|May the source be with you, but remember the KISS principle ;-)|
|Contents||Bulletin||Scripting in shell and Perl||Network troubleshooting||History||Humor|
|News||Neoliberalism as a New form of Corporatism||Super Imperialism||The Grand Chessboard||DownSouth says||Media domination strategy|
|republics warlike and unscrupulous||Empires Then and Now - PaulCraig||Disaster capitalism||Humor||Etc|
Robert B Reich, former US Secretary of Labor and resident neo-liberal in the Clinton administration from 1993 to 1997, wrote in the September 14, 2007 edition of The Wall Street Journal an opinion piece, "CEOs Deserve Their Pay", as part of an orchestrated campaign to promote his new book: Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (Afred A Knopf).
Reich is a former Harvard professor and the former Maurice B Hexter Professor of Social and Economic Policy at the Heller School for Social Policy and Management at Brandeis University. He is currently a professor at the Goldman School of Public Policy at the University of California (Berkley) and a regular liberal gadfly in the unabashed supply-side Larry Kudlow TV show that celebrates the merits of capitalism.
Reich's Supercapitalism brings to mind Michael Hudson's Super Imperialism: The Economic Strategy of American Empire (1972-2003). While Reich, a liberal turned neo-liberal, sees "supercapitalism" as the natural evolution of insatiable shareholder appetite for gain, a polite euphemism for greed, that cannot or should not be reined in by regulation, Hudson, a Marxist heterodox economist, sees "super imperialism" as the structural outcome of post-World War II superpower geopolitics, with state interests overwhelming free market forces, making regulation irrelevant. While Hudson is critical of "super imperialism" and thinks that it should be resisted by the weaker trading partners of the US, Reich gives the impression of being ambivalent about the inevitability, if not the benignity, of "supercapitalism".
The structural link between capitalism and imperialism was first observed by John Atkinson Hobson (1858-1940), an English economist, who wrote in 1902 an insightful analysis of the economic basis of imperialism. Hobson provided a humanist critique of neoclassical economics, rejecting exclusively materialistic definitions of value. With Albert Frederick Mummery (1855-1895), the great British mountaineer who was killed in 1895 by an avalanche while reconnoitering Nanga Parbat, an 8,000-meter Himalayan peak, Hobson wrote The Physiology of Industry (1889), which argued that an industrial economy requires government intervention to maintain stability, and developed the theory of over-saving that was given a glowing tribute by John Maynard Keynes three decades later.
The need for governmental intervention to stabilize an expanding national industrial economy was the rationale for political imperialism. On the other side of the coin, protectionism was a governmental counter-intervention on the part of weak trading partners for resisting imperialist expansion of the dominant power. Historically, the processes of globalization have always been the result of active state policy and action, as opposed to the mere passive surrender of state sovereignty to market forces. Market forces cannot operate in a vacuum. They are governed by man-made rules. Globalized markets require the acceptance by local authorities of established rules of the dominant economy. Currency monopoly of course is the most fundamental trade restraint by one single dominant government.
Adam Smith published Wealth of Nations in 1776, the year of US independence. By the time the constitution was framed 11 years later, the US founding fathers were deeply influenced by Smith's ideas, which constituted a reasoned abhorrence of trade monopoly and government policy in restricting trade. What Smith abhorred most was a policy known as mercantilism, which was practiced by all the major powers of the time. It is necessary to bear in mind that Smith's notion of the limitation of government action was exclusively related to mercantilist issues of trade restraint. Smith never advocated government tolerance of trade restraint, whether by big business monopolies or by other governments in the name of open markets.
A central aim of mercantilism was to ensure that a nation's exports remained higher in value than its imports, the surplus in that era being paid only in specie money (gold-backed as opposed to fiat money). This trade surplus in gold permitted the surplus country, such as England, to invest in more factories at home to manufacture more for export, thus bringing home more gold. The importing regions, such as the American colonies, not only found the gold reserves backing their currency depleted, causing free-fall devaluation (not unlike that faced today by many emerging-economy currencies), but also wanting in surplus capital for building factories to produce for domestic consumption and export. So despite plentiful iron ore in America, only pig iron was exported to England in return for English finished iron goods. The situation was similar to today's oil producing countries where despite plentiful crude oil, refined petrochemical products such as gasoline and heating oil have to be imported.
