Friday, August 16, 2013

Business of America with Magstadt

Yes, we all know what is wrong.  Business lobbying is today engaged in the practical application of treason.  At no point is a course of action promoted as best for the common weal unless that can be used as a cover.  That has even become a rare circumstance.

Yet we can be harsh all day and night and all we discover is that the two elective bodies are bought body and soul through a substantive majority of its members.  An extraordinary president does have the power to overcome this but even he is limited to picking his fights like Ronald Reagan changing the Tax regime.  Even that got slowly adjusted into nonsense beginning with George W. Bush.

That is why I strongly suggested charging every signatory to a failed AAA bond with treason in 2008.  There has to be a real price on a bond rating.

I am not so sure that it will not take international intervention to bring the USA to its collective senses.  That could well be the price paid.

Business of America : requiem
The business of America is business, declared Calvin Coolidge.  If Coolidge were alive today he would probably want to distance himself from that assertion.  The business of America is not business anymore.  It’s politics.   

Anybody who still thinks corporations are benign actors that play by the rules and don’t need regulation probably didn’t peruse the business section of Friday’s New York Times. Two samples: “Halliburton Pleads Guilty of Destroying Evidence After Gulf Spill”and “SAC Capital Advisors Is Indicted, Called Magnet for Cheating”.  And let’s not forget the Golden Sachs aluminum caper that reportedly netted this TBTF behemoth more than a quarter of a billion dollars, thanks to financial deregulation that allows commercial banks to operate in the metals markets while making big bets in the commodities futures markets at the same time.

“In recent years, big banks like Goldman Sachs, Morgan Stanley and JPMorgan Chase have aggressively pushed into the commodity business by buying up warehouses, oil refineries, power plants and other physical infrastructure. They have been able to do so because American lawmakers and regulators have removed many of the barriers that historically separated banking and commerce…. [This] is a cause for concern because banks might be able to take unfair advantage…[of access to inside information] when they trade commodities in financial markets.“
Okay, so corporations are not above lying and cheating.  So what’s new?  Remember Enron?  Read anything recently about Monsanto?  How about JP Morgan Chase? 

Obviously, megabanks and multinational corporations need to be regulated in the public interest.  Obviously, the White House, the Justice Department, the SEC, the EPA, and other federal agencies charged with monitoring and regulating business have failed us miserably in recent years.  Obviously those responsible for running rogue companies need to be punished when they break the law.

Obviously, the punishment needs to be commensurate with the crime – otherwise the old adage that crime doesn’t pay isn’t true (spoiler alert:  it isn’t) if you happen to be Steven A. Cohen (SAC) or Jamie Dimon (JP Morgan Chase) or Lloyd Blankenfein (Golden Sachs).  (Former VP Dick Cheney, chairman and CEO of Halliburton from 1995-2000, is one of these guys, too.  Of course, Cheney’s works in the private sector pale in comparison to his role in engineering our embroilment in Afghanistan and the US-led invasion of Iraq in 2003.)

Here’s a sadly revealing fact from the aforementioned New York Times article about the insider trading scandal involving SAC Capital Advisors:  “Mr. Cohen, 57, was not charged (!), but the 41-page indictment is a stinging attack on him nonetheless, declaring that he ‘fostered a culture that focused on not discussing inside information too openly, rather than not seeking or trading on such information in the first place.’”  Eight others have been charged, but not the guy at the top.  Sound familiar?

Of course, none of the foregoing will surprise regular readers of this publication.  The argument here is of a different order and it’s one that needs to be repeated until it becomes a self-evident truth:  corporations are not what they appear or claim to be; they are not “endowed with unalienable rights” or mentioned anywhere in the US Constitution; they do not care about abstractions like the common good or the national interest; and, finally, they neither need nor /deserve special favors from government.

That corporations are not people is clear to any sober observer.  That they are not business enterprises in any traditional sense of the word is less obvious but no less crucial to an understanding of where we are and how we got here.

Corporations don’t operate the way ordinary businesses do – on an even playing field in the absence of tax preferences and other favors at odds with the fictional “free market” they love to rhapsodize.  Never mind what they say they are doing.  Never mind that they talk about job creation and technological innovation, that they claim to be the vanguard of the entrepreneurial middle class, the engine of prosperity, the defender of all things sacred – private property, personal liberties, and a system that rewards hard work and individual merit.  That’s just propaganda.

