ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Politics and Social Issues»
  • United States Politics

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

Updated on September 20, 2016
wingedcentaur profile image

The first step is to know what you do not know. The second step is to ask the right questions. I reserve the right to lean on my ignorance.


Today, I want to do a little thinking about capitalism and democracy. I want to do a little thinking about what those concepts mean; and how they are related to one another, if there is any relationship at all. As we do this, I hope our understanding about the Trump phenomena will deepen.

I know that's a little vague, but stay with me; I hope to make it worth your while.

I want to start with a quote from a book by Chalmers Johnson: BlowBack: The Costs and Consequences of American Empire. He wrote:

"Theorists from Adam Smith to John Hobson observed that capitalists. They would much rather be monopolists, rentiers, inside traders, or usurers or in some way achieve an unfair advantage that might allow them to profit more eaily from the mental and physical work of others" (1).

Still quoting:

"Smith and Hobson both believed that finance capitalism produced the pathologies of the global economy they called mercantilism and imperialism: that is, true economic exploitation of others rather then mutually beneficial exchanges among economic actors" (2).


Question: Did "God" hand down the "game" of capitalism to us mortals, packaged in a little game box, with a game board, playing pieces, and a booklet of "rules," which lay out how the game of capitalism is "supposed" to be played? Are there any cosmic "rules" about how capitalism is supposed to function?

Answer: No. I'm pretty sure the answer is 'No.'

What Chalmers Johnson is talking about is the difference between what economists call the "real" economy, which is based on making money by making and selling actual things; and finance, which may or may not be directly related to production. The latest economic crisis of 2008 was about using money to make more money (financialization).

If profit is all that matters with capitalism -- and it is -- then we cannot say that a capitalist that has become a "monopolist," "rentier," "inside trader," or "usurer' has, somehow, stepped into some kind of non-capitalist zone. In other words, he has not ceased to be a capitalist because he has taken up these activities.

Mr. Johnson wrote that capitalists seek "an unfair advantage that might allow them to profit more easily from the mental and physical work of others."

An "unfair advantage"? As opposed to a "fair" advantage?

In the context of capitalism, couldn't we say that the words "fair" and "advantage" an oxymoron like "jumbo shrimp"? Couldn't we say that an "advantage" is inherently "unfair"?

Analogy: Example of a "fair" "advantage."

Professional Boxing: Two lightweight fighters (135 lbs. limit). Suppose one of the contestants have a significant height and reach advantage, in addition to so-called "one-punch knockout power." These should be considered fair advantages because they are natural endowments (assuming no banned substances were employed to give one fighter the knockout power).

Let's define a fair advantage as a natural endowment.

Should honest capitalists, therefore, confine themselves only to "fair advantages" "that might allow them to profit" "from the mental and physical work of others"?

An "unfair advantage" might allow them to profit "more easily" from the mental and physical work of others.

Alright, let us try it. Let us say that "legitimate" capitalism is practiced by capitalists, who use only their "natural endowments," their "fair advantages." That means we're talking about their undoubtedly superior intelligence, strategic vision, energy, toughness, decisiveness, organizational skill, and so on and so forth, yada, yada, yada, as they say on Seinfeld. The "they" are the corporate CEOs and boards of directors and top executives, and the like.

Let us say that "illegitimate" capitalism is practiced by capitalists, who use factors outside of the legitimate ones I have mentioned above --- illegitimate factors that are, somehow, shall we say, "steroidal" in their impact.

Speaking of legitimate capitalism's natural endowments, Nobel Prize-winning economist, former chief economist for the World Bank, and former chairman of the Council of Economic Advisers for President of the United States of America, William Jefferson Clinton --- one Dr. Joseph E. Stiglitz has something to say about that.

In one of his books, The Roaring Nineties: A New History of the World's Most Prosperous Decade, Dr. Stiglitz has something to say about that. What follows is what he observed from his perch of the chairman of the Council of Economic Advisers. Remember, we're going to start with the fair advantages of legitimate capitalists.

  • Well, it seems that businesspeople generally opposed subsidies --- for everyone but themselves. For their own sector there were always a host of arguments for why some government help was needed, from "unfair" competition abroad to an "unexpected downturn" at home (3).
  • Everyone was in favor of competition --- in every sector but their own. Again, there were always a host of arguments as to why competition in their own sector needed to be avoided or managed carefully (4).
  • Everyone was in favor of openness and transparency --- once more, in every sector but their own. There were always arguments about why openness and transparency would have led to unnecessary disturbances, eroded its competitive edge, and so forth (5).

Well, it seems that one of their "fair advantages" is a superior ability to whine. And why not? The squeaky wheel gets the oil, right? It is the right of citizens in our democracy, to whine at their elected representatives --- those that can get direct access to their elected reps, at any rate.

According to Dr. Stiglitz, they seem to whine for three basic things:

  1. Subsidies
  2. Protection from competition
  3. Black Box-style secrecy of operations

Well, a "stock option" is a kind of subsidy. What is a stock option?

Joseph Stiglitz tell us: It is "the right to buy company stock at below market prices --- and then pretend[ ...] that nothing of value ha[s] changed hands" (6).

Still quoting:

"[T]he neatest thing of all about stock options, for tiny start-ups andd corporate Colossuses alike, was the fact that since no actual stock got issued until they were 'exercised' (which might be several years down the road), they didn't have to be acknowledged as an expense --- as something the firm had spent, or a liability it had incurred, in order to do business that year" (7).

By 2001, stock options accounted for about 80 percent of the pay of American corporate managers. If Microsoft had been required to acknowledge the value of the options it gave that year, the effect would have been to reduce the company's 2001 profits (officially $7.3 billion) by one-third (8).

The same goes for Starbucks and Cisco, among other companies. Stock options boosted their profits by 20 percent or more. Intel's profits would have been cut to a fifth, from $1.3 billion to $254 million. But Yahoo's losses would have increased tenfold from $93 million to $983 million --- if Yahoo's stock options had to be acknowledged (9).

"Enron, WorldCom, and Adelphia," wrote Dr. Stiglitz, "were only the most flagrant and well publicized of many companies where the vaunted energy and creativity of the nineties would eventually be directed less and less into new products and services, and more and more into new ways of maximizing executives' gains at unwary investors' expense" (10).

What were the results of all this?

We don't have to guess because Dr. Stiglitz tells us what they were in no uncertain terms. The first thing to say is that by the mid-1990s, manufacturing in the United States, had fallen to 14 percent of U.S. total output, and an even smaller proportion of total world output (11).

This is an important connection to make because, in a capitalist economy like ours, when "real" economic production falls, there is a tendency for finance to turbo-charge in order to keep some sense of dynamism going in the economy as a whole.

You can think of the economy like the human body. The human body, for our purposes, consists of blood, bone, muscle, organs, nerves, the brain, and DNA; in economic terms calls this the "real economy" of production of actual things and services.

The metabolism is the operations system that digests food, breaks it down to its basic elements; and distributes them throughout the body. fueling, energizing, and helping to repair the body. In economic terms we should speak of this as the equivalent of the financial architecture of a nation's capitalist economy.

So far we have the body-[of]real production and the finance-metabolism. We need a third ingredient: food. We need food, preferably good, nutritious food, a healthy, so-called balanced diet from the four basic food groups, and all that.

Again, in economic terms, we should think of "good food" as the equivalent of good, well-paying jobs with good benefits, good working conditions and amenities, and good prospects for advancement --- broadly available across the broadest possible swath of society, which, in turn, then, helps to promote a rough socioeconomic equality across the society.

So, "good food" equals "good jobs" on the terms I have just described. In a situation like this the concrete production of goods and services is primary. The financial-metabolism metabolizes this job situation to facilitate the sound health of the body-economy.

