Today our country faces difficult problems that threaten our democratic way of life. Fortunately, we can give our people a better standard of living by dealing with two of these problems.
One problem is the difficulty of maintaining our independence and democracy against an autocratic China that is rapidly industrializing and uses ruthless tactics to extend its power and influence.
Another is the fact that wealth and power in our country are becoming so concentrated in the hands of a few that it is becoming a threat to our democracy from within.
Why is this happening? Because over the course of the last 200 years, new technologies have transformed us from a nation of farmers into to a nation of corporations.
These corporations, armed with new technologies, could be maintaining our country’s independence from China, while also raising our standard of living. However, that is not what our corporations are doing. Too often, in fact, they are doing the exact opposite.
This is the result of two technical revolutions. The first was the industrial revolution. Starting in the early 1800s the industrial revolution made available and usable the vast stores of energy hidden away in coal and oil. This revolution made possible new goods like trains and automobiles.
The second is the ongoing digital revolution based on unprecedented and ever-increasing computing power. These capabilities have changed the way we live and the way we work.
Clearly you cannot make these goods on a family farm — they require large organizations to make them. So, corporations have replaced the family farm as the source of most production.
Starting in about 1980, the accepted goal for most corporations became maximizing the return to their shareholders. Today, if maximizing the return to shareholders requires moving technology or manufacturing to China in response to Chinese subsidies, that is what many corporations will do.
The corporate goal of putting the shareholder first is also a powerful mechanism for concentrating wealth, since most corporate shares are held by those who are already wealthy.
The effect of having adopted this corporate goal is striking. In contrast with the preceding period, since 1980 the share of GDP going to the wealthy has steadily increased.
Furthermore, corporate power has also been strengthened by a U.S. Supreme Court decision. The 2010 Citizens United case gave corporations almost unlimited freedom to use their money and influence in politics.
Theodore Roosevelt, who was president from 1901 to 1909, understood very well the effects of corporate power, and has given us an example of how to deal with it.
At that time, the digital revolution was still a long way off, but the industrial revolution, with its railroads and factories replacing farms, had already transformed the nation. As a result, the owners of the great financial and rail monopolies obtained enormous wealth and influence.
In 1901 President Roosevelt, in his State of the Union Address, stated clearly to Congress and the nation: “Great corporations exist only because they are created and safeguarded by our institutions; and it is therefore our right and our duty to see that they work in harmony with those institutions.” He made clear that he wanted our country to be not only productive, but also to share more widely the fruits of that productivity.
As president he did not hesitate to act. With his many vigorous antitrust actions, he brought about significant change.
We must look for ways to change how our corporations act so that our country can both prosper and have a better distribution of wealth and power.
History shows that corporations can change. As economic historian Richard Sylla and I describe in our American of Arts and Sciences paper, “The American Corporation,” corporations have considered many constituencies other than shareholders during most of history. It is the focus on the shareholder only that is new. The shareholders have run away with our corporations.
History shows us there is no lack of ways to act. It will take political will to act effectively against the powerful forces that prefer the status quo. But, for the sake of our country, we must act to better align the goals of our corporations with the needs of our people.
Ralph E. Gomory is well-known for his mathematical research and technical leadership. He has been awarded the National Medal of Science. For 20 years he was responsible for IBM’s Research Division, and then for 18 years was the president of the Alfred P. Sloan Foundation.