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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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As but one measure of the power of corporate advertising to confound our perceptionOur government sounds disturbingly like Plato’s cynical caricature of democracy in The Republic. “[W]ith a magnificent indifference to the sort of life a man has led before he enters politics, it would promote to honor anyone merely calls himself the people’s friend... . Accordingly, we can now go back to describe how the democratic type develops from the oligarchical. I imagine it usually happens in this way. When a young man, bred, as we were saying, in a stingy and uncultivated home, has once tasted the honey of the drones and keeps company with these dangerous and cunning creatures, who know how to purvey pleasures in all their multitudinous variety, then the oligarchical constitution of his soul begins to turn into a democracy.” Plato’s insights notwithstanding, we have evolved in just the opposite direction. As our government has become less responsive to citizens and more solicitous of groups that fund campaigns, we have moved away from democracy and toward oligarchy or plutocracy. Reflecting the distance between the reality of our political power structure and democracy, John Ralston Saul (Voltaire’s Bastards) characterizes our government as corporatist, rather than democratic. Corporatism deals with organizations — corporations, unions, lobbies — rather than individuals. It was preached by nineteenth century political philosophers and reached its zenith in the fascist regime of Mussolini. Our present alignment of government with such interests constitutes the central element of corporatism. Even the trappings, including the use of symbolism as a substitute for substantive political debate, are characteristic of corporatism. (It might be objected that the comparison with Mussolini’s fascism is overly harsh; for in fascist Italy, the government controlled the corporations and told them what to do. By contrast, in our political-economic structure, corporations are autonomous. Such an objection is overstated. In Mussolini’s Italy the largest and most powerful corporations had Il Duce’s ear and were able to influence government policy. Many made their own decisions as much as contemporary corporations do. And Mussolini effectively guaranteed huge profits to cooperative corporations. What more could one want?) Many political and social scientists defend a clone of corporatism. They are faced with the politically uncomfortable reality that all important public decisions are made by a privileged elite, the top echelon of powerful organizations. So they have argued — unconvincingly — that our elitism is pluralist and that this pluralism makes it compatible with traditional democratic ideals. Even if our elitism were pluralist, it would still be incompatible with traditional democratic values. A pluralist elite would only broaden the oligarchy. This attempt to justify pluralist corporatism blurs the distinction between democracy and corporatism. It is already too easy to slide from the former to the latter. This makes it even easier. It exacerbates a most worrisome aspect of our drift toward corporatism — that it has occurred so gradually and so naturally that we are unaware of the extent to which the nature of our government has changed. It is not that large corporations stealthily executed a coup d’état. This change did not require subversion or anything sinister. Our government, under subtle but constant pressure, has gradually metamorphosed. One can trace this development, in an oversimplified way, through remarks from past presidents: “There was a time when corporations played a very minor part in our business affairs, but now they play the chief part, and most men are the servants of corporations.” (Woodrow Wilson) “The chief business of the American people is business.” (Warren Harding) “This administration is not sympathetic to corporations, it is indentured to corporations.” (Richard Nixon) This transition illustrates the enormous power exerted over time by corporations acting rationally in their economic self-interest. It is in their economic interest to have a favorable public image, independent of their actual business practices. Thanks to the power of mass media, the image they have been able to fabricate is totally benign. Whatever the reality, we are unable to penetrate this self-serving facade. As but one measure of the power of corporate advertising to confound our perception, The Bureau of National Affairs estimates that the monetary value of corporate crime is 10 times greater than that of individual crime. “One study of seventy of the nation’s largest manufacturing, mining, and mercantile corporations revealed that 60 percent had been convicted of criminal charges on an average of four times each.” (Spence, With Justice for None, p.284.) But despite our concern with crime, we are blind to this. For large corporations, through their advertising muscle, control the media and determine how we view them. They influence even news reporting and blur the difference between objective news and self-serving infomercials. Just as it is in the interest of corporations to shape a benign image, it is in their interest to bend government policies to their favor. The exercise of