Aliens Among Us

The regulation of our lives by large organizations is necessary for the functioning of industrial-technological society.  The result is a sense of powerlessness on the part of the average person. Unabomber

Many of our regulations apply to big firms more strongly than small firms, and and even less to homes. For example, many regulations apply only to firms with more than a certain number of employees. Now some regulations have big fixed costs of compliance, which cost more proportionally for small orgs.  But this justification doesn’t really explain that much regulation variation. For example, household hazardous waste rules let homes dispose more easily of many kinds of waste, yet trash disposal isn’t dominated by org-size fixed costs.

When I asked my enviro econ students to explain weaker home trash rules, some said firms care only for profit, while homes care about the environment, so homes don’t need rules to do the right thing. Others said the opposite, that homes rebel more against strict rules, such as by tossing trash in the woods, while firms are more obedient.

Now it seems to me that bigger orgs are in fact easier to monitor and punish, which can justify stricter rules when such rules are harder to enforce. Larger orgs regiment behavior on larger scales, making it easier to predict what one part is doing from what other parts does, and making behaviors visible to more people. For example, if one Walmart throws a certain kind of trash away illegally, its a good bet lots of other Walmarts are doing the same, and lots of employees could expose the practice.

But this is only part of the explanation. Firms obey trash rules in large part because we do random inspections of firm trash, yet would not tolerate random inspections of home trash. Big orgs are favorite movie villians, and people seem to demand higher wages to work for them. It seems we love to hate and distrust big orgs, relative to small orgs and individuals.

And this seems objectively unfair; big firms make it easier for us to monitor and discourage them from bad behavior, yet we reward this help by taxing them more, and imposing more burdens.  Big organizations are the new aliens among us, strange and suspicious to both forager and farmer eyes. We can’t look them in the eyes and feel their warmth of their empathy via ancient human protocols of understanding. Yes humans represent them, but we can see that org needs drive their actions; switch the guy at the top and they do pretty much the same things.  Big orgs display deep beyond-human intelligence we only dimly understand, and potential vast longevity.  So we suspect the worst.

Yet on the whole big orgs are a big reason we are rich and peaceful; our industrial economy depends heavily on their unmatched ability to give us what we want. Even on the uneven field in which we make them play, they keep winning, and giving us more. Pause for a moment to wonder if maybe we haven’t been just a bit unfair to the friendly alien giants among us.

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  • MPS

    Are private homes really a significant source of hazardous waste? I don’t doubt the facelessness of big business makes it easier for people to impose harsh rules, but I also think people are inclined to impose these rules because they perceive big businesses as the major contributors to the problems the rules are intended to ameliorate.

    Meanwhile, I’m not sure a double standard is unfair — or more precisely I’m not sure it’s not for the greater good. The virtue of big business is its efficiency, but this means it can afford to abide higher standards. The larger context is that incentives should be such that institutions and people alike are driven to contribute to greater well-being for society as a whole. We tolerate individualistic incentives like privatized gains and income disparity because we believe the wealth they generate has broad value to the community — although we impose progressive taxes in order to realize some of that value. Likewise there is a balance between what we permit, among large institutions, in the name of improving society, and what we forbid, for the same reason.

    However I would agree if you charged that such considerations don’t enter the mind of the typical partisan. I suspect you are write that many people polarize into adoration of big business, for the virtues of its leaders and the value it brings to society, and scorn of it, for its effectively amoral conduct and the inequitable distribution of the wealth it generates.

  • Seems to me you are ignoring significant harms that the regulation of household and small enterprises inflict but aren’t inflicted by the regulation of large enterprises.

    For a variety of reasons people are averse to what they see as excessive government intrusiveness into their private lives. This is partly a reasonable strategy to combat the tendency of government/voters to dictate unnecessary conformity and partly just a base preference. Whatever the cause, however, you must admit that people do have such preferences. For instance consider the backlash against local garbage crackdowns in England for improper household waste disposal.

    Regulation of large organizations doesn’t feel like intrusion, it just feels like part of the job, while regulation of homes and small businesses feels much more intrusive. Therefore those regulations both cost more in terms of utility and generate more opposition from voters.

    The issue of taxing corporations is another matter entirely. I know of no good justification for corporate tax rather than taxing individual earnings and capital gains.

