Corporate wealth and just distribution

Published as "It's time to share the wealth"

Ben Teehankee

March 5, 2007

Green Light, Manila Standard Today

I’m impressed with the corporate sector’s performance lately. Reports of record highs for the stock market (even after the China-related global drop is considered) and promising bottom-lines for the top companies all but jump out of the business section of the leading dailies. It seems that the way the Malacañang economic team has handled the country’s fiscal situation has a lot to do with the rosy situation. Just how much credit the government deserves is being debated, but the numbers are clear enough. Wealth creation in the corporate sector is proceeding at a faster clip than we’ve seen in a long while. Being a small investor in the stock market myself, I’m not complaining about the extra money. Every little bit helps, as they say.

But a closer look at the impressive economic picture gives many people deep cause for concern: why aren’t the gains being felt more broadly by Filipinos. This is not a new concern, of course. In fact, while the economy grew close to 5% annually in the last five years, NSO data reveal a 10% drop in real average family incomes during the early years of the century. While many of our neighboring countries saw their middle class expand as their economies grew, ours is a shrinking middle class not only because some of them slip down to poverty but also because so many of them simply migrate. The expected “trickle down” effect is just not happening, and unless things fundamentally change, I don’t see much chance of the situation getting any better.

Highly anomalous situation

A situation of such robust growth for the corporate sector while the rest of the country is left behind is highly anomalous. The Constitution states that “The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns to investments, and to expansion and growth.” Since the stock market returned about 40% last year, we have every reason to ask whether employees are getting their fair share of the deal. I am almost certain that they are not.

Shareholders gain a great deal from the stock market’s rise. Unfortunately, not many companies have employee stock ownership plans (ESOPs), and many of those that do reserve these for officers and up.

Many of the Philippines’ top corporations have been achieving higher profits in the last few years. As indication of this, the ten most profitable corporations of 2005 together netted P219 billion compared to P86 billion in 2004 -- an increase of more than 250%! And yet the trend is for more of the large corporations to resort to contractualization, which keeps personnel wage and benefit costs perpetually low. With so many employees on short-term contracts, with no pension to look forward to and minimal health benefits, I see a wave of growing insecurity and quiet desperation among so many.

Seeking answers

How could this be? How could those who control and run big businesses tolerate the growing misery among so many of their employees, while their own net worth shoots through the roof? Has greed blinded them so much? Or are they just blind, period? The problem goes beyond the personalities of business leaders, I think, and lies in the social psychology of the corporation itself.

Social psychologists have long understood that even generally decent people tend to be callous and uncaring towards others under certain conditions. After World War II and the discovery that the Nazis had murdered millions of Jews, people wondered how the Germans could have tolerated the inhumanity of it all. This spurred much psychological research, which yielded interesting answers to the question of why people tend to allow, and sometimes even contribute to, the suffering of others. I will focus on just two such tendencies which I believe are often encouraged by the size and structures of the large business corporation.

The first tendency is blind obedience to authority. During the Nuremberg trials, many Nazi officers explained their participation in the mass murder of Jews by claiming that they were merely following orders. They were being “good soldiers,” in other words. The psychologist Stanley Milgram found, through a famous and much replicated series of experiments, that most people would give a 450-volt electrical shock to another person if firmly told by the experimenter to do so.

The second tendency is the diffusion of responsibility. Psychologists call this the “bad Samaritan effect” or simply “the bystander effect." Experiments have shown that people in moderately large groups tend to be passive even when witnessing the suffering of others because, in their minds, the problem is somebody else’s to solve and not theirs.

Thus, an otherwise humane manager who notices poor compensation of employees can assure himself/herself by saying, “I’m sure our HR people know what they’re doing and will attend to this problem when they can. Besides, the employees do not seem to mind.” Unknown to the manager, others in the company who are just as bothered by the situation also assume someone else will act on the problem, and so on. Meanwhile, the employees do not complain because they’re too scared to lose their jobs. The injustice is thus perpetuated.

Ethical education to neutralize injustice

Since these tendencies are quite strong, they need to be neutralized through various means in order to encourage corporate managers to share more with their employees. Ethical education can help managers use their conscience more actively when confronted by a questionable order from a superior. An internal code of ethics, which calls for decent employee treatment and the appointment of a resident ombudsman who can be approached by anyone with a concern about employee treatment, would also be helpful.

Employee advocacy can be done by HR, of course, but in many cases the HR function may itself be “under orders.” Sadly, little can be expected from many unions that have been decimated or effectively stopped from forming by modern corporate hiring practices.

I hope that the growth in the corporate sector continues for a long time to come. But more than this, I hope that corporate managers learn to escape the psychological prison of misguided obedience to authority and remember to give employees their just share.