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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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While global trade is not new, the ability to hire a global workforce has made available a vast supply of laborCURBING EXCESSIVE POWER Unfortunately, common sense runs afoul of deep-seated faith. In our current frame of mind the very notion that interventionist government could play a positive role is unworthy of serious consideration. It runs counter to received wisdom about politics and economics — that government is bad and the free market is good. This wisdom supposedly reflects the spirit of Jefferson and is the American tradition. To question it is to slander freedom, liberty and rights. How far off the mark is this received wisdom! Government can be and has been beneficial. The free market, left to its own devices, can inflict grievous injury. Advocates of strong central government can find broad support in our history. Our founding fathers who framed the Constitution rejected the Articles of Confederation because it provided for a weak and ineffective central government. The philosophical struggle of the Civil War pitted Abraham Lincoln’s vision of a strong central government against Jefferson Davis’s ideal of a loose confederation of independent states. The suggestions that the Articles of Confederation, as opposed to the Constitution, and that Jefferson Davis, as opposed to Abraham Lincoln, represent the American political ideal are outrageous. They should not be accepted uncritically. It may seem strange, given how much we idolize Thomas Jefferson as the champion of small government, but it is plausible that even Jefferson would support a larger role for government in today’s society. Jefferson was motivated by his vision of a country of independent farmers — not wage earners — who were economically self-sufficient (and so immune to economic coercion) and who were committed to the common good. In the absence of other sources of coercion he regarded a strong central government as the primary threat to the independence of those citizens. Jefferson was concerned to limit that power. In his writings and in legislation he opposed efforts to strengthen central government. Yet the spirit of Jefferson’s animus was directed not just against government, but against any power that threatened citizens’ independence. Jefferson’s concern is appropriate today. It is natural for power — economic, political, military — to concentrate. Having more power than your opponent enables you to overwhelm him and appropriate his power base, increasing your own strength. Because it is natural for power to concentrate, it requires a focused effort to insure an ongoing moderation of power. Although the nature of power has not changed, today’s economic and political landscapes bear little resemblance to those of Jefferson’s day. Few independent farmers are left. We have become a technology and service society in which economic and political power are concentrated in multi-national megacorporations. Unlike the community of self-sufficient farmers Jefferson had envisioned, most citizens are wage earners and are subject to economic intimidation, primarily from private industry. As a result, the locus of his concern, excessive power, now lies outside government. For the very reasons we worry about government acquiring too much power, we should be equally concerned about non-governmental institutions — corporations, unions, special interest groups — acquiring too much power. Perhaps we should be even more concerned. Differences between government and non-governmental institutions in both structure and responsibility suggest corporate power may pose a greater threat than government. Our government was structured by individuals acutely sensitive to the danger of unbridled power. It is divided into independent legislative, executive and judicial branches so that each might restrain overweening ambition and excessive power in either of the other two branches. “Ambition must be made to counteract ambition.” (Madison, Hamilton, Jay, The Federalist, no. 47.) It is legally bound to honor a wide range of individual rights. By contrast, corporations are controlled by a tiny fraction of society and lack significant structural restraints. If a corporation should go so far as to commit a felony, its owners and management are normally shielded from prosecution. It is remarkable that the same people who are so concerned about the power of government stoutly defend the autonomy of corporations. This shows the extent to which deeply held beliefs can blind the faithful. The content of our beliefs may have changed since the Middle Ages. The depth of our faith has not. Jefferson, himself, despite his persistent concern to guard against the erosion of civil liberties, was not one of the faithful. He had no patience with the encroachments of organized capital, despite its having far less power than it does today. “I hope we shall take warning from the example of England and crush in its birth the aristocracy of our moneyed corporations which dare already challenge our government to a trial of strength, and bid defiance to the laws of our country.” Jefferson even argued for an amendment to the Constitution that would strictly limit the power of corporations. More than a century later Abraham Lincoln wrote: “Corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety than ever before, even in the midst of war.” A Jeffersonian sensitivity to the danger of excessive power, whether in the hands of government or private entities, suggests an extension of the balance of powers beyond government. It would endeavor to insure that no institution, government or private, could acquire enough power to dominate society. Government could play a role in maintaining this balance of powers. Consider the conflict between capital and labor. Their mutual opposition is healthy — provided there is a reasonable balance of power between them. The tendency of capital to concentrate is a major premise of Marx’s argument as to the inevitability of class revolution. But