    • Just because people mind less invading the privacy of big orgs doesn’t mean there is no harm from doing so.

      • No but it does mean that there is extra harm from invading the privacy of individuals. Therefore it’s optimal to have more intrusive regulations applying to big businesses than to individuals and small orgs other things being equal.

        Do I think that we treat big orgs in a socially non-optimal fashion? You bet! Much of the taxes and some other regulations we inflict preferentially on large orgs are the result of the lack of salience of the harms compared to similar regulations on small orgs/individuals.

        However, there is surely a reason other than mere enforcement to regulate large org waste more than small org waste since it causes less distress per unit harm from improperly disposed waste.

        Also I suspect there is a substantial safety theater element to regulation of trash. People are quite willing to give up life years for sweet foods and other minor pleasures but the thought of even a tiny increase in their risk of cancer because of dumped chemicals causes significant distress. Things that individuals throw away, even if they present equal objective danger, don’t inspire the same kind of distress.

  • Also what does it even mean for something to be “objectively unfair”? Especially when the entity that is supposedly being treated unfairly isn’t even an individual but a voluntary collective which individuals can choose to leave.

  • I’d say that the status of big companies as movie villains is well-earned by their ability (quite often actually used) to subvert and circumvent regulations and laws, and to spread and shift blame and thereby enable individuals to take part in committing crimes they would not, as individuals or part of a smaller organization, commit.

    Just as you cannot look a company in the eye and emphasize with it, it does not *have* empathy or morals and will not hesitate to cheat, cripple or poison you if it stands to gain from it and can do it in a way that allows all (or all but a few very unscrupulous) of its employees not to think about you as an individual.

    This bigger potential for causing harm to society in my mind fully warrants more intensive regulations and inspections.

    • This analysis doesn’t fly because it fixates only on the harms from big orgs and ignores the benefits. Yes, big orgs enable people to collectively engage in harmful activities they wouldn’t have done individually. However, the same cultural effects allow big orgs to motivate/convince their employees to do useful things they otherwise wouldn’t have done. For instance the feeling of distance from the effects of corporate deciscions lets people contribute to things they would personally find immoral but it also lets them undertake risky projects they would find too scary/intimidating without the distance membership in a large org offers. Not to mention the other benefits that accrue to economies of scale and the like. Thus it would be simply incorrect to conclude that it’s clear that we would be better off with less big orgs rather than more.

      Whether or not it would make sense to regulate big orgs more than small orgs isn’t a matter of whether they can do more harm but whether the net benefits of greater regs on big orgs exceed the costs. That can’t be determined just by considering moral outrage at these orgs or their overall potential for harm.

      • Robin has already mentioned the benefits of big organizations while completely ignoring the problems, that’s why I concentrated on those.

        And where did I advocate less big organizations? I merely gave a reason why regulation them more strongly is probably justified.

    • Jeffrey Soreff

      Agreed. To put it another way: There are many unofficial, typically social, sanctions that work on individuals that do not work on large companies. Shaming doesn’t work, shunning doesn’t work,…

      Hmm, given the amount of damage some companies have done, I wonder if “with depraved indifference to human life” is part of their executive training…

  • Pyramid Head

    What brazzy said.

    But I’ll grant that to some extent there’s a bias against big corporations (probably for the reasons you mentioned), so that maybe we’re too harsh on them sometimes…

  • Boehmer

    “Big organizations are the new aliens among us, strange and suspicious to both forager and farmer eyes.”

    But the biggest organization around is the U.S. Federal government — why is that human organization ignored in your discussion ?

    You say “…bigger orgs are in fact easier to monitor and punish” — that’s totally incorrect regarding the Federal Government organization, and untrue for government in general.

    You seem to have overlooked something huge.

    • ” that’s totally incorrect regarding the Federal Government organization, and untrue for government in general.”

      Is it? It seems to me that governments like Iran and and China are easier to monitor than nongovernmental populations of similar size. Easier to punish can be a trickier question.

      Prof. Hanson said it’s easier to monitor and punish GM than to monitor a same size non-hierarchically organized population (100,000) in households, in part because humans heckle more strongly against random auditing of household behavior. That’s a good point. I think it’s probably easier to monitor and punish the even the U.S. federal government than a non-heirarchically organized population of households of the same size, but I agree it would be interesting to see what would come out of Professor Hanson grappling with that question.