If "good food-good jobs" are replaced by a lot of "junk food-hamburger-flipper-type jobs," through the process of, say, "deindustrialization" --- then the financial-metabolism will have to work much, much, much harder, to work "overtime," as it were, to extract anything at all of use in order to just keep the body-economy somewhat functioning.

One of the effects of the overexertion of the financial-metabolism, for example, might be the creation of a subprime mortgage industry --- and the "securitization" of those loans to "distribute risk" (11).

Okay, let's return to Dr. Stiglitz's report. What were the consequences of the stock option-driven fuzzy numbers? A few months into the year 2000 the stock market was at an all-time high. Something called the NASDAQ Composite Index peaked at 5,132 in March 2000. This stock market boom reinforced consumer confidence and provided a strong impetus for investment, especially in the seemingly booming telecom and high-tech sectors (12).

However, as Dr. Stiglitz wrote:

"The next few years confirmed suspicions that the numbers were unreal, as the stock market set new records for declines" (13).

In the next two years $8.5 trillion --- with a 't' --- were wiped off the American stock exchange alone, almost exceeding the annual income of every country in the world, other than the United States. AOL Time Warner took write-downs o $100 billion. Stiglitz would have us bear in mind that, at the start of the 1990s, no firm was even worth $100 billion, much less capable of losing $100 billion and continuing to exist (14).

Now, due to an $8.5 trillion decline in market values, about a third of the worth of America's individual retirement accounts, IRA, and 401 (k) plans simply vanished. Between July 2000 and December 2001, the United States registered the longest decline in industrial production since the first oil shock (15). (Stiglitz is talking about the crisis of 1973).

To continue, two million jobs were lost in twelve months. The number o long-term unemployed more than doubled; the unemployment rate went from 3.8 percent to 6.0 percent; 1.3 million Americans moved below the poverty line; and another 1.4 million found themselves without health insurance (16).

Now then, if I have read Dr. Stiglitz correctly, he was merely talking about the kind of catastrophe that can be caused when stock options are used as-directed, which is to say, "legitimately."

What happens when stock options are used illegitimately?

Well, not to speak ill of the dead, but the late Steve Jobs, founder of Apple Computer, was once awarded millions of dollars of stock options at a board of directors meeting that never took place. Instead of correcting the mistake, Jobs arranged to have the fraudulently issued options exchanged for restricted stock worth hundreds of millions of dollars (17).

The government brought civil charges against Apple's general counsel and its chief financial officer. The CFO admitted wrongdoing, gave up $3.5 million, and said that he had warned Jobs about the improper pay (18).

"Still, by late Summer 2007," wrote economic journalist David Cay Johnston, "the government had taken no action against Jobs. The Apple board, which included Al Gore, portrayed Jobs as an unknowing victim of complicated rules even though they have been in effect since before Apple went public decades ago" (19).

Mr. Johnston would have us know that stock option scandals involved thousands of executives at hundreds of corporations (20).

"Many of these executives," David Cay Johnston writes, "took money from shareholders through deliberate, calculated actions, including fabricating records. They differ from bandits only in that they wield pens to steal stock options instead of pointing pistols while demanding cash or jewelry. Their techniques were subtle and not overtly violent, but for society they are worse than street robbery, for their actions undermine the legitimacy of society's rules in ways that bandits cannot" (21).


David Cay Johnston again:

"When an executive shortchanges the pension plan, making his company appear to be more profitable, he inflates the value of the company stock and therefore his stock options. When the pension later fails and the worker gets less than what they were due, or the taxpayers have to make up the part of the shortfall guaranteed by the government's Pension Benefit Guarantee Corporation (PBGC), the executive gets a free lunch. Our economy is riddled with these subsidies, many of which are intentionally subtle and hard to detect" (22).

Subsidies Continued

Arbitrarily firing people, for no cause, is another kind of subsidy, as far as Wall Street is concerned, because the technique is a method for short-term stock manipulation.

Here's what David Cay Johnston has to say about it:

"In less than three decades presidents of companies have gone from apologizing when they had to lay off workers to boasting of the riches they obtained through mass firings. We sing the praises of investors who owe their wealth not to creating businesses, but to buying companies in deals that required destroying lives and careers, just so they could squeeze out more money for themselves" (23).

We have a two-fer there. Johnston is actually referring to two things: arbitrary firings as stock market manipulation; and leveraged buyouts. I will discuss both in the notes section. But for now let's move on.****

Privatization of Government is another kind of subsidy given to big business. These process transfers badly needed capital resources and market share from government to corporations.

For you see, "[d]espite all the deregulation rhetoric, government grows ever bigger. The number of federal government workers shrinks, but the ranks of people who are hired on contract at much greater cost increases. In 2000 workers hired on contract cost our federal government $207 billion. By 2006 this had swelled to $400 billion --- rivaling the expense of either Social Security or interest on the federal government's growing debt" (24).

There is almost no one, in either the Republican or Democratic parties (despite the latters neoliberalism-drive rightward tilt), actually wants a smaller government.

Why does this happen? Why do we have the privatization of government? Why have we had it since the 1980s?

Another scholar, David Harvey, lays it out very succinctly. The first thing he would say is that ever since the period of crisis, from 1973-82, it has been "harder and harder for capital to find profitable outlets for their profits" (25).

Dr. Harvey put it this way:

"In a desperate attempt to find more places to put the surplus capital, a vast wave of privatization swept around the world carried on the backs of the dogma that state-run enterprises are by definition inefficient and lax and that the only way to improve their performance is to pass them over to the private sector" (26).

I know the language of the above quote is kind of technical, dense, and confusing. Let me see if I can help with one of my favorite analogies. This one is called: The movie director and the actor.

Let's say that I am a big time movie director and you, an actor, are a close friend. Let's say we bump into each other after, say, seven years. We get together at a coffee shop and have a long lunch and a talk, catching up on old times.

I have been keeping tabs on you, though, despite being apart for years. I know that you have been having a hard time --- the divorce just about wiped you out; and your nephew's legal troubles have been financially expensive, as well as emotionally draining. (And so on and so forth).

You see, I know that you could really use some money. I happen to be working on my latest sure-fire blockbuster film.

Now, you, the actor, are too proud to ask me for a loan directly, for whatever reason. And I, knowing this about you, want to avoid "insulting" you.

Here's an idea! Why don't I offer you a role in my latest sure-fire blockbuster movie (even if I put the writing staff to work to write in a role for you)?

Stay with me.

Okay, provided that you actually are a skilled thespian, I offer you the role and you accept it. You and I know why I offered you the role. The primary reason is that you need the cash.

Get ready for this!

I, as the director, would never, ever, ever publicly say that this was the reason I offered you the role. That's not a very professional sounding reason for making casting choices. The heads of the studio might want to reconsider the stewardship of the project.

You, as the actor, would never, ever, ever publicly say that charity was the reason I gave you the part. That doesn't make you look good either.

Similarly, then, the government can never openly admit to having engaged in corporate cronyism, because that doesn't sound right.

The corporations can never, ever, ever, admit weakness, their "desperate attempt to find more places to put the surplus capital" (meaning business ain't so good for whatever reason), because such admissions might, for one thing, compromise sales of the books telling the public how brilliant the corporate CEOs are.

Adam Smith on Commercial Fishing:

'The bounty [subsidy] to the white-herring fishery is a tonnage bounty; and is proportioned to the burden [size] of the ship, not to her diligence or success in the fishery; and it has, I am afraid, been too common for vessels to fit out for the sole purpose of catching, not the fish, but the bounty' (27).

If you have ever watched action-comedy movies, you are surely familiar with a standard kind of scene. The hero and the villain square off. The hero shoots in the direction of the villain, or swings his sword at him; and appears to "miss."

The villain even taunts the hero: "Hah! You missed!"

But then we see that the hero did not actually miss. The hero had deliberately severed the restraints on something heavy that falls right on top of the villain. Do you know what I mean. The target was not the villain directly.