In 1795, when the newly independent Americans began finally to wake up to their disadvantaged trade relationship and began to raise European (mostly French and Dutch) capital to start a manufacturing industry, England decreed the Iron Act, forbidding the manufacture of iron goods in its American colonies, which caused great dissatisfaction among the prospering colonials.
Smith favored an opposite government policy toward promoting domestic economic production and free foreign trade for the weaker traders, a policy that came to be known as "laissez faire" (because the English, having nothing to do with such heretical ideas, refuse to give it an English name). Laissez faire, notwithstanding its literal meaning of "leave alone", meant nothing of the sort. It meant an activist government policy to counteract mercantilism. Neo-liberal free-market economists are just bad historians, among their other defective characteristics, when they propagandize "laissez faire" as no government interference in trade affairs.
Friedrich List, in his National System of Political Economy (1841), asserts that political economy as espoused in England, far from being a valid science universally, was merely British national opinion, suited only to English historical conditions. List's institutional school of economics asserts that the doctrine of free trade was devised to keep England rich and powerful at the expense of its trading partners and it must be fought with protective tariffs and other protective devices of economic nationalism by the weaker countries.
Henry Clay's "American system" was a national system of political economy. US neo-imperialism in the post WWII period disingenuously promotes neo-liberal free-trade against governmental protectionism to keep the US rich and powerful at the expense of its trading partners. Before the October Revolution of 1917, many national liberation movements in European colonies and semi-colonies around the world were influenced by List's economic nationalism. The 1911 Nationalist Revolution in China, led by Sun Yat-sen, was heavily influenced by Lincoln's political ideas - government of the people, by the people and for the people - and the economic nationalism of List, until after the October Revolution when Sun realized that the Soviet model was the correct path to national revival.
Hobson's magnum opus, Imperialism, (1902), argues that imperialistic expansion is driven not by state hubris, known in US history as "manifest destiny", but by an innate quest for new markets and investment opportunities overseas for excess capital formed by over-saving at home for the benefit of the home state. Over-saving during the industrial age came from Richardo's theory of the iron law of wages, according to which wages were kept perpetually at subsistence levels as a result of uneven market power between capital and labor. Today, job outsourcing that returns as low-price imports contributes to the iron law of wages in the US domestic economy. (See my article Organization of Labor Exporting Countries [OLEC]).
Hobson's analysis of the phenology (study of life cycles) of capitalism was drawn upon by Lenin to formulate a theory of imperialism as an advanced stage of capitalism: "Imperialism is capitalism at that stage of development at which the dominance of monopolies and finance capitalism is established; in which the export of capital has acquired pronounced importance; in which the division of the world among the international trusts has begun, in which the division of all territories of the globe among the biggest capitalist powers has been completed." (Vladimir Ilyich Lenin, 1916, Imperialism, the Highest Stage of Capitalism, Chapter 7).
Lenin was also influenced by Rosa Luxemberg, who three year earlier had written her major work, The Accumulation of Capital: A Contribution to an Economic Explanation of Imperialism (Die Akkumulation des Kapitals: Ein Beitrag zur ökonomischen Erklärung des Imperialismus), 1913). Luxemberg, together with Karl Liebknecht a founding leader of the Spartacist League (Spartakusbund), a radical Marxist revolutionary movement that later renamed itself the Communist Party of Germany (Kommunistische Partei Deutschlands, or KPD), was murdered on January 15, 1919 by members of the Freikorps, rightwing militarists who were the forerunners of the Nazi Sturmabteilung (SA) led by Ernst Rohm.
The congenital association between capitalism and imperialism requires practically all truly anti-imperialist movements the world over to be also anti-capitalist. To this day, most nationalist capitalists in emerging economies are unwitting neo-compradors for super imperialism. Neo-liberalism, in its attempts to break down all national boundaries to facilitate global trade denominated in fiat dollars, is the ideology of super imperialism.
Hudson, the American heterodox economist, historian of ancient economies and post-WW II international balance-of-payments specialist, advanced in his 1972 book the notion of 20th century super imperialism. Hudson updated Hobson's idea of 19th century imperialism of state industrial policy seeking new markets to invest home-grown excess capital. To Hudson, super imperialism is a state financial strategy to export debt denominated in the state's fiat currency as capital to the new financial colonies to finance the global expansion of a superpower empire. No necessity, or even intention, was entertained by the superpower of ever having to pay off these paper debts after the US dollar was taken off gold in 1971.
