GOODBYE, MIDDLE CLASS: Part 14: Corporatocracy: How Capitalism Kills Democracy

Continued from Part 13: The Lyin', the Rich, and the Brand Warfare

“This is a government of the people, by the people, and for the people no longer. It is a government of corporations, by corporations, and for corporations.” --Rutherford Hayes

Top Corporate donors to congressional campaigns state-by-state

"Each year the US economy looks just a little more like that of Ancient Rome, while at the same time, the Chinese economy and those of several other rapidly developing countries look more like that of a younger and stronger America. The question of course is Why?" asks Clyde Prestowitz in The Betrayal of American Prosperity.

"The short answer is that for some time now, our best and brightest have been invoking false doctrines that are systematically undermining American prosperity. Leading among these is the economic orthodoxy of market fundamentalism, simplistic pure free trade, and hands-off government that...has paralyzed common sense in dealing with competitive realities. Reversing America’s traditional, national economic development policies, U.S. leaders after World War II increasingly embraced consumerism and a faith in the efficacy of unfettered markets and trade that evolved over time into a new gospel of laissez faire globalization, that tying the U.S. market tightly to others was best for the United States and the whole global economy. Globalization, the argument went, was really Americanization and would lead inexorably to prosperity for all, which in turn would lead to global democratization and peace among nations with America remaining the world leader. If this sounded too good to be true, it was."

So where did this idea of unregulated markets come from?

According to Darryl Cunningham in The Age of Selfishness: Ayn Rand, Morality, and the Financial Crisis, novelist Ayn Rand promoted an economic system consisting of unregulated capitalism in which the undeserving poor suffered the consequences of their own inaction.

“It was only right and proper that those who made no effort in life should live in poverty,” she rationalized. Conservatives, particularly disciple Allen Greenspan, injected this into the political mainstream, using her moral justification for their actions of deregulation and disregard for the lower and middle classes. “There is still a strong belief on the right that the free market can solve all problems and that the financial crisis was caused by the last vestiges of regulation and government interference. They claim that only with the total repeal of the interventionist laws and regulatory agencies can markets find their true value, so that people can prosper.”

This clearly flies in the face of reality.

If the last 30 years have shown us anything, it is that free markets lead not to personal freedom, but to corporate freedom – a freedom that has been embraced countless times in the past to pollute, steal, and oppress.

According to Jeffrey D. Sachs, one of the world’s leading experts on economic development, “Corporate profits in 2010 were at an all-time high…Wall Street compensation in 2010 was at an all-time high.” And yet the Middle Class’ wages were not just stagnating, but declining to levels not seen since the 1960s.

The U.S. is by far the most unequal rich democracy in the world. And yet, “of all the nations... America is assumed to best exemplify the idea that capitalism and democracy go hand in hand,” writes former secretary of labor Robert Reich in Supercapitalism. “But…the relationship has become strained. Free-market capitalism has triumphed. Yet democracy has weakened.”

Corporations and the very rich pay lower taxes, receive more corporate welfare, and are bound by fewer regulations. Money paid to politicians makes them dependent on their patrons in order to be reelected. So when top corporate executives want something, those politicians respond with lower taxes for themselves and their businesses, as well as subsidies, bailouts, corporate welfare, and fewer regulations.

So what does all this mean?

The Ayn Rand-inspired Reaganomics, that of an unfettered, deregulated, free market, has given rise in the last 35 years to America’s corporatocracya new political system controlled by big business.

This system, thanks to us, has gone global.

Explains former Economic Hit Man John Perkins in The Secret History of the American Empire, "The corporatocracy makes a show of promoting democracy and transparency among the nations of the world, yet its corporations are imperialistic dictatorships where a very few make all the decisions and reap most of the profits. In our electoral process—the very heart of our democracy—most of us get to vote only for candidates whose campaign chests are full; therefore, we must select from among those who are beholden to the corporations and the men who own them. Contrary to our ideals, this empire is built on foundations of greed, secrecy, and excessive materialism."

Clinical psychologist and author Bruce E. Levine explains, “The United States of America was actually created as a republic, in which Americans were supposed to have power through representatives who were supposed to actually represent the American people. The truth today, however, is that the United States is neither a democracy nor a republic. Americans are ruled by a corporatocracy: a partnership of too-big-to-fail corporations, the extremely wealthy elite, and corporate-collaborator government officials.”

This is not the first time we’ve faced such corporate rule.

