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The Corporation: A “Business” Film Review

Posted on 11 December 2008 by richbond

the_corporation_movieI finally had the chance to watch the film The Corporation. The film centers on the evil committed by corporations as a way to show the failings of capitalism. I thought this film was relevant due to what’s happened over the last year and certainly some would be persuaded by the points made in the film. As a whole the film does make its arguments in a convincing way, but of course that doesn’t mean the arguments are right. It certainly is a film worth watching, but its bias distorts much of the valuable information. Below are major players in the film (an overview of the film is available on wikipedia for further review, and the web-page is linked above), my major criticisms of the film and some recommendations of how it could be more worthwhile.

The major players are Naomi Klein, Noam Chomsky, and Michael Moore. Naomi Klein is of course famous for last year’s book The Shock Doctrine, in which she took a little known Milton Friedman phrase and morphed it into a doctrine she believes was used to justify the Iraq war (her book has been challenged by Johan Norberg of the Cato Institute). Noam Chomsky is of course professor of Linguistics from MIT. He’s notable for his anarchist views and outspoken criticism of US foreign policy and capitalism (it was a Chomsky book that Hugo Chavez said was suggested reading for all people during a UN appearance). Chomsky is also the subject of another film by Achbar, Manufacturing Consent. Most people should be familiar with Michael Moore. He may be the most famous documentary film-maker in history and he has a fairly strong following. Milton Friedman is also part of the film, though his time is somewhat short, his appearance is significant. Milton Friedman is the most important economist of the last 50 years with a very liberal position when it comes to businesses and how they operate. Friedman is the most significant counter-weight in the film. There are many other participants who contribute to the film, but these four were the most significant in my mind.

The movie analyzes corporations as “persons” and repeats the concept that a corporation is a legal person. This point is driven home like no other point in the film. This becomes most significant when the corporation is diagnosed psychologically. The tactic is treating the corporation as a person and then assigning it human traits, which conveniently fit the bill for a psychopath. The trait is cited and then a corporation is shown to have committed an act that fits the trait. I find this tactic very dishonest, because it’s easy to steer people’s minds down a track when you set such narrow criteria and cherry-pick examples. The film-makers also fail here, because each trait is “fulfilled” by a different corporation. If they wanted to show that corporations in general were psychopathic, they should have picked many corporations and shown how they all compared against the psychopathic traits. Because the purpose of the film is to maintain the effects of drama and not serve as a scientific analysis, it’s not surprising that effort was avoided. This is really just a straw-man argument and resembles some of the tactics used in the 9/11 conspiracy film Loose Change, which uses similar manipulative language and news reports to build a story that 9/11 was an inside job.

Like Loose Change, The Corporation needs some serious fact checking. I have not had the time to look into every claim made by the film. In fact, I don’t necessarily think that they are lying or making things up. I don’t doubt that much of what they show happened. The problem comes in the telling of the story and the way facts can be turned around a bit or motives assigned that may or may not exist. Two that stick out came from Michael Moore’s mouth. I already have enough trouble taking what he says seriously. He is not reliable source for much of anything. I believe he poorly understands information and does not sufficiently understand the counters to his arguments. In the film he talks about Coke selling Fanta in Nazi Germany as a way to make money on both sides. A simple search on snopes brings up strong counters to what Moore stated. While he wasn’t entirely wrong, he got enough wrong to create a great deal of distortion. He also referenced the Columbine Massacre and the fact that Lockheed Martin is the largest employer in Littleton. His point being that the parents fail to make the connection between what they do for a living, building WMDs, and the Massacre. The connection is a stretch and not very meaningful. I also take issue with the fact that he implies that all Lockheed Martin makes is WMDs. I am a Lockheed Martin employee (just to expose my bias) and I don’t work on WMDs; I work on satellites. A great deal of the work at Lockheed Martin has little to do with war or WMDs.

Since the psychopathy of corporations are the center of the film, you would expect that the film-makers would have had a solution. Not really. It’s mostly that corporations are bad and it’s in their DNA. The very existence of the corporation is the problem. What’s the solution, Government? The same group who had trouble handling Hurricane Kartrina? I’m not anti-government by any means, but I find that to be a lazy solution to any problem. It doesn’t really address the actual problems caused by corporations. It also negates all the evil that has been done by governments as well. It takes a very noble government to control itself when it has the kind of power it seems some people want to give it. Corporations may be legal persons, but they have no emotions. Milton Friedman is quoted with his famous line that corporations’ only obligation is to get a return to the shareholders. Because this is be true, it’s easier to hold corporations accountable than it is the government when something goes wrong. The only wrench is when government and corporations get too friendly.

