The Trump Campaign (and Republican Party) in Context: Capitalism and Democracy --- A Meditation (Part S)

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More on Democracy

We are trying to discern the relationship between capitalism and democracy, if there is any. We are sticking with the tentative definition of "democracy" given previously in Part R. For our purposes, the tentative, contingent definition of democracy is: self-determination which may or may not include voting.

The Wisdom of Noam Chomsky

As far as I can tell, the great Dr. Chomsky has, for the entirety of his career as a public intellectual, stressed two basic concepts in his discourses on democracy.

  1. When you remove a thing from the public domain, you are transferring it somewhere else, in addition to decision-making power over that thing --- which means, you have deducted a little bit of democracy from the public's account.
  2. If you keep doing this, you threaten to "hollow" out the democratic content from democratic institutions. The forms and residue remains but the democracy is gone; you have a kind of Invasion of the Body Snatchers effect. They look and walk and talk the same. They wear the same clothes and live in the same houses. They hold down the same jobs and have the same relationships. But there is something wrong with or missing from their insides.

I have already touched on this, a little bit, earlier in this series. For example, I have argued that the so-called "debate" between the two major parties on "immigration reform," only appears to encompass two separate positions. The apparent "debate" is really something I have called the Good Cop-Bad Cop Squeeze.

To review: What is the "Good Cop-Bad Cop Squeeze"?

First of all, let's remember that in the United States of America, when we talk about "immigration" or "immigration reform," we are talking about undocumented, migrant Mexican workers; perhaps you can even say we're talking about Mexicans, more broadly and generally.

The "Squeeze" works like this (as I see it).

But before we get into it, I have to say something at the outset: We no longer have a political party that is at least willing to vigorously challenge corporate power (a la Franklin Roosevelt Democrats); and this is absolutely key to understanding how the Good Cop-Bad Cop Squeeze works.

The Democrats/Liberals tend to be more compassionate on the matter of "immigration." These are the path to citizenship folks.

The Republicans/Conservatives tend to be more hardline, "law and order" on the matter of "immigration." They are the "this is a nation of laws" folks.

The big business community wants undocumented workers to work them for cheaper than they can get American workers.

Since both major parties are dependent upon big business to financially sustain their electoral operations, neither party wants to rock the boat of corporate campaign contributions. Therefore, the way to look at the Republican-Democrat, "law and order"-"path to citizenship" discourse is like the typical Good Cop-Bad Cop squeeze play.

The "suspect" in this squeeze play are the undocumented Mexican migrant workers. By the way, the Republicans are the "Bad Cops" and the Democrats are the "Good Cops." What the Republican "Bad Cops" and Democratic "Good Cops" are really seeking to do, then, is make sure the undocumented migrant Mexican workers remain docile and obedient to their American big business employers.

This being the case, if a voter wants to choose a candidate, based on his or her position of immigration, there is no choice.

  • Choose Trump and if he is elected, he will be the "Bad Cop" on the inside of government; and Secretary Clinton will continue to act as "Good Cop" outside of government.
  • Choose Secretary Clinton and if she is elected, she will be the "Good Cop" on the inside of government, and Mr. Trump will just continue to act as the "Bad Cop" on the outside of government.
  • This means that even if you choose Secretary Clinton based on what you see as her relative reasonableness on "immigration policy," this reasonableness is not what you will get, even if she does get elected --- again, because Trump, even on the outside of government, will be supplying his part of the "Squeeze."
  • This means that even if you choose Donald Trump based on what you see as his righteous law and order stance on "immigration policy," this law and order thrust is not what you will get, even if he does get elected --- again, because Secretary Clinton, even on the outside of government, will be supplying her part of the "Squeeze."

I have elaborated this concept over Parts J, K, L, M, and N in this series. So let's move on to something else.

The Rise of the American Corporation

Democracy probably is not a word you would think to associate with the modern American corporation. But there was a time when these economic entities were under the democratic supervision of state legislatures in this country.

The first thing to say is that corporations were not always the perpetually standing entities that they are today. In the early republican period, states, not the federal government, issued corporate charters. These early charters were limited to a fixed number of years; and the corporation had to be disbanded if the charter were not renewed (1).

These charters put limits on a corporation's borrowing, ownership of land, and sometimes even profits. Members of a corporation were liable in their personal capacities for all debts incurred by the entity, during the period of membership. Large and small investors had equal voting rights; and interlocking directorates were legally prohibited. Furthermore, corporations were limited to conducting only those business activities which were specifically authorized by its charter (2).

Corporate charters often contained revocation clauses. State legislators had the right to withdraw the charter of any corporation that, in their judgment, failed to serve the public interests. By 1800, only about 200 corporate charters had been granted by the states. In 1819 the U.S. Supreme Court ruled against the state of New Hampshire in its attempt to revoke the charter issued to Dartmouth College by King George III, before American independence. The court overruled on the grounds that the original charter did not have a revocation clause (3).

