Atlas Shrugged

This is a somewhat unusual post, as it is really a review of a book, and the relevance of the book to the situation today. The book is Atlas Shrugged, by Ayn Rand. I am now three quarters of the way through the book, but could not quite resist reviewing the book so far, as there are elements that are relevant to the world of today. I understand that the book is also being made into a two part film (it is a very long book), and will be interested to see how they interpret the work.

As mentioned, the first point about the book is it is very, very long. In places, unnecessarily so. Ayn Rand was an immigrant to the US, and there are times that this shows through in the language. There are certainly moments when I became irritated with the writing style (the overuse of the word 'astonished' was one example). However, and bearing in mind that I have a tendency towards being a little verbose, I should stress that this is not a huge problem.

As to the content, there is both good and bad. There is an element of caricature in the characters, and moments that are a little too much towards Mills and Boon. Notwithstanding this, the book has a lot to say that is relevant today, and perhaps that is why the book is being made into a film. The plot is quite straightforward, and I will use Wikipedia for a summary (sorry it is long):

As the novel opens, protagonist Dagny Taggart, the Operating Vice President of Taggart Transcontinental, a giant railroad company originally pioneered by her grandfather, attempts to keep the company alive during difficult economic times marked by collectivism and statism. While Dagny runs the company from behind the scenes, her brother, James Taggart, the railroad's President, is peripherally aware of the company's troubles but will not make any difficult choices, preferring to avoid responsibility for any actions while watching his company go under. He seems to make irrational decisions such as preferring to buy steel from Orren Boyle's Associated Steel, rather than Hank Rearden's Rearden Steel, despite the former continually delaying delivery of vital rail. In this as in other decisions Dagny simply goes ahead with her own policy and challenges him to repeal it. As this unfolds, Dagny is disappointed to discover that Francisco d'Anconia, a true genius and her only childhood friend, first love, and king of the copper industry, appears to have become a worthless playboy who is destroying his family's international copper company, which has made him into one of the richest and most powerful men in the world.

Hank Rearden, a self-made steel magnate of great integrity, has recently developed a metal alloy called Rearden Metal, now the strongest and most reliable metal in the world. Hank chooses to keep the instructions to its creation a secret, sparking jealousy and uproar among competitors. False claims are made about the danger of the alloy and are backed by government agencies. As a result of this, pressure is put on Dagny to use conventional steel but she refuses. Hank's career is hindered by his feelings of obligation toward his manipulative wife, mother, and ungrateful younger brother, who show no appreciation for everything he provides for them. Dagny also becomes acquainted with Wesley Mouch, a Washington lobbyist initially working for Hank Rearden, whom he betrays. Mouch eventually leads the government's efforts in controlling all commerce and enterprise, intentionally destroying the common man's opportunity to build a largely successful, free market business. The reader also becomes acquainted with Ellis Wyatt, the sole founder and supervisor of the successful enterprise Wyatt Oil. He is a young, self possessed, hard-working man–one of the few men still loyal to Dagny and Hank's efforts in pushing for a system of business free of government meddling and control.

While economic conditions worsen and government agencies continue to enforce their control on successful businesses, the naïve, yet weary mass of citizens are often heard reciting the new, popular street phrase, "Who is John Galt?" This sarcastic phrase is given in response to what tend to be sincere questions about heavy subjects, wherein the individual can find no answer. It sarcastically means, "Don't ask important questions, because we don't have answers", or more broadly, "What's the point?" or "Why bother?"
Dagny begins to notice the nation's brightest innovators and business leaders abruptly disappearing, one by one, under mysterious circumstances, all leaving their top industrial businesses to certain failure. The most recent of these leaders to have vanished is Dagny's friend Ellis Wyatt, who, like the others, has suddenly disappeared into thin air with no warning, leaving nothing behind except an empty office and his most successful oil well now spewing petroleum and fire high into the air (later to be named "Wyatt's Torch"). Each of these men proves to be absent despite a thorough search put on by ever-anxious politicians, who've now found themselves trapped within a government that has been "left to dry", by its leaders in business — utterly helpless without them.