Super imperialism transformed into monetary imperialism after the 1973 Middle East oil crisis with the creation of the petrodollar and two decades later emerged as dollar hegemony through financial globalization after 1993. As described in my 2002 AToL article, Dollar hegemony has to go, a geopolitical phenomenon emerged after the 1973 oil crisis in which the US dollar, a fiat currency since 1971, continues to serve as the primary reserve currency for international trade because oil continues to be denominated in fiat dollars as a result of superpower geopolitics, leading to dollar hegemony in 1993 with the globalization of deregulated financial markets.
Three causal developments allowed dollar hegemony to emerge over a span of two decades after 1973 and finally take hold in 1993. US fiscal deficits from overseas spending since the 1950s caused a massive drain in US gold holdings, forcing the US in 1971 to abandon the 1945 Bretton Woods regime of fixed exchange rate based on a gold-backed dollar. Under that international financial architecture, cross-border flow of funds was not considered necessary or desirable for promoting international trade or domestic development. The collapse of the 1945 Bretton Woods regime in 1971 was the initial development toward dollar hegemony.
The second development was the denomination of oil in dollars after the 1973 Middle East oil crisis. The emergence of petrodollars was the price the US, still only one of two contending superpowers in 1973, extracted from defenseless oil-producing nations for allowing them to nationalize the Western-owned oil industry on their soil. As long as oil transactions are denominated in fiat dollars, the US essentially controls all the oil in the world financially regardless of specific ownership, reducing all oil producing nations to the status of commodity agents of dollar hegemony.
The third development was the global deregulation of financial markets after the Cold War, making cross-border flow of funds routine, and a general relaxation of capital and foreign exchange control by most governments involved in international trade. This neo-liberal trade regime brought into existence a foreign exchange market in which free-floating exchange rates made computerized speculative attacks on weak currencies a regular occurrence. These three developments permitted the emergence of dollar hegemony after 1994 and helped the US win the Cold War with financial power derived from fiat money.
Dollar hegemony advanced super imperialism one stage further from the financial to the monetary front. Industrial imperialism sought to achieve a trade surplus by exporting manufactured good to the colonies for gold to fund investment for more productive plants at home. Super imperialism sought to extract real wealth from the colonies by paying for it with fiat dollars to sustain a balance of payments out of an imbalance in the exchange of commodities. Monetary imperialism under dollar hegemony exports debt denominated in fiat dollars through a permissive trade deficit with the new colonies, only to re-import the debt back to the US as capital account surplus to finance the US debt bubble.
The circular recycling of dollar-denominated debt was made operative by the dollar, a fiat currency that only the US can print at will, continuing as the world's prime reserve currency for international trade and finance, backed by US geopolitical superpower. Dollars are accepted universally because oil is denominated in dollars and everyone needs oil and thus needs dollars to buy oil. Any nation that seeks to denominate key commodities, such as oil, in currencies other than the dollar will soon find itself invaded by the sole superpower. Thus the war on Iraq is not about oil, as former Federal Reserve chairman Alan Greenspan suggested recently. It is about keeping oil denominated in dollars to protect dollar hegemony. The difference is subtle but of essential importance.
Since 1993, central banks of all trading nations around the world, with the exception of the US Federal Reserve, have been forced to hold more dollar reserves than they otherwise need to ward off the potential of sudden speculative attacks on their currencies in unregulated global financial markets. Thus "dollar hegemony" prevents the exporting nations, such as the Asian Tigers, from spending domestically the dollars they earn from the US trade deficit and forces them to fund the US capital account surplus, shipping real wealth to the US in exchange for the privilege of financing further growth of the US debt economy.
Not only do these exporting nations have to compete by keeping their domestic wages down and by prostituting their environment, the dollars that they earn cannot be spent at home without causing a monetary crisis in their own currencies because the dollars they earn have to be exchanged into local currencies before they can be spent domestically, causing an excessive rise in their domestic money supply which in turn causes domestic inflation-pushed bubbles. While the trade-surplus nations are forced to lend their export earnings back to the US, these same nations are starved for capital, as global capital denominated in dollars will only invest in their export sectors to earn more dollars. The domestic sector with local currency earnings remains of little interest to global capital denominated in dollars. As a result, domestic development stagnates for lack of capital.
Dollar hegemony permits the US to transform itself from a competitor in world markets to earn hard money, to a fiat-money-making monopoly with fiat dollars that only it can print at will. Every other trading nation has to exchange low-wage goods for dollars that the US alone can print freely and that can be spent only in the dollar economy without monetary penalty.
