We’re number one; We’re number one!
Except when we are not anywhere near
In days as gone as the setting sun
This empire has passed from first to tears
Except for Bernie’s Billionaires
Who write and relish the rules
Of Citizens United and Wall St. shares
And we let them, we fools
The
recent book Saving Capitalism by
Robert Reich is mandatory reading for anybody who cares about the details of
our current economic disease.
Intuitively, perhaps, we have all figured out that the American
capitalistic system is skewed for the average person to be screwed. As Reich explains, the total system is
broader than we think. It includes
the tax subsystem, of course, but that could not explain our wide disparity in
wealth by itself. It includes a
political subsystem, but that does not explain the legal basis for the axis of
money and power. It includes the
judicial subsystem including Supreme Court decisions like Citizens United, but
that does not explain how Goldman Sachs is a “person” that can never go to
jail. It includes election of
judges who then make judgments favoring major contributors to their elections,
but that does not explain large inequities in state systems that enhance
gerrymandering that, in turn, promotes long-term disenfranchisement of selected
voters. Truly, the devil is in the
details and Robert Reich has researched the details with enthusiasm bordering
on fanaticism and finesse bordering on precision. As a spoiler, I agree completely on his analysis, but feel
that his conclusion is wildly optimistic.
In reading the history of the 20s, I cannot envision any voluntary
shrinkage by the haves to either assist or even to mollify the have-nots. In the 20s, the very wealthy
corporations and individuals hired private security and convinced many local
and state governments to force their will on workers, their unions and even the
families of the working class.
Yes, I know compromise would be logical and self-preserving in some
ways, but I believe that those with great wealth and property will, once again,
aggressively protect their property and privilege until they cannot withstand
the forces around them and then they will flee our nation when that strategy
fails. We have built an
aristocracy and it may take a 21st century (virtual) guillotine to
convince the privileged that compromise works best and aristocracy is
unaffordable in the long run.
Mr. Reich
posits that outcomes depend more upon decisions than on the policies of our
capitalistic variant. He shows that
critical politco-economic decisions are made in the areas of: Property, Monopoly, Contract,
Bankruptcy, and Enforcement. If
you go back to the bad old days of the 18th and 19th
centuries, we had a largely agrarian economy and most property was real land or
the structures built on that land.
We still use the term “real property” today, but the percentage of
property considered to be “intellectual property” is far greater than ever
before. Worse, the rules governing
intellectual property have progressively favored longer and longer granting of
exclusive rights to that property.
Had the wheel been just recently invented and patented, nobody could use
wheels without a license for the next 81 years. Witness the 2015 legal kerfuffle over rights to the “Happy
Birthday” song and lyrics. Yes,
you can now sing it without a paying a royalty, but somebody had to bring it to
court for that to happen. In some
areas of commerce, intellectual property rights lend themselves to a monopoly
such as in areas of social media, but even the lowly razor long used in
shaving, grants the Gillette company a virtual monopoly for a fairly simple
tool as the purveyors of a monthly razor subscription service just learned by
lawsuit. Start-ups are at a distinct disadvantage and politicians that
continuously add to the exclusive rights periods of property, seem to get a
share of the largess through campaign contributions by firms wanting to protect
their property.
In the
area of contracts, time was when most contracts were between equals or
comparables, and breaches were handled by lawsuits. Now that is so constrained
as to be rare. You typically sign
an agreement to proceed to mandatory arbitration paid for by a large company
that has deep pockets and pays for that arbitrator with the result that over
70% of decisions favor that purchaser of the arbitration service. By contrast, in court only 40% favored
the corporation. Arbitration works
well for your telephone or cable-company, but how well does it work for you as
a consumer? Likewise, an agreement
not to compete between drug companies combined with the time extension of
exclusive rights means that you, as a meds purchaser will pay a higher price
because competition has been legally forbidden and the time to go generic has
been pushed off into a distant future.
Both the original and generic makers are blessed with high profits while
you are cursed with their legal but morally questionable contract. You lose.
Bankruptcy
was an early capitalistic concept that permitted individuals to get away from
the threat of debtors’ prison, but there are serious questions as to how
decisions are made to implement that concept. Student debt cannot be eliminated through bankruptcy, yet
Donald Trump has declared bankruptcy at least four times. Those bankruptcies resulted in the
impoverishment of people who were not paid for their labor or their “earned”
pensions (as also with United Airlines) and many suppliers of goods and
services were left with pennies on the dollar while Trump himself was made
whole for most of his investments.
Fair? Mr. Trump surely
thinks so. Similarly, Bain Capital
of Mitt Romney fame appropriated pension funds and other assets of companies
they took over and declared bankruptcy for several firms in its approach to legally
use the bankruptcy rules for personal advantage and the severe disadvantage of
workers who depended on their earned pensions and the jobs that were often
shipped overseas as part of “restructuring.” Labor unions and workers were once considered legitimate
stakeholders in corporate economic actions. Today unions represent only about 9% of non-government
workers and there, the Supreme Court will soon rule on whether members of a
teachers union must pay dues, thus ripping income from an already wounded
“stakeholder.” In the 30s, 40s and
50s when union strength peaked, the income gap and wealth gap of Americans was
at its lowest. It was not
coincidence and the creation of “right to work states” stripped power from
unions during that following period of weakening unions while the income and
wealth gaps again increased.
Workers became so expendable that they lost thousands of jobs to
Investment Capital and Venture Capital firms that were able to export jobs to
nations with low wages and also were able to legally confiscate earned pensions
from purchased corporations.
