When the German car maker Daimler-Benz announced plans to acquire a controlling share of Chrysler Corp., Jewish novelist Cynthia Ozick announced in the Wall Street Journal that she would never buy a Chrysler. Other Jews (some of whom would never buy a Chrysler because they’d only ever buy a Mercedes) saw the issue very differently. Last May, shortly after the merger was announced, the Jewish Bulletin carried an article by Natalie Weinstein surveying the range of opinion, particularly among Holocaust survivors. The responses ran the predictable gamut. Some agreed with Ozick. But others, such as Rabbi Ted Alexander, took their cues from Deuteronomy, which admonishes that “Fathers shall not be put to death for children, neither shall children be put to death for fathers.” “Going by that verse of the Torah,” said the rabbi, “I cannot blame this generation.”
The rabbi’s analogy treats the Daimler-Benz of 1998 as the “child” of the Daimler-Benz that employed slave laborers in 1943. From a strictly legal perspective, the analogy is inaccurate: Under the law, a corporation lives forever. The entity that controls Chrysler is exactly the same entity that collaborated with the Nazis, not a descendant.
But it would be wrong to view an essentially moral question from a strictly legal perspective. A corporation is not a moral entity; it’s the corporation’s flesh and blood owners who are moral entities. From that perspective, the rabbi’s analogy fails in a different way: The current owners of Daimler-Benz are not, by and large, the children of previous owners from half a century ago. Stocks trade hands every day.
That observation seems to strengthen Alexander’s position. If we should not punish children for the sins of their fathers, then surely we should not punish children for the sins of their fathers’ countrymen. But that analysis can be definitive only to those who believe that nothing can be added to the words of Deuteronomy; otherwise there’s more to be said.
When is it permissible to punish one person for the wrongs of another? The question is a tangle of moral and economic issues. Morally, we’re concerned with things such as justice, fairness, and individual rights. Economically, we’re concerned with creating good incentives.
To see how uncomfortable it can be when economic and moral issues brush up against each other, consider the revision of accident law that’s been proposed by the economist-iconoclast-law professor David Friedman. Friedman suggests that when two cars collide causing a total of, say, $10,000 worth of damage, everyone who was within a mile of the accident should be required to pay a fine of $10,000. That way, anyone who sees an accident about to happen will take all cost-justified measures to prevent it (perhaps by honking furiously to warn of impending danger). To my knowledge, Friedman’s proposal has never struck anyone as fair, but at least it gets the incentives right.
Or does it? My own view is that the Friedman plan fails even by its own strictly economic criteria, because it creates an incentive for people to avoid high-accident areas and take inefficiently long routes to wherever they’re going–or to cancel their trips entirely. In principle, it could even increase the accident rate by scaring potential good Samaritans off the roads. Enforcement, of course, would be a nightmare.
Those objections aside, Friedman’s proposal does illustrate the tension between economic and moral considerations. And Friedman’s innocent bystanders are at least partly analogous to Daimler-Benz’s innocent stockholders. Let’s keep those lessons in the back of our minds as we revisit the DaimlerChrysler controversy.
Corporations can be punished for misdeeds in at least two ways. One is a consumer boycott and another is a (voluntary or involuntary) fine. Both kinds of punishment have been visited on Daimler-Benz (though arguably at levels that are small compared with the underlying offenses). In the 1980s, the corporation paid about $11 million to the descendants of its slave laborers.
Who exactly suffers from those punishments? You might think the $11 million came from the pockets of those who owned Daimler-Benz stock in the 1980s, but that’s not necessarily the case. Suppose, for the sake of argument, that in 1950 it becomes foreseeable that Daimler-Benz will eventually make reparations. Then every share of Daimler-Benz stock sold between 1950 and 1980 sells at a discount reflecting that expectation. Without the discount, nobody would buy the stock. So given sufficient foresight, the prospect of a 1980 punishment hurts the 1950 owners, even if they sell in the interim. And those who buy stocks after 1950 are not punished at all, because the discount compensates them for the fine.
T herefore, if all companies are permanently on notice that bad behavior will eventually be punished, they have an incentive to behave well at all times. That’s an outcome that seems both fair and economically efficient: The punishment falls on the sinners and thereby deters the sin. But here are two caveats:
First, even if punishment is inevitable, it falls not on the owners at the time when the sin is committed, but on the owners at the time when the sin is discovered. After all, it’s not till the discovery that the stock price falls. So punishing past corporate sins is not like fining everyone who was present when an accident occurred, but when it was reported, which seems both unfair and pointless. But this caveat has a countercaveat: The prospect of future punishments gives you an incentive to investigate the corporation’s history before you buy, which improves the chance that bad behavior can be uncovered while the actual perpetrators can still be punished.
Second, it’s hard to maintain a consumer boycott, especially when the goal is to punish the past rather than to influence the future. Consumers can quite reasonably argue that history can’t be changed and so is best forgotten. As a result, corporations have little to fear from boycotts unless consumers commit themselves to maintaining the boycotts even when they serve no purpose. It’s hard to imagine how such commitments might be maintained, which suggests that fines are more effective than boycotts, especially if they are written into law rather than imposed on an ad hoc basis.
I f you’re looking for a firm conclusion to all this, you’ll have to look elsewhere; I hope I’ve at least illuminated some of the attendant moral and economic issues–though even these can become very different in situations that are superficially similar. (Click for an example.)
And punishing evil corporations is very different from punishing evil governments. In the first case, we punish stockholders who invested voluntarily, while in the second we punish taxpayers who might have bitterly opposed their government’s policies. But that is a topic for another column.