The evolving multinational corporatism is a gigantic control machine. Calibrated with thousands of antennae, feedback mechanisms tell its brain how far it can go in taking control until it meets resistance from countervailing forces. These forces have been disappearing or declining for three decades, creating vacuums and advantages quickly filled by these ever-larger companies and their coordinated trade associations. Remarkably attuned to controlling markets and properties, to seeking lower cost venues by externalizing responsibilities, the big corporation is largely oblivious to those past restraints .that moderated its excesses and enhanced its successes. Its determination to abolish these external restraints powers forward. Unified internally by the singular yardstick of sales .and profits, this conglomerate drives relentlessly to push away all boundaries to its domination. Obviously, it does not always succeed. Like older bull elephants losing to younger challengers, corporations rise, remain, decline, fall, but unlike elephants, they merge and even mutate into other lines of commerce. However, taken together, global companies possess a common personality that must strive to co-opt or subjugate governments, oppose or weaken trade unions, close off avenues for remedy by others and always, always find ways to concentrate more power in their hands. Control comes to them naturally -- it falls under their definitions of self-interest.
Maximum expediency is the corporation's mantra. Nothing reveals this more than the willingness of these behemoths to turn on the very economic ideology that legitimizes them -- capitalism. Big business is in the advanced stage of destroying the very capitalism that gives it ideological cover. Consider the following assumptions of a capitalistic system:
1. Owners are supposed to control what they own. For a century, big business has split ownership (shareholders) from control, which is in the hands of the officers of the corporation and its rubber-stamp board of directors. Investors have been disenfranchised and told to sell their shares if they don't like the way management is running or ruining their business. Nowadays, with crooked accounting, inflated profits, and executive self-dealing, it gets harder for even large institutional investors to learn the truth. As Robert Monks says: "Putting owners in charge of what they own is of course the purest form of capitalism."
2. Under capitalism, businesses are supposed to sink or swim, which is still very true for small business. But, larger industries and companies often become "too big to fail." They demand that Uncle Sam serve as their all-purpose protector, providing a variety of public guarantees and emergency bailouts. Some wildly mis-run firms such as Enron are allowed to fail and go bankrupt. By and large, however, in industry after industry where two or three companies dominate or warn of a domino effect on their industry, as with a large bank, Washington, D.C., becomes their guarantor.
3. Capitalism is supposed to exhibit a consensual freedom of contract -- a distinct advance over feudal society. Yet, the great majority of contracts for credit, insurance, software, housing, health, employment, products, repairs and other services are standard-form, printed contracts, presented by sellers on a take-it-or- leave-it, noncompetitive basis.
4. Capitalism requires a framework of law and order. Adam Smith, John Locke, Frederick Hayek, and Milton Friedman all understood this necessity. Rules of economic fair play are needed to prevent mayhem, fraud, deception, and predatory practices. Easily the most powerful influence over most of government are the large industries that receive privileges and immunities. Only those caught in positions of extreme dereliction, like Enron, ever have reason to expect more than a transferable slap on the wrist for violating legal mandates.
5. Capitalist enterprises are expected to compete on an even playing field. Corporate lobbyists, starting with their abundant cash for political campaigns, have developed a "corporate state" where government lavishes many subsidies on big business while denying comparable benefits to individuals and family businesses. We have a government of big business, by big business, and for big business.
In summary, corporate socialism -- the privatization of profit and the socialization of risks and misconduct -- is displacing capitalist canons. This worsening condition prevents an adaptable capitalism, served by equal justice i1nder law, from delivering higher standards of living. Civic and political movements must call for a decent separation of corporation and state. Otherwise invasive commercial imperatives will erode the civic and spiritual values of our democratic society.