Similarly, then, what Smith was saying and what, indeed, David Cay Johnston basically says is: that from beginning to end, the subsidy is the true and only target of the captains of industry --- at least in some industries.

At the time that Mr. Johnston's book was published, he let us know that at least 27 billionaires on the Forbes 400 list owned major professional sports teams (28). Remember, we're talking about subsidies.

"The billionaire team owners seek these payments because commercial sports is just not a viable business, at least not as it is operated in America" (29).

Although baseball, football, basketball, and hockey teams are all privately held, they give limited information about their finances. Even from this limited data it is clear that "while some teams are profitable, overall the sports-team industry does not earn any profit from the market. Industry profits all come from taxpayers" (30)

From 1995 to 2006 local, state, and federal government spent more than $10 billion subsidizing 50 new major league stadiums and a plethora of minor league facilities. According to Forbes magazine, the Big Four (professional baseball, basketball, football, and hockey) had revenues in 2006 of $16.7 billion. They could only count one-tenth of that, $1.7 billion, as operating income (31).

What all of this seems to amount to, according to Johnston, is that "the entire operating profit of the commercial sports industry comes from taxpayers." And that "[t]he subsidies, in fact, cover a third of a billion dollars in operating losses before this boost from the taxpayers pushes the industry into the black" (32).

Let me give one highly representative example.

The Montreal Expos were a failing baseball team. Major League Baseball is a corporation jointly controlled by the team owners. The MLB bought the Expos in 2002, and kept the team in Canada for three years, taking losses equal to what they paid for the team. Then MLB moved the team to the District of Columbia, and renamed them the Washington Nationals (33).

The next year the League sold the team to a group of politically connected investors led by Theodore N. Lerner, a billionaire real estate developer ("The Lerner Group), who paid $450 million. Selling to the Lerner Group had allowed the other owners to recover what they spent and make a profit of about $210 million (34).

"What caused the value of the team to more than double in four years?" asks David Cay Johnston. "Did the market for baseball suddenly turn red-hot with fans eager to attend? Not at all. Major League Baseball attendance in 2005 was virtually the same as in 2000, the league's statistics show. Instead, the billionaires who own Major League Baseball went fishing for a subsidy" (35).

Here's how it worked

Even before they moved the team, the MLB sought taxpayer money for a new stadium in Washington. The city agreed to pay $611 million on a new stadium. More than anything else, it was this subsidy that made the value of the team rise. The Lerner Group, then, only appeared to pay a lot for the team. They effectively --- and the operative word is effectively --- got the team for free; and may have even been, effectively, paid to buy the team (36).

David Cay Johnston:

"If Lerner's group can capture just three-fourths of the subsidy, they would have effectively acquired the team for free.... even a badly managed team was able to capture 80 percent o its subsidy, more than the Lerner group needs to make its effective purchase price zero. If the Lerner group captures more of the subsidy then they will in effect will have been paid to acquire the team" (37).

So let's get this straight

The Lerner Group hands over a suitcase with $450 million in it, to the MLB. Major League Baseball takes the suitcase full of cash, says 'Thank you very much, and enjoy your team!" and goes away.

The state subsidy comes through; and this is used to build the new stadium. It seems that the opening gambit of such episodes, usually involves a threat by a sports team's owners to move the team unless a new stadium is built for them --- entirely at government expense, of course (38).

The $611 million is the subsidy provided by the city of Washington; and that is what is used to build the new stadium for the Montreal Expos. Again, no expense for this stadium is incurred either by MLB or the Lerner group.

The stadium opens and does business, providing revenue for the Expos new owners, the Lerner group. Over time, the "earn" back the $450 million they spent to buy it. Remember, as Mr. Johnston told us, no special skill is needed, as even a "badly managed team was able to capture 80 percent of its subsidy." The subsidy, of course, was at least the $611 million to build the stadium.

Anything over and above the $450 million, the Lerner group gets, is, effectively, payment for their "service" of having acquired the team.

By the way, on top of that, the Lerner group got to sell the naming rights of the new stadium, "a gift from the taxpayers worth many tens of millions of dollars" (39).

Also, when the Washington Nationals (formerly known as the Montreal Expos) announced that when they moved to their new stadium in 2008, they would raise ticket prices --- to almost the highest among the MLB's thirty teams (40).

This means less money for consumers to enjoy other forms of entertainment. Economists who study subsidies in the sports industry, found that during the long baseball strike of 1994, business at bars and nightclubs, in league cities, boomed (41).

The explanation for this is as follows:

"The baseball, football, basketball, and hockey leagues," wrote David Cay Johnston, "control entry into the market, including who can buy a team and where it can play" (42).

Still quoting"

"The leagues deny membership to any team taken over by local government, effectively nullifying the constitutional power of eminent doamin for any city that wants to buy its team to make sure it stays put. The power of eminent domain to force the sale of property is, however, used to acquire land cheaply for new stadiums,..." (43).

We're starting to see conflict between capitalism and democracy, if you notice.

David Cay Johnston says that normally, this kind of "restraint on trade" would violate antitrust laws. But the Supreme Court, in 1922, and again in 1953, exempted Major League Baseball. The basketball, football, and hockey leagues are also, effectively, exempted. The sports leagues are also exempted from the tax laws, although the individual teams are not (44).

Mr. Johnston sums up this way:

"In a free market anyone with the necessary capital could start a team and compete. That is just how soccer works in Britain. It also explains why Britain has so many more teams, 13 in greater London alone at last count. Their admission prices are much lower than American commercial sports teams. Even in the mega-market that is New York, commercial sports consists of just two teams each for baseball, basketball, and football, and three ice hockey teams. In a free market there would be many more" (45).

Hah! You Missed!

The beloved George Steinbrenner does not come out looking very good in Mr. Johnston's book. There is a troubling episode of what appears to be naked subsidy-hunting, involving national security.

During his term, President Ronald Reagan wanted to build up the Navy to 600 ships. This required new vessels to refuel other ships at sea. The Navy awarded a contract to build two refueling ships at a cost of $100 million each, to a Louisiana shipyard. It built them on time and within budget. No problem ((46).

Two other oilers were to be built in Philadelphia, but the contract went bust. George Steinbrenner stepped in to lobby to get the hulls towed to his Tampa shipyard for completion. Captain Karl M. Klein, the Navy officer overseeing the contract, flew down to Tampa to take a look (47).

'I was shocked,' Captain Klein recalled. 'I knew it wouldn't work.'

Still quoting Captain Klein:

'This shipyard was full of debris. It was literally littered with excess and unusable materials, some of which didn't even belong in a shipyard. There was no indication o any attempt to keep the shipyard clean' (48).

In order to get the contract, Steinbrenner was required to own software that scheduled the complex tasks of building a ship to ensure an orderly flow of work and payments to suppliers. But the Captain said, 'They had no usuable software' (49).

"More amazing," wrote David Cay Johnston, "was that Steinbrenner was no stranger to shipbuilding. He had spent his entire adult life pocketing subsidies under a federal law designed to make sure that the nation had the infrastructure and skills to build ships, even if it was cheaper to build them overseas" (50).

"Even if it was cheaper to build them overseas." So the government is not always helpless before "the forces of globalization," when it doesn't want to be. That's worth keeping in mind.

Klein began documenting all the violations. But Mr. Steinbrenner turned out to have friends in high places, including Senator Daniel Inouye of Hawaii (Democrat), and Representative John Murtha (Democrat), and a former Marine officer, among others (51).

The Navy was ordered to keep Steinbrenner on contract. And then came a Congressional earmark, which sent millions of dollars of extra cash Steinbrenner's way, despite the fact that the ships weren't being completed. Steinbrenner also was not paying his vendors (52).

Hah! You missed!

George Steinbrenner say repeatedly, 'When you buy a shipyard, you hire one welder, one fitter, one painter, and 12 lawyers.' The Navy ended up paying out $450 million in total, for "two useless hulls rusting in the James River" (53).

