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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Two millennia later, free market institutions thrived in Middle Eastern empires - absolute autocraciesDEMOCRACY VS. LAISSEZ FAIRE It is not democracy, but corporatism, that dovetails with laissez faire and libertarianism. Where enormous power is concentrated in the hands of a few mega-corporations, government is the only counterweight that can provide protection from economic aggression. Where government will not intervene, because it has been “bought” by powerful economic interests and because an influential group is philosophically opposed to government interference under any circumstances, the power of the free market — including the power of economic intimidation — is complete. It is here that the difference between the democratic agenda and the laissez faire-libertarian agenda is critical. It is here that the libertarian approach is most dysfunctional. Consider the insistence by our founding fathers on the importance of vigilance in the defense of democracy. For democracy, “That which your fathers have bequeathed to you, earn it anew if you would possess it.” (Goethe, Faust.) Since Pericles, democratic thought has appreciated the need for citizens to transcend personal interest in favor of the common good. This stands in stark contrast to an economic theory that tells us the common good is best served if everyone pursues only his own personal interests. The vast difference between the democratic conception of man and the laissez faire conception of man as an apolitical animal exclusively concerned with his own immediate economic gain is reflected in etymology. Our word “idiot” derives from a Greek word that referred, not to persons of limited intellectual capacity, but to individuals unconcerned with the state and needs of the community. Such an idiot fits perfectly into laissez faire, where the invisible hand of the free market maximizes benefit for the entire society if each person just looks out for his own ends. The doctrine of the invisible hand, omnipotent and beneficent, implies there is nothing to be gained by fostering a community of disinterested public-spirited citizens. (Adam Smith himself held a jaundiced view of idiocy. “Some men turn every quality or art into a means of making money; this they conceive to be the end, and to the promotion of the end all things must contribute.” [The Wealth of Nations, Book I.]) Like laissez faire, corporatism both encourages and feeds off a lack of public interest — a citizenry of idiots. So it is not coincidence that the increasingly corporatist nature of our government since the Civil War has paralleled our irregularly increasing proclivity to accept a radical free market approach to politics and economics. It is only natural that this has been accompanied by a decrease in citizens’ commitment to the common good. This illustrates the extent to which the self-serving claim of free market apologists, that laissez faire and democracy go hand in hand, is profoundly misleading. It is not just the ease of combining free market capitalism with totalitarian government. Nor is it the absence of financial markets in early democracies. It is not even the lack of traces of democracy in mediaeval empires that had flourishing financial markets and large banking establishments. It is primarily that the ideal democrat is so vastly different from the free market homo economicus. This explains why the growth of democracy has been unrelated to the growth of free markets. It is true that democracies are found in economically advanced states, which are capitalist. But this does not entail that capitalism is the magic ingredient that creates democracy. It is far more plausible that a broad dispersion of wealth is necessary for democratic society. If many are desperately trying to survive amidst the conspicuous affluence of a privileged few, they have little reason to place the common good ahead of their own needs. A most important prerequisite to democracy is missing. This fits the pre-capitalist democracy of ancient Athens and democracies in “primitive” societies in which poverty was not institutionalized. It explains the rejection of democracy by capitalist economies during periods of severe economic stress and extreme poverty (Weimar Germany), and also the failure of democracies in ex-colonies, even ones with capitalist economic structures. (India, a rare democratic success, has always been skeptical of the pure free market.) It is also true that those states at the economic and political hub of European civilization — Venice in the fifteenth century, Holland in the seventeenth, England in the nineteenth — were driven by commercial interests and also were less despotic than the peripheral states. But the explanation for this, too, has little to do with democracy. Despotism discourages wealth building. Why build wealth if the ruler can arbitrarily confiscate it? The incentive to engage in industry or commerce requires the stability and lawfulness to guarantee you will be able to reap the fruits of your labor. But such stability does not require anything like democracy. Even in the fifteenth century, the doge and the Medici understood that respect for law and freedom from caprice were necessary to the continued success of their commercial empires. They equally understood that civil liberties and broad participation in the political process were not necessary. This pattern — free markets plus a measure of freedom, even privilege, for the wealthy scions of commerce, juxtaposed with authoritarian political power — is common throughout history. Free markets with sophisticated financial instruments facilitating the building of personal fortunes flourished in ancient civilizations in which there were no traces of democracy. “[A]s witness ancient Babylon, which had bankers, merchants engaged in distant trade, and all the instruments of credit, such as bills of exchange, promissory notes, cheques…” (Braudel, The History of Civilizations, p. 386.) Two millennia later, free market institutions thrived in Middle Eastern empires — absolute autocracies. “Chance has preserved letters from the Jewish merchants in Cairo at the time of the First Crusade (1095-9). They show knowledge of every method of credit and payment, and every form of trade association…. Huge fortunes were made under a capitalistic trading system, well ahead of its time, that extended as far as China and India, the Persian Gulf, Ethiopia, the Red Sea, Ifriqya and Andalusia. ‘Capitalist’ is not too anachronistic a word. From one end of Islam’s world connection to the other, speculators unstintingly gambled on trade.