In a romantic subplot, Dagny and Hank fall deeply in love. Rand refers to their love as a purer kind of love than the one that most men and women experience. These two people have a similar purpose in life, and they see in each other a kindred soul. In the universe of the novel, men and women with purpose are rare and, to an extent, deified — thus making their love especially sacred. Hank and Dagny go on a vacation drive across the USA. They discover, amongst the ruins of an abandoned factory, an incomplete motor that transforms atmospheric static electricity into kinetic electricity. Deeply moved by the significance of a motor which has the potential to completely transform the world, Dagny sets out to find the inventor.
In the final section of the novel, Taggart discovers the truth about John Galt, who is leading an organized "strike" against those who use the force of law and moral guilt to confiscate the accomplishments of society's productive members. With the collapse of the nation and its rapacious government all but certain, Galt emerges to reconstruct a society that will celebrate individual achievement and enlightened self-interest, delivering a long speech (seventy pages in the first edition) serving to explain the novel's theme and Rand's philosophy of Objectivism, in the book's longest single chapter.^[21]

Whilst reading the book, it is impossible not to miss the comparisons with the world of today. In the book, the corruption of the world of industry is one in which favoured Washington insiders gain favours and run their businesses into the ground, all with the support of the government. When thinking of the too big to fail banks, the comparisons are clear. Similarly, the rescue of GM and other failing firms, as well as the Solyndra scandal, are all similar in principle. However, the other point of comparison is more general, which is the obsession with corporate social responsibility, and the pressures being placed upon companies to conform to vague concepts of doing social good. As Rand argues persuasively throughout the book, provided that a company is succeeding on its own merits (i.e. without state support), the employment and output of goods/services that the company provides is sufficient social good of itself.

It was this aspect of the book that was very striking for me. Although I have not done so in this blog, I have on occasion railed against the concept of corporate social responsibility. One particular bugbear is when public companies provide support for charities. This gives a glow for the management of the company, when they give large sums of money, and the CEO will undoubtedly receive acclaim for his generosity to the charity. However, the problem is that it is not the CEO who is being generous, but the shareholders of the company, who see their money being given away without their consent, and who receive none of the acclaim. I would guess, if actually asked, many shareholders might approve of the donations. However, if the questions were asked as to whether they would personally give their own money to charity x, in preference to charity y, then they would probably disagree with donation.

The other point is the incessant bullying of companies by various NGOs, often with the media acting as cheerleaders for the NGOs. Instead of facing down the NGOs, businesses do not have the guts to say 'no' to their incessant demands. I think of one particular example of this bullying, which was the use of palm oil by Cadbury, due to the linkage between palm oil and deforestation. This caused a storm, but in what way is Cadbury responsible for deforestation? The responsibility for this lies in the political structure of the country in which the deforestation is taking place. If the NGOs believe that it is wrong to deforest, their target should be the politicians in the country in question. It is not the responsibility of a company, it is the responsibility of the politicians. The role of a company is to act in the interests of shareholders, not some wider societal good that is determined by a particular interest group. Furthermore, who do these interest groups actually represent? It is not as if they are representative of society, they are not in this sense democratic, but are instead a self-selecting group that represent only themselves.

In this sense, Atlas Shrugged eerily parallels the world of today. People seem to have forgotten that the purpose of business is to produce stuff, and to make profits for the shareholders, and this should be the limit of the business. This is enough good to do in the world. This is not to say that a business might not generate external costs, such as pollution, but these 'externalities' are the matter of reasonable legislation of government, which should ensure that they are met with fair law and regulation that genuinely reflects the costs imposed upon society. A company is a part of society - how can it not be - but its role is not to do abstract social good, but to produce goods and services, whilst employing people along the way. One disturbing manifestation of this can be found in much of the business literature, and that is the use of the term 'stakeholder'. This is the idea that companies are not just accountable to their shareholders, but to anyone who might have an interest in the company, such as suppliers, NGOs, government, employees and so forth. Apparently, as is implied in the term, they have a 'stake' in the company.

But do they? They have not put their money into the company. They do not own it. In many cases, with public companies, the actual owners of the company are pension funds, and the investment funds of ordinary people. These owners of the company should be the only interest of the management. For example, they have no obvious obligations to their suppliers, except to pay them for the goods or services that they supply. They certainly have no obligations to NGOs. For the government, they only have an obligation that they pay their taxes, and operate within the bounds of fair laws that constrain the company from imposing external costs (such as pollution) upon society in the broad. The claim that these different groups hold a 'stake' in the company is to suggest that they have rights that are comparable with the owners of the company. This is the undermining of the principle of property rights. As Ayn Rand puts it, it is 'looting'.

Another point made in Atlas Shrugged is the role of the academic world in the corruption of the role of business. The idea of stakeholders can be found in academic literature, as well as reams of material on corporate social responsibility, and other equivalent ideas. Academia appears as a cheerleader for these concepts, and provides an intellectual gloss for activity which seeks to undermine the rights of the owners of property, the shareholders, in favour of self-aggrandising management, and the nebulous notion of stakeholders. They dress this up in the clothes of ethics, but how is it ethical for a CEO to take all of the social praise, from the media and luminaries, for spending money that should rightfully (for example) be returned to a shareholder as part of their pension. Again, as Ayn Rand puts it, it is looting. And it is looting that the vast majority of society cheers about.