The Senate Permanent Subcommittee on Investigations held a hearing in 1995. Pleading ill health, Steinbrenner avoided appearing before the body. Captain Klein showed up, though, all eagerness to testify. Just as Klein was taking the witness stand, Steinbrenner's lobbyists called a press conference. Three weeks later, Mr. Steinbrenner went to Washington, where he was allowed to testify in private (54).

Okie Dokie! Let's turn to something else. Well, not something else, but another kind of interesting subsidy.

David Cay Johnston:

"In the intensifying competition between the states to attract new investment, or to just retain existing jobs, state and local government giveaways flourish like weeds on Miracle-Gro. Corporations have become masterful at playing one city, county, or state against another. No one knows just how many consultants earn their fees playing the subsidy card, but state economic development officials in North Carolina say they have a mailing list of more than 250 such consultants seeking handouts for their clients" (55).

I can suggest another resource where you can learn all about this process. There a radio and television show called This American Life hosted by Ira Glass. If you go to their archives on the Internet, you want to pull up the episode called "How to Create a Job." The show spends the entire hour on just this phenomenon.

Okay, speaking of Wal-Mart, David Cay Johnston has something to say about the saga of the founder, Sam Walton.

"The Walton story was not about the brave capitalist taking on risk and proving his mettle by being smarter than the other guy, no matter how carefully the Wal-Mart company has polished and sold that fairy tale" (56).

Wal-Mart availed itsel of free land, long-term leases at below market rates, their pocketing of sales taxes; and they even got their workers trained at government expense. Mr. Walton had a particular fondness for government-sponsored industrial revenue bonds, which cost him less in interest charges, than the corporate bonds the market economy uses to raise money (57).

If I've said it once, I've said it a thousand times: Ayn Rand's Atlas Shrugged, notwithstanding.

Phil Mattera of Good jobs First, a group backed by labor unions, that tracked corporate subsidies, went through the old securities records and news accounts, trying to find out how much in subsidies Wal-Mart. Mattera and his team found proof of subsidies of 91 out of 4,000 stores in the United States. They also found evidence of subsidies at 84 of 91 distribution centers. The total they came up with was $1 billion and change (58).

The one billion figure appears to be very low. One indication of this came from an interview that a Wal-Mart spokesman, B. John Bisio, gave to the Telegraph Herald newspaper in Dubuque, Iowa. Mr. Bisio let it slip that 'it is common' for Wal-Mart to seek subsidies for its new stores and that it does so 'in about one-third of all projects' (59).

This disclosure suggests that about 14 times more Wal-Mart stores received subsidies, than the Good Jobs First study uncovered (60).

Cabela's is an outdoor sporting equipment retailer. In a 2007 report to shareholders Cabela's stated that:

'Historically, we have been able to negotiate economic development arrangements relating to the construction of a number of our new destination retail stores, including free land, monetary grants and the recapture of incremental sales, property or other taxes through economic development bonds, with many local and state governments.... We intend to continue to utilize economic development arrangements with state and local governments to offset some of the construction costs and improve the return on investment of our new retail stores' (61).

Even if Wal-Mart's subsidies are 100 times the billion dollar estimate by Matera and his team, Cabela's has collected far more in subsidies relative to its size than Wal-Mart (62).

In the three years after Cabela's went public, 2004 through 2006, the company earned $223.4 million in profits. On the 10 stores and several distribution centers it opened outside of Nebraska in these years, it made deals for subsidies worth at least $293.7 million --- a third more than its reported profits (63).

And so on and so forth. This story is quite general.

Business (64) Lobbyists

1975: Washington lobbyists collected less than $100 million in fees. By 2006 they made $2.5 billion (65).

2006: More than 35,000 lobbyists were registered in Washington. This figure doubled the number of lobbyists from the year 2000 (66).

Thousands more lobbyists work the 50 state capitals and the larger city and county governments (67).

"These official numbers," wrote David Cay Johnston, "understate how many lobbyists are paid to influence government because many practitioners are not required to register. Until the end of World War II, no one was even required to register as a lobbyist. Only since 1955 have Washington lobbyists been required to disclose fees, and then not so fully as would allow full monitoring. Enforcement of the laws governing lobbyists are wink-and-nod' except for the most outrageous conduct, and even that can go unchecked for years" (68).

Subsidies in the film and television industries

In March 1972 the trade publication, Variety, reported that MCA, the biggest studio, owed 97 percent of its rise in profits to the new tax rules. There was legislation passed by Congress, allowing producers to understate their taxable gross income by twenty percent. Then governor of California, Ronald Reagan, the former movie actor, lobbied hard for the bill (69).

The 1971 Revenue Act allowed the film and television industries to define their finished products (movies and television programs) as equipment and machinery. In this way they would become eligible for the traditional 7 percent write-off for other kinds of industries, which had begun in 1962 (70).

Universal and other studios joined Disney in a law suit, aimed at recovering back credits, dating back to 1962. The suit successfully garnered another $400 million for the movie business. The credit was later raised to 10 percent, and the benefits multiplied (71).

Also, there was a clause in the Revenue Act that allowed movie investors to get a one hundred percent, indefinite tax write-off on half of all profits from exported films (72).

Author Gus Russo on the consequences of "the new focus on international profits":

"... [t]he new focus on international profits also had a chilling effect on the artistic merit of the movies that were now deemed most desirable by the new multinational studios; gone were the days when the major suppliers released the likes of To Kill a Mockingbird and On the Waterfront. In their place were cartoonish action movies whose minimal dialogue required no translation in order to appeal to the lowest-common-denominator audience in many countries simultaneously" (73).

I would add, that I think we see, in the Revenue Act, at least part of the reason why we see so many sequels of certain kinds of action movies: the in-built financial incentive to view each movie as the building block of the next one (remember, this act allows for a tax deduction for finished movies and television programs --- as though these things were equipment and machinery, with which people presumably create movies and television programs).

I am going to stop talking about subsidies now, but we have not even scratched the surface. But I wanted to give some indication of the awesome, all-encompassing breadth and depth of the government-to-corporate subsidy pipeline, and how central this subsidy pipeline seems to be in the ability of big business to function.

But, as I said, we haven't even scratched the surface. I have been referring to a certain book by economics journalist, David Cay Johnston: Free Lunch: How The Wealthiest Americans Enrich Themselves At Government Expense (And Stick You With The Bill).

There is another one written by Mr. Johnston which I did not have a chance to get into: Perfectly Legal: The Covert Campaign To Rig Our Tax System To Benefit The Super Rich --- And Cheat Everybody Else. If you read that book, you will be introduced to an entirely new universe of subsidy available to the rich and corporations, by way of the legally-assisted sidestepping of taxes.

This activity is facilitated in no small part by truly genius --- and the label is in no way ironic --- tax lawyers like Jonathan Blattmachr, a man whom David Cay Johnston called one of America's premier tax lawyers --- a man whose name was legend among the 16,000 other lawyers in America who specialize in trusts and estates (74).

Mr. Blattmachr, according to the author, knows "how to make a man who appears as a Midas before his bankers look like a pauper to the taxman" (75).

To say that Blattmachr and similarly gifted tax lawyers, merely discover and exploit "loopholes," is to catastrophically undervalue his contribution. Because "[u]nlike politicians who parrot slogans, Blattmachr knows what lies beneath the surface of the tax laws. Part of his genius is his understanding that the taxes on income, gifts and estates are not discrete levies. Rather, these taxes intersect and interact in subtle ways" (76).

Still quoting:

"Line up seemingly unrelated sections of these different tax laws in a certain way and vast sums flow with only a widow's mite going to taxes" (77).

Still quoting:

"Find gaps between the levies and vast fortunes can be passed tax-free. His genius is in seeing the whole and the holes in the whole" (78).

Okay, we're moving on to something else now!