David C. Korten, the author I have been citing, then goes on to say: After the Civil War, a "conservative judicial system started to steadily chip away at the legal restraints which had restrained the authority and power of corporations" (4).

Spoiler alert: I am going to take issue with that. Not the idea that the courts steadily chipped away at the legal restraints which had restrained the authority and power of corporations. I am merely going to challenge the need for a "conservative" mindset to do this. In other words, it may not have been about "liberal" or "conservative," but something else....

Mr. Korten also wrote:

"The court began to put new precedents in place, which eliminated juries to decide fault and assess damages in cases involving corporate-caused harm and took away the right of states to oversee corporate rates of return and prices" (5).

Judges began to rule that workers were responsible to their own injuries on the job; and limited liability of corporations for damages they caused, and declared wage and hour laws unconstitutional (6).

Why? The question is: Why? But let's hold that thought for now.

The turning point seems to have been: The 1886 Supreme Court decision in Santa Clara County v. Southern Pacific Railroad. The ruling was that a private corporation is a natural person under the U.S. Constitution, and is thereby entitled to the protection of the Bill of Rights (7).

Again, the question is: Why? Why did the court do that? Hold that thought.

That decision seems to have propelled a massive wave of awesome business consolidation in the United States.

We are informed by Robert B Reich, that by the start of World War One much of American industry had concentrated into giant firms: Ford Motor, U.S. Steel, American Telephone & Telegraph, United States Rubber, National Biscuit, American Can, The Aluminum Company of America, General Electric, General Motors, and Standard Oil (8).

"The size of such enterprises," Mr. Reich would have us know, "became an almost impregnable barrier for smaller firms that might wish to enter the market" (9).

It may be of some interest to know that, according to Mr. Reich --- of the the Fortune 500 largest corporations in 1994, more than half of them were founded between 1880 and 1930; and a far smaller number were founded between 1945 and 1975 (10).

By 1904, more than 1,000 railroad lines had been consolidated into six great combinations, each allied to Rockefeller or Morgan interests. Morgan, George F. Baker (director of First National Bank of New York), and James Stillman (director of National City Bank of New York), and their financial associates held 341 directorships in 112 great corporations. The total resources of those corporations, in 1912, was $22,245,000,000 (11).

In 1919, 89 mergers involved 527 companies; and in 1928, 201 mergers repackaged 1,259 businesses (12).

"So many family businesses were pulled into the corporate orbit," writes historian Kevin Phillips, "that nearly 20 percent of U.S. national wealth shifted from private to corporate hands" (13).

The corporate share of national wealth rose to about 30 percent and the largest 100 corporations came to command about half of the total U.S. industrial income. And so-called holding companies came to be an important feature of the economy in the 1920s (14).

So, did the Supreme Court make its 1886 ruling to facilitate this tremendous business consolidation we've touched on?

Apparently.

But why? Again, why is the question.

If it --- by "it," I mean the original democratic supervision of corporations by state legislatures --- wasn't broken, why did the American ruling class see fit to fix it?

You know what? As I was thinking about this, I had an inspiration! I "Googled" the words: How much of the American economy was in foreign hands in 1865?

I don't know why I wrote "1865," but I did. However, Google did not disappoint. One of the entries was from encyclopedia.com and the heading is: Foreign Investment in the United States.

Let me quote you from what appears, to me, to be the relevant passage. Check this out; its from the section titled: From the Civil War to World War I where were read:

"Foreign capital poured into the United States in the period from the mid-1870s to 1914, the so-called first time of globalization. As the world's largest recipient of foreign capital, the United States was the world's greatest 'debtor nation.' Foreign capital contributed in a very positive fashion to the economic growth of the country. The greatest part went into building American railroads (15).

You know, we don't often think about the fact that, once upon a time, the United States was a Little Engine That Could, "developing" country that needed foreign investment to get us up on our feet.

Still quoting (and here comes the really good part):

"More important than the portfolio investment in America's new and big businesses were the many inward foreign direct investments (FDI). In the late nineteenth and early twentieth centuries, inward FDIs were prevalent. The FDI took two forms" (16).

Get ready, here it comes. Ready?

"First, there were 'freestanding companies, companies set up in a source of capital country (such as Britain, France, or Holland) that invested abroad and transferred management with the investment" (17).

You know what that means, don't you? It means foreign subsidiaries of foreign corporations, based in the "source of capital countries," operating in the United States. This is something we don't usually think about.

Stay with me.

Still quoting:

"In the United States, these numerous companies were involved in mining, cattle raising, meatpacking, breweries, and mortgage lending" (18).