capital concentration can be beneficial. As a result of a small manufacturer being acquired by a larger company, its product may become better marketed and more widely available. A larger company can devote more capital to improving technology, which can lead to higher quality, lower prices, safer working conditions and less pollution. It can devote more resources to anticipating changes in technology, tastes and the economic environment. Some concentration of capital is necessary for commerce. Indeed, modern society could not exist without concentrated capital. The problem lies in too great a concentration of capital and too great a concentration of power in the hands of capital — or labor. It is the political arena that must mediate the balance of power. Within this arena labor has sought restraints on employer flexibility, a high level of job security and benefits, and a secure social safety net. It has sought to moderate the power of capital by a steeply progressive tax code so that income differences at the pre-tax level are reduced at the after-tax level. Capital, by contrast, has sought a free hand to reduce costs by eliminating unions, by exporting jobs to low-wage regions, by replacing labor with technology. It has sought to minimize the social safety net because the weaker and less reliable the safety net, the greater the incentive to work, the greater the supply of labor, the less the cost of labor, and the greater the profits. And it has sought to maximize its economic advantage by a flat or regressive tax code, in which a pre-tax income difference is translated into at least as great an after-tax advantage. By and large, labor requires the intervention of government to achieve its ends, while capital requires its abstention. Not that this consideration should decide the issue. Contrary to accepted political wisdom, government intervention is not automatically good or bad in itself. It can be either a blessing or a curse, depending on its aims, scale, flexibility, and means of implementation. The appropriate role of government is not well decided by ideological reflex. It may depend on the state of the local and global economies as well as local culture. Presently, natural economic forces have placed labor at a severe disadvantage to capital. The globalization of industry facilitates the transfer of jobs to low-wage economies. While global trade is not new, the ability to hire a global workforce has made available a vast supply of labor. The displacement of workers by lower cost foreign labor (or technology) translates increased domestic unemployment and lower wages into higher profits for large international corporations. The widespread elimination of middle management also increases corporate profits at the expense of the middle class. It may be impossible to resolve the problems caused by this wage displacement without government intervention. Is it possible to resolve them at all? Is government capable of cushioning the dislocation and impoverishment caused by such powerful global economic forces? Probably. Our trading partners are exposed to the same macro-economic forces that impoverish our working middle class. Yet they have less poverty and a smaller disparity of income. Their productivity and standards of living are rising faster than ours. Their progress suggests it is irresponsible to blame the decline of our middle class solely on irresistible economic trends. Our political actions can make a difference. They have made a difference. Roosevelt’s New Deal and the extension of those policies by Truman and Kennedy fostered increasing economic equality from the 1930s into the 1970s. (There were one-third as many people below the poverty line in 1980 as there were in 1950.) But subsequent policies have led to a sharply increasing disparity of income. Perversely, recent actions of our government, rather than redressing the excessive imbalance between the rich and the rest, have aggravated it. Dismantling programs designed to assist the working middle class while changing the tax structure to benefit the wealthy has further tilted the scales against the middle class. In general, the unbundling of government services, from social security to medical insurance to education, eliminates cross subsidies. Ostensibly a means to increase efficiency by making each program self-funding, it is in reality a means to enable the wealthy to avoid subsidizing the lower classes. This increases economic disparity, but does so under the guise of making government more fiscally responsible. (Ironically, many middle class workers have voted for candidates who would eliminate programs that benefit them. It is a tribute to the power — and danger — of sophisticated political advertising that many, intending to vote against government handouts to others who are undeserving, have in effect voted for their own impoverishment.) We have acted in other ways to aid capital to the detriment of those who work for a living. The Federal Reserve is a private corporation, owned by major banks. It sets monetary policy for the country and has consistently set policies that favor the banking industry and entrenched capital. Its high real interest rates have transferred wealth from generally poor borrowers to rich lenders. By creating an economic environment in which inflation-adjusted interest rates have been stubbornly high, central bankers in the developed world have presided over a huge transfer of income from both households and ordinary businesses to banks and other financial institutions. They have turned the world of industrial capitalism into a world of finance capitalism. And the financially shortchanged workers have been transformed into a strange new twenty-first century class of indentured capitalists — rooting for the interests of capital because work itself no longer pays the bills.