such influence has increased gradually over decades, and at all levels of government. Corporate officers can now argue that since other corporations and special interest groups are procuring government policies favorable to them, it would be irresponsible to their shareholders if they neglected to do the same. It is hardly surprising that it has become common and accepted corporate practice to influence government policies in areas of concern. As one result of this practice, in the 1980s interest deductions — not granted to individuals — enabled corporations to significantly reduce their tax bill. The ability to purchase net operating losses to generate tax deductions further reduced corporate income taxes. In 1950, corporate taxes produced four times as much revenue as payroll taxes. Now, reflecting the political clout of corporations and the lack of political clout of payroll workers, payroll taxes generate three times the revenue of corporate taxes. In the past two decades the corporate share of federal income taxes has declined from one-third to onetenth. In 1998, more than half of our 250 largest corporations paid effective federal income tax rates of less than 10%. Enron, one of the largest contributors to political campaigns, and cited by some authors as the model modern energy corporation, paid no federal taxes at all from 1996 through 1999, despite financial statements showing a net income of $2.3 billion. “Enron documents suggest General Electric, Microsoft, Merck and other giants were involved in similar dealings. Additionally — as illustrated by the recent debacle at Sprint Corp. — corporate executives have been using complex shelters to avoid paying income taxes on their massive stock options profits.” (Al Lewis, The Denver Post, February 16, 2003.) As corporations have become more successful in these efforts, our political system has moved further from its origins as a democracy. What remains of our democracy is its symbolism. We have our mos maiorum in quadrennial presidential election dramas, presented by the media as a political Super Bowl. Even biennial congressional elections are presented with all the drama and passion of a televised high school football game. But if you consider where the political power really lies, it is with large corporations, unions and special interest groups. It is not that corporatism is necessarily a bad form of government, despite representing a concentration of political and economic power antithetic to the vision of our founding fathers. South and East Asian countries have practiced it and have generated high levels of economic growth, much of it benefiting ordinary citizens. (One reason we have done poorly is that we are mediocre corporatists, preoccupied with the short term.) Our problem is that we have failed to examine the merits and pitfalls of corporatism, much less the culture necessary to make corporatism effective. Rather, we have pursued corporatist policies blindly, unaware of our self deception. We have pretended to have a democracy, while autonomous economic interests wield the real power. Should We ? We have deceived ourselves by reducing “democracy” to a label. We “know” we have a democracy. Most of us find offensive any suggestion that our government is not a democracy. And we “know” democracy is good, the best possible form of government. But we are careful not to look too closely. We deliberately avoid those aspects that suggest dysfunction, and many bridle at the unpatriotic notion that democracy might be less than perfect. But despite our faith in this form of government, democracy can give rise to serious problems. Democracies are prone to corruption. In an absolute monarchy, the wealth of the state belongs to the monarch, to whom the ministers must answer. In a democracy, the wealth of the state belongs to that amorphous entity, the people. One does not have to answer to anyone in particular, especially if one controls the government. The risk in siphoning off wealth is diminished, and the temptation to divert some into one’s own pocket increases. Democracies are also prone to jingoism and ultra-nationalism. If an absolute monarch decides to go to war, he can conscript his citizens and order them to fight. In a democracy, by contrast, it is necessary to “persuade” citizens that their opponents are evil and that the war is good and just. This requires a campaign to generate animosity toward some group designated as the “enemy.” Jingoism can be an attractive platform for gaining political power. Even internally, democracy maximizes both the incentive and the opportunity to incite hatred and pander to prejudice. In an absolute monarchy, a demagogue has little to gain from fanning flames of prejudice. If he does, the monarch can warn him against endangering his subjects and can also take more emphatic, punitive, action should he choose. There is no counterpart to this in a democracy. It is generally easy to incite people, and democracies have provided many examples of parlaying prejudice into political power. The Nazis, playing on the harsh terms imposed by the Allied powers at the end of World War I and on widespread anti-Semitism, won power in free democratic elections. The governments of those Balkan states that carried out “ethnic cleansing” were democratically elected. Our own democratic institutions did nothing to mitigate our shameful treatment of