Question: Why is it that, despite the free market rhetoric of the conservative-corporate alliance in the United States, big business seems to be so dependent upon the local, state, and federal government subsidy pipeline?

Short Answer: Because the modern corporation, the entity that does most of the business here and abroad, is simply not built for market competition.

Protection from Competition

The notion that the modern corporation is not built for market competition is not my opinion. It is the expressed understanding of the former U.S. Secretary of Labor in the administration of William Jefferson Clinton: one Robert B. Reich (Supercapitalism: The Transformation of Business, Democracy, and Everyday Life).

For verification he drew upon the wisdom of legendary economist, John Kenneth Galbraith.

Professor Reich (he teaches at university now, I understand) wrote about the modern corporation, as it emerged after World War Two. He wrote:

"The biggest corporations could not afford to risk competition; their output had to be planned far in advance with a high degree of assurance that they could sell it at a predetermined price. Collusion and planning were essential" (79).

John Kenneth Galbraith put it this way:

The '[technology] [of mass production], with its companion commitment of time and capital, means that the needs of the consumer must be anticipated -- by months or years,' therefore the large corporations 'must exercise control over what is sold. It must exercise control over what is supplied. It must replace the market with planning... Much of what the firm regards as planning consists in minimizing or getting rid of market influences' (80).

Therefore, "[t]o plan efficiently, the production process," wrote Reich, "had to be organized precisely and predictably so every step could be synchronized with every other. The organization chart clearly Key decisions descended from executive suites. Middle-level managers were to implement them, each within a limited span over his (almost always his, rarely if ever her) lower-level managers and division heads" (81).

"Every major product had its own division and hierarchy" (82).

Still quoting:

"All clerical and blue-collar jobs were classified in rigid bureaucratic order. Rules and standard operating procedures determined who was to do what, and how. Most people were not supposed to think for themselves except in the most narrow of parameters. Original thought in most cases could imperil the entire plan" (83).

So much for democracy in the workplace, eh?

The system was predicated upon avoiding unnecessary risk, avoiding novelty in favor of goods and services already proven popular (84).

In the automobile industry, for example, this philosophy manifested itself this way:

"... the Big Three emphasized style and comfort. They added power brakes, power windows, power steering, larger and more powerful engines, and air-conditioners. The tail fins got longer and headlights doubled. (one little-observed consequence was a drop in average gas mileage through the 1950s and 1960s)" (85).

Okay, its like this:

Author, David C. Korten would have us know that: "For all their praise of free-market competition, most corporations seek to suppress it at every opportunity." They see competition as spawning volatility and uncertainty, which speculators feed feed on. For this reason, corporations work to reduce competition (86).

Also, there is no indication that the corporation, as such, is any more creative today than the entity was in the 1950s and 1960s, as exemplified by the auto industry of that era, as it was related to us by Professor Robert B. Reich.

When a corporation appears to have "invented" a new product, more often than not, what has happened is this: The corporation has bought up and absorbed---somewhat "You will be assimilated; resistance is futile" Borg-style---a small or mid-sized start up company that has actually born the expense and risk inherent in research and development.

If what you just read seems kind of weird, let me tell you that we see this every night when we watch the business news. Some big corporation has "acquired" some other kind of company to acquire some kind of product or service capacity. As I said, we see it every night on the business news --- but without quite knowing what we are seeing (87).

The way David C. Korten describes it, we looking at a somewhat imperial process:

"Weaker competitors are crushed, colonized, or absorbed. Accomodation is sought with stonger competitors through strategic alliances, mergers, acquisitions, and interlocking boards of directors" (88).

To expand on the displacement of risk...

Mr. Korten has something to say about the rise of Big Agriculture in the United States. The first thing he mentions is that the very tight concentrations of ownership was accomplished by 4,100 food industry mergers and leveraged buyouts (89). He goes on to write:

"Often these core firms find that it is most profitable and less risky to contract out the actual production to smaller producers. These smaller producers hold the major capital investment and bear the risks inherent in agriculture. The large firms control the market and maintain control ove the terms under which the producers operate. It is common for the core firms to force farmers to purchase required inputs --- such as fertilizer and feed --- from itself, prescribe the production methods, and purchase the crops or animals produced on whatever terms it chooses. The only choice left to farmers is to accept the terms, go out of business, or find another crop whose market is not yet controlled by a core corporation. This restructuing of agriculture has contributed to decreasing the farmers' share of consumers' food dollars from 41 percent in 1910 to 9 percent in 1990" (90).

We have the same stoy in high-tech, of course. The following information comes from the mid-1990s, but assuming that much has not changed (for the better) since then, I will put it forward.

  • The American computer giants IBM, Apple, and Motorolla formed an inter-firm strategic alliance to develop the operating system of the next generation of computers (91).
  • In 1991 Apple turned to Sony to manufacture the cheapest version of its PowerBook notebook computer (92).
  • GM owns 37.5 percent (or "owned") of the Japanese automaker Isuzu, which produces automobiles for sale under the GM and Opel brand names. Chrysler has ownership stake in Mitsubishi, Maserati, and Fiat (93).
  • Ford Motor Company has (or "had") a 25 percent stake in Mazda. Ford and Mazda jointly own a dealership network in Japan, cooperate in new product design, and share production techniques (94).

Again, David C. Korten:

"The world's corporate giants are creating a system of managed competition by which they actively limit competition among themselves while encouaging intensive competition among the smaller firms and localities that constitute the periphery. It is all part of the process of forcing the periphery to absorb more of the costs of the 'value added' process so that the core can produce greater profits for its own insatiable master, the global financial system" (95).

Again, its frustrating to keep saying this, but we haven't even scratched the surface (96), but we have to move on.

Black Box-Style Secrecy

In 1968 a scholar called Ferdinand Lundberg wrote a book called The Rich and the Super Rich. In that book Lundberg discussed how the fortunes and social standing of families like Carnegie, Rockefeller, McCormick, Whitney, and other had been built upon a foundation of white-collar thuggery, to be very blunt, or, as the notorious Chicago gangster, Al Capone, famously categorized as 'legitimate rackets' (97).

The following sentiment is ascribed to Cornelius Vanderbuilt: 'You don't suppose you can run a railroad in accordance with the statutes, do you?' (98). Among the "white collar" crimes Lundberg attributed to the corporate community were: embezzlement; big fraud; restraint of trade; misrepresentation in advertizing and in the sale of securities; infringement of patents; trademarks, and copyrights; industrial espionage; illegal labor practices; violations of war regulations; violation of trust; secret rebates and kickbacks; commercial and political bribery; wash sales; misleading balance sheets; false claims; dilution of products; prohibited forms of monopoly; income tax falsification' adulteration of food and drugs; padding of expense accounts; use of substandard materials; rigging markets; price-fixing; mislabeling; false weights and measurements; internal corporate manipulations, etc (99).

Speaking of Western corporations generally, we can, of course, easily add the international biopiracy of the Third World (100).

Here's a charming little bedtime story for you

In 1929 Joseph P. Kennedy --- Yes, that Joe Kennedy, father of the President of the United States --- attempted a hostile takeover of the Pantages theater chain. When the owner, Alexander Pantages, strenously resisted, Kennedy paid a seventeen-year-old girl to accuse Pantages of rape. Pantages was charged, convicted, and sentenced to fifty-years in prison (the conviction was later reversed); and Kennedy got the theater chain at a greatly reduced price (101).

Four years later, when the girl wanted to admit her role in the frame job, she suddenly died of apparent cyanide poisoning. The twenty-one-year old made a deathbed confession of her conspiracy with Kennedy, who had promised to make her a film star (102).

One "conservative" study noted that 60 percent of the Fortune 500 are convicted of an offense annually. But, to be fair, many of those convictions are for simple misdemeanors (103).

But then again, there is a substantial catalogue of deplorable corporate acts.