Workers lost rights and money.
Overwhelmingly, a handful of “Mitt Romneys” of our nation prospered.
The final
category developed and explained by Reich is Enforcement. As you may imagine, enforcement has
some interesting issues related to the political side of our capitalism. An example provided by the author is
that the official policy for income taxes assures us that tax liabilities are
measured and used to apply the rules.
However, the current GOP Congress decided that it did not want to support
finding big tax dodgers and therefore enforcement was cut back. This decision was made despite the
statistic that for every dollar spent in tax enforcement (audits, etc.)
twenty-five dollars in tax income is earned by the federal government. Perhaps this was a quiet rebuke to
President Obama, but it had the effect of reducing government income,
regardless of motivation. Even the
concept of “small government” itself is misleading since many conservatives
want to reduce enforcement of regulations in areas like environmental
protection (witness the BP oil spill and the toxic lead in Flint, MI drinking
water). On the other hand, they
want to beef up and privatize military spending or have government add staff to
monitor birth control, abortions and Congressional investigations. These are decisions based on cherished
ideologies rather than cold logic.
Large corporations with legions of lawyers are time-consuming tax
targets that require larger government staffs to effectively audit. Cuts disproportionately benefitted
wealthy individuals and corporations that might otherwise be audited. Of course, those same corporations
(people?) invest heavily in political campaigns to promote those very politicians
that seem to favor the corporations, but that is only coincidental
happenstance, right?
How can
all this be? Hedge fund traders
(many making a $1 B or more per year) are taxed using “carried interest” (also called
performance fee) rules that tax their gains as ordinary income (also true for
companies like Bain and their managers).
You and I cannot.
This
entire issue of legality should cause us to review how things become “legal” in
our nation. How can we permit the
very wealthy like the Koch brothers to spend $889M for the current presidential
election without concluding that their purpose is to buy elections? The short answer is that the
capitalistic economic system does not work in a vacuum of a free market as the
mythology suggests. There is no “free”
market except for what the political forces allow. The longer answer must include that the Supremes decided that
“one person = one vote” was undemocratic and that “$1 = one vote” was “freedom
of speech.” Maybe the Supremes
only talk money. Traders also invest in politicians that write favorable tax
rules. Another coincidence! You probably thought that we had a
consumer economy. In good times,
we do. In the current time, we
have an investment economy and if you have enough dollars to invest in the
right politicians, the tax rules are a payoff while the other is that if you
are too big to fail or pay taxes, your losses will be covered by the taxpayers
themselves (another payoff for investment in politicians). We privatize winnings and socialize
losses. Conservative Socialism. Be too big to fail. Stiff the taxpayers and get
bigger. Hmm. Lobbying has become a growth industry
but we taxpayers simply do not have the monetary resources to hire lobbyists to
compete with the big players. “Legality” is the result of judicial interpretation of laws
made by our legislators and influenced by lobbyists who are paid to represent
specific interests and enforced by people with ideological agendas.
As
another example of how the rules permit a legal fleecing of the taxpayer, you
may be surprised that CEOs need to report their incomes for stock accounting
purposes. CEO salaries and bonuses
and other compensation are indeed reportable and tax deductable. In most nations that has not changed
the basic CEO compensation ratio with the average worker (e.g., 50: 1 in
Germany). In America, that ratio
has become about 400 to one. That
fact has actually changed what US companies do for a living. Instead of a focus on manufacturing or
providing services and sharing its largess with all stakeholders, what happens,
increasingly, is that the value of a company is measured by its stock
price. CEOs are paid mostly on
shareholder value. They take most
of their income in stock (often at special pricing) and then proceed to
increase the value of their company’s stock at the expense of quality products
made here at home. As a personal
example, when GM bought Hughes Aircraft in 1985, the company was a highly
skilled high tech and engineering company in LA with about 78,000 employees and
capable of competing for the highest technology contracts in government and
civilian efforts. A few years
later, the company was down to about 27,000 employees and incapable of
significant contracts in technology.
The target stock price of, say, $55/share was reached and the remaining
pieces of the company were sold.
GM did not have to make anything.
It simply played the stock market and rewarded the management team for
great (non) work. The concept was
absolutely legal, despite several lawsuits for questionable firing
practices. GM won the day. Engineers lost. America lost. Allowing that to be legal meant that the rules had to be in
place beforehand. It is noteworthy
that GM was bailed out by our government in 2007-2008. Unfortunately, that was repeated all
over America and workers won the race to the bottom while CEOs won the race to
the top. Their compensation is deductable by the company, e.g., Hughes/GM or
Wigits Inc. and therefore the company pays less in taxes and the cycle begins
anew with influencing the political element to favor the wealthy corporations
and individuals. It never stops. True, some companies like GM blamed
their problems on unions, but, as an example, GM ran Saturn for more than 20
years in a union free environment and was unable to earn a dollar. Top-heavy management without a quality
product focus outweighs any union expense.
Robert
Reich seems to feel that the “haves” will see the hazards of continuing this
unstable US model of capitalism and will willingly, if grudgingly, provide
legislative and corporate relief through new decisions and by more modest
personal enrichment. As I see the
history of the 20s, the decisions will be made in the streets, not in the
boardrooms, nor in a lobbyist crowded Congress. Prove me wrong.
Please.
Peace,
22 Jan 2016
George Giacoppe
geocopy@att.net
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