Japan is a classic victim of monetary imperialism. In 1990, as a result of Japanese export prowess, the Industrial Bank of Japan was the largest bank in the world, with a market capitalization of $57 billion. The top nine of the 10 largest banks then were all Japanese, trailed by Canadian Alliance in 10th place. No US bank made the top-10 list. By 2001, the effects of dollar hegemony have pushed Citigroup into first place with a market capitalization of $260 billion. Seven of the top 10 largest financial institutions in the world in 2001 were US-based, with descending ranking in market capitalization: Citigroup ($260 billion), AIG ($209 billion), HSBC (British-$110 billion), Berkshire Hathaway ($100 billion), Bank of America ($99 billion), Fanny Mae ($80 billion), Wells Fargo ($74 billion), JP Morgan Chase ($72 billion), RBS (British-$70 billion) and UBS (Swiss-$67 billion). No Japanese bank survived on the list.
China is a neoclassic case of dollar hegemony victimization even though its domestic financial markets are still not open and the yuan is still not freely convertible. With over $1.4 trillion in foreign exchange reserves earned at a previously lower fixed exchange rate of 8.2 to a dollar set in 1985, now growing at the rate of $1 billion a day at a narrow-range floating exchange rate of around 7.5 since July 2005, China cannot spend much of it dollar holdings on domestic development without domestic inflation caused by excessive expansion of its yuan money supply. The Chinese economy is overheating because the bulk of its surplus revenue is in dollars from exports that cannot be spent inside China without monetary penalty. Chinese wages are too low to absorb sudden expansion of yuan money supply to develop the domestic economy. And with over $1.4 trillion in foreign exchange reserves, equal to its annual GDP, China cannot even divest from the dollar without having the market effect of a falling dollar moving against its remaining holdings.
The People's Bank of China announced on July 20, 2005 that effective immediately the yuan exchange rate would go up by 2.1% to 8.11 yuan to the US dollar and that China would drop the dollar peg to its currency. In its place, China would move to a "managed float" of the yuan, pegging the currency's exchange value to an undisclosed basket of currencies linked to its global trade. In an effort to limit the amount of volatility, China would not allow the currency to fluctuate by more than 0.3% in any one trading day. Linking the yuan to a basket of currencies means China's currency is relatively free from market forces acting on the dollar, shifting to market forces acting on a basket of currencies of China's key trading partners. The basket is composed of the euro, yen and other Asian currencies as well as the dollar. Though the precise composition of the basket was not disclosed, it can nevertheless be deduced by China's trade volume with key trading partners and by mathematical calculation from the set-daily exchange rate.
Thus China is trapped in a trade regime operating on an international monetary architecture in which it must continue to export real wealth in the form of underpaid labor and polluted environment in exchange for dollars that it must reinvest in the US. Ironically, the recent rise of anti-trade sentiment in US domestic politics offers China a convenient, opportune escape from dollar hegemony to reduce its dependence on export to concentrate on domestic development. Chinese domestic special interest groups in the export sector would otherwise oppose any policy to slow the growth in export if not for the rise of US protectionism which causes shot-term pain for China but long-term benefit in China's need to restructure its economy toward domestic development. Further trade surplus denominated in dollar is of no advantage to China.
Even as the domestic US economy declined after the onset of globalization in the early 1990s, US dominance in global finance has continued to this day on account of dollar hegemony. It should not be surprising that the nation that can print at will the world's reserve currency for international trade should come up on top in deregulated global financial markets. The so-called emerging markets around the world are the new colonies of monetary imperialism in a global neo-liberal trading regime operating under dollar hegemony geopolitically dominated by the US as the world's sole remaining superpower.
In Supercapitalism, Reich identifies corporate social responsibility as a diversion from economic efficiency and an un-capitalistic illusion. Of course the late Milton Friedman had asserted that the only social responsibility of corporations is to maximize profit, rather than to generate economic well-being and balanced growth through fair profits. There is ample evidence to suggest that a single-minded quest for maximizing global corporate profit can lead to domestic economic decline in even the world's sole remaining superpower. The US public is encouraged to blame such decline on the misbehaving trading partners of the US rather than US trade policy that permits US transnational corporation to exploit workers in all trading nations, including those in the US. It is a policy that devalues work by over-rewarding financial manipulation.
