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The Public Cost of Private Corporations

by Dr. Ralph Estes
Emeritus Business Professor
The American University
4400 Massachusetts Ave. NW
Washington, DC 20016-8044
Director, The Stakeholder Alliance

"The Public Cost of Private Corporations" article is available in its entirety at:

from the Summary:

This analysis consolidates prior and original research to assess the aggregate national external costs that business firms, primarily corporations, impose on customers, employees, communities, and society. This total public cost of private corporations is estimated at approximately $3,051 billion per year (1995 dollars). . . .

While difficult to measure, the costs included here are unquestionably real to those on whom they are imposed. They are, however, never reckoned in corporate accounting's narrow calculus. When policy issues such as corporate regulation, taxation, defense contracting, and the system of subsidies, incentives, tax credits, bailouts, price supports, and below market-price fees for grazing, mining, and timber rights on public lands that is sometimes referred to as "corporate welfare" are debated, these social costs should be matched against the social benefits obtained.

To improve public policymaking, we should also reevaluate how we assess the performance of corporations. A scorecard that ignores social costs presents a distorted picture of performance that can influence policymakers to be excessively generous with taxpayer- funded corporate benefits, and overly lax in enforcing corporate regulations.

In all this the ratitor urges all to keep in mind Ward Morehouse' message -- that what we are confronting is corporate subsidy abuse and extortion -- not corporate welfare -- in the 7th point of his articulation of an eleven-point program for ending the era of the Giant Corporation by taking the offensive in the struggle to establish democratic control over corporations:

  1. We can stop subsidy abuse and extortion by corporations through which large corporations rake off billions of dollars from the public treasury. Please let us not call it "corporate welfare". Welfare should be a positive concept. This is extortion and subsidy abuse and we need to stop it.

In These Times
October 30,1995
Keeping Corporations Accountable
An accountant tallies the hidden
costs of corporate corruption.

Conservatives, and many moderates, claim to oppose welfare because it encourages people not to work. These parasites, the argument goes, get something for nothing, while hard-working Americans pay taxes to support them. Indeed, Phyllis Schlafly recently said that welfare recipients in several states live so well that they have no incentive to clean up their acts and become useful members of society. But even if we accept this dubious assumption, are these recipients the only freeloaders in our society? And is the amount we spend on them significant in the larger picture of parasitic practices from which we suffer?

These are questions that Ralph Estes implicitly addresses in "The Public Cost of Private Corporations," an important article from an unlikely source: the academic journal Advances in Public Interest Accounting. Estes' basic idea is a simple one: that while corporations pay the internal costs of doing business, they do not pay, or even calculate, the costs that their operations impose on society at large.

As Estes writes, corporate accountants meticulously calculate their internal costs, but ignore the "external diseconomies," or social costs, that their operations inflict. These external costs are, in effect, "coerced assessments" -- on consumers, employees, communities and society at large. In other words, we all pay for the damage corporations do while they deplete our commonly owned natural resources, pollute our air and water, generate mountains of toxic sewage and trash, produce unnecessarily dangerous products and destabilize communities and charge us for their constant manipulation of public opinion and the political system.

To one extent or another, we are all aware of these corporate practices, but Estes has compiled the best available statistics to estimate the annual cost of these practices to the American people. Some of these are easily calculated, while others are extremely difficult to estimate, so his total figure is only a reasonable approximation -- and a low one at that -- because he excludes the latter group of figures.

The figure he comes up with is $2.6 trillion (1994 dollars) per year, almost twice the entire federal budget, and more than 10 times the annual federal deficit.

This is the subsidy that the American people, involuntarily and largely unwittingly, give every year to the corporations that rule over us. It is also an amount that in one year could pay the costs of welfare, now under bipartisan attack, for the next century.

These numbers may seem exceedingly high, but Estes uses the findings of official documents and generally recognized experts to compile them. Thus, to calculate the cost to the U.S. economy of disparate wage rates based on sexual and racial discrimination, Estes uses data from the Statistical Abstract of the United States and the Economic Report of the President and arrives at a figure of $165 billion per year. Similarly, using standard techniques, he figures that the total annual cost to workers of death from workplace-induced cancer is $278 billion. Furthermore, he writes, these estimates are only for workplace costs that have been studied. There are, for example, no estimated costs of serious poisonings of agricultural workers and consumers from carcinogenic chemicals, though these run up to 1 million cases annually. Using figures drawn from Fortune magazine, U.S. News and World Report and Dollars and Sense, he estimates the cost to the nation of corporate crime at $165 billion. These categories alone add up to $608 billion in annual costs to society, and they are only three of 12 that Estes discusses and calculates.

Corporations and their agents in the media and Washington extol the virtues and social contributions of the corporate system, while the public pays not only for their social irresponsibility, but also for the propaganda, lobbying and campaign contributions that enable them to corrupt our nation. And meanwhile, Republicans and so called moderate Democrats bemoan the pittance that is spent to alleviate some of the evil corporate America does. In a democracy it is said to be people that count, but in our democracy it is money in the hands of a few that has a stranglehold on government and the means of mass communication. Still, our official and deeply held commitment to democracy offers a way to challenge corporate power.

Despite the cynicism and demoralization now so widespread, a principled -- and popular -- politics remains possible. Indeed, it is absolutely necessary if we are to save ourselves and the nation.

Copies of Ralph Estes' article, "The Public Cost of Private Corporations," can be obtained from AU Media Relations (202) 885-5950. Estes' new book, Why Corporations Make Good People Do Bad Things[1], is scheduled for publication in January by Berrett-Koehler, (415) 288-0260.

  1. Was actually published as Tyranny of the Bottom Line. See the review of this on the web at: Tyranny of the Bottom Line by Ralph Estes

from the biographical sketch subpage off Ralph Estes home page that used to exist at American University (was at
Ralph Estes is professor of business administration at The American University and resident scholar and cofounder of The Center for Advancement of Public Policy in Washington, DC.

Ralph writes and speaks on corporate, business, and economic issues from a progressive perspective. His op-eds and columns appear frequently in leading newspapers and opinion magazines.

Throughout his work and as a former president of Accountants for the Public Interest, he has sought to promote a public interest spirit in the accounting profession and in business generally.

Professor Estes is an authority on business issues including corporate behavior and misbehavior, stakeholder accountability, and valuation of public, social costs. He has authored a dozen books, more than fifty scholarly articles in academic and research journals, and many newspaper op-eds and magazine pieces. His experience includes auditing, advising, and consulting with Corporate America, as well as extensive research on corporate history and corporate behavior. Three degrees include the doctorate in business administration from Indiana University. A CPA formerly with Arthur Andersen & Co., he has also served as expert witness in numerous cases involving charges of corporate malfeasance.

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