… The Federal Reserve’s anti-inflation hysteria is, pure and simple, special interest politics, practiced by an institution almost totally free of effective oversight. As a class, bankers are creditors who have a strong interest making sure that the money that they lend out…is paid back in money that does not lose value through time. The central bank is most concerned to limit inflation because inflation depreciates the value of the assets held by the commercial banks. (Wolman and Colamosca, The Judas Economy, p. 142-3, 149.) In contrast to its recent behavior, it would be appropriate for government to make the tax code effectively progressive, to invest in human capital through programs that provide middle-class training and increase employment, and to moderate the flow of employment to low wage countries. It may be impossible to reverse the direction of major worldwide economic forces. But it may be possible to soften their impact. Moreover, if imbalances are minor, they may be corrected by small doses of intervention, but if they become excessive, more dramatic intervention will be needed. The most intractable obstacle to achieving such reforms is that the interests of our country are not the same as the interests of powerful corporations, which have the political muscle to block reform. Given their enormous power, it is virtually impossible to pass legislation contrary to their interests. It is easy — and dangerous — to underestimate the effect of economic power purchasing political influence to enhance that economic power. This may be the most dysfunctional aspect of our economic/political system. The positive feedback mechanism: (economic power ? political influence ? more economic power ? more political influence) can lead to an intolerable concentration of political and economic power. The doctrine of the perfection of the free market supports this vicious circle. This doctrine serves as a justification for policies that support the rich at the expense of the rest. It has been furthered by large corporations and by rightwing foundations seeking an alternative philosophy to Social Darwinism - the claim that to hinder the rich, the fittest in the struggle for economic survival, is to violate the laws of natural selection. Social Darwinism has been discredited as unsupported (and unsupportable) by scientific evidence, and these groups have sought an alternative philosophy that supports the rich. The extension of laissez faire as the ultimate paradigm applicable not only to the economy, but to all areas of society, seeks to apply free market considerations to judicial and political as well as economic thought. The policies it recommends, which model everything on market transactions, play into the hands of those seeking to increase their already excessive concentration of wealth and political power. These policies undermine the spirit of our founding fathers, who sought to establish a republic, not a plutocracy. It is unfortunate that our founding fathers, so keenly aware of the need for a balance of powers, lacked the prescience to extend this notion from the political arena to economics. For the same considerations that militate against an excessive concentration of political power militate equally against an excessive concentration of economic power. This concentration of power endangers our democracy as well as our economy. In the face of this, it is appropriate and in the spirit of our founding fathers that we take responsibility for our economic and political system. Being enthralled by laissez faire makes it more difficult to do this. We are unperturbed by the increasing concentration of economic and political power because of our faith that the invisible hand of the free market will maintain a stable and most comfortable equilibrium. So long as we don’t interfere, this will remain the best of all possible worlds. Isn’t it pretty to think so? But given the multiple failures of laissez faire it would be foolhardy to think so too seriously. Unless we act to maintain the independence of our political system, natural forces will lead us away from equilibrium, to an increasing concentration of political and economic power in the hands of a few rich oligarchs, and ultimately to the disaster historically associated with excessive economic inequality. Unfortunately, our bias against any intervention plays into the hands of the rich and powerful who seek to increase their wealth at the expense of society. In this context laissez faire and libertarianism are a disservice. While true believers in laissez faire may casually dismiss the need for an independent activist government and may claim that government intervention — at least at the domestic level — is never necessary, such a claim is implausible. Free market economists may believe natural economic forces would have eventually created a middle class or that they would have ended the Great Depression. But there is little evidence to support such faith. Moreover, an environment of widespread and intense economic suffering is unlikely to give free market and democratic forces an unlimited period of time to alleviate massive suffering. The New Deal programs were passed, not so much out of charitable sentiment, but out of fear that social unrest wrought of economic despair might imperil society. While we do not presently face this danger, we do face increasing economic imbalances that our system is incapable of correcting. Independently, the notion that free market forces might somehow induce corporations to curb pollution is as believable as “The Emperor’s New Clothes.” Thanks to generations of grandfathered exemptions and lax enforcement, Texas oil refineries spew out five times the pollutants of the average California refinery, where environmental standards are universal and enforced. The Texas refiners have little incentive to reduce pollution. Rather than purchasing pollutionreducing capital equipment or paying a premium for cleaner feedstock, it is a better investment to finance political campaigns and use political influence to gut threatening environmental legislation. Given the choice between profits and the health of society, industry has consistently acted to maximize profits. In the early 1980s the oil industry bitterly fought efforts to phase out leaded gasoline. They relied, in part, on a study showing such a phase-out would cost $100 million. But other