What is business?   If you go to, you’ll find bland, everyday definitions such as “an occupation, profession, or trade” and this example: “His business is poultry farming“ or “the purchase and sale of goods in an attempt to make a profit” or “a person, partnership, or corporation engaged in commerce, manufacturing, or a service; profit-seeking enterprise or concern.”

Personally, I like the last two suggested meanings best: “ volume of trade; patronage: Most of the store's business comes from local families“ and “a building or site where commercial work is carried on, as a factory, store, or office; place of work: His business is on the corner of /Broadway and Elm Street.”

A few basic principles from Economics 101 will suffice to illustrate my point.   Start with a hypothetical economy.  The key groups of participants are producers and consumers.  Producers create goods and services (products) to sell; consumers (“rational actors”) buy the best products at the lowest prices offered.  The profit motive drives entrepreneurs to produce; competition forces them to pay close attention to quality, price, and reliability, to innovate, and to keep costs as low as possible.  The market – not the government and not politics – determines winners and losers.  That’s how it works in a competitive free-enterprise economy – or at least that’s how it works in theory.

In practice, the concept of free market economy is at best a useful fiction.   All modern economies operate within the framework of laws and policies – dos and don’ts – set by governments.  Introduce tariffs, taxes, licenses, and subsidies and it’s becomes quite clear that the idea of an unregulated modern economy is a chimera. 

When politicians and propagandists talk about the free market, however, it’s almost always a smokescreen for the exact opposite:  a business model and that relies on cold cash, legions of lobbyists, and political arm-twisting to succeed.  In this model old-fashioned concepts like comparative advantage, competition, and efficiency are largely irrelevant.  Today’s megabanks, multinational companies, and private equity firms disdain market forces:  the “leveraged buyout” economy is a euphemism for monopolistic capitalism.

Competition is the enemy.  Political power is the name of the game, the key to committing all sorts of crimes – bribery, extortion, fraud, and insider trading, to name but a few – without fear of criminal prosecution.  It’s also the key to massive multi-billion-dollar federal tax subsidies (banks, utilities, telecommunications, the oil and gas industry are the biggest beneficiaries) and tax loopholes tailored to the advantage of corporations and the wealthy

Note: innovation, efficiency, customer service, product development, quality and reliability, and brand-name recognition all still matter as does wise investment in all these areas, but in the post Reagan, post Citizens United economy no other form of investment can promise anywhere near the kind of monetary returns for corporations as investment in politics.  The same is manifestly not true of people who can afford to invest only relatively small sums in politics and who too often discover that they backed a candidate who went to Washington and turned into a money-grubbing weasel – yet another proof that corporations and people are fundamentally different.

In the nation’s capital, the word “influence” has become a euphemism for bribery and extortion, and it’s all perfectly legal.  Money, not moral conviction, explains virtually everything that happens – or doesn’t happen – in Washington these days.  Corporations get the gold mine; “the people” get the shaft.  Social justice and the national interest are secondary considerations, at best.

Last year alone, lobbies spent $3.30 billion “influencing” a corrupted and gridlocked US Congress, more than twice the amount spent in 2000, when there were over 12,500 registered lobbyists in Washington (roughly the same number as in 2012).   Conservative “non-profit” advocacy groups like Karl Rove’s Crossroads GPS spent $263 million keeping House Republicans in control of Congress last year.  These are absurd numbers that demand a radical solution.  Here is mine:

1.      Shorten political campaigns to no more than six weeks, require all FCC licensed radio and TV outlets to run political ads at no cost to the candidates during this time, abolish PACS (“advocacy groups”), 527s, 501(c)(4) groups, and all other political money pots; make full disclosure of all campaign contributions and spending a universal rule.  527s are tax-exempt organizations (PACs) that engage in political activities but do not fall under FEC rules; they have the right to spend unlimited amounts of “soft money” to sway the electorate.  501(c)(4s) – so-called Super PACs like Crossroads GPS – claiming to be “social welfare” groups can also spend unlimited amounts but do not have to disclose the names of donors.

2.      Ban lobbying and lobbyists.  Criminalize collusion between Congress (members and staffs) and officers or representatives of corporations; require full disclosure of any and all contacts and communications between employees of the US Congress and corporations, labor unions, professional associations, and other special interest groups.

