It's Legal but It Ain't Right: Harmful Social Consequences of Legal Industries

by Nikos Passas, Neva R. Goodwin

Overview

Many U.S. corporations and the goods they produce negatively impact our society without breaking any laws. We are all too familiar with the tobacco industry's effect on public health and health care costs for smokers and nonsmokers, as well as the role of profit in the pharmaceutical industry's research priorities. It's Legal but It Ain't Right tackles these issues, plus the ethical ambiguities of legalized gambling, the firearms trade, the fast food industry, the pesticide industry, private security companies, and more. Aiming to identify industries and goods that undermine our societal values and to hold them accountable for their actions, this collection makes a valuable contribution to the ongoing discussion of ethics in our time.

This accessible exploration of corporate legitimacy and crime will be important reading for advocates, journalists, students, and anyone interested in the dichotomy between law and legitimacy.

Nikos Passas is Professor in the College of Criminal Justice at Northeastern University.

Neva Goodwin is Co-director of the Global Development and Environment Institute at Tufts University.

Product Details

ISBN-13:	9780472068692
Publisher:	University of Michigan Press
Publication date:	01/04/2005
Series:	Evolving Values For A Capitalist World
Edition description:	New Edition
Pages:	288
Product dimensions:	6.00(w) x 9.00(h) x 1.10(d)

About the Author

Nikos Passas is Professor in the College of Criminal Justice at Northeastern University.

Neva Goodwin is Co-director of the Global Development and Environment Institute at Tufts University.

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It's Legal but It Ain't Right
Harmful Social Consequences of Legal Industries

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The University of Michigan Press
Copyright © 2004
University of Michigan
All right reserved.

ISBN: 978-0-472-06869-2

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Chapter One Introduction

A Crime by Any Other Name

Nikos Passas and Neva Goodwin

Billions of U.S. dollars and enormous intellectual and human capital are spent annually fighting the "crime problem," which is essentially constructed as a "street crime problem." Students of white-collar crime and several nonprofit organizations have tried to call attention to "crimes in the suites," but these efforts have had limited impact on actual public policy (Clinard 1990). There is convincing evidence that corporate misdeeds victimize more people-even entire societies-than street offenders; nevertheless, public perceptions and policy priorities continue to support practices whereby "the rich get richer and the poor get prison" (Reiman 2000).

Recently, the threat of transnational organized crime (TOC) has become prominent in media, policy, and intelligence circles. Without any universally accepted definition of TOC, the emphasis is usually on misconduct perpetrated by stereotyped ethnic and marginal groups, while most authors neglect the interfaces between legal and illegal enterprises (Passas 1999b, 2003). For example, Britain's National Criminal Intelligence Service (2000, 6) stated that an organized crime group meets the following criteria: "contains at least three people; criminal activity is prolonged or indefinite; criminals are motivated by profit or power; serious criminal offences are being committed." In principle, there is no reason why this definition would not apply to big corporations with established records of repeated felony convictions (e.g., General Electric). However, the groups that the intelligence service deems to represent threats are mostly Albanian, Turkish, African, Colombian, West Indian, and Asian ethnics, along with some "British Caucasians" and motorcycle gangs. So even when official agencies attempt to define the problem, some of the most serious and powerful offenders are in practice excluded.

Biases in criminal justice and other legal areas do not stop here. By concentrating on what is officially defined as illegal or criminal, an even more grave threat to society is left out. This threat emanates from corporate practices that are within the letter of the law but have serious adverse social consequences. Quite often the main reason why such practices remain legal and accepted by society is that industries mobilize financial and other resources to avoid stricter regulation. The point is most dramatically illustrated in recent revelations regarding the tobacco industry, one of several industries whose products, practices, or side effects are seriously at odds with the public interest. Additional examples may be found in the gambling industry, weapons producers, energy companies, private security firms, petrochemicals, pharmaceuticals, biotechnology firms, offshore financial institutions, law firms, and antiquities traders, most of which will be discussed in this book.