  1. British American Tobacco and Phillip Morris knowingly lied about the dangers of tobacco. According to the World Health Organization, about four million people die every year from tobacco-related illnesses. No one has ever been tried for this (104).
  2. Johns-Manville and the Cape Company knowingly exposed millions of people to poisonous asbestos; 18 percent of serious exposures are estimated to result in life-threatening diseases (105).
  3. The manufacturer A.H. Robins knew that its intrauterine contraceptive device would let loose organ-affecting bacteria, when inserted into women. Many miscarriages (some deaths) later, they went into bankruptcy, but no one was evve prosecuted (106).
  4. Nestle got women in poor countries to use their powdered milk for their babies, instead of breastmilk. When the powder was mixed with impure water, large numbers of babies got sick. Some died. No charges! (107).
  5. Royal Dutch Shell, Unocal, Talisman, and Occidental Petroleum have been implicated in the murderous practices of various repressive regimes in Aceh, Nigeria, Burma, Sudan, and Columbia (108).
  6. A subsidiary of Occidental Petroleum poisoned the Love Canal community in Upper New York (109).
  7. There is a spectacular rate of recidivism. Exxon Mobil despoiled the Alaskan coast with a huge oil spill. Then their recklessly engineered gas plant in Australia exploded, and left an entire state in the country, without gas for three weeks (110).
  8. "... then in Alabama these oil barons deliberately scammed the government out of $3.5 billion and went on to steal fresh water from New York's Hudson River and replace it with polluting bilge" (111).
  9. In the 1970s Firestone made steel-belted radial tires that it knew had a tendency to separate. With 24 million on the road, 41 people were killed and many more were injured when the tires blew out (112).

And so on and so forth. Again, as in the other sections, all we can do here is not-even-scratch-the-surface.

So, why are corporations so criminally-oriented? And by the way, I'm sure the memory is still fresh in all of our minds, about major banks that were caught red-handed laundering drug cartel money (113).

Anyway, Harry Glasbeek, the author I've just been citing, gives us a clue --- indicating that something about the corporate structure itself, might have a lot to do with its criminality.

Talking about the limited liability protection the corporation enjoys, he wrote:

"[S]hould the corporation be unable to pay for any damages done or debts incurred while chasing profits, [the] shareholders cannot be personally called upon to make further contributions. Their only financial risk is the potential loss of their initial investment --- a very limited risk when dealing with large publicly traded companies. If things don't look good, the owner of the certificate can sell it at any time" (114);

Still quoting, talking about corporate employees:

"But when they think and act on behalf of their corporate bodies, they can claim that they are not acting as people in their own right, but as the corporation. It is a short step to the claim that they are not personally responsible for any thinking and acting that might do harm and/or breach a law" (115).

And finally:

"The law has to use a certain pretense to convict corporations of wrongdoing. It holds the corporation 'criminally responsibble,' when its acting mind and will exhibit wrongful intention. In a large corporation this can be immensely difficult to prove" (116).

I am reminded of a wonderful line from the Kevin Bacon film, Hollow Man. Its basically a 21st-century remake of The Invisible Man. And perhaps the line was only said in the trailer, where I heard it.

But Kevin Bacon (the "Hollow" or Invisible Man) said: "Its amazing what you can do, when you don't have to look at yourself in the mirror."

It would appear, then, that limited liability has a similar reflection-blocking effect.


Although the word "Trump" appears somewhere in the title of every installment of essays in this series, those of you who've been following it know that I have not been particularly interested in talking about Mr. Trump specifically.

Despite the fact that the word "Republican Party" appears somewhere in the title of every installment, again, those of you who've been following this series know that I have not been particularly interested in talking about the Republican party specifically (Although I did say a few things earlier in the series).

As this project has evolved, I find that my purpose is much broader. I seek to test the strength of what I see as two implicit claims of American political ideology.

  1. That wealthy, successful business executives also make the best stewards of government.
  2. That capitalism is the same as, or at least the other side of the same coin of democracy.

In my lifetime, it was in the 1980s when we began to see business executives coming forward, graciously offering their services in managing government. They tended to make statements like: "If I ran my business like Mayor So and So runs this city, I would have gone bankrupt years ago" --- some variation of this statement.

They would bring dynamic performance and efficiency to government, the way they had done for business enterprise. If they "turned around" a big company, they were sure they could do the same for local, state, and federal government, in various elective capacities.

Somewhere along the way, an ideology that sees capitalism and democracy as two sides of the same coin, came to be widely accepted; or at least there was widespread acquiescence.

Since these wealthy, successful businesspeople were obviously good at capitalism, then, they would naturally be good at democratic (small 'd') governance.

At any rate, we will look at democracy, in some detail, and its relationship to (or lack of one, as the case may be) capitalism, in Part R.

Thank you for reading. See you in Part R.

References and Notes

1. Johnson, Chalmers. BlowBack: The Costs and Consequences of American Empire. Metropolitan Books, 2000. 201-202

2, ibid, 202

3. Stiglitz, Joseph E. The Roaring Nineties: A New History of the World's Most Prosperous Decade. W.W. Norton & Company, 2003. 106

4. ibid

5. ibid

6. ibid, 115-116

7. ibid, 116

8. ibid

9. ibid

10. ibid

11. For a wonderfully grounded, informative, and funny understanding of this kind of thing, let me recommend a book by one of my favorite journalist/authors, Matt Taibbi. Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America. Spiegel & Grau, 2010.

12. Stiglitz, J.E. The Roaring Nineties. 5

13. ibid, 5-6

14. ibid, 6

15. ibid, 7

16. ibid

17. Johnston, David Cay. Free Lunch: How The Wealthiest Americans Enrich Themselves At Government Expense (And Stick You With The Bill). Portfolio, 2007. 16

18. ibid

19. ibid

20. ibid

21. ibid

22. ibid, 22

23. ibid, 15

24. ibid, 20

25. Harvey, David. The Enigma of Capital And The Crises of Capital. Oxford University Press, 2010. 28

26. ibid

27. Johnston, D. C. Free Lunch. 64

28. ibid, 62

29. ibid

30. ibid

31. ibid, 63

32. ibid

33. ibid, 64

34. ibid

35. ibid

36. ibid, 64-65

37. ibid, 65

38. I'm thinking of the episode involving George W. Bush (Bush 43) and the Texas Rangers. The threat was the opening gambit; this and other stories like it are detailed in David Cay Johnston's book, Free Lunch.

39. Johnston, D.C. Free Lunch. 65

40. ibid

41. ibid, 65-66

42. ibid, 68-69

43. ibid, 69

44. ibid

45. ibid

References and Notes

46. ibid, 73

47. ibid

48. ibid

49. ibid

50. ibid

51. ibid, 73-74

52. ibid, 74

53. ibid

54. ibid

55. ibid, 87

56. ibid, 99

57. ibid, 99-100

58. ibid, 100

59. ibid

60. ibid

61. ibid, 104

62. ibid

63. ibid, 105

64. There are all kinds of lobbyists (for children's issues, for women's issues, for the environment, etc.). I assume that Mr. Johnston is talking about business lobbyists specifically, since his book is all about the "corporate welfare." But I am not one hundred percent sure.

65. Johnston, D.C. Free Lunch. 110

66. ibid

67. ibid

68. ibid

69. Russo, Gus. SuperMob: How Sidney Korshak And His Criminal Associates Became America's Hidden Power Brokers. Bloomsbury Press, 2006. 403-404

70. ibid, 403

71. ibid

72. ibid

73. ibid, 405

74. Johnston, David Cay. Perfectly Legal: The Covert Campaign To Rig Our Tax System To Benefit The Super Rich --- And Cheat Everybody Else. Portfolio, 2003. 5-6

75. ibid, 6

76. ibid

77. ibid, 6-7

78. ibid, 7

79. Reich, Robert B. Supercapitalism: The Transformation of Business, Democracy, and Everyday Life. Alfred A. Knopf, 2007. 30

80. ibid

81. ibid

82. ibid, 30-31

83. ibid, 31

84. ibid

85. ibid

86. Korten, David C. When Corporations Rule the World. Kumarian Press & Berrett-Koehler Publishers, Inc., 1995. 222

87. A typical and representative headline in the business news. From Extreme Tech: "Apple Confirms Acquisition of Dr. Dre's Beats for $3 Billion." You see and hear this kind of thing every night on the news cast, as I said. We rarely see what is behind the sanitized headline.