Yet to Reich, the US corporate income tax is regressive and inequitable and should be abolished so that after-tax corporate profit can be even further enhanced. This pro-profit position is at odds with even rising US Republican sentiment against transnational corporations and their global trade strategies. Reich also thinks the concept of corporate criminal liability is based on an "anthropomorphic fallacy" that ends up hurting innocent people. Reich sees as inevitable an evolutionary path towards an allegedly perfect new world of a super-energetic capitalism responding to the dictate of all-powerful consumer preference through market democracy.
Reich argues that corporations cannot be expected to be more "socially responsible" than their shareholders or even their consumers, and he implies that consumer preference and behavior are the proper and effective police forces that supersede the need for market regulation. He sees corporations, while viewed by law as "legal persons", as merely value-neutral institutional respondents of consumer preferences in global markets. Reich claims that corporate policies, strategies and behavior in market capitalism are effectively governed by consumer preferences and need no regulation by government. This is essentially the ideology of neo-liberalism.
Yet US transnational corporations derive profit from global operations serving global consumers to maximize return on global capital. These transnational corporations will seek to shift production to where labor is cheapest and environmental standards are lowest and to market their products where prices are highest and consumer purchasing power the strongest. Often, these corporations find it more profitable to sell products they themselves do not make, controlling only design and marketing, leaving the dirty side of manufacturing to others with underdeveloped market power. This means if the US wants a trade surplus under the current terms of trade, it must lower it wages. The decoupling of consumers from producers weakens the conventional effects of market pressure on corporate social responsibility. Transnational corporations have no home community loyalty. Consumers generally do not care about sweat shop conditions overseas while overseas workers do not care about product safety on goods they produce but cannot afford to buy. Products may be made in China, but they are not made by China, but by US transnational corporations which are responsible for the quality and safety of their products.
Further, it is well recognized that corporations routinely and effectively manipulate consumer preference and market acceptance often through if not false, at least misleading advertising, not for the benefit of consumers, but to maximize return on faceless capital raised from global capital markets. The subliminal emphasis by the corporate culture on addictive acquisition of material things, coupled with a structural deprivation of adequate income to satisfy the manipulated desires, has made consumers less satisfied than in previous times of less material abundance. Corporations have been allowed to imbed consumption-urging messages into every aspect of modern life. The result is a disposable culture with packaged waste, an obesity crisis for all age groups, skyrocketing consumer debt, the privatization of public utilities that demand the same fee for basic services from rich and poor alike, causing a sharp disparity in affordability. It is a phenomenon described by Karl Marx as "Fetishism of Commodities".
Marx wrote in Das Kapital:
The relation of the producers to the sum total of their own labor is presented to them as a social relation, existing not between themselves, but between the products of their labor. This is the reason why the products of labor become commodities, social things whose qualities are at the same time perceptible and imperceptible by the senses … The existence of the things qua commodities, and the value relation between the products of labor which stamps them as commodities, have absolutely no connection with their physical properties and with the material relations arising therefrom. It is a definite social relation between men that assumes, in their eyes, the fantastic form of a relation between things. In order, therefore, to find an analogy, we must have recourse to the mist-enveloped regions of the religious world. In that world, the productions of the human brain appear as independent beings endowed with life, and entering into relation both with one another and the human race. So it is in the world of commodities with the products of men's hands. This I call the Fetishism which attaches itself to the products of labor, as soon as they are produced as commodities, and which is therefore inseparable from the production of commodities. This Fetishism of Commodities has its origin … in the peculiar social character of the labor that produces them.Marx asserts that "the mystical character of commodities does not originate in their use-value" (Section 1, p 71). Market value is derived from social relations, not from use-value which is a material phenomenon. Thus Marx critiques the Marginal Utility Theory by pointing out that market value is affected by social relationships. For example, the marginal utility of door locks is a function of the burglary rate in a neighborhood which in turn is a function of the unemployment rate. Unregulated free markets are a regime of uninhibited price gouging by monopolies and cartels.
Thus the nature of money cannot be adequately explained even in terms of the material-technical properties of gold, but only in terms of the factors behind man's desire and need for gold. Similarly, it is not possible to fully understand the price of capital from the technical nature of the means of production, but only from the social institution of private ownership and the terms of exchange imposed by uneven market power. Market capitalism is a social institution based on the fetishism of commodities.