We find the wealth and luxury of our cities mingled with poverty and wretchedness... A crowded and constantly increasing urban population suggests the impoverishment of rural sections and discontent with agricultural pursuits…We discover that the fortunes realized by our manufacturers are no longer soley the reward of sturdy industry and enlightened foresight, but that they result from the discriminating favor of the Government and are largely built upon undue exactions from the masses of our people. The gulf between employers and the employed is constantly widening, and classes are rapidly forming, one comprising the very rich and powerful, while in another are found the toiling poor. As we view the achievement of aggregated capital, we discover the existence of trusts, combinations, and monopolies, while the citizen is struggling far in the rear or is trampled to death beneath an iron heel. Corporations, which should be the carefully restrained creatures of the law and the servants of the people, are fast becoming the people’s masters.

Sound applicable? It’s from Grover Cleveland’s State of the Union address back in 1888, when America was ruled by the robber barons.

Today, most of the smaller businesses that once contributed to the local community have been gobbled up by multinational corporations in the name of the “greedy algorithm” – when business stops providing value to the customers and long-term gains, and instead focuses on short term gains, i.e., shareholders, as investigative journalist Bob Sullivan explains in his book The Plateau Effect.

Historically the elimination of the independent businessman has been the first step in the development of totalitarianism, reminds author Ellen Ruppel Shell Cheap: The High Cost of Discount Culture. She traces the history of America’s anti-corporate takeover policies to our country’s complete surrender.

“Both Franklin and Jefferson feared that industrialization would lead to a labor proletariat without property or hope,” writes Shell. “Small-business enterprise is a symbol of a society where a hired man can become his own boss… A thriving small-business sector was essential to thin out and redistribute the thick, concentrated power of big business. Several state and municipal legislatures responded to these concerns by charging steep licensing fees and imposing heavy graduated taxes on the chains. They put caps on the number of stores a corporation could open in a single community and even tried to make chain stores themselves unlawful.”

Much has changed over the last century.

Today, much of our country’s so-called “competition” is little more than monopolies, suggesting our market is anything but free. And it's in their own best interests - not the consumers. Monopolies allow companies to set their own prices, without dealing with competition.

The most egregious example of this is the diamond industry. As illustrated by Michael Goodwin in Economix: How Our Economy Works (and Doesn't Work):

“Diamonds aren’t really all that rare: The supply is restricted because the mines are owned by an oligopoly dominated by the South African corporation De Beers. Demand is high partly because these ideas are part of our culture:"

  • a marriage proposal isn’t real without a diamond ring.

  • The ring should cost two months’ salary.

  • Diamonds are heirlooms and shouldn’t be sold.

"These are all ideas that originated in advertising, paid for by De Beers. So supply is what De Beers wants to sell, while demand is, to some degree, what De Beers can convince us to buy."

And when faced with a threat to their diamond monopoly, like one from the Soviet Union, De Beers simply purchases their entire inventory in order to maintain complete control.

An industry run by a few big companies is an oligopoly, and it's not much different than that of a monopoly. Consider these notable examples:

  1. BEEF – only four companies control 85% of the market.

  2. CELL PHONES – only four companies with almost 90% of the market.

  3. DEFENSE – five companies with almost ALL of the market.

Have you ever wondered why you are stuck with only two choices for cable/internet providers? It's because they collude to keep competition out, divvying up streets and zip codes like candy on Halloween.

Why are no politicians arguing for free market principles in any of these areas? Because big business drives the messaging. And big business is quite happy excluding competition.

This means that our income and wealth are being increasingly concentrated in the hands of a small, privileged elite, otherwise known as an oligarchy.

When anyone argues the free market always works, they are not describing the real world. They are saying it works for the rich and powerful, and no one else really matters.

This is why we have antitrust laws. The Clayton Antitrust Act was enacted in 1914 to prevent monopolies and oligopolies from forming. Since the Reagan administration, it’s been all but abandoned.

According to William Kleinknecht in The Man Who Sold the World, “The same government policies that fueled corporate mergers in other sectors propelled the increasing concentration of the media, which has resulted in a shallow and homogeneous presentation of the news that runs no risk of offending advertisers.”

“The nation saw a frenzy of mergers in the broadcasting industry that left five companies – Viacom, Disney, News Corp, NBC, and AOL-Time Warner – in control of 75% of prime-time viewing,” writes Kleinknecht.

“The rash of megamergers among media companies has been particularly worrisome to consumer advocates, raising the specter of a future in which the nation's artistic output – publishing, television, radio, filmmaking, print journalism – will be in the hands of a small number of large companies. GE swallowed NBC. Disney swept up ABC. Time Inc. merged with Warner Brothers, forming a company that later ate up CNN. The nightmare vision of media concentration seemed to have arrived when Viacom purchased CBS in 1999. Among the far-flung properties of the two companies were MTV, Nickelodeon, Showtime, Paramount Pictures, Blockbuster, Simon & Schuster, and Infinity Broadcasting…But even this colossus was dwarfed by AOL’s acquisition of Time Warner in 2000, which created the world’s largest media company,” explains Kleinknecht.