While much of the film bothered me intellectually, there were some things I found beneficial. The inclusion of Sir Mark Moody-Stuart, former chairman of Royal Dutch Shell, I thought was a nice touch to the film. The film-makers included footage of a protest outside of Moody-Stuart’s home. The protesters hung a sign on the house accusing him of being a murderer of the environment, because he was the head of an oil company. In the footage, Moody-Stuart actually came out and reacted well to the protest and ended up having tea with the protesters and a rather nice discussion. This story added a human element and showed that the film-makers understood the fact that the heads of corporations are people too. I think this fit in the film without affecting their premise, because they are looking at corporations as something separate from humanity.

The Corporation could be a better film. I think it made some good point in showing what some corporations have done and the negative effects that resulted. Certainly, there are many instances where corporations have done horrible things, whether intentional or not. I think it’s important to know about those kinds of events so they don’t continue and the damage can be minimized. To really bring that home, the film-makers should have emphasized the good that corporations do as well. Rather than show the corporation as a psychopath, the misdeeds have been the center of the film with the people who committed the misdeeds held accountable. The film could have been an analysis of the market system and how bad things may occur, then suggest ways to fix the any problems. Unfortunately the film falls short and amounts to a propaganda film against the capitalist system. I still recommend the film, but more to know what’s being said than for any educational value. Part one can be found here; you can follow the trail to get the rest of the film. Part one of a critique can be found here.

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Is Big Oil To Blame For Big Gas Prices?

Posted on 31 July 2008 by Jason Guthrie

As you may have heard Exxon Mobile released the financial results from the second quarter. The Company broke its own record for the largest quarterly earnings ever booked by a corporation - $138 billion of revenues for net income of $11.68 billion. That turns out to be about $1,486 each second of every day!

The news of the insane profits instantly fueled the hate towards the public face of high gas prices - the oil companies.

Obama said in a statement, “Perhaps the only thing more outrageous than Exxon Mobil making record profits while Americans are paying record prices at the pump is the fact that Senator McCain has proposed giving them an additional $1.2bn tax break.”

And on Obama’s heels, four senior Democrats in Congress called a press conference critisize the largest US oil companies for spending more on stock buy-backs to enrich shareholders than on energy exploration.

Some argue that Exxons profit margin of 8.5% is significantly lower than other blue-chip stocks and that the company is actually not making that much money. But its hard to hear the words “record profits” at a time when there are “record prices.” It doesn’t take much to convince Americans that the two are related.

But the real question is, are the two related? Is a profit margin (defined as the net income divided by revenues) of 8.5% too high for a company that sells a commodity? After all, it is publicly held and must do its best to earn a healthy return for its investors. Aren’t they just doing their job.

After a little research, and a pass through their most recent press release… I’m convinced its a little bit of both. Is Exxon taking advantage of the high gas prices? Probably. Are they the root of all evil and the cause for the $4.95 gas in San Francisco? Probably not.

I spent a few minutes pulling up the most recent financial statements for a few other commodity companies to see if a 8.5% margin was fair. I was surprised to learn it was:

Exxon: 8.5%
Coal: 9.2%
Sugar: 4.6%
Aluminum: 8.3%

Of course this back-of-the-napkin approach has its flaws. An in-depth look into the financial statements of these industries is needed to get a clearer picture. However, it does shed a little light (or at least a little perspective) on the subject of high gas prices.

As much as I would like to blame big oil for the dent in my wallet, I’m not sure it’s entirely their fault.

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The Accounting Behind iPods

Posted on 09 February 2008 by Jason Guthrie

Apple announced in a quarterly earnings call last year that they’d be doing something interesting (to me at least) with the revenue recognition of iPhones and the AppleTV. Instead of recognizing the revenue of a $500 iPhone on the date of sale or delivery, Apple would recognize the revenue over time - 24 months to be exact. Why the difference? Apparently Apple had decided that enough features would be rolled out subsequent to the device’s release that it wouldn’t be complete. Put another way, bundled in the price of the iPhone was 2 years worth of free upgrades. As far as GAAP (Generally Accepted Accounting Principles) go, this may or may not have been the correct treatment. In my mind, I could come up with arguments for and against this treatment. But in the end Apple, and its auditor KPMG, thought that the deferral of revenue into the future would be appropriate.