The next move:

"Second, there were the companies headquartered in Britain, Germany, Switzerland, and elsewhere that did business at home, developed new products and processes and unique trademarks, and integrated economic activities. Then with their internalized knowledge and advantages they moved abroad not only to the United States but to other countries as well. Companies such as Lever Brothers, the big German chemical companies, Nestle, Shell, and many others established themselves in the United States before the start of World War I" (19).

Well, well, well... Inward Foreign Direct Investments. Remember, we're talking about the period from the mid-1870s to 1914!

Stay with me. I want to quote just two more passages that really drive home the point. We move into the section titled: World War I, the Inter-War Years, and World War II, where we read:

"During the war years, inward foreign investment dropped for a number of reasons. First, Europeans sold American securities to finance their own war effort. Second, after U.S. entry, an Alien Property Custodian took over 'enemy' (principally German) assets in the United States. Nonetheless, many inward foreign investments remained. British direct investments in the United States were untouched by the British government mobilization of 'American securities.' British insurance companies continued as significant participants in providing American fire and marine insurance" (20).

One more passage:

"In the immediate aftermath of World War I, the United States placed new restraints on foreign direct investment. Americans believed it was inappropriate to have the new radio industry under foreign control. The U.S. government encouraged the formation of the Radio Corporation of America to take over the assets of Marconi, the British controlled company that had innovated in radio communications. With Prohibition, the large British investments in breweries came an end. The Mineral Lands Leasing Act of 1920 put restrictions on the ability of foreign oil companies to lease public land if their nation did not give Americans reciprocal rights" (21).

Where Did the Modern American Corporation Come From?

Let's put all of that information together and try to answer some questions.

  1. Why did the Supreme Court make the 1886 decision that a corporation had the right of a "natural person," to be protected by the Bill of Rights?
  2. Why did the court dislodge and the state legislatures relinquish democratic (small 'd') supervision and authority over corporations?
  3. Why were these previously temporary corporate entities allowed to remained "freestanding" mega-monster, monopolistic businesses?
  4. Why did American public policy turn so virulently anti-worker?

Here's the way I add up all of the elements we've just looked at:

It seems that, sometime after the American Civil War --- (remember the first author I cited, David C. Korten, identified the Civil War as the fault line: footnote #4) --- the American ruling class, for reasons of national pride, decided to nationalize many of the "inward foreign direct investments," that is, the the American outposts of European corporations.

These "nationalizations" were not carried out in the Latin American sense, whereby Latin American outposts of Western corporations used to be taken over directly by Latin American central governments.

Nationalization American-style consisted simply of transferring ownership from European hands to nativist (rich white male) American hands.

The U.S. government pursued various policies in order to enable nativist American businesses to absorb many of these "inward foreign direct investments."

I think now is a good time to mention that, according to the New York Stock Exchange, of the 573 companies whose stock was traded actively in 1928, 395 were both "holding" and operating companies; and 92 did nothing but hold other companies securities (22).

Question: What were the 395 companies "holding"?

Answer: They were holding the "inward foreign direct investments" they had absorbed into nativist American ownership.

Question: What's the deal with the other 92 that did nothing but "hold" other companies securities?

Answer: They appear to have existed in anticipation of future absorption of "inward foreign direct investment."

What I have just said will become more comprehensible and believable, when I tell you that, to this day, the creation of the holding company is the fundamental first step (after you've borrowed lots and lots and lots and lots of money) in executing a so-called "leveraged buyout," or "hostile takeover" of a targeted company. You have to create a "receptacle" to receive the newly captured company (23). By the way, in more honest times, people who did this were, frankly, called "corporate raiders." Today, the industry goes by the more genteel term, "private equity."

So, the holding company, then, was the instrument of nationalization, or Americanization, of "inward foreign direct investment, through, essentially, the operation of the leveraged buyout.

Under these circumstances, I think the rest of the answers to the rest of our questions, fall neatly, almost inevitably into place.

  • The Supreme Court made its ruling as part of the necessary first step in the process of nationalizing or Americanizing "inward foreign direct investment.'
  • The court dislodged and the state legislatures apparently relinquished democratic (small 'd') oversight of the corporate entities, because these entities were in the process of transformation from "foreign" business enterprises into "American" business enterprises; basically this was American policy showing discretionary favoritism to newly becoming "American" enterprises.
  • In other words, the thought process on behalf of the ruling class would have gone something like this: When it comes to foreign companies operating within our national boundaries, we will regulate the hell out of them! But when these entities become "American," we will 'give them a break.'
  • If American policy turned virulently anti-worker, -- and it did (24) -- then we're talking about class as well as nationality. In other words, we're talking about "discretionary favoritism" among the business and political arms of the American ruling class, against the working class.
  • Therefore, a particularly "conservative" ideology is not necessary to make all of this work.