  • From Megan McArdle’s post the other day on reasons we should eliminate the corporate tax

    The corporate income tax encourages firms to waste resources on tax avoidance In general, taxes are most efficient when they fall on those who have the most difficulty avoiding them. Big corporations can and do spend an enormous amount of money and human effort transforming their income into more tax-preferred forms–deferring it, moving it, swapping it with entities that have different tax rules, and so forth. We spend an enormous amount of energy trying to make rules to stop them. It would be a lot easier to get rid of the thing entirely and focus on getting the money from people, who can’t afford quite such large squads of tax attorneys. This would also correct an obvious flaw in the corporate tax code: it’s easier for big companies to afford pricey tax lawyers–and pricey lobbyists to get them special tax breaks.

    Moreover, as I hinted above, the rules governing corporations are complicated for a reason–what constitutes an expense is as much art as science, and varies from industry to industry. (The blizzard of tax rules governing something like a small mining operation make me quite dizzy.) The rules governing people can be quite a bit simpler, because the basic operating costs of being a human being are pretty standard from person to person.

    Seems like the same reasoning would apply to regulations as well. In one sense big organizations are easier to monitor, but they also have resources available to lobby for complicated regulations with loopholes. As Nassim Taleb said: “the more complicated the regulation, the more prone to arbitrages by insiders. So 2,300 pages of regulation will be a gold mine for former regulators. The incentive of a regulator is to have complex regulation.”

    • I doubt big orgs are mainly to blame for complex laws; that seems more due to regulatory arrogance. Yes, big firms obey laws more, but search more for ways to obey that minimize harm to them. This is their great crime for which we are punishing them?

      • Jeffrey Soreff

        big firms obey laws more

        According to
        Alexander, C. R. and Cohen, M. A. (1996), New evidence on the origins of corporate crime. Managerial and Decision Economics, 17: 421–435. doi: 10.1002/(SICI)1099-1468(199607)17:43.0.CO;2-U

        Finally, larger firms are found significantly more likely to have engaged in crime than smaller firms, in contrast to recent suggestions in the literature.

      • Jeff, the estimated coefficient on log firm size in those crime logit regressions is about 2/3 – the chance of a crime goes roughly as firm size raised to the 2/3 power. So larger firms have proportionally less crime!

      • Jeffrey Soreff

        Good point, is this including the scale of the crime in the regression fit as well?

    • “is as much art as science”

      Is this what you call a semantic stop sign?

      I’ve hated this phrase since the first time I saw it used (in reference to the practice of medicine). I think it’s worthless and untrue every time I’ve seen it used.

  • Mark Rutherford

    Big firms were small firms that survived the failure of thousands of other small firms – or were assembled from small firms that survived that process. If small firms (which began as individual risk-takers) were further burdened by regulations (which are too expensive to enforce anyway), there would be no successful small firms that could survive competition and grow into big firms.
    The corollary is that the more sclerotic of big firms ought to support onerous regulations on households and small firms in order to preserve their monopoly from future competitors – and, hey presto, they do! (In the form of corporate responsibility inititaitves, corporate support for green tech, decarbonisation, etc..)

  • Charlie

    If i were one of your students I would have said that big orgs want regulation because they know that they can help shape it (so it won’t be too restrictive) and it will restrict entry of new orgs that might overpower them.

  • Marcus

    It can be completely rational to be a good slave. Bravo.

  • Unnamed

    You say that big companies get more of a regulatory burden, but I’d frame it the other way around. Big companies can get the correct textbook level of regulation, designed to internalize negative externalities and properly align incentives, while households (and, to a lesser extent, small firms) should get extra privileges and leniency. Households should get looser regulation because compliance and enforcements costs are higher for households (relative to the benefits of regulation), households are less aggressive than big orgs at exploiting loopholes or lax regulation, and regulating households is more intrusive.

    With hazardous waste, it’s extremely difficult to catch households who dispose of it improperly, so the goal is to make proper disposal as easy as possible (including free disposal at dropoff centers). But it’s much easier to monitor big orgs, and if big orgs got free disposal they would overproduce hazardous waste (to a much greater extent than with households).

    • But then we should be subsidizing big orgs relative to small ones, in order to encourage internalizing externalities and avoiding being too hard to enforce rules against.