Now just a few weeks ago, at the Macworld Expo in San Francisco Apple announced software upgrades to the iPhone, the AppleTV, and the iPod Touch. As expected, the iPhone and AppleTV owners weren’t charged a dime because that type of upgraded was included in the original purchase price.

However, the software update to the iPod Touch was more significant that the others with the addition of five new mobile apps—Mail, Maps, Stocks, Weather, and Notes. So Apple decided that such a significant software upgrade would require $19.99 to activate. Now I have no problem with Apple charging for the new apps. In fact, I think it adds to the perceived value that the iPod Touch has and adds even more value to the software running the iPod Touch as well as the iPhone. What I do have a problem with is everyone and their dog explaining that Apple was forced to charge for the upgrade, citing GAAP accounting principles or even worse, Sarbanes-Oxley.

Doesn’t anybody remember the $1.99 charged for the 802.11n wireless adapter last year? Everyone blamed the extra fee on accounting rules then, just as they are now. But the more stories I read, the more that this argument appears asinine. Why would any company be forced to charge for a product? Hasn’t anyone heard of Google?

The simple fact is that Apple charged $19.99 because they thought the upgrade was worth it. Whether or not you agree is up to you, but it had nothing to do with accounting principles. In fact, I went back and dug up this quote from Lynn Turner, former chief accountant of the Securities and Exchange Commission, which I thought explained the situation perfectly:

“[generally accepted accounting principles] doesn’t require you to charge squat. You charge whatever you want. GAAP doesn’t even remotely address whether or not you charge for a significant functionality change. GAAP establishes what the proper accounting is, based on what you did or didn’t charge for it.”

In this light, the revenue recognition treatment of the iPhone and AppleTV appears reasonable because the accounting rules apply to how the company dealt with the $500 it had already charged customers. In fact, it is probably in Apple’s best interest to “smooth” the earnings of the iPhone over 24 months instead of recognizing it all up front and then explaining subsequent drops in earnings. In that case, the accounting treatment used is a privilege for Apple, not a requirement.

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Countrywide’s White Knight - Bank of America

Posted on 11 January 2008 by Jason Guthrie

I wrote earlier this week about the market’s reaction to the rumors that Countrywide Financial, one of the country’s largest home-mortgage lenders, would file bankruptcy soon. I mentioned that although the rumors may have been nothing more than a scare tactic, there was probably some truth in the fact that Countrywide was struggling to the point that bankruptcy was possible.

So what happens when a company is doing so bad that the market begins believing it might have to file bankruptcy? They get acquired of course! Bank of America announced today that it would but Countrywide Financial for $4 billion (with a ‘b’). But the fact that Countrywide was willing to take a deal that valued it shares 8.3% below trading levels reveals just how desperate the firm was.

Can you tell when the announcement was made?

Of the deal, Stifel Nicolaus analyst Christopher Brendler said:

“This deal comes together because no one wanted to see Countrywide fail; it is a win-win for everyone involved, but doesn’t indicate that the mortgage problems are behind us.”

But it does mean that BofA will likely become the nation’s largest mortgage lender. Brendler also said Countrywide is no sure bet for BofA. The company still has a dicey portfolio, with $80 billion in high-risk mortgage loans. Several months ago, many of these loans were not considered high risk, but the deterioration of the markets now makes them so

So let’s all give BofA a round of applause for helping to stabilize the lending market (and pick up a a major lending company at WalMart prices) and wish them luck with their new prize!

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46 Tax Deductions for Bloggers (or any Web Worker)

Posted on 07 January 2008 by Jason Guthrie

There’s a fairly comprehensive list I came across over at ProBlogger.net for deductions that bloggers might overlook; however, the 46 Tax Deductions That Bloggers Often Overlook can also apply to anyone running their own business from home.

Warning: when most people read a list like this they get excited and believe they are now able to deduct everything but the kitchen sink. Quoting IRS Publication 535:

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

It is important to distinguish business expenses from:

  • The expenses used to figure cost of goods sold,

  • Capital expenses, and
  • Personal expenses.

Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.

For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and generally is not deductible.

I just wanted to warn business owners that you need to be very careful when deducting business expenses, especially when allocating expenses between personal and business use. These types of deductions are audit red flags for the IRS, so be sure to keep detailed records of your justifications for making business deductions.

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