Comments From The Chemo Couch: Regulating Crony Capitalism

I know many ADI readers oppose government regulation of any kind.  They believe that regulation stifles free enterprise and individual initiative, putting artificial brakes on the economy.  I would argue that unrestrained free enterprise, without regulation, works for a few at the expense of the many, and that history shows that to be so.  Pursuit of a bloated Bottom Line can leave those whose labor actually generates the profits behind.

Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many.   – Adam Smith

I’ve cherry-picked some quotes from the 18th Century Scottish philosopher Adam Smith, honored as the founder of modern capitalism, to illustrate some of my points.  Unfortunately, many of those citing Smith as their inspiration ignore his arguments about inequality:

No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.  –Adam Smith

Early commerce came in the form of family businesses, artisan workshops, and with slavery and indentured servitude.  In the early days of the Industrial Revolution emerging modern capitalism took no responsibility for its workers, their communities, or the environment.  Twelve and 14-hour workdays were common, with perhaps a half-day off on Sunday to go to church.  Child labor was common.  Much work was dangerous, and smoke, fumes and waste took a toll on the health of workers and their communities.  Pay was as little as the employer could get away with and debt to company housing and company stores kept workers tied to the job.

[The rich] consume little more than the poor, and in spite of their natural selfishness and rapacity…they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.   — Adam Smith

Smith’s theory about the “invisible hand” leading to equitable division of resources did not play out in America as it industrialized under the leadership of what were termed “Robber Barons.”  Super-profit was the goal of the rich, and that came through low wages, long hours and bad working conditions for the work force.  Government was weak, and here Smith’s bias was championed:

The statesman who would attempt to direct individuals how to employ their capitals would be responsible not only to care very redundant, but assume an authority which could safely be entrusted to no council or senate and which would nowhere so dangerous in the hands of a man so foolish and presumptuous enough to believe themselves capable of exercising it.   — Adam Smith

Workers fought against employer greed with sometimes violent strikes, forming unions to unite their strength against the power of the employer.  Employers fought back with greater violence, using police, private armies and state militias to crush worker organization.  Craft unions decided to use their skills as bargaining power, while anti-capitalist unions like the Industrial Workers of the World sought to overthrow the system.  Governments, local, state and federal, helped defeat worker militancy.

A criminal is a person with predatory instincts who has not sufficient capital to form a corporation. Most government is by the rich for the rich. Government comprises a large part of the organized injustice in any society, ancient or modern. Civil government, insofar as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, and for the defence of those who have property against those who have none.            –Adam Smith

In Bisbee, Arizona, some 35 nationalities worked at the Queen Mine with different rates of pay.  When the IWW led a strike there in 1917, government and vigilante forces led by mine owners rounded up and “deported” 1200 strikers, loading them in box- and cattle cars and dumping them in the New Mexico desert in July’s heat.  Nationally, employers and government lined up behind “The American Plan” to maintain open shops and keep unions out, wages low, and profits high.  Union militants were murdered with impunity.

The interest of [businessmen] is always in some respects different from, and even opposite to, that of the public.  – Adam Smith

A few employers bucked the trend.  Henry Ford paid his workers an unheard-of $5 a day because he understood that if he was going to mass-produce automobiles, people needed to make enough money to buy them.  Others, like Andrew Carnegie, hired an army of Pinkerton detectives to shoot strikers at his steel mills while donating millions of dollars to philanthropic causes.

Unrestrained, unregulated capitalism with few government or union checks and balances led to the Stock Market crash of 1929 and the Great Depression, bringing misery to tens of millions.  President Herbert Hoover attempted to convince corporate executives to take actions to ameliorate the crisis but was rebuffed.  He complained

The only problem with capitalism are the capitalists.  They’re too damned greedy!

The failures of 85,000 businesses, 5,000 banks, and thousands of family farms, with 25 percent unemployment, led to the election of Franklin Delano Roosevelt and the coming of the New Deal, with government as the employer of last resort.  Corporations were now being regulated, and legal safeguards put in place to prevent the kind of wild speculation that had brought about the crash.

It can be argued that it was World War II that created the conditions to finally end the depression, but the post-war years ushered in the greatest period of prosperity for working people in America’s history.  It wasn’t always easy.  Unions were legal and strong now, and 1946 saw the greatest strike wave ever as pent-up consumer demand came up against corporate efforts to turn back the clock.  The Taft-Hartley Act and the Red Scare served to slow organized labor down, but the regulations restraining corporate greed remained in place.  Government programs made home-owning and education available to working people.  A robust middle class was born…and employers still made money.