Corporate executives, as a class, have pulled off nothing short of a coup d'etat by seizing power from shareholders -- the real owners. It is remarkable how the corporate owners lost their rights to effectively control what they own. That means the ability to nominate their own board of directors and to have real elections to decide who will run the company. The staggering compensation plans for CEOs rubber stamped by a selected board of compliant directors has led to inflating profits, downloading debt, and other crooked accounting. The purpose, always, is to increase stock prices to make the bosses' stock options more valuable. All too often top executives end up jeopardizing their own companies. "Surveying continuing record executive pay," Fortune headlined in its May 3, 2004 issue, "the average CEO in 2002 earned 282 times what the average worker did. In 1982, the ratio was 42 to one."
Robert Monks, whose experience with corporate board membership activity is extraordinary, has listed "six major inappropriate powers giving rise to serious conflicts of interest by corporate management." He concludes, "Market capitalism cannot fulfill the requirements of allocating resources efficiently if shareholders -- individual, institutional and beneficial -- accept de facto disenfranchisement of their powers, leaving important decisions almost wholly to senior corporate managements with conflicting interests."
To be sure, shareholders, as owners, with the authority to approve or disapprove the payment packages of their top managers, would have stopped cold these vast excesses in greed, and in Warren Buffetts' judgment, that would have in turn stopped the cooking of the books at the heart of the recent corporate crime wave. Again, a fish rots from the head down.
Humanitarian Yardsticks
Given what large companies often do to their owners and to capitalism, it is no surprise that they damage our political economy in asking to be deregulated, undertaxed, and subsidized. Start with the control of the yardsticks by which progress is measured. Economic indicators, except for unemployment data that are understated, are not measures of the well-being of children, women, and men in the society. Imagine Alan Greenspan going to Congress for his regular state of the economy testimony before the Joint Economic Committee. Mr. Greenspan is customarily given indicators that are based on bloodless aggregate data -- such as inventory levels, investment flows, interest charged to businesses, profits, inflationary signs, deficits. It is mostly about the gross domestic product (GDP) -- a peculiar but dominant yardstick of economic growth. But the GDP hides more than it reveals. It ignores distributional benefits of economic activity -- who gets the benefits and who doesn't. So I wonder what it would be like if just once Chairman Greenspan testified on economics as if people matter -- to use E. F. Schumacher's felicitous phrase. Perhaps, he would start in the following way:
Mr. Chairman and distinguished members of the Joint Economic Committee, I am here today to declare that the state of our economy is not good. The recent 5 to 8 percent quarterly increases in the GDP rate are accurate but misleading. Most of the gains are going to the wealthy classes. Unemployment is increasing, under- employment is increasing, jobless Americans who have given up on finding a job are increasing and thereby no longer counted as unemployed. Child poverty is growing. and if you add "near poverty" as a classification it becomes a national disgrace. In California, fully 45 percent of all children are either "poor" or "near poor." This is unacceptable in such a wealthy country. The number of those without health insurance continues to climb, now over 45 million people. The underinsured population is growing as copayments, deductibles, exemptions, and other insurance trapdoors lead' to inadequate coverage. Consumer debt continues to set records, beset as it is with such high consumer credit interest rates even though I have kept the federal funds rate at near forty-year lows. Law enforcement for consumer protection would amuse my old mentor, Ayn Rand, for it scarcely exists. Consumers are being defrauded and overcharged in the tens of billions of dollars yearly. Most times they are not even aware of these heists, as in the computerized billing frauds and abuses in the health care industry, not to mention auto .repair rackets, predatory lending, credit card and bank charges, adulterated food, and medical quackery. Notwithstanding consistent economic growth, a majority of workers is still falling behind in inflation-adjusted wages and, our data show, there is an additional incomparability with peak wage years such as 1972 and 1973. Namely, today's workers must spend more money commuting to and from work and other work-related family costs, are much larger. Daycare can cost a worker $500 a month alone.
Affordable housing continues to be elusive for over five million working families. Housing prices are in a period of irrational exuberance. It qualifies as a "bubble" and makes it more difficult for the Federal Reserve to raise interest rates when other economic factors such as inflationary trends call for such increases.