… In Basra, settlements between merchants were made by what we should now call a clearing system.…” (Ibid., p. 63-4, 71.) In mediaeval Russia the gosti, the top echelon of merchants, were granted farreaching privileges and accumulated massive wealth. But they remained absolute vassals of the tsar. Even in European history free markets flourished long before the philosophes of the Enlightenment constructed the philosophical foundations of modern democracy. The notion, proffered by laissez faire apologists, that free markets first emerged in nineteenth century Europe, at the same time as modern democracy, is simply false. The Amsterdam stock exchange dates back to 1530. And Amsterdam was a relatively new financial center. Money-changers, merchants and notaries conducted business near St. Martin’s Church in Lucca in 1111. As early as the twelfth century, fairs throughout Europe had a sophisticated financial component as well as a commodity component. Private merchant banks, founded in the twelfth century to finance trading establishments, flourished in the thirteenth century, loaning money to kings and financing military campaigns. State-owned banks were established in the thirteenth century. Checks and holding companies as well as double-entry bookkeeping were common in thirteenth century Florence. The Bourse in Bruges, the center of a flourishing money market, was built in 1309. Stocks were traded in the Leipziger Messe in the 1300s. The Lonja in Barcelona was completed in 1393. Similar financial exchanges appeared in Antwerp in 1460 and Lyons in 1462. The central bank of Venice, a lender of last resort, was established in 1585. This early capitalism was not limited to the financial markets. Fourteenth century Genoa and Venice were colonial powers — and colonialism is supposedly a hallmark of advanced capitalism. Marx maintained that the mediaeval Italian city-states were the first to engage in capitalist means of production. In the sixteenth century the Fuggers were involved in both commercial and industrial capitalism. What has this got to do with democracy? Even today, the institutional agents of the market, as typified by the Federal Reserve and the World Trade Organization, are not elected by any democratic constituency. They are, in effect, agents of the large banks and financial establishments. These agents act to advance the interests of their constituents, independent of democratic will and independent of the effects of their actions on ordinary people. Laissez faire capitalism is not a straightforward counterpart to democracy. While it may be compatible with the forms and rituals of democracy, it can easily become incompatible with the substance of democracy. Where a concentration of economic power can purchase political power and thereby eliminate the only counterweight to the unbridled exercise of that economic power, where that generates a government that may be of the people but is certainly not for the people, a laissez faire-libertarian approach only makes matters worse. It supports the natural affiliation of a free market economy with corporatism. IS LOCAL GOVERNMENT THE ANSWER? Because corporatism is a natural correspondent to laissez faire, efforts to restore substantive democracy face a formidable challenge. Due to the impossibility of countering big money at the national level, many have given up on national politics. Where political interest remains, it is at the local level, reflecting the hope that citizens still retain a measure of input in their communities. This supports the call to decentralize government. Politicians have exploited this in their drive to allocate government policies and services to increasingly local levels. They have told us that the advantages of relegating policy making to state and local communities would include greater public influence on decisions as well as a more effective guarantee of individual rights. Wrong! Contrary to the notion of community government as a panacea, the community has not been a reliable guardian of either civil liberties or democracy. Ironically, it was federal intervention in the South to protect the civil liberties of African-Americans from flagrant violations by states and communities that rekindled interest in States’ Rights and the move to smaller government. For many, the appeal of the move to smaller government had little to do with any desire to protect civil liberties. There is no reason to expect the move to smaller government to enhance civil liberties. Prejudice tends to be more uniform and more intense at local levels where the population is often homogeneous. The lack of meaningful political competition in many communities diminishes respect for civil liberties, an effect often associated with one-party rule. Discrimination is easier. The push to smaller government has not even aided citizens’ efforts to secure greater control over their own communities. At state and local levels it is easier for corporations to “purchase” opportunities to prey directly on citizens. Consumer Reports (July 1998) reports: “A lobbyist and former speaker in the Florida House reportedly helped draft that state’s 1995 title-lending law, which allows annual interest rates of 264 per cent. Since then, the industry, mainly Title Loans of America, has given more than $94,000 to Florida legislators in both parties. For two years, lawmakers have refused