Even the shareholders of a company might cheer this corruption on, with no realisation of how much money they are losing as they do so. This is another element of Atlas Shrugged. With the media, the government, and academia all singing from the same hymn-sheet, the real costs of the distortions to business, the immoral nature of the looting, is lost from sight. In the book, the costs lead to a horrific decline in the standards of living of everyone, as the concept of the social good comes to dominate business, but the link between the decline in living standards is not linked to the distortion of the priorities of business. Instead, the problems of business give greater excuse for yet more intervention in business for the 'social good', creating a downwards spiral. Today, the role of social good as an impediment to the proper operation of business is there, but is in no way as extreme as in Atlas Shrugged. However, it is impossible not to notice that the pattern and direction in the Western world is leading towards the dystopia that is the subject of Atlas Shrugged.

In short, there is much to recommend Atlas Shrugged. The purpose of a company is that it is there to generate the wealth that allows us to have a better standard of living. That is enough.  It is the point that shines most brightly in Atlas Shrugged.

Update, 9 January:

As you will see below, there have been some interesting comments on the post below. After writing the post, I read out the post to a friend who, whilst agreeing with the points made, noted that it would upset some readers. I now have the first comment which expresses discontent with the views. I will address the points made the author, point by point and address my reply to the author.

I always found your economic analyis insighful, but have to say, am beginning to find your politics repugnant to the extent that it's difficult to post on this without breaking your language rules.

Thank you for the kind comments, and the language rule is unbroken. As for politics, we will see.  

"I think of one particular example of this bullying, which was the use of palm oil by Cadbury, due to the linkage between palm oil and deforestation. This caused a storm, but in what way is Cadbury responsible for deforestation? The responsibility for this lies in the political structure of the country in which the deforestation is taking place. If the NGOs believe that it is wrong to deforest, their target should be the politicians in the country in question. It is not the responsibility of a company, it is the responsibility of the politicians."
This is so utterly, utterly ignorant of the realities on the ground in places where the deforestation is occuring I amazed that someone who has travelled at all could come out with such ****. Perhaps China is the only place you've been, but it ought to be obvious that the political and social structures in many places are simply not up to protecting local populations from the predations of Cadbury's or other large corporations that operate in countries with weak governance.

Here you suggest that there is weak governance in the countries in question. I agree with this wholeheartedly. However, it is not the responsibility of corporations to address the many problems in the world, but to act within the laws and bounds of the countries in which they operate. There are far worse problems in the world than those you allude to, such as starvation, war, and so forth. Just as it is not the purpose of corporations to address these problems, it is not their role to address problems of poor governance. The world is a very imperfect place, and corporations could use their profits (or reduce their profits) to address many of the problems. However, the argument given here is that this is not their role in the world, and that individuals (or possibly other institutions) have this role.

Your example of Cadbury 'predating' is an interesting one. As I understand it, Cadbury's only role was buying palm oil, and was not involved in any way in any direct actions in creating palm oil plantations. In doing so, they simply contributed a small amount to global demand for palm oil. As it is, any number of arguments might be applied to problems in the supply of any number of commodities or products around the world. Most companies buy a multitude of different commodities and products, and with each purchase, there may be some problems that might raise issues somewhere in the supply chain. Even something as mundane as purchasing a desk for an office might find that any number of the components or the manufacture of the product might, at some stage, offend the ethics of group a, b or c. How is a company to navigate in a world filled with so many breaches of so many groups ethical principles?

Also, are all of those ethical principles sound? I have long noted those that decry the sweatshop labour in Chinese factories, and who argue that Western nations should not do business with countries that do not have proper labour standards. My argument to such people is that they need to stand in the road of a Chinese peasant village, and try to turn back the people who leave the villages for the better life in the city. I do not think they would receive a positive response from those who are fleeing to something they view as better. I am being a little simplistic here, but as you are a long-standing reader of the blog, you will be aware of the full argument. My point here is that, there are some issues that are framed in ethics but where there are different arguments as to what is even ethical. Again, how can a corporation navigate such contests? For example, I have previously made a case that so-called fair trade is unfair trade, and would encourage companies to shun such products so that real fair trade takes place.