We are commencing a project to refocus GDP figures from a human perspective. For example, child malnutrition and hunger are not incorporated indicators in our assessments of the economy's health. Buying a Nintendo game for a child jiggles the GDP but a parent spending quality time with a child is not an economic activity. Some of these nonmonetary intangibles cannot be calculated because they are not for sale. We cannot deal with not-for-sale inputs such as volunteerism. But we should do a better job in providing you with information on changes in distributional effects of aggregate economic activity on real people. Corporate crime and natural resource depletion indicators should detract from the GDP but we have no database available from the Justice Department and the EPA. I say should because people lose money or health due to corporate crime. But so elastic is our economy that corporate crime may generate considerable economic activity simply from law enforcement with all the expenditures for prosecution and especially for defense. Other trends like workplace casualties, auto crash injuries, and medical malpractice deaths should be subtracting from the GDP but instead are viewed as contributing to it by increasing demands for goods and services. Troubling.
I once was asked by your colleagues whether I was concerned about the nation's trade deficit. I replied, Mr. Chairman, only if it persists. Well, twenty-eight straight years of growing trade deficits merits the word persistent. The buying more abroad than we are selling trend boggles my free trade mind enough to leave some options open for future revisions.
Well, Mr. Chairman, I trust that I did not confuse you and your colleagues too much or at least as much as I have confused myself. You see, all my professional life I have been a quantitative economist and these preliminary soundings in my testimony have given me a case of cognitive dissonance. But it sure beats just believing. More next time. Thank you.
If Chairman Greenspan gave testimony like this, it would produce seismic waves among the corporate crowd. For they use similar quantitative yardsticks. Exxon did not subtract from its own GDP the Exxon Valdez oil spill disaster in Alaska: .It instead deducted it as an expense and probably made it up in the following months when gasoline prices spiked on the West Coast as a reaction to the tanker's large leak. Nor is depleting minerals considered for subtraction under customary GDP accounting practices. As Herman Daly has noted, "growth in GDP, so-called economic growth, has for some countries literally become uneconomic growth, because it increases unmeasured costs faster than it increases measured benefits. Consequently, many policies justified mainly by their contribution to GDP growth, such as global economic integration, lose their rationale. Maybe that is why the World Bank lost interest in correcting the national accounts."
The dominance of essentially corporate yardsticks for evaluating our economy distracts and obscures the true economic condition of the people arid the nation's assets. It is a sensational controlling process because it affects what is and what is not publicly discussed. It misdirects what's considered important for societal priorities. Only when people declare independence from the games being played and demand accurate descriptions of reality will yardsticks begin to measure the people's welfare. Before labor unions were formed, there was little attention paid to the horrible working conditions and pay. There was even less study or statistics about these conditions. Workers were expendable and replaceable. Until the use of the automatic coupler, it was cheaper for the railroads to put workers between the freight cars to couple them and be crushed to death in the thousands than to establish safer practices. As organized labor became more influential in the economy and the councils of government, all working people learned more about their aggregate condition because the government felt obliged to collect these statistics.
In understanding the webs of control that big business is always extending over its subjects, we should realize how they have outpaced the traditional checks and balances. Indeed, we are lunching off those past reforms and allowing them to depreciate -- namely, union organizations, federal and state regulation, judicial actions, democratization of credit for community-based entrepreneurship, large farm cooperatives, social safety nets, and heightened community standards and organizations that keep up with ever new corporate outrages and technological hazards.
While traditional restraints have atrophied or been subject to active corporate attrition, the globals have concentrated power and wealth in new and more remote ways. Many top executives are always testing the likelihood of opposition in order to push the envelope. In 1940, the compensation of a CEO in a large U.S. company was twelve times that of the average worker in that same company. They would never have dared to push the shareholders, much less their unions, to give themselves a multiple of forty or eighty times. In 2000, according to Business Week, their successors dared. They reached a pay multiple of nearly 531 times! That is not only expansion of CEO power, but given what Buffett observed was its effect on our economy, it was a large expansion of their abuses of power.