3.         Overturn Citizens United by a simple act of Congress.  Ignore the Supreme Court’s ruling in this and other instances where its decisions violate or stretch the meaning of the Constitution or subvert majority rule.  There is no mention of judicial review in the US Constitution; giving 11 unelected judges with life tenure the right to overturn acts of Congress is preposterous.

One special interest group has recently reached a milestone in American politics.  Guess which one.  If you guessed the U.S. Chamber of Commerce, go right to the head of the class:

“The U.S. Chamber of Commerce has spent more than $1 billion lobbying members of Congress and other officials since 1998 – by far a greater amount than any other organization over the period. The Chamber has no rivals in terms of raw resources devoted to lobbying – and may also have little competition when it comes to overall influence on the Hill.”

How big is the return on corporate dollars spent lobbying?  That’s a difficult question not least because there’s too little transparency in Washington or on Wall Street.   As NPR’s Planet Money explains:  “It's a messy, secretive system so it was always hard to study. But in 2004, economists found a bill so simple, so lucrative, that they could finally track the return on lobbying investment.”

The bill in question was The American Jobs Creation Act, a bill that “benefited hundreds of multinational corporations with a huge, one-time tax break. Without the law, companies that brought profits earned abroad back to the U.S. had to pay a tax rate of 35 percent. With the law, that rate dropped to just over 5 percent. It saved those companies billions of dollars.”

Two researchers, Raquel Alexander and Susan Scholz, calculated how much the corporations saved under the lower tax rate, comparing that sum to amount the firms spent lobbying for the law. They found that for every dollar spent on lobbying the companies got $220 dollars in tax benefits.

Imagine investing $10,000 in the stock market and walking away with $2.2 million.  People can’t do that; only corporations can.  That’s because corporations aren’t people and don’t play by the same rules people do.

When the economy is sluggish but Wall Street is racing ahead, when middle-class family incomes are stagnant but pay packages of corporate executives keep getting bigger and bigger, when bailed-out TBTF banks that caused the 2008 financial crash are reporting record earnings while paying savings depositors next to nothing – something is seriously wrong with the system.

Meanwhile, Washington remains in a state of gridlock.  The obvious conclusion:  federal agencies that don’t regulate and a Congress that doesn’t legislate are bad for the country but good for the corporations and fat cats that feed the political machine.    

We need a separation of business and politics, no less than a separation of church and state.  We need to punish plutocrats who bribe politicians and we need to turn politicians who accept bribes out of office.  We need to stop coddling corporations, stop treating them as admirable, benign institutions that deserve tax breaks and other forms of political favoritism. 

Today’s corporations – giants like Monsanto, Exxon Mobile, and Goldman Sachs – are not benign.  They are not businesses in the traditional sense of the word.  They are too big to be compatible with a healthy, competitive economy.  As we have witnessed repeatedly in recent years, they are too often immune from the legal and financial consequences of their own actions.  Corporate America has conjured up a new economic order wherein commerce is secondary to politics and profit is a euphemism for profiteering.

Multinational corporations are not people and, less obvious but no less critical to an understanding of our decline as a nation, they are not engaged in business if by that term we mean commercial enterprise dependent on market forces.  Real businesses seek profits through productivity, not politics.  It’s the opposite for Wall Street’s major players.  Business is what happens on Main Street while Wall Street is busy creating phony “products” and picking “the peoples’” pockets

We won’t (and can’t) fix what wrong with our economy, society, and political system until we fix the way we think and talk about business.   And get Big Business out of national, state, and local politics.  The place to start is the swamp on the Potomac.
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Tom Magstadt earned his Ph.D. at The Johns Hopkins University School of International Studies. He is the author of "An Empire If You Can Keep It: Power and Principle in American Foreign Policy," "Understanding Politics: Ideas, Institutions and Issues," and "Nations and Governments: Comparative Politics in Regional Perspective." He was a regular contributor to the Prague Post in 1998-99 and has published widely in newspapers, magazines and journals in the United States. He was a Fulbright Scholar in the Czech Republic in the mid-1990s and a visiting professor at the Air War College in 1990-92. He has taught at several universities, chaired two political science departments, and also did a stint as an intelligence analyst at the CIA. He is a member of the board of the International Relations Council of Kansas City. Now working mainly as a free-lance writer, he lives in Westwood Hills, Kansas.

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