And it is not just me that sees these problems. I did a quick search on child labour, and found this in the Guardian:

According to the UN, a fifth of India's GDP is produced by 55 million children. And, as anyone who has lived or travelled in developing countries will readily attest, the situation is similar across the globe. There are more than 200 million child labourers worldwide, excluding domestic labour, Unicef estimates.
The trouble with Gap's promise not to use child labour is that it immediately raises the question: what would these poor Indian children be doing if they weren't making clothes? Well, in New Delhi, they are likely to wind up hawking on the streets, begging or perhaps worse.
According to available statistics, the vast majority of working children do backbreaking farm work and more than half are engaged in hazardous or dangerous activities, such as working in mines. In addition, an estimated 1.2 million children are trafficked, forced into debt bondage or other forms of slavery (5.7 million), or into prostitution and pornography (1.8 million).
In societies lacking a social safety net, orphans, children from very large families or with sick parents have to find a way to make a living to support themselves and/or their families. In fact, hard as it may be for us to stomach in the affluent west, millions of children would view making clothes, under the right conditions, as a relatively attractive prospect.

The article goes on to suggest that a company opens its own factory, to ensure better conditions for the children. They should develop an ethical child labour policy? Again, how might corporations navigate these minefields? You go on to say:

If money from international corporation X goes on buying cocoa or whatever from country y, with a small portion going to pay bribes to ensure that environmental laws aren't implemented, or aren't ever created in the first place, this the resultant enviromental problems and human suffering is absoultely the responsibility of the corporation. Do you really think that just because this money is paid in another country, or perhaps through one or two middlemen, the responsibility of the corporation or cadbury's somehow evaporates?
In influencing politicians in whatever coutry, how is an NGO going to match the spending power of large corporations?
Thank god not everybody thinks like you.

Here, you seem to be implying that Cadbury's is involved in bribery. I have seen and heard of no such evidence, and this seems more than a little unfair on Cadburys'. If bribery plays a role in the production of palm oil, would it not be better to focus attention and effort on those involved in the bribery; to highlight the actual malfeasance rather than to pick on a company that plays no active role in such malfeasance?

As far as I understand the situation, bribery is illegal everywhere, but the problem is one of enforcement of the law. Hong Kong was an exemplar of what can happen when the laws are enforced, with the island seeing a rapid decline in rampant corruption once laws were enforced. If wishing to address these kinds of problems you discuss, rather than picking upon corporations with no direct involvement, the efforts should be directed to the government in question. However, if a company is involved in bribery, then the pressure groups need to find evidence of this, and they can campaign for the appropriate prosecution within the country that the crime took place. I would approve of such action. You go on to say:

On the subject of these externalities, I think you greatly underestimate the external costs that are created by many industries. I would say that the amount spent on this "corporate social responsibility" is so low that it doesn't in many cases even cover a tiny fraction of the external costs borne by society at large, and is in fact more aimed at the feel good factor that you talk about - both so the CEO can feel good, and also so that customers can feel less guilty.

It is interesting that you focus here on the costs of industry, with no mention of the benefits. This is exactly the point that is made in Atlas Shrugged. Every industry has some cost on the wider world, even if indirectly. However, what we also have to accept is that they also have benefits, and that these benefits (in most cases) outweigh the costs. We must balance these costs and benefits. The benefits of industry are entirely lacking from your comment - but we need industry! On the whole, industry makes our lives better....

You talk about consumers feeling less guilty. However, why should consumers feel guilty in the first place?  If they are exchanging their productive labour for the productive labour of another, then they might be seen to be acting in a moral way. This is a problem highlighted in Atlas Shrugged. To produce, exchange and consume is not a bad thing. In fact producing is a force for good, and this is the good that companies actually do in the world. It is a point I made in my original post. The guilt you describe is the start of the problem.

I agree that, sometimes, corporate social responsibility is sometimes as much about a 'feel good' factor as anything substantive. It returns me to my point in the post about pattern and direction. We are not in the world of Atlas Shrugged but moving in that direction. It links to your point about 'guilt'; we are being persuaded that companies should take on obligations over and above the good that they actually do. The costs may not be large as yet (in some cases, and in some cases they will be large), but they are and will continue to grow if we load on to them the baggage that you imply in your comment. This is the whole point of Atlas Shrugged; we forget at our peril the merits and the good of the profit motive, and substitute is with vague ethical concerns for the social good. As I have said, the output of industry improves our lives, and that is enough of a good in itself .  

I have tried to illustrate the problems with your comment, and I would welcome a response.

Note: Many thanks for the links and other comments, which all add to the arguments made here. Greatly appreciated. Also, it was nice to see you commenting again, Lemming (previous post).