  • michael vassar

    There is a rough balance between the power levels of humans and corporations. It’s fairly obvious that when corporations have power imbalances with groups of humans the typical result is unusually horriffic, e.g. the East India companies and King Leopold’s Belgian Congo.

  • Karen

    Big orgs wield far more political weight than a single individual and as such, many regulatory provisions are passed with pork barrel positives embedded for the corporations. It is likely that in many cases regulatory compliance is arrived at as a cost / benefit analysis of the benefits included in the legislation itself before adopted.

    Also, large organizations structure themselves considerably different than individual families. There is a higher degree of anonymity and deferment of responsibility between individuals in large corporations than there is in familial situations where compliance/non-compliance with laws is likely to result in immediate conflict between individuals, and resolution more immediately arrived at, ie….. if one doesn’t believe in recycling hazardous products as is required, it is not seen as a breach of protocol for another family member to assume the task/responsibility and dispose of product in a manner that is within compliance.

    Subsidized corporations? No. They should be encouraged to recruit individuals with a demonstrated sense of integrity, of the ability to balance profit against societal good. Currently, they tend to recruit individuals who conduct business with ruthless disregard for long-term consequences, ie, psychopathic tendencies are rewarded in the corporate environment. Now that corporations are deemed the same as a person, perhaps we can get them some much needed mental health treatment.

    I would also disagree with your assessment that behavior is more visible in a large organization as opposed to a small organization. In a small organization, the limited hierarchical layers, if they exist at all, restrict how far one individual can pass the buck without discovery, particularly when all individuals may come into daily contact with one another and be on a first name basis.

    In large companies, an individual cannot peer to closely into, or become intimately acquainted with, all the individuals hidden in departmental compartments.

  • Ray

    People don’t stop being human when they join a large org.

    Individual homes are just as likely to dispose of hazmat as large orgs; it’s not a more apt to or less apt to situation.

    But as Robin said it is much easier to police the relatively small number of large orgs than it is to police the entire population for such things. It is also politically expedient to police the easily villain-ized big orgs, and leave the individuals alone. Coming after the individual homes would have a disastrous affect on the politicians attempting such policing.
    Just imagine all of the campaign ads currently running also including such damning evidence of the incumbents rooting through America’s trash to prosecute Joe Sixpack. “Win America Back this Nov. Get Washington out of our Trash!”

  • Joseph K

    I think the prejudice against big companies is a combination of a fear of power and the inability of corporations to project compassion. People perceive corporations as powerful because they’re omnipresent. I see around me now: Nikon, Samsung, Apple, Sony, Penguin and many other brands, here with me, in my room. Since they’re everywhere, they seem power (most people are mistaken and don’t have an accurate understanding of how beholden large companies are to customers and shareholders, and how much arbitrary power politicians and even minor government functionaries wield relative to corporations). Also, those politicians have the capacity of projecting compassion, making speeches about how concerned they are about x problem, as they pose for pictures of them shaking hands with one of the victims. Corporations simply can’t do that. The closest they can do is send some spokesperson to give a face to the company, but that doesn’t work as well.

  • Shorter: “Please, won’t somebody think of the corporations!”

    Big organizations are the new aliens among us, strange and suspicious to both forager and farmer eyes. We can’t look them in the eyes and feel their warmth of their empathy …Big orgs display deep beyond-human intelligence we only dimly understand, and potential vast longevity. So we suspect the worst.

    Um…yes, I agree with this. What’s your point? That we shouldn’t be suspicious of large, powerful, inhuman intelligences operating among us? That’s fucking insane.

    I suppose if actual aliens should visit earth and start strip-mining it, you’d be in favor of letting them operate unimpeded as well, as long as they provide a few shiny trinkets in exchange?

  • My comment ended up being a virtual rough draft for an essay thirty words less than this post. My final drafts that don’t contain references turn out no less than 50% longer than the rough and often double it. Link to my nym is to the rough draft. I’m not trying to get traffic or attention to my own blog, I really think there are elements to this post that deserve analysis. Largely about the writing style used. Though perhaps it was written to illustrate the mind set the corporate media is pushing. I will give the author that much credence.

    This post reads like a middle school “Why My Country is Great” essay and likewise offers no distinct lines between the relevant subjects it is comparing. Since there are firms of every size between small and large, the distinction becomes unapproachably subjective. Whether or not the “firm” is a corporation that can defer losses to share holders at any given time is really a key point that would be relevant to both small and large firms. Most large firms are incorporated, while this holds true less as the size of the subject firm gets smaller.