Conclusion

It is interesting to compare the rise of the modern American corporation, in the 1920s, to the rise of the modern Russian corporation, in the 1990s, with the dissolution of the Soviet Union. It is interesting to compare what happened to democracy in both cases.

I would characterize what I have been describing in this examination, as democracy abandoned.

The situation in post-Soviet Russia was, briefly, as follows. The issue was how to privatize the Russian economy, how to privatize state assets. Then Mayor of Moscow, Gavril Popov said that there were really only two ways to do this:

'Property can be divided among all members of society,' said Mayor Popov, 'or the best pieces can be given to the leaders... In a word, there's the democratic approach, and there's the nomenklatura apparatchiks approach' (25).

For some reason, the Russian people were polled on this issue, in 1992. Sixty-seven percent said that they believed that worker cooperative were the most equitable way to privatize state assets. Incidentally, it was also revealed that 79 percent of respondents said that they thought that maintaining full employment was a core function of government; and 70 percent of Russians said that they were opposed to lifting the price controls (26).

In the Russian case, then, with the rise of the corporatist "oligarchs," we have democracy ignored.

Democracy abandoned in the United States, in the 1920s, and democracy ignored in Russia, in the 1990s, seems to have had very similar consequences for both societies.

Before this process, Russia had had no millionaires. By 2003 Russia had seventeen billionaires, according to the Forbes list. In part this was because, in Russia, foreign multinationals had not been allowed to buy up the state assets directly --- these were rather nationalistically reserved for Russians. These newly privatized companies were, then, opened up to foreign investment. The returns were simply astronomical (27).

A Wall Street Journal headline read: Looking for an investment that could gain 2,000 percent in three years? Only one stock market offer that hope... Russia. Many investment banks, including Credit Suisse First Boston and a few rich financiers quickly set up dedicated Russian mutual funds (28).

Other consequences (after a year of this "shock therapy" process/democracy ignored): millions of middle class Russians lost their life savings when the money lost its value; abrupt cuts to subsidies meant that millions of workers had not been paid for months; the average Russian consumed 40 percent less in 1992 than in 1991; and a third of the population fell below the poverty line; middle class Russians were reduced to selling their personal belongings, on the street, for money for food (29).

The process of the rise of the modern American corporation, by way of democracy abandoned, no doubt fuelled the stock market boom of the 1920s (30), with the horrendous consequences for the working class, some of which we have already reviewed.

Thank you for reading.

References and Notes

1. Korten, David C. When Corporations Rule the World. Berrett-Koehler Publishers & Kumarian Press, 1995. 56

2. ibid, 56-57

3. ibid, 57

4. ibid, 59

5. ibid

6. ibid

7. ibid

8. Reich, Robert B. Supercapitalism: The Transformation of Business, Democracy, and Everyday Life. Alfred A. Knopf, 2007. 19

9. ibid

10. ibid

11. Zinn, Howard. A People's History of The United States: 1492 - Present. Harper Perennial Modern Classics, 2003. 323

12. Phillips, Kevin. Wealth and Democracy: A Political History of the American Rich. Broadway Books, 2002. 61

13. ibid

14. ibid

15. Foreign Investment in the United States. (2003). Retrieved September 24, 2016, from encyclopedia.com

16. ibid

17. ibid

18. ibid

19. ibid

20. ibid

21. ibid

22. Phillips, K. Wealth and Democracy. 61

23. Korten, David C. When Corporations Rule the World. 208

24. ibid, 59

  • Between 1888-1908 industrial accidents killed 700,000 American workers
  • Wages barely covered subsistence.
  • Child labor was widespread
  • By one estimate, 11 million out of the 12.5 million American families, in 1890, got along on an average of $380 a year; and had to take in borders to survive.
  • Organized and wildcat strikes were common, as weas industrial sabotage
  • "Employers used every means at their disposal to break strikes, including private security forces and federal and state military toops."

25. Klein, Naomi. The Shock Doctrine: The Rise of Disaster Capitalism. Metropolitan Books (Henry Holt & Company), 2007. 222

26. ibid, 224

27. ibid, 231

28. ibid

29. ibid, 225

30. Chancellor, Edward. Devil Take The Hindmost: A History of Financial Speculation. Farar, Straus, & Giroux, 1999. 193.

There was this famous economist commenting on the thrill of the 1920s stock market boom, at the time: Professor Irving Fisher. In trying to explain the good times which seemed destined to go on idefinitely, one of the factors he seized upon was the relaxation of antitrust laws during the Presidency (of the U.S.) of Calvin Coolidge.

This "deregulation," if you will, which, according to Dr. Fisher, allowed for a series of mergers of banking, railroad, and utility companies --- which, in turn, would allow greater economies of scale and more effiicient production.

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