“The merger frenzy produced much that is disquieting about America: the loss of job security, mounting corporate debt, the increasing trivialization of the media, overnight fortunes for some and stagnating wages for others,” says Kleinknecht. “What became obvious was that major firms were acquiring company after company not because of synergy or efficiency but because they could boost the value of their market shares by using the mergers and shoddy accounting practices to create the illusion of greater earnings.”

Kleinknecht explains how this wasn't always the case: “The invisible hand of the market could not regulate prices and wages under the conditions of oligopoly, where the dominant players quietly conspired to keep prices artificially high and wages artificially low. So a system of countervailing powers evolved to keep the oligopoly from dictating the terms of commerce. Organized labor saw to it that workers were paid a living wage. Farmers banded into cooperatives to get fair prices for their goods. Chain stores like Sears & Roebuck had enough muscle with manufacturers to ensure that wholesale prices were held in check and passed on in the form of reasonable retail prices…the most important countervailing power was the government. It was the great referee that would not only guarantee the unemployed against destitution but also keep the great industrial trusts from running roughshod over small business…the mixed economy in the 1950s and 1960s when the United States was enjoying the most stupendous economic growth and the highest standard of living ever known to mankind.”

That was then, this is now.

As journalist Fran Lebowitz has famously remarked, “In the Soviet Union, capitalism triumphed over communism. In [America], capitalism triumphed over democracy.”

“There is much to be angry about,” argues author and historian Tony Judt. “Growing inequalities of wealth and opportunity; injustices of class and caste; economic exploitation at home and abroad; corruption and money and privilege occluding the arteries of democracy… Much of what appears natural today dates from the 1980s: the obsession with wealth creation, the cult of privatization and the private sector, the growing disparities of rich and poor. And above all, the rhetoric which accompanies these: uncritical admiration for unfettered markets, disdain for the public sector, the delusion of endless growth... We cannot go on living like this. The little crash of 2008 was a reminder that unregulated capitalism is its own worst enemy: sooner or later it must fall prey to its own excesses and turn again to the state for rescue. But if we do no more than pick up the pieces and carry on as before, we can look forward to greater upheavals in years to come.”

In The Price of Civilization, Joseph Stiglitz, winner of the Nobel Prize in economics, explains, “there is no such thing as a “purely” capitalist system. We have always had a mixed economy, relying on the government for investment in education, technology, and infrastructure. The most innovative and successful industries in the U.S. economy (tech and biotech) rest on foundations provided by government research. A well-functioning economy requires a balance between the public and private sectors, with essential public investments and an adequately funded system of social protection. All this requires taxation. A well-designed tax system can do more than just raise money — it can be used to improve economic efficiency and reduce inequality. Our current system does just the opposite.”

Laissez-faire economics, where government intervention is sparse if at all, repeatedly leads to depression and war, explains Michael Goodwin in Economix. “Mixed economies work so well that today pretty much every economy is a mixed economy, including the U.S. economy.”

“A generation ago, the United States was a recognizable, if somewhat more unequal, member of the cluster of affluent democracies known as mixed economies, where fast growth was widely shared. No more,” writes Jacob S. Hacker in Winner Take All Politics.

“Since around 1980, we’ve drifted away from that mixed economy cluster and traveled a considerable distance toward another – the capitalist oligarchies, like Brazil, Mexico, and Russia, with their much greater concentration of economic bounty. Of course, the United States is far richer than these oligarchic nations, but contrary to the rhetoric of inequality’s apologists, it has not grown consistently more quickly than other rich democracies that have seen little or no tilt toward winner take all. America’s runaway rewards for the affluent have not unleashed an economic miracle whose rewards have generously filtered down to the poor and middle class. Quite the opposite. Like a raging fever that announces a more serious underlying disease, rising inequality is only the clearest indicator of an economic transformation that has touched virtually every aspect of America’s standard of living. From the erosion of job security, to the declining reach of health insurance, from the rising toll of home foreclosures to the growing numbers of personal bankruptcies, from the stagnation of upward social mobility to the skyrocketing of personal debt, the American economy that has delivered so much to the fortunate has worked much less well for most Americans. And this has been true not just over the past 3 years or 13 years, but over the past 30 years.”