This book is not about crime-not even white-collar and corporate crime. Readers interested more in such issues can turn to the relevant sociological and criminological literature (Braithwaite 1984, 1985; Calavita and Pontell 1993; Coleman 1987; Fisse and Braithwaite 1993; Levi 1995; Pearce and Tombs 1998; Ruggiero 1996; Shapiro 1990; Simpson 2002; Snider 1993; Stone 1975; Yeager 1995). The book is also not intended as a wholesale indictment of corporations in general. Rather, it is about how corporate power can be and does get abused. It is about the unhelpful and damaging influence corporations exert on law- and policymaking processes.

This book argues that we have set our priorities wrongly by overlooking misdeeds whose consequences are even more threatening than what is legally designated as crime. Unfortunately, instead of attempting to remedy this problem, we are moving in the opposite direction. Globalization creates situations that require ever more effective regulatory action and oversight, but part of the neoliberal agenda around the globe is to deregulate businesses and further reduce the role of the state. Not only does this have criminogenic consequences of its own (Passas 2000), but it also furthers certain types of misconduct that undermine democratic processes and sustainable economic growth.

The first section of this introductory chapter will outline some types of corporate practice that are entirely lawful yet are often more harmful than what is defined as crime. It would not be helpful to stretch the concepts of crime and criminality to cover these practices, yet their negative impact is so substantial that even fervent proponents of free market systems can see that these practices generate more harm than good for society overall. The immediate effects often fall on underprivileged people or countries, but in a broader way there is harm to global capitalism itself.

The second section will deal with a different kind of corporate misdeeds, where it is appropriate to apply a revised or newly focused definition of crime, following both the logic and spirit of criminal law. Many companies tread a very fine line, moving actions from one place where they would be criminal to another where they are not so defined yet continuing to make money in the places that would disallow these offshore activities. Globalization has greatly facilitated such "crimes without lawbreaking." This section of this chapter will suggest ways of reconsidering our notion of crime to encompass such situations.

Lawful but Awful

We are going to discuss a certain class of unintended, harmful side effects, things that happen because they produce benefits to some corporation and that are not stopped because the corporation in question is not where the bad effects are felt. We need a name for this class of thing: economists and environmentalists-in a rare instance of unified thinking-have provided the needed term (albeit a rather clumsy one), negative externalities.

The underlying idea, on the economic side, is a theory of market functioning that says that markets convey to all economic actors (producers, consumers, and so forth) signals that indicate whether the results of actions are wanted or unwanted. If a producer puts out an Edsel, the market sends back the signal that nobody wants it. If people like the environmentally concerned image of Ben and Jerry's ice cream, they choose that brand. The market conveys these preferences to the producers, and we get more Ben and Jerry's ice cream and fewer Edsels.

The problems-and they are many-happen when some of the people (or animals or ecosystems) who are affected by economic actions cannot express their reactions through the market. For example, the people in the infamous "cancer alley" region did not like having ugly, smelly factories built nearby and did not want to suffer their carcinogenic effects, but this was a poor region whose residents did not show up in the market response to the cancer alley industries. These people were effectively outside of-external to-the market. Similarly, there is a difference between a homeowner who gives the neighbors pleasure from her front garden and one whose barking dogs create a nuisance, but this difference is also largely external to the relevant (real estate) market. The house with the pretty garden may have a higher resale value, but not because of the neighbors' pleasure; the impact on neighbors in this case is a "positive externality": a case where an economic act has a desirable result that is not fed back through the market to alter the behavior of the economic actor. Fortunately, the market is not the only conveyer of information: positive externalities-where the good effect is not reinforced by a market signal-can be reinforced by neighbors' smiles and other noneconomic rewards. There are some important areas where the lack of market reinforcement for positive externalities is a real problem: for example, corporations that provide good educational opportunities for their workers may not reap the full economic benefits if workers gain skills that they can transfer to other jobs. However, an exclusive focus on negative externalities will give us quite enough to discuss.

Economists care about externalities because the justification of markets is that the information they convey-especially through prices-will motivate economic actors to do what is best for the whole of society, "as though led by an invisible hand," in Adam Smith's famous metaphor. When this does not happen, the market is simply not doing what it should: economic theory no longer applies, and if society cannot rely on markets to guard its interests, the question of market regulation becomes urgent.