    As to the “corporation is a person too” argument, there are many reasons why this doesn’t hold up. Everything from mob mentality to the fact that corporations are bound to an ethos of profit makes the corporation into a sociopath if it is any kind of person as the excellent documentary “The Corporation” outlines in delicious detail. It’s free online.

    My partial list of counter points-

    1. “big orgs” are overwhelmingly the progenitors of the waste that ends up in the environment and receive the most benefit from it’s production.

    2. “big orgs” are more likely to produce hazardous waste in amounts sufficient enough to cause large scale harm.

    3. Regulations are only rarely created out of whole cloth in anticipation of potential wrong doing. Regulations are almost exclusively enacted as remedies to problems that occur. Which should speak volumes to why in a scenario of big firms verses small firms creating hazardous waste, small firms have less regulation

    4. For several reasons small firms are tied closely to the communities where they are likely to produce waste.

    5. A large enough firm employs and has at their immediate disposal a lawyer or a team of lawyers making the prospect of legal proceedings less of a cost deterrent.

    6. And finally, the barb that I was going to throw-
    “Yet on the whole big orgs are a big reason we are rich and peaceful.” Really? As compared to what? There is no control group or country or world to compare this to, so it is a totally baseless statement. In fact, on average peoples are lives worse off economically, environmentally and in terms of peace. This is compared to a real data set of years previous.

    Thank you and good night. Damn, it’s morning already.

  • This post was outlined a here on Econ Log.

  • So bigger firms are preferable because they are more easily regulated? An unusual combination of (explicitly avowed) views. Although I think something like that was going on with the cartelization efforts in the 30s.

    I agree with H.A on “as much an art as a science”.

    mtraven, is your objection to strip-mining generally or the fact that aliens are doing it?

    • Was my meaning really that obscure?

      Strip-mining is bad by definition (substitute, say, extracting oil from the Gulf of Mexico while destroying it if you want a more current example). The point was that having allowing powerful, intelligent, and inhuman agents free reign over your environment is probably a bad idea — their interests will not coincide with human ones. Human agents at least have some empathy to work with.

      • Of course not, it’s TGGP snark.

        MTraven, I’m skeptical how sticky empathy is even just with individual human agents. Then there’s the illusion of control problem, like if humans even have the power to get rid of low-empathy humans (a paradoxical problem?), corporations, or hypothetical alien invaders.

      • I’m not sure what you mean by “sticky”.

        It is a very interesting question as to to the role of empathy in human affairs; how ordinary human empathy manifests (or doesn’t) in large institutional structures, etc. I’ve contemplated writing a book on the subject.

        We call “low-empathy humans” sociopaths and often end up putting them in jail. Corporations are quite often set up to encourage sociopathic behavior, partly because they are free from the constraints of empathy. But not always. Corporations are made up of humans and the well-behaved ones have ways of letting humanity influence their actions and governance; evil ones don’t.

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  • We preserve the rights of humans for the good of the individual humans themselves against the collective. Corps and Orgs are “fictitious” people composed of real people. The real people within the corps and orgs have rights protected.

    It is not at all obvious that all “real” rights should be given to “fictitious” people. We give rights to real people to preserve their individuality and regulate real people at a pragmatic level to ease living together and avoid extremely negative externalities. We preserve a much smaller set of rights of animals and recognize the futility of imposing regulations on them, a futility not because they are bad but because they are dumb.

    I don’t believe an organization has a separate consciousness that must have separate rights of privacy and preservation of its “life.” We have found pragmatically that we get a lot of good from these fictitious persons. In my opinion, providing these fictitious persons with one right or another should come from a utilitarian consideration: does this make them more or less useful to us? Trampling the rights of what are almost certainly unconscious fictitious people seems way more morally justified than trampling the rights of people and animals, whom we control and eat, respectively.

    Maybe it will turn out that the grand sweep of history will include corporations, first we gave rights to blacks, then women, then gays, then animals, then the corporations, and finally the CPUs. But perhaps it won’t, perhaps a trend just keeps going until it stops, and it will stop before we are able to feel empathy for corporate entities as opposed to the real people who participate in them and whose benefit from them causes their existence in the first place.

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