“The Reagan Revolution has rested on a fallacy,” writes Kleinknecht, “that somewhere in the American past shimmers a halcyon era when the masses lived happily and private enterprise flourished without interference from the dead hand of government. Ronald Reagan…a man who made crucial decisions on the advice of an astrologer, who believed in extraterrestrials, who again and again confused Hollywood images with reality, tried to take America on a journey back to a Shangri-La that never existed. The Millionaire Backers, who knew that his presidency was just a money grab by the upper class, may have chuckled to themselves at how gullibly he bought into the lines he was reading. His idea that America’s greatness would be restored only if freed from the shackles of government unleashed one of the great philosophical misadventures of modern history…reversing a seventy-year trend toward social progress. Ronald Regan set in motion a tidal wave of deregulation and privatization that has transformed the nation. A long list of calamities that have befallen deregulated industries – two stock market crashes, the California energy crisis, the Enron scandal, the savings –and-loan bailout, the Northeast blackout, the rash of bankruptcies in the airline industry, and the subprime mortgage crisis, just to name a few – all rose from Reagan’s misguided quest for free-market purism. All grew out of the evisceration of regulations that a more sensible generation of political leaders had put into place to keep market forces from making a shambles of our economy and culture. All enriched an elite business interested at the expense of ordinary Americans, without achieving what was supposed to be the goal of deregulation: a general increase in the well-being of the nation.”

“Reagan’s tax cuts, trillion-dollar defense buildup, and sweeping budget cuts impoverished wide sectors of the government. His long-running diatribe against the inefficiency of government became a self-fulfilling prophecy. The nation was left with an Internal Revenue Service that virtually stopped auditing tax returns, an Environmental Protection Agency that turned a blind eye to polluters, a Federal Trade Commission that never took action against trade abuses, and a federal Communications Commission that turned over the public airwaves to corporations,” writes Kleinknecht.

Big business stopped competing to provide good product at a good price. They competed to extract short-term profit to win Wall Street favor. They stopped competing to please the customer, but to squeeze the customer. State and local governments weren’t spared. Companies that had even created communities left to find better deals abroad.

This insistence by big business’ need to sell has become more important than our capitalist society’s need to buy. Disposable goods are one such example – the manufacturer requires you to purchase the same item repeatedly for the duration of your life. Not unlike subscription services. This explains why electronics repeatedly become obsolete. Features that could have been included in previous models are parsed out to later models. Or like clothing, designed specifically to go out of style.

Historian Charles Maier observed that we’ve shifted from an “empire of production” to an “empire of consumption.”

There’s perhaps no greater example than the bottled water industry. According to Business Insider, “The bottled water industry grossed a total of $11.8 billion on 9.7 billion gallons in 2012, making bottled water about $1.22/gallon nationwide and 300x the cost of a gallon of tap water. If we take into account the fact that almost 2/3 of all bottled water sales are single 16.9oz bottles, this cost is much, much higher: about $7.50 per gallon, according to the American Water Works Association. That’s almost 2,000x the cost of a gallon of tap water and twice the cost of a gallon of regular gasoline.”

Oh, and the world’s biggest bottled water brand, Aquafina, admits their water comes from the exact same source as public tap water. We are paying for nothing but branding.

Pulitzer Prize-winning journalist Chris Hedges points out in The World As It Is: Dispatches on the Myth of Human Progress, that “corporations, which control our politics, no longer produce products that are essentially different; what they produce are brands that are different.”

As we’ve become a society who no longer refers to ourselves as workers or citizens but consumers, we’ve convinced ourselves that privately produced consumer goods are more important than anything in the public sector. A society that freely spends $10 million on underwear now views $10 million to repair schools a waste of money. This is partly why our public sector is in a state of disrepair.

Jeffrey D. Sachs writes in The Price of Civilization, “The relentless drumbeat of consumerism into every corner of our lives has led to extreme shortsightedness, consumer addictions, and the shriveling of compassion. When we are distracted, we allow the lobbyists to run away with power that rightfully belongs to citizenry. As individuals we need to regain the balance of our own lives between work and leisure, saving and consumption, self-interest and compassion, individualism and citizenship. As a society, we need to establish the right relationship of markets, politics, and civil society to address the complex challenges of the twenty-first century.”

In Empire of Illusion: The End of Literacy and the Triumph of Spectacle, Hedges explains how “corporations have neutralized national, state, and judicial authority. The corporate state, begun under Ronald Reagan and pushed forward by every president since, has destroyed the public and private institutions that protected workers and safeguarded citizens. Only 7.8% of workers in the private sector are unionized [today]. This is about the same percentage as in the early 1900s.”