What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life.        — Adam Smith

Despite economic changes like automation, information technology and globalization, and the shrinking of union membership, and despite fairly brief “recessions,” that middle class remained stable and grew for over 30 years.  Then came “The Reagan Revolution.”  Relying on “trickle-down” economics, President Ronald Reagan began to undo corporate regulations, cut taxes, and free Adam Smith’s Invisible Hand.  To be fair, corporate flight to low-wage Third World countries and the coming of the American Rust Belt were already well underway, with nods of approval from both Democrats and Republicans and tax breaks to encourage it.

 

But it was Reagan’s 1981 destruction of the striking Professional Air Traffic Controller’s Association, PATCO, that sent the message to employers that the rules had really changed.  Unions were now fair targets, and as Michael Douglas’s character in the movie Wall Street proclaimed, Greed is good!   NAFTA encouraged moving US jobs to Mexico, and China – combining the worst features of both capitalism and communism – was led into the World Trade Organization by President Bill Clinton.

 

The Not-So-Great Recession of 2007-2013 – the worst economic downturn since 1929 — was directly linked to unregulated and reckless corporate greed: The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that “the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.”

 

Since then there has been more corporate deregulation, more income inequality, a few more billionaires while the middle class has steadily shrunk and wages are stagnant.  Pensions are an artifact of the past and health care increasingly expensive.  The new tax laws increase the national debt while hoping that benefits will again “trickle down” to the rest of us.  Some legislators were guaranteed personal windfalls to get their votes.  While tax cuts were applied to both corporations and individuals, those for individuals will expire in a few years while windfalls for big business remain in perpetuity.  Corporations began targeting their executives and stockholders for big dividend boosts while continuing plans to move jobs abroad.

 

Whether the promised economic revival comes to pass or not remains to be seen.  What is clear from our history is that, without the kind of corporate regulation that created the American middle class and a long-gone standard-of-living, it will be a crap shoot, a gamble.  The triumph of crony capitalism – politicians and corporate executives colluding to enrich themselves and each other — is both a breakdown of the free market system and its logical progression.

 

According to Forbes Magazine, almost 18 million households — just 1 percent of the world’s population — hold 45 percent of the world’s $166.5 trillion in wealth. In recent decades the rich have been taking ever-larger shares of wealth and income—especially in the U.S., where corporate profits are nearing records while wages for the workforce remain stagnant.

 

The share of income going to the top 1 percent in the U.S. has more than doubled in the last 35 years, after dropping in the decades after World War II (when the rich were taxed at double-digit rates). Reagan’s trickle-down economics saw tax rates for the rich fall, union membership shrink, and stock markets spike.  In 2017 63 percent of America’s private wealth was in the hands of U.S. millionaires and billionaires.  By 2021, their share of the nation’s wealth will rise to an estimated 70 percent.

 

In regards to the price of commodities, the rise of wages operates as simple interest does, the rise of profit operates like compound interest. Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.  Adam Smith

 

Ideologues of the left and the right will argue about what economic system works best for the most, but from a pragmatic viewpoint capitalism is what we have, and well-regulated capitalism did a lot of good for a lot of people for several generations even though large blocs of people were left behind.  If history is any guide, the return to unregulated Robber Baron capitalism, with the addition of Cronyism, does not bode well for the future.

 

 

13 Comments on "Comments From The Chemo Couch: Regulating Crony Capitalism"

  1. “I know many ADI readers oppose government regulation of any kind.”

    Name one! An assumption with no facts whatsoever as usual. I’ve never met anyone in my life that opposes government regulation of any kind. But week in week out, this blogger projects divisive, unsubstantiated denigrations of America’s constitution and free will of its citizens to make his base for non-stop Communist propaganda.

  2. The hypocrisy from the Commie Couch is quite blatant. While he writes as a supporter of labor, his actions are totally against labor. He strives to shut down all construction and mining, good labor jobs, while complaining it will ‘disturb’ him and mother earth in his lilly white enclave of Picture Rocks.

    Communism has brought misery and death to tens of millions. It’s quite clear the Commie Couch is dedicated to continue the spread of misery and poverty to as many as possible.

  3. Venezuela is an example of the Socialist ideas you espouse. America and capitalism has pockets of poverty. Socialist Counties have pockets of wealth, mostly lying with those in power. What you are preaching still is communism no matter how you explain it.
    Good to see you are still fighting your fight though.

  4. unrestrained free enterprise without regulation works for a few at the expense of the many and that history shows that to be so ” you must be taking about the Pima County Balloon Ride” Bring your own rubber balloon… some grease if you like it that way..