While Reich is on target in warning about the danger to democracy posed by the corporate state, and in claiming that only people can be citizens, and only citizens should participate in democratic decision making, he misses the point that transnational corporations have transcended national boundaries. Yet in each community that these transnational corporations operate, they have the congenital incentive, the financial means and the legal mandate to manipulate the fetishism of commodities even in distant lands.
Moreover, representative democracy as practiced in the US is increasingly manipulated by corporate lobbying funded from high-profit-driven corporate financial resources derived from foreign sources controlled by management. Corporate governance is notoriously abusive of minority shareholder rights on the part of management. Notwithstanding Reich's rationalization of excessive CEO compensation, CEOs as a class are the most vocal proponents of corporate statehood. Modern corporations are securely insulated from any serious threats from consumer revolt. Inter-corporate competition presents only superficial and trivial choices for consumers. Motorists have never been offered any real choice on gasoline by oil companies or alternatives on the gasoline-guzzling internal combustion engine by car-makers.
Reich asserts in his Wall Street Journal piece that modern CEOs in finance capitalism nowadays deserve their high pay because they have to be superstars, unlike their bureaucrat-like predecessors during industrial capitalism. Notwithstanding that one would expect a former labor secretary to argue that workers deserve higher pay, the challenge to corporate leadership in market capitalism has always been and will always remain management's ruthless pursuit of market leadership power, a euphemism for monopoly, by skirting the rule of law and regulations, framing legislative regimes through political lobbying, pushing down wages and worker benefits, increasing productivity by downsizing in an expanding market and manipulating consumer attitude through advertising. At the end of the day, the bottom line for corporate profit is a factor of lowering wage and benefit levels.
Reich seems to have forgotten that the captains of industry of 19th century free-wheeling capitalism were all superstars who evoked public admiration by manipulating the awed public into accepting the Horatio Alger myth of success through hard work, honesty and fairness. The derogatory term "robber barons" was first coined by protest pamphlets circulated by victimized Kansas farmers against ruthless railroad tycoons during the Great Depression.
The manipulation of the public will by moneyed interests is the most problematic vulnerability of US economic and political democracy. In an era when class warfare has taken on new sophistication, the accusation of resorting to class warfare argument is widely used to silence legitimate socio-economic protests. The US media is essentially owned by the moneyed interests. The decline of unionism in the US has been largely the result of anti-labor propaganda campaigns funded by corporations and government policies influenced by corporate lobbyists. The infiltration of organized crime was exploited to fan public anti-union sentiments while widespread corporate white collar crimes were dismissed as mere anomalies. (See Capitalism's bad apples: It's the barrel that's rotten)
As promoted by his permissive opinion piece, a more apt title for Reich's new book would be Superman Capitalism, in praise of the super-heroic qualities of successful corporate CEOs who deserve superstar pay. This view goes beyond even fascist superman ideology. The compensation of corporate CEOs in Nazi Germany never reached such obscene levels as those in US corporate land today.
Reich argues that CEOs deserve their super-high compensation, which has increased 600% in two decades, because corporate profits have also risen 600% in the same period. The former secretary of labor did not point out that wages rose only 30% in the same period. The profit/wage disparity is a growing cancer in the US-dominated global economy, causing over-production resulting from stagnant demand caused by inadequate wages. A true spokesman for labor would point out that enlightened modern management recognizes that the performance of a corporation is the sum total of effective team work between management and labor.
System analysis has long shown that collective effort on the part of the entire work force is indispensable to success in any complex organism. Further, a healthy consumer market depends on a balance between corporate earnings and worker earnings. Reich's point would be valid if US wages had risen by the same multiple as CEO pay and corporate profit, but he apparently thought that it would be poor etiquette to raise embarrassing issues as a guest writer in an innately anti-labor journal of Wall Street. Even then, unless real growth also rose 600% in two decades, the rise in corporate earning may be just an inflation bubble.
To be fair, Reich did address the income gap issue eight months earlier in another article, "An Introduction to Economic Populism" in the Jan-Feb, 2007 issue of The American Prospect, a magazine that bills itself as devoted to "liberal ideas". In that article, Reich relates a "philosophical" discussion he had with fellow neo-liberal cabinet member Robert Rubin, then treasury secretary under Bill Clinton, on two "simple questions".
The first question was: Suppose a proposed policy will increase the incomes of some people without decreasing the incomes of any others. Of course Reich must know that it