studies showed that just the medical costs of continuing to use leaded gasoline would be far greater. Despite these studies, regarded by most as balanced and accurate, the oil industry continued to oppose a phase-out. The refiners would have to spend the $100 million, but they would get no credit for the saved $1 billion per year or for the saved lives. Economically, their priorities were rational, notwithstanding the adverse health effects. In spite of increasing public concern about environmental degradation, these priorities have not changed. We are presently seeing a re-run of the leaded gasoline battle in industry’s attempt to block tougher standards for fine particle pollution, estimated to kill tens of thousands of people each year. In the choice between profits and lives, the priority is still profits. This priority has not changed because it is built into the system. It is characteristic of the competition inherent in laissez faire that every company seeks economic advantage over its competitors. As a rule, no company willingly places itself at a potential disadvantage, no matter what the consequences for society at large. Unfortunately, what is good for profits may be bad for many people. Houston recently displaced Los Angeles as the smog capital of the country. Its pollution produced in the course of violating environmental standards kills hundreds of people per year. It aggravates the illnesses of thousands of others. It sullies the quality of life for millions. A humanist view of government might assess the damage done to those living in Houston as too high a price to pay for the additional profits obtained from disregarding environmental standards. It might be less inclined to value profits over lives. It might be more inclined to enact and enforce ground rules that protect citizens. It might be less attentive to industry lobbyists anxious to protect profits. These lobbyists typically argue that government regulations hamstring industry, placing us at a disadvantage to our trading partners. This political imposition of environmental costs, they insist, endangers our economy. Their claim is doubtful. Most of our trading partners have environmental regulations similar to our own. They cannot externalize their environmental costs any more than we can. The playing field is reasonably level. Moreover, the very threat of strict government regulations, of standards requiring anything from alternative, cleaner, fuels to more fuel-efficient cars, has spurred advances in technology. These have ranged from reformulated gasoline - which refiners had claimed was technologically impossible - to more efficient and less polluting automobiles, which Detroit had claimed was possible only at the cost of dramatic reductions in the weight and safety of the vehicles. Detroit’s self-serving pessimism was as excessive as that of the refiners. Modern cars not only get double the gas mileage, but they emit less than 10% of the pollution of pre-1970 cars. They are, on average, 20% lighter. But they are also safer, with fatalities per passenger mile down by nearly 50%. It is revealing that these results showing the benefit of government regulation are so detrimental to the spirit of the pure free market that some laissez faire apologists have argued that government environmental, safety and mileage regulations have actually made cars les safe. Such arguments, which adjust the number of fatalities - they must, because the actual number has declined sharply since the regulations - border on travesty. They show the extent to which deep faith in the efficacy of the free markets and the dysfunction of any government regulation can lead true believers to the most awkward contortions to save the theory. In the same spirit, that mandated standards are at best unwieldy and at worst disastrous, the chemical industry lamented that OSHA standards limiting exposure to vinyl chloride, a hazardous carcinogenic gas used in the production of polyvinyl chloride (PVC) would cause the demise of the domestic PVC industry. Yet the cost of compliance was only 7% of industry estimates, and the industry is healthy today. Industries have often issued dire predictions that tough mandated pollution standards would cause massive bankruptcies. These predictions, just as far-fetched as those of the opposite extreme - environmentalists’ forecasts of impending Armageddon - are partly attempts to blackmail government into leaving industry alone, into leaving everything to the free market. On the lobbyists’ account, standard free market forces, in which every good is subject to an auction, would provide the most efficient means of remediating any environmental problems. Their claim would benefit the industries they serve, but it is implausible. Leaving environmental decisions to the highest bidder may aid industrial polluters by lowering the cost of environmental “compliance.” This would aid the bottom lines of the polluters and the bidders. But it would serve neither the general public nor the environment. Of course, the very notion of bidding to pollute (as opposed to mandating environmental standards and allowing the market to meet those standards in the most cost-effective way) seems absurd. It is easy to dismiss such an idea of auctioning the environment as ludicrous and unrealistic. But it is palpably real. It is widely documented that the best-funded candidates usually win. It is also clear that getting elected is the highest priority of candidates. So industry lobbies, which play an important role in the funding of political campaigns, are treated with special care. Our form of government, in which well-targeted campaign contributions, directed by lobbies, often result in legislative or executive dispensations, is tantamount to such an auction. Money buys influence, and sometimes much more. This is plutocracy, not democracy. Most of us know this, but we are unable to do much about it. What would it take to restore real democracy, a government in which people vote and money does not? Simple answers have been offered, but most do not work. |
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