doing poorly, the U.S. can’t just close it and walk away, leaving obsolete people and infrastructure behind and moving to Pennsylvania or Arizona. (Although, I admit the idea of simply closing Alabama is appealing.) But a corporation can. And will. In 2007, when war profiteer Halliburton became concerned it might have to compromise its profit objective by obeying U.S. laws, it simply moved to Dubai. But often corporations don’t even need to move physically, they can move “virtually” to a better or less risky place. In every large accounting firm, there exists a unit called “Transfer Pricing,” the whole purpose of which is to create plausible, if not necessarily true, allocations of costs to ensure that a corporation that operates in 20 countries can earn huge profits in 20 countries and effectively pay taxes in none of those. That allows the giant General Electric to use the roads, airports, schools, and stability of the U.S. and pay only nominal taxes here. Corporations even can, in the case of AIG and GM, be insured from the ineptitude of bad leadership without paying for it. By operating across national boundaries, they are able to avoid their rightful obligations to any one nation.

Finally, corporations are stealthy. Take for example annual reports, where “revenues” by segment are reported in such arcane aggregations that the true position in any market or segment is impossible to figure out. Even experienced analysts only learn as much about corporations as corporations want them to know. Of course, we have units of the government, like the SEC, charged with penetrating this secrecy, but the SEC is compromised by lack of resourcing and a relentless assault on their authority from corporations. The corporate world camouflages its motives by promoting the widely-held falsehood that lack of government oversight is essential to successful operation of the free market, and that in turn is essential to freedom and our way of life.

We could keep working the python analogy, comparing gradual constriction of a helpless raccoon to the squeeze on the recent elections created by the Supreme Court’s decision to allow corporations to participate in the political process. But after some point every analogy becomes tiresome, no matter how apt.

My point, though, is a simple one. Corporations are amoral by design. Their objective is not necessarily aligned with the objectives of society overall. They are large, powerful, and will continue to get bigger and more powerful. Their growth in both size and brazenness is not without consequence. Like the Burmese pythons in Florida, it may already be too late to stop them.

I have spent my life working for the world’s largest and most powerful corporations. I’m not anti-corporation. I’m not anti-python either. I just don’t want them loose in the kiddie pool.

4 replies »

    • Amen. Thank you for this article. I have been wanting to write a similar article myself, but could not have done so well.

      I like your analogy — too true. As someone who has grown up in the computer industry, starting at age 17 when IBM 360/40s were state-of-the-art, I am still in disbelief that with 34 years’ experience and a major contributor to many corporations’ success — I cannot find a decent paying job in this world-wide-web of electronic job applications, job alerts and virtual networking. We have automated everything, right down to automated toliet flushing — which often doesn’t work when I stand up, only works before I sit down.

      Then, I watch television and learn that 14 million Americans are out of work, the next reporter tells me to “network.” The next reporter tells me that my job skills are transferrable. The next report tells me about the “financial cliff.” This is only followed by the “Second Great Depression,” the downsizing and out-sourcing of the computer industry and the fall-out of the telecommunications industry. However, through all of this, Wall Street continues to make profits and our political leaders continue to have jobs.


  1. A well-executed piece. So much I didn’t really know. I’m pointing my students to this piece.

  2. Corporations had better be careful, otherwise society will follow Florida’s example.

    On the flip side, it is unfortunate that pythons won’t atrophy or fail due to their short term focus. Score one for evolution.