88. Korten, D.C. When Corporations Rule the World. 222

89. ibid, 224

90. ibid

References and Notes

91. ibid, 225

92. ibid

93. ibid

94. ibid

95. ibid, 225

96. For further reading on how the government protects big business from competition, you might read the section of monopolies and patents in a free online book by economist Dean Baker: The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. See Chapter Four: "Bill Gates -- Welfare Mom: How Government Patent and Copyright Monopolies Enrich the Rich and Distort the Economy."

97. Russo, Gus. The Outfit: The Rule of Chicago's Underworld In The Shaping of Modern America. Bloomsbury, 2001. 51-52

98. ibid, 52

99. ibid

100. Napoleoni, Loretta. Rogue Economics. Seven Stories Press, 2008. 114-115

101. Russo, G. The Outfit. 53 (footnote)

102. ibid

103. Glasbeek, H. (2009). White Collar Crime is Morally Wrong. In K. Wand (Ed.), White Collar Crime: Opposing Viewpoints (Opposing Viewpoints Series). Detroit: Greenhaven Press. 43

104. ibid, 44-45

105. ibid, 45

106. ibid

107. ibid

108. ibid

109. ibid

110. ibid, 45-46

111. ibid, 46

112. ibid

113. Vulliamy, E. (2011, April 2). How a Big US Bank Laundered Billions from Mexico's Murderous Drug Gangs. Retrieved September 19, 2016, from

114. Glasbeek, H. (2009). White Collar Crime is Morally Wrong. 42

115. ibid, 43

116. ibid

References and Notes

Leveraged Buyouts --- The Procedure: From Korten, David C. When Corporations Rule the World. Mr. Korten begins by giving the justification; and the following is the best formulation of the problem I have ever seen. He wrote:

"Finding ways to create new value in a sophisticated modern economy is seldom easy. Finding ways to create new value that will produce returns in the amount and with the speed demanded by a predatory financial system many times larger than the productive economy is virtually impossible. The quickest way to make the kind of profit the system demands is to capture and cannibalize existing values from a weaker market player" (p.207).

Step One: The corporate raider identifies a company that has a "breakup" value in excess of the current market price for its shares. Sometimes they are troubled companies. More often they are not (ibid).

Step Two" Once a target company is identified, the raider may form a new corporation to act as a receptacle-corporation for the acquired company. Often the receptacle-corporation is financed almost entirely with borrowed money and has little or no equity (ibid).

Step Three: The borrowed funds are used to quietly buy shares of the targeted company, up to the maximum amount allowed by law (ibid).

Step Four: An offer is tendered to the target company's board of directors to buy up the outstanding shares of the company's stock --- at a price above the going market price, but below its breakup value (ibid).

Step Five: If the takeover bid is successful, the acquiring company consolidates the purchased company into itself, thus passing to the acquired company the very debt that was used to buy it (pp.207-208).

The results:

"Through a bit of financial sleight of hand," David C. Korten wrote, "the acquired company has been purchased by using its own assets to secure the loans to buy it. The 'new' company now has a lot of additional debt, which the new management will pay off by drawing down its cash reserves, and pension funds, selling off profitable units for quick cash returns, bargain dowwn wages, move production facilities abroad, strip natural resource holdings, and cutback maintenance and research expenditures to increase short-term gain at the expense of long-term viability" (p.209).

Still quoting:

"Nearly 2,000 cases have been identified in which the new owners have virtually stolen a total of $21 billion of what they declared to be 'excess' funding from company pension accounts to apply to debt repayments" (ibid).

Two-thousand (2,000) is a staggering number. Imagine this carnage being wrought at least 40 times, in each and every state, in these United States of America!

Commentary on this?

Well, economic historian, Kevin Phillips, tells us that the stock market averages, through the 1980s, 1990s, and 2000s, were propelled by high levels of a troika of financial techniques, including mergers, reorganizations, and the leveraged buyouts (Phillips, p.76), we've been discussing.

Kevin Phillips:

"Under the new Internal Revenue Provisions of the 1980s, debt seemed rational from a tax standpoint, rather than immoral or indulgent" (ibid) ---- because you can "securitize" it.

Still quoting:

"That same decade saw corporate raider posture as outsiders tackling a bloated 'corpocracy,' as promoters of the ability of the small to challenge the big, and as standard-bearers of a 'democratization of capital' that unlocked 'shareholder value'" (ibid).

Source: Phillips, Kevin. Bad Money: Reckless Finance, Failed Politics, and The Global Crises of American Capitalism. Viking, 2008.

References and Notes

Arbitrary Firings As A Tool Of Short-Term Stock Market Manipulation

Not too much to say about this becaue part of my notes have absconded somewhere...

But the first thing to say is to quote economic historian, Kevin Phillips again:

"Liberals at Washington's Economic Policy Institute --- " "... the 1990s produced only an average level of business investment..." Furthermore: "What really led to the recovery parade, they contended, was soaring consumption --- much of it on the part of the top percentiles and much of it unleashed by the $8 trillion in new stock market wealth created between 1993 and 1999" (Phillips, Wealth and Democracy, p.103).

This is an important bit of information, because it helps to explain a seeming paradox. That paradox is the following:

"The large transnational corporations, for their part, achieved record earnings while hiring fewer Americans than ever before --- and the two often seemed related. As the five hundred largest U.S. corporations eliminated almost five million U.S. jobs between 1980 and 1999, they tripled their assets and their profits and enlarged their market value eightfold as measured by stock prices" (ibid, 112).

Do you recall a term that was bandied about at the time? "Jobless recovery"? Remember?

In 1995 The American Management Association published a book by Alan Downs, a senior corporate consultant: Corporate Executions, The Ugly Truth About Layoffs: How Corporate Greed is Shattering Lives, Companies, and Communities (ibid, p.151).

The thesis of the book is this: Partly out of management avarice and partly because of pressure from Wall Street, corporations were downsizing (or "right-sizing," to use the then in vogue euphemism) as a tool for short-term stock manipulation. Based on a study of 22 companies that had announced large layoff during the 1994, Alan Downs found a strong correlation between the size of the layoff and the compensation of the CEO (ibid).

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


    0 of 8192 characters used
    Post Comment

    • bradmasterOCcal profile image

      bradmasterOCcal 11 months ago from Orange County California


      It sounds like you agree with me.

      1898 is not a Typo.

    • peoplepower73 profile image

      Mike Russo 11 months ago from Placentia California

      Brad: The FRB kept the prime rate low, but the mortgage rates were sub-prime with no qualifications and they had a built in variable interest that kicked in further down stream.The loans were packaged into many different types of exotic investment instruments that were supposed to mitigate the higher interests rates and risking loans. When the higher rates kicked in, buyers could not afford their homes and either walked away or foreclosed on their mortgages, and the whole thing came crashing down like a house of cards.

      The Glass Stegal Act was in acted in 1933. The purpose of Glass Stegal was to prevent commercial banks and investment companies from commingling their assets. In 1999, Glass Stegal was replaced with the Gramm Leach Bliley Act which allowed banks and investment companies to commingle their assets. Phil Gramm was the architect of Gramm Leach Bliley. He hired a bunch of math wizards who calculated that packaging the loans would mitigate the risk but it didn't happen that way. Phil Gram was a republican and Clinton signed Gramm Leach Bliley into law in 1999

      The banks were not making any short term loans to businesses because there was no liquidity in the markets and it would put their capital at too much risk. Consequently businesses closed their doors and people were laid off.