Growing Inbalances
The same testing of the waters has been going on against the labor unions. An unequal two-tier system -- one for present workers and the other for all new workers -- would not have been proposed by management in the 1950s or 1960s. Now it is a concession by unions in various industries, along with more co-payments and deductibles in company health insurance plans. The ease with which factories can be shipped overseas or white- collar jobs outsourced has given big bargaining chips to companies either with unions or, as is mostly the case, without unions where workers may be thinking of forming one. Globalization depresses worker wages and other legitimate demands and is doing so at an accelerating pace. Accountants, legal researchers, radiologists, engineers, and computer programmers are among an army of occupational categories whose practitioners are at risk of being sent abroad. More and more, there is this feeling among transnational companies that they can get away with almost anything -- from where they choose to pay or not pay taxes. Their brazen schemes become hydra-headed with collateral demands for packages of subsidies for locating or building their structures in a given community. One that went right through the window was the way Microsoft and General Electric pulled the plug on some New Jersey taxes. In a move of wondrous effrontery, they demanded from then Governor Christie Todd Whitman a subsidy package for locating their MSNBC headquarters and three hundred workers in that state. Included in this bundle of goodies was a refund to Microsoft-General Electric's joint venture for the equivalent of all the taxes paid by those workers to the state of New Jersey. The corporate attorneys who figured out this recycling apparently were not inhibited by their knowledge that their corporate clients were among the most profitable companies in the world. I cannot imagine this occurring thirty years ago nor the current municipal and county moves to use taxpayer monies to build sports arenas for billionaires. Any company demanding such largesse years ago would have been laughed out of town. In those days, real capitalists used their own or their friends' investment funds.
Such severely growing imbalances of power illustrate both corporate supremacy and the growing vassaldom of public officials. These subsidies for big time sports entertainment are not popular with a majority of taxpayers of either conservative or liberal background. Nor do people like the use of eminent domain to destroy homes, churches, schools, or hospitals for a company's installation when it could be located nearby. Some of the condemned land is ultimately used for a mere parking lot or not used at all. Promises by the company of certain levels of employment and the like in return are not binding and Can be broken at any time. Fortunately, there is a brewing revolt reflecting itself through unlikely coalitions between conservatives and liberals. Rejections have resulted when voter referenda are permitted.
The political economy, not just the economy, is being turned over to these global powers, including the most sensitive government and security secrets and data through their corporate contracts with federal departments. What have they been delivering with all that power? Isn't responsibility supposed to accompany great power? Well, let's look further at the record.
They have been pushing commercialism into every unwanted corner of American life. More and more, these companies have been breaking faith with their retirees' pensions and health insurance. They are increasing demands for complete immunity or indemnity from Congress wherever they cannot break the tort system from holding them accountable. Over the past generation, with varying degrees of success, tobacco companies, the weapons industry, HMOs, the airline companies, the nuclear and chemical companies, the cruise companies, biomaterials producers, and insurance companies have all tried to evade the all-American proposition that bad or reckless behavior has legal consequences. Ultimately, they have taught the country that the law is for sale in our legislatures.
Big companies win big victories over the people, but not always, so they have a contingency plan. Quit the country. This used to mean mostly making use of very permissive national havens, as do shipping companies carrying the flags of Panama or Liberia. Today, fleeing U.S. jurisdiction is much more sophisticated, for free-loading companies that receive the benefits of the United States.