African-Americans and Native Americans. In our recent history, consider both the intent of the Willie Horton campaign ad and its effect on the 1988 presidential election. In countries in which there is no strong commitment to the whole, democracy begets factionalism. If one faction gains power, it often represses others. Minority factions with little chance to share power may resort to violence. The exclusivity of religious factionalism caused electoral and economic discrimination against Catholics in Northern Ireland and spawned violence throughout the United Kingdom. Algeria has been plagued by violence ever since it became a democracy. Tribal allegiances in African democracies led to civil wars and to genocide. Modern democracies are particularly susceptible to an insidious form of factionalism. Mancur Olson (The Logic of Collective Action, The Rise and Decline of Nations) has called attention to a critical asymmetry. It is easy (and can be highly profitable) to form a special interest group seeking to redistribute national wealth in its own favor. By contrast, it is nearly impossible to dissolve such a group once it has been formed. As a result of this asymmetry, special interest groups, seeking to gain at the expense of others, proliferate. These groups employ lobbyists and spend heavily to influence legislation and, if necessary, public opinion to their advantage. Such spending often produces greater profits for these groups than any other investment, even though it produces no new wealth for the economy as a whole. (Such an alliance between the political and the economic is not limited to democracy. It characterized European mercantilism well into the Industrial Revolution and was partly responsible for the inefficiency of that political/ economic system. Mercantilism, characterized by government regulations designed to protect politically powerful groups or industries, is presently the political system of most Third World countries. It impedes their economic development, just as it had impeded the economic development of Europe centuries ago. But despite its well-known drawbacks, the ability of large economic institutions to purchase political power and use that power to enhance their economic interests creates dangerous pressure to introduce mercantilism to the U.S. by the back door.) It is estimated that more than 5% of our GNP is invested in lobbying. Beneficiaries of government programs fight fiercely to retain what they have. Programs and subsidies live on and on, no matter how useless they may be to society as a whole. By competing for capital and reducing investment in instruments that would create additional wealth, competition for government largesse diverts wealth creation into wealth distribution without producing collateral benefit. As a result, public resources become increasingly devoted to the obsolescent with established lobbies, placing innovation at a disadvantage. The country’s competitive position deteriorates. This politically-engineered diversion of capital also creates rifts between the few who benefit from the redistribution and others who find such collusion unfair. It may sound odd, perhaps unpleasant, but unless certain preconditions are satisfied, democracy may not be the best form of government, even for the ordinary citizen. Singapore provides an instructive example. When it gained independence from Malaysia in 1965, there was little assurance that it would survive. It is a small island, less than 250 square miles, with little arable land. It has a multiethnic (Chinese, Malay, Indian), multi-racial, multi-religious (Buddhist, Muslim, Christian, Hindu, Sikh, Taoist, Confucian), multi-lingual (Chinese, Malay, Tamil, English) population. It had a history of civil strife and labor disputes. To make matters worse, on gaining its independence the country had to face rising barriers to trade with neighboring Malaysia. Lee Kuan Yew, the country’s prime minister, established a one-party state, not a democracy. The state controlled the media and suppressed political dissent. Even today, Singapore has only one real party, the People’s Action Party, holding 80 of the 83 seats in the legislature. Despite its autocratic form of government, the country’s achievements have been admirable: a mixing of ethnic groups by integrating schools and building multi-ethnic public housing, high-quality public education that has achieved a 90+% literacy rate and helped establish a sense of national identity, the development of industrial estates to attract foreign investment, effective government investment in private enterprise (government-linked corporations, which account for 60% of Singapore’s GNP). These measures have led to impressive growth benefiting all strata of society. Singapore has surpassed the U.S. in GNP per capita and also in average life expectancy. It is unlikely that this could have been achieved under a democratic regime. It may seem paradoxical, but it is plausible that Singapore is nearer to functional democracy than it would have been had its government of the past 35 years been democratic. Had Singapore been a democracy from the start, groups opposed to government policy would have formed coalitions to maintain their influence at the expense of the whole. Unions would have insisted on their prerogatives to control workflow and would have killed the legislation that increased working