  5. so Lannon – who did you work for and who pays your retirement? The “government” has confiscated money from my paycheck for social security for my entire life, Medicare as well for most of my work life – they said we’ll do this for you because your to stupid to do this on your own, we’re experts and we’ll take care of it for you; they did, the left an IOU written with the full faith of the US Gov’t in the box. Now we are broke, and broke.. and with this you say it’s the capitalist that are the problem? You sir have a dementia that is effecting your bottom. What do the socialists say about taking it all for the people… both of them.

    • I was a high school dropout and blue collar worker — zoo keeper, house painter, direct mail worker, warehouseman, then a union official and, my last career after getting my GED and some college degrees in my 50s and 60s, a labor educator. I’ve paid into Social Security for 50 years, and I get two small union-negotiated pensions.

      Any potential problem with Social Security can be solved with a simple fix — you and I paid in all of our working lives on all of our income. Remove the cap and let the rich pay on all their income — like we did — and the problem is solved. And, frankly, it’s Medicare plus union-negotiated retiree medical benefits, that’s keeping me alive and kicking. So, yes, it’s politicians catering to the capitalists that has been the problem all along. Cronyism isn’t a new thing.

      BTW — for all the name-calling and labeling, it is Adam Smith I quoted, and not Karl Marx. But I suppose calling me names, even though untrue, makes it easier to avoid the issues I raised.

      • Lannon – there was no name calling ; I am also a HS drop out, combat veteran, first born of a legal immigrant, College educated on the GI bill, have run my own company since the early 90’s, employ a number of people – non union shop. I worked as laborer for years before starting my company of ‘one’ in the early year. The largest threat has without question been government – they have so tarnished the work and market environments as to make them upside down. You say ‘it’s the government and the union that bargained for programs that keeps you ticking now’ how the hell did the employer become responsible for your health care? There is no simple fix to social security, it’s upside down and will be for decades. A moot point, the nation is in far greater an unstable condition.. Same for Medicare that the DNC with LBJ passed into being in midnight meeting attached to another bill.. now everyone gets ‘every procedure’… how did this happen? We are all ‘entitled to a sports car’? The Medicare system has so screwed up the private insurance and medical system that no one knows the ‘the real price is’! Medicare is the ‘gold standard of pricing’ how the hell does that happen? It’s another subject and a long one… We are not that for apart in back ground.. but as for being independent and view of principle of what’s the way forward it’s light years apart. God Bless you sir, may your life be blessed with many days – I do believe in miracles, Maranatha!

      • I’m taking a short course on ethics – and health care; the topic – distributive justice ; Two primary concerns are the right to equal access to care and the right to a decent minimum standard of health. The complexity of distributive justice is rooted in the effort to define what is meant by ‘decent’ or ‘minimum’ and what is meant by the concept of ‘health’. Lannon from our point of view the question is ‘who pay’s for it’… and from my experience I’ve seen it matters not if you are rich or poor ‘health cannot be bought’… as I have stated I do however believe in miracles.

  6. As noted above how then do you explain the euphoria of the soviet union? They had NO capitalism and the poor suffered more than any other country poor! Look closer to home, Cuba, now venezuela. Look at the shit hole countries the left is whining about, haiti, most of africa, the few possess and the rest rely on handouts from the CAPITALIST countries to survive. No your article is full of BS and just like many on the left you think its utopia to be in one of those countries, well with all the whinning and pissing and moaning from the left mainly, I dont see a big push to MIGRATE to any of them do you? Maybe the idiots that said they would leave will go to one of them to make their lives better (not)!

  7. Jerome R Petruk | January 14, 2018 at 10:17 am | Reply

    Mr. Lannon, Agreed that regulation of business is a necessary function of government. Good, that’s out of the way. However government regulation is often imperfect and sometimes downright wrong. The “not so great” depression was in fact caused by our federal government as it stupidly required mortgage lenders to lend to “low income” borrowers. I can’t help but notice that the Financial Crisis Inquiry Commission did cite this well known fact. In light of your paragraphs denouncing the movement of jobs out of the country, I wonder what your opinion is on the current administrations policies to restrict that. I find it interesting that your long commentary makes no mention of that.

    • Often worse than imperfect and, as you say, downright wrong! Crony capitalism — government encouraging risky (but potentially highly profitable) loans is an example. Tax laws encouraging the export of jobs is another — and I wonder if the new tax law addresses that aside from cutting taxes for those that bring some of that profit home? I am actually seeing little evidence that the current administration is doing anything more than talking about bringing jobs back. Carrier, I just read, is exporting several hundred more jobs. I am often taken to task for opposing Interstate 11 in Southern Arizona whose stated purpose is to send US jobs to Mexico and to attract US companies from China…to Mexico. So far the administration is silent on I-11. I wrote the White House awhile back asking the questions and received back news about the Easter Egg Roll on the White House lawn.

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