Enter the new kind of international trade agreements so cleverly designed as not to be restricted to trade. NAFTA and the World Trade Organization (WTO) are international systems of autocratic governance. They are brilliantly suited to the long-held desire of mega-corporations to go around pesky domestic regulations into any arena they want to call their own. These agreements, enforceable upon their signatory nations, reverse priorities of social progress by subordinating worker, consumer, and environmental priorities to the supremacy of international commerce. Recall that when social justice advanced in our country, it was because commercial interests were subordinated to the higher human need. Lawmakers and the laws told the auto companies that their bottom line will adjust to improved motor vehicle safety and not the reverse. They told the polluters that their profits must take into account the toxic harm their operations inflict on innocent human beings. Over the decades, civic values over commercial values improved life in numerous countries where this priority could work. When allowed to operate, the tide of democracy does lift all boats including the yachts of big business executives and the property of their companies.
A genuinely democratic society is good for good business but it is properly bad for bad business. Democracies expand economies, standards of living, and enhance corporate profits in the aggregate far more than authoritarian regimes do. When business plutocrats get whatever they want in the form of monopolies, concessions, little taxation, subsidies, and military protection at the sacrifice of citizens, everybody suffers including many businesses. Let's make a comparison between countries roughly of equal size and resources -- Brazil and the United States. The different levels of democratic development produce starkly different levels of economic output. The GDP of California alone is much larger than the GDP of Brazil which has over five times the population.
Let us review the process by which this unpopular trade autocracy was imposed on unwilling Americans (as polls showed). Such unpopularity mystified many observers, given the avalanche of corporate, media, and government propaganda behind passage of these trade deals in the Congress from 1992 to 1995. George H. W. Bush sent the proposed NAFTA treaty with Canada and Mexico to Congress and William J. Clinton did the same with the WTO treaty. Both presidents employed the anti-democratic "fast track" procedure, one that Congress had agreed to adopt. This meant that Congress would have. a certain set time either to pass or reject these hundreds of pages without any amendments being permitted. I do not believe that voters send their Senators and Representatives to the Congress so that they can tie their own hands and not exercise their judgments in the form of amendments. In any event, autocratic procedures lead to autocratic outcomes and the two treaties passed. But they were characterized as trade agreements and not treaties (which is what Harvard constitutional law scholar Lawrence Tribe thought they were). Treaties require a two-thirds majority to pass in the Senate. So their names were changed to trade agreements, which needed a simple majority vote. No American is permitted to have the legal standing to challenge this legerdemain in federal Court.
While intensively opposing the WTO treaty by visiting many congressional offices, there was no indication that any legislator or staffer I met had ever read the several hundred pages. They had a year to do so. Their salary checks do not bounce. These treaties represented the greatest surrender of local, state, and national sovereignty in Our history. One would think it was time for a little reading of the entire text, not just orating from decidedly slanted memos prepared by the U.S. Trade Representative's office located near the White House or the innumerable business associations and law firms serving global industry and commerce. This abdication amazed us as we related one disturbing provision after another about which they were not aware. So we had an idea. We challenged any member of Congress to read the entire treaty and answer ten simple questions in public. Senator Hank Brown (Rep. Colorado) called and accepted the challenge. He agreed to reserve the Senate Foreign Relations Committee room for the questioning. I called my friend, Richard N. Goodwin, who was being portrayed as a congressional investigator in the movie Quiz Show, to come down from Massachusetts and ask the questions which by then had lengthened to twelve. Senator Brown sat in the witness chair encircled by television cameras, radio mikes, and reporters. I sat with Richard Goodwin where the Senators usually sit during a hearing. One by One Goodwin asked the questions. One by One Senator Brown answered them correctly. He had really done his homework. We Congratulated him on his perfect score. Then the Senator said he had something else to say. He said he was a free trader and he had voted for NAFTA, but after he read through the WTO agreement, he was appalled by the various anti-democratic sections and decided to vote against approval when it came to the Senate floor. Which he did. His was an exemplary performance but no other member of Congress emulated his dedication. His example had no influence on his col. leagues. None changed their vote and the WTO was approved, but not without considerable dissent. It was a sobering episode that taught people about the many slovenly puppets masquerading as denizens of "the world's greatest deliberative body."