to pass reform legislation, even after their own task force recommended repealing the 1995 law.” The smaller the community, the less leverage it has in bargaining with large corporations seeking profit-maximizing concessions. Nike, having claimed an interest in building a facility in Golden, Colorado, withdrew because Colorado’s offers were not in the ballpark with offers from other states — a 10-year waiver of corporate income tax and a $10 million interest-free forgivable loan. Kentucky had earlier provided $325 million in incentives to induce Toyota to build an assembly plant in that state. For the country as a whole, the corporate share of property taxes has declined from 45% to 16% in the last 40 years. But there is no free lunch. The decreased tax burden borne by corporations has necessitated an increase in property taxes on private individuals. Consider, too, the ability of a company that emits toxic pollution to hold an auction, offering to locate in the community that treats polluters most favorably. It would provide jobs and tax revenues in return for the license to pollute. Communities would compete with each other to offer the most attractive packages, minimizing taxes and maximizing allowable pollution. The company would choose the package that maximizes profits. Such an auction — states or local communities bidding to attract industry by providing an environment most favorable to maximizing profits, even at the expense of residents — is not fantasy. A similar phenomenon has occurred with states that have passed right-to-work laws. These laws reduce economic pressure to belong to a union by giving non-union members the same major benefits without their having to pay union dues. As one would expect, right-towork laws reduce union membership. Having to deal with unions lessens management control and often decreases profitability. By discouraging unions, right-to-work laws provide an incentive for corporations to locate in right-to-work states. In keeping with this incentive, corporations have pressured states to adopt such legislation, arguing that a pro-business anti-union attitude leads to increased corporate investment, higher employment and greater wealth. But while there is clear evidence that such auctions — in effect, volunteering labor at lower cost — have lured corporations to right-to-work states, it is less clear that they have benefited the residents of those states. None of the 10 richest states are right-to-work states. But 15 of the 20 poorest states have been right-to-work states for generations. The great majority of right-to-work states have a lower output per resident and a lower per capita income than the average for union states. (New York Times 2000 Almanac, p. 336.) The correlation coefficient between per capita income and being a right-to-work state is -.45. So decentralizing by having states adopt their own labor laws has not benefited citizens. Instead, it has further increased the power of large corporations. There are a number of reasons why right-to-work laws have not benefited states or communities, but have instead padded the bottom lines of large corporations. One is that unions can have a positive impact, fostering increases in productivity. Unions have also forced companies to compete based on innovation, productivity and service, rather than cutting labor costs. Independently it is primarily the poorer states that passed right-to-work legislation. These states were unable to fund critical aspects of their infrastructures, from education to transportation to medical care. As a result, they were unable to attract capital or profitable industries. Poverty breeds poverty even at the state level. Still, it does not appear that right-to-work legislation has helped these states raise their standards of living. Decentralizing by having states adopt their own labor laws has not benefited citizens. Instead, it has further increased the profitability and power of large corporations. (This is not to deny advantages to community control, or at least community input. But there is also the need to protect the individual against the community and the community against institutions that have greater economic power. Such protection cannot be secured at the local level.) The response that most corporations are publicly owned is disingenuous. Half of all stocks and bonds are owned by the wealthiest 1% of the population, whose economic interests are served by corporatism. Many of these individuals comprise America’s elite aristocracy. They belong to the same clubs. They send their children to the same private schools. They have the same doubts about democracy, parallel to doubts of many of our founding fathers. Can the masses be entrusted with the responsibility of government? Historically, this issue has marked a primary fault line in American politics. The delegates to the 1787 Constitutional Convention had serious misgivings about broad-based political participation. They supported property qualifications not only for holding office, but even for voting. The Constitution does not contain such anti-democratic measures only because the committee responsible for proposing specific guidelines was unable to resolve differences between landowners and merchants over what sort of property should count — so the delegates left the matter to the individual states, which were equally wary of democratic populism, as was reflected in their own property requirements for voting. These requirements excluded not only minorities and women, but even most white men, from voting. John Jay, the first Chief Justice of the Supreme Court, defended this plank of the Federalist platform: “Those who own the country ought to govern it.” While Federalism was opposed by Jefferson and ultimately succumbed to Jackson’s populism, this sentiment resurfaced in the Whig tradition. We have always had powerful factions for whom this is a core belief, though it is now couched in more politically acceptable language. |
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