Environmentalists care about externalities because the best-known examples are negative environmental externalities, where producers generate (as by-products) pollutants that harm people who are not in the market loop. Their concerns, their health, their grief or anger do not get translated into market signals that would say, "Stop polluting."

Everyone else cares about negative externalities, too, it turns out (once they get past the awkward and unfamiliar phrase), because concern for fairness is a human universal. And it is clearly unfair for an economic actor to profit from an action that harms someone else.

That is the central topic of this book: the ability of a number of industries to generate huge negative externalities, forcing society to bear significant portions of the real cost of these products. Ironically, at the same time that arguments in favor of economic liberalization have gained support after the end of the Cold War, hidden industrial subsidies have grown in the form of costs externalized-passed on to an ever wider circle of stakeholders affected by corporate actions. At this time these unacknowledged costs of legal businesses are mainly borne by groups without voice: the weakest and least privileged groups. However, negative externalities are potentially destructive to economic growth, democratic institutions, and processes of democratization in many parts of the world. In the extreme, negative externalities may also fuel discontent and militancy, the effects of which could spill over to neighboring or even distant places. Therefore, even those who are not concerned about the people who lack voice have other reasons to care about negative externalities.

A common feature of all of the industries examined in this book is their ability to define their conduct as legal while blocking attempts at regulation designed to reduce harmful effects and externalities. The ability to attract substantial pools of capital is often part of this equation. At the same time, the case of the National Rifle Association (see Diaz, this volume) shows that the ability to mobilize nonmonetary resources can be just as effective. In some cases, grassroots organizations are energized in efforts to ensure the availability and low price of desired goods. In other cases, such organizations are in fact funded or activated by big industries, such as tobacco (thus earning them the title "Astroturf organizations"; see Daynard, this volume). All organizations seek to influence their task environment (clients, suppliers, competitors, and regulators). What distinguishes the industries we will highlight is that they are not only highly successful and resourceful but also ultimately detrimental to society. This reality contradicts standard assumptions about the overall advantages society is supposed to derive from the success of legal enterprises. In a sense, the more these industries flourish, the more societies fail. Indeed, the success of some legal businesses, such as weapons traders or private correctional corporations, can be taken as an indication of societal failure.

The industries with very substantial negative externalities can be divided into three general categories. First, some may be classified as antisocial because their product per se is harmful. Tobacco, weapons, pesticides, and gambling are four obvious cases (see chapters 2, 3, 4, 6, and 9). Demand certainly exists for those products and services. A strong argument can be made, however, that society would be better off if those industries did not operate at all or radically altered the way their products are made and marketed.

Second, other businesses furnish legal and desired goods or services, but their production or marketing processes generate hazardous wastes or socially undesirable consequences. This category is illustrated by the factory farming of chickens and hogs as well as by the energy, petrochemical, and pharmaceutical industries, private security firms, offshore financial institutions, and the antiquities business as they now tend to operate (see chapters 5, 7, 8, 10, and 11). One variation within this category-not the sole subject of any chapter in this book-is that of "facilitators," industries that assist others in externalizing the costs documented in this book by keeping practices legal and holding critics or controllers at bay. Such services are provided by accounting, law, and lobbying firms. (On lobbying, see Silverstein and Taylor, this volume.) Some of these firms specialize in assisting antisocial, marginally legal activities, while others do it only occasionally.

Finally, there are industries that deliver privatized public functions or that support public functions but do so in ways that produce predictably adverse consequences (mostly, but not always, unintended). Perhaps the process of privatization has gone too far. Or perhaps some privatized functions require special supervision that the system does not provide. Examples of this category include private security firms (which supply mercenaries and private armies; see Howe, this volume), or private corrections corporations, established to make profits while managing prisons. Here we find an inherent conflict between public interest and private profit. The more such industries grow, prosper, and increase their market share, the worse off societies become in terms of both financial and human capital-that is, more people find themselves behind bars, stigmatized, disenfranchised, wounded, dead or captured in private wars, homeless, unemployed, forced to emigrate, and so on.