      As far as losing wars, since 1898, is that a typo? President Eisenhower said: "Beware of the abuse of power of the military/industrial complex."

    • bradmasterOCcal profile image

      bradmasterOCcal 11 months ago from Orange County California


      It took both parties to allow the creation of both the dot com and the real estate bubble. both concepts were aided by the FRB, as they kept the interest rate super low. Raising it would have taken the air out of the ponzi. This is especially true for the real estate bubble. Because any increase in the monthly mortgage would have caused many of the homeowners to not be able to pay their mortgage.

      The liberals wanted anyone and everyone to be homeowners so they didn't have Freddie and Fannie protecting their equity in these federal loans. With mortgages built on negative amortization and no real equity down payments, as well as other questionable packages, it was only a matter of time before it collapsed.

      Congress could have done something but they did nothing. And when they hit the meltdown they threw $1.5 Trillion dollars at it, and all it did was benefit the banks and the people that created the bubble. The FRB then pumped in $40 billion a month buying the bundled derivatives that were the contaminants of the bubble. Month after month, and this was on top of the $1.5 trillion.

      This is not Capitalism, it is a corrupt government that is bought and manipulated by powerful and rich third parties.

      Remember that the Banks, AIG and other financial institutions and their CEOs were taken care of. The CEOs gave themselves 7 figure bonuses for their failures to keep their organizations solvent.

      Meanwhile, the suckers that were the pawns of the bubble lost their homes, their jobs, and their livelihoods. The banks took for ever to honor the short sales, many of them took a year to complete, even all cash deals. The people that lost their jobs, couldn't find jobs and when their unemployment ran out just gave up. They wouldn't even turn up on the unemployment figures.

      My point is that it wasn't just the Republicans that made the bubbles possible, it took both parties. And that is the basic problem that caused the decline of the US since the end of the 60s, to the 2008 meltdown, and continuing today.

      The politicians of both parties have been the reason why the US has lost every war since 1898. And we have been at war for most of that time because people make a lot of money from the wars. Not us, but rich people.

      What do you think?

    • wingedcentaur profile image

      William Thomas 11 months ago from That Great Primordial Smash UP of This and That Which Gave Rise To All Beings and All Things!

      Hi Nudely! How's it going?

      First, let me thank you for reading my long "missive," and for taking the time to comment. I can appreciate the passion with which you express your views. Your contribution is much appreciated!

      I won't argue with you about the lack of effectiveness of this essay --- as a stand alone piece. However, it is part of a series (this is Part Q and it looks like we're going to make all the way to Z).

      I embarked upon this series because I detected a mass fascination with the candidacy of Donald Trump, particularly when he was wiping the floor with his Republican rivals in the primaries. There was some question (and this seems like ages ago now) as to whether or not the Trump ascendancy actually signalled the beginning of the end for the Republican Party itself.

      I must confess, I largely derived that idea from a couple of articles by one of my favorite journalists, Matt Taibbi, who writes for Rolling Stone magazine.

      Anyway, I set out to contextualize the Trump ascendancy and the Republican Party, in general, within American history, beginning with the end of the American Civil War.

      The question I posed and set out to answer--for any who might be interested--to this question: Where did Donald Trump come from, politically. That is to say: What is it about American history that has led us to this point.

      Mind you, I, personally, don't think there is anything particularly new or interesting about Mr. Trump, who is, after all, yet another billionaire business executive that thinks he can run government better than the politicians. After all, George W. Bush can be said to have come out of that mold --- his governorship of Texas notwithstanding.

      I suppose I should say that the mass Trump fascination (cooling off now?) is an excuse for me to review American history and public policy. The Trump ascendancy is the lens through which I attempt to do this --- a convenient lens.

      To be even more blunt, I should say that one of my goals is to undermine the myth of the genius businessperson.

      Anyway, that a little of what I am up to with this series.

      Again, thanks very much for your contribution!

      Take it easy.


    • profile image

      Nudely 11 months ago

      I agree with PeoplePower73... you could make a harder hitting piece by asserting how key points of your premise prove your conclusion. As it stands, the piece gets too mired down in minutiae to make a concise, effective argument. Given that your title starts out: "The Trump Campaign (and Republican Party) in Context..." you fail, in my opinion, to connect Trump/Republicans to all this greed. Wall Street is overwhelmingly Democrat; New York is overwhelmingly Democrat; Google, Apple, Facebook and other big players in NASDAQ/Silicon Valley tend to be Liberal/Democrat. Trump himself has for decades sounded like a Democrat, and now is trying to pass himself off as the guy who's gong to appoint the next Scalia. Hmmm, I'll hedge my bets... voting for Johnson, here. See youtube video -Trump Tapes Volume 1- and you'll see what I mean. Anyway just my two cents. I wonder what Milt Friedman's angle on this would be... I miss him,

    • wingedcentaur profile image

      William Thomas 11 months ago from That Great Primordial Smash UP of This and That Which Gave Rise To All Beings and All Things!

      Thank you, Mike Russo, for even reading part of my "missive." I was worried that it might be hard to understand as a stand alone essay. You see, this long essay is part of a series, which looks like it going to make it all the way from A to Z.

      Also, I have to say that I regard the conclusion as the weakest part of the essay, so that part of the "essence" of my argument might have been lost. Its my fault; I don't do conclusions well, especially when the papers are unusually long, as this one is.

      I have to tell you: I thought I was describing the dysfunctional nature of capitalism at it most functional. That is why I included all the material about the local, state, and federal government to big business subsidy pipeline; and how the corporate structure is actually not built for market competition, as counterintuitive as that sounds.

      At any rate, I thank you for taking the time, peoplepower73!

      Take care.


    • peoplepower73 profile image

      Mike Russo 11 months ago from Placentia California

      W.T.: I'm sorry. But I could not read your entire missive. It is way too long for me to grasp in one setting, but I do get the essence of what you are saying and I did read the conclusion.

      Deregulation caused the financial meltdown and it brought about the creation of high risk exotic investment instruments, such as derivatives. Many of these instruments, just exchanged digital ones and zeroes, but out the other end came huge tangible commissions that did not contribute one cent to the GDP. However, the financial institutions called these "Products." That is capitalism in its purest sense.

      They also called the people at the bottom who were damaged by the toxic assets, and sub-prime mortgages, just "negative externalalities." Capitalism is supposed to be self-regulating and that is how it works, especially when there are no laws to prevent greed and corruption to enter into the picture. Perhaps, in pure capitalism, those who were damaged by others taking advantage of them will find remedies?... I don't know.

    • wingedcentaur profile image

      William Thomas 11 months ago from That Great Primordial Smash UP of This and That Which Gave Rise To All Beings and All Things!

      Hi lions44! How's it going?

      You are proof that not everybody is using the Internet simply for the purpose of having his own point of view confirmed. I want to say that I appreciate you for stepping out of the box and giving someone of, perhaps, a radically different political bent a hearing.

      But there are things we agree on. This, too, is inevitable with reasonable, open-minded people, such as yourself.

      Again, I thank you; and I'm glad you could get some value, however small, out of my scribblings here on Hub Pages.

      Take it easy!

      W.T. (wingedcentaur).

    • lions44 profile image

      CJ Kelly 11 months ago from Auburn, WA

      Getting the Steinbrenner reference in was fascinating. That says it all. Too much excess.

      Your hub was incredibly detailed. The 80s are always thought of as a "me" or out of control decade. But the 90s set the tone for the disastrous mortgage crisis. Both parties played to each other's greed. It really angers me. It's not only Glass Steagall being repealed, but the failure of our government referees (i.e. SEC) to do their job. The Madoff story alone should be taught as a separate class in college.

      Keep up the good work (although I suspect we differ politically a lot).

      Sharing everywhere.