hours. Threats of labor unrest would have diminished the attractiveness of Singapore to potential investors. Landowners would have blocked the establishment of industrial estates. The rich would have objected to the heavy social spending on the middle and lower classes. Ethnic groups would have resisted the forced integration. Many from all walks of life would have fought the mandatory savings imposed by the government. The integration, the high levels of educational proficiency, and the sense of nationhood would have come grudgingly, if at all. The notions would not have arisen that primary allegiance is due to the country as a whole and that the whole country could prosper if special interest groups would take a back seat — or if government would force them to do so. These are preconditions to functional democratic government anywhere, even in the U.S. (Still, a severe global economic contraction would provide a sharp test of Singapore’s young society, as it would for all democracies.) It is deceptively easy to overstate the significance of these problems for democracy. These problems do not show democracy to be an inferior form of government. They do not justify replacing democratic institutions with nondemocratic ones. They only show that certain conditions involving the attitudes, priorities and understanding of citizens are necessary for democracy to function effectively. Ironically, the major challenge to democracy in the U.S. does not come as a frontal assault by some foreign totalitarian state. Rather, it comes by stealth from an emanation of our own economic philosophy. Our political and economic infrastructure has incubated Public Choice Theory, the political correlate to laissez faire. This theory is a potent deterrent to democratic action. It claims that ideally, politics should be modeled after the free market, in which people’s spending reveals their true preferences. Unfortunately, the political arena bears little resemblance to the financial arena of the free market. Unlike the financial markets, in which fully informed people vote freely with their dollars to maximize their expected benefit, the world of politics distorts information and is inherently opaque, inefficient and biased. Individuals may vote for their own interests, but the very structure of politics thwarts the desires of voters — who rationally should not expend the effort to vote at all. The acceptance of such a theory would leave the free market secure in its revealed preferences. It would guarantee the victory of large voting blocs of money: “one dollar, one vote,” over the public “one person, one vote.” Because these large blocs of money consistently vote for their own interest, to become even larger blocs, the immediate effect would be to transfer wealth from the lower and middle classes, which have few dollars of influence, to the wealthy. In the longer term it would increase economic disparity and would destabilize society to everyone’s detriment. Appropriately, it was political action taken after laissez faire last discredited itself, in 1932, that remedied the most egregious excesses of the free market. This provided an example of democracy in action, an example fittingly contrary to the central assumptions of Public Choice Theory. This example, in its very success, calls into question the assumptions of Public Choice Theory. These assumptions, particularly about the financial markets, are implausible — if not ludicrous. It is painfully clear that investors and purchasers are hardly ever fully, or even adequately, informed. Who would have bought or driven a Ford Pinto, secure in the knowledge that its gas tank might explode? Who would have bought stocks on the basis of recommendations by Merrill Lynch analysts, knowing that these analysts privately referred to their recommended stocks as garbage? What investor would have bought stock on the basis of any broker-dealer recommendations, knowing that the tenor of such recommendations was often dictated by prospects of lucrative investment banking contracts rather than the prospects of the company itself? Not only are investors and purchasers inadequately informed, but many studies show that their decisions are often not rational. Efficient pricing exists only in the minds of some economists. Economic playing fields are hardly ever level, and players with the most money often tilt the field in their own favor. The very fact that politics has taken over the tools, techniques and personnel of the advertising industry shows that the alleged contrast between the pristine economic and the corrupt political is grossly exaggerated by Public Choice Theory. Indeed, it is unlikely that this theory would ever have been taken seriously if we had not so shamelessly enslaved ourselves to theological laissez faire. This should call attention to the disingenuousness of much of the criticism of government intervention, intervention often geared to protect the public, workers, and the environment from the rapacity of corporations. It is not easy being a shepherd when you are constantly told that your dogs are too expensive, that in their arrogance they keep the sheep from the best pasture, and that even in principle the sheep would be better off without dogs or shepherds. But it is a bit easier when you learn that it is wolves who are telling you this. |
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