In Democracy Incorporated: Managed Democracy and the Specter of Inverted Totalitarianism, Princeton political philosopher Sheldon S. Wolin uses the term “inverted totalitarianism” to describe our current system of power.

Unlike regular old totalitarianism revolving around one leader, as in Nazi fascism or Soviet communism, inverted totalitarianism is basically a corporate state that touts democracy and patriotism while actually subverting democratic institutions. Political candidates who must raise large sums of money from corporate funds are beholden to those very firms’ lobbying when penning legislation. Corporate media controls everything we read, watch, or hear and divert our attention with celebrity gossip.

Sachs believes that “our politics will work again when we overcome three crises. The first is ideological, the mistaken belief that free markets alone can solve our economic problems. Only markets and government operating as complementary pillars of the economy can produce the prosperity and fairness that we seek. The second is institutional, involving the political role of the large corporations. We must maintain a judicious view. Our major corporations are invaluable to society as highly sophisticated organizations that manage large-scale, technologically advanced operations all over the world. Yet they have become a threat to society by using their lobbying power to dictate the terms of legislations and regulations. The license to operate as a company does not include a license to pollute our politics. The third is moral, concerning the nature of modern democracy itself. In America today, there is little systematic public deliberation, and the public’s views are rarely taken seriously in the political process. One key policy decision after another is adopted behind the backs of the public, often in direction contradiction to public opinion. We need to return to a spirit of true deliberation at all levels of society, one that re-conceives politics as honest group problem solving, grounded in mutual respect and shared values.”

We do not live - and have never lived - in a pure capitalist economy. We live in a mixed economy.

Our free market goods must meet quality standards. The reason there’s no lead in our children’s painted toys is because of the government. (Which is now the same reason that there is lead in our drinking water.)

The reason our meat isn’t tainted with salmonella is because of the FDA. Water, sanitation, and sewage is a public service. Police and firefighters are paid by the government. Electricity is supplied by a tightly regulated body. We take them for granted, but they are all socialist projects.

The question is not IF some parts of the economy should be controlled by the public, but WHICH parts, HOW, and to WHAT purpose?​

The questions are generally not framed this way because of the stakeholders.

When someone tries to demonize a public service by labeling it “socialist,” the question should be, “Who stands to lose money from this propaganda?

The answer will always be with the business class, financing conservative coffers, think tanks, and politicians.

According to Michael Goodwin: Political power goes hand in hand with economic power.

Thom Hartman reminds us that Roosevelt’s message to business was that if they made money in America within our society, using our superstructure, infrastructure, and substructure of our democracy, they are therefore answerable to our democracy.

The economy exists to serve the members of the public, not the other way around. FDR saved capitalism from itself. Reagan ushered in the era of capitalism at the expense of democracy.

It's time to redirect course.

It's time once again for the government to serve the people, not the corporation.

According to John Perkins, because of corporatocray policies and actions:

• More than half the world's population survives on less than $2 a day, and more than two billion people lack access to basic amenities, including electricity, clean water, sanitation, land titles, phones, police, and fire protection.

• Ownership of Third World wealth is more concentrated than it was before the 1970s era of massive infrastructure development and the 1990s privatization wave. In many countries, the top 1% of households now accounts for more than 90% of all private wealth.

• Transnational corporations have taken control over much of the production and commerce in developing countries. For example 40% of the world's coffee is traded by just four companies while thirty supermarket chains account for almost one-third of worldwide grocery sales. A handful of oil and other resource-extractive companies control not only the markets but also the governments of countries that possess the resources.

• The overall share of federal taxes paid by U.S. corporations is now less than 10%, down from 21% in 2001, and more than 50% during World War II.

• Of the 100 largest economies in the world, 51 are corporations. Of these, 47 are U.S.-based.

In Dog Whistle Politics, Ian Haney Lopez suggests that to ensure broad prosperity, government has four crucial roles to play:

  1. to help people weather the vicissitudes that easily plunge families into poverty, for instance job loss or ill health;

  2. to provide escalators of upward mobility, such as quality schooling, higher education, and mortgage assistance;

  3. to build the nation’s infrastructure, thus laying the groundwork for the next great economic boom;

  4. to rein in marketplace abuses through regulation, and to prevent excessive concentrations of wealth through progressive taxation."

The founders stated in the preamble to the constitution that one purpose of the government was to “promote the general welfare” of its people. FDR almost single-handedly created the Middle Class through his New Deal policies, demonstrating that government must promote the general welfare because only the government can create the conditions that make a Middle Class possible.

In essence, the government writes the rules that define the market.

The question is, do we want those rules to benefit everyone? Or only the 1%?

To be continued in Part 15: The Psychology of Ideology