There is a common assumption that if an industry is legal, it is basically benign and beneficial to society. This obscures the fact that, on balance, society is negatively affected by allowing certain operations and practices to continue. Not everything that is good for business is good for America or the rest of the world. Negative externalities that remain hidden from public view are sometimes more dangerous than recognized social problems, such as crime. Unfortunately, the generators of these externalities often have retained their viability by shaping public opinion and the legal environment. They manipulate the media and persuade policy- and lawmakers or purchase their support through extensive lobbying and political campaign contributions. As a last resort, these industries can effectively blackmail legislators and policymakers by raising "national economy" types of arguments: "overregulation" and "government interference" in these businesses will render them uncompetitive or unprofitable, forcing them to cut down production or services, lay people off, and thereby negatively affect local communities or the whole country.

Whether or not the beneficiary of an externalized cost has contributed to public ignorance or confusion, the enduring possibility of externalizing costs usually depends on keeping the externalities unclear, poorly understood, or regarded as inevitable. Alternatives are thus not considered or are assumed to be too costly. Critics of the industries in question are few and tend to be associated with partisan or radical groups, which are unable to reach a wide audience or which alienate those who do not subscribe to their political views. Thus, the major negative externalities arising from legal practices and legitimate industries have not been successfully constructed as a social problem. As a result, little or no public debate occurs regarding what can or should be done about them.

Our first task, then, is to address the issue of perceptions by defining the problem. Previous attempts to construct a social problem out of routine activities of powerful actors have had limited impact as a result of misplaced moralizing, the use of loosely defined criteria of wrongdoing, and the introduction of subjective standards regarding what is desirable, what is harmful, and what should be criminalized. To avoid these pitfalls, we need to identify observable negative externalities, including physical, financial, and environmental costs as well as the undermining of democratic systems, economic growth, and international trade and the creation of an environment in which crime can flourish while some other valuable potential withers away. These categories will be outlined in the remainder of this section.

(Continues...)

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Table of Contents

Contents 1 Introduction: A Crime by Any Other Name Nikos Passas and Neva Goodwin....................1
2 The Cigarette Industry Richard A. Daynard....................28
3 Externalities of the Arms Trade Loretta Bondi....................43
4 Firearms: Another Peculiar American Institution Tom Diaz....................74
5 Leashing the "Dogs of War" Herbert Howe....................101
6 The Costs of Legalized Gambling: An Economic Approach John Warren Kindt....................115
7 The Licit and Illicit Trade in Antiquities Patty Gerstenblith....................138
8 The High Price of Cheap Food Mark Ritchie....................178
9 Accountability in the Pesticide Industry Peter Riggs and Megan Waples....................194
10 Titans of the Enron Economy: The Ten Habits of Highly Defective Corporations Scott Klinger and Holly Sklar....................230
11 Profiting through Influence: The Pharmaceutical and Lobbying Industries Ken Silverstein and Jess Taylor....................253
List of Contributors....................277

Editorial Reviews

"It's Legal but It Ain't Right chronicles the abuse of power and privilege by businesses that defy the strictures of law and limits of regulation. Contributors stretch the conceptual boundaries of corporate deviance across a wide range of industries at a time when standards of corporate social responsibility and good corporate citizenship are in flux."
—William S. Laufer, Professor, The Wharton School of Business



"This delightful and serious book involves a matter I have long felt of first importance. That is our tendency to make social truth and acceptance conform to personal or larger corporate interests. On this I have written , but gladly yield to this persuasive parallel. No one concerned with literate, informed, and relevant—-as distinct from self-serving—-truth should miss It's Legal but It Ain't Right."
—John Kenneth Galbraith



"This absorbing and well-written book of essays on the harmful consequences of legal industries skillfully illuminates the ways in which some corporate harms fail to be transformed into criminal law-making and enforcement, and offers cogent suggestions for better regulation in the public interest."
—Dr. Michael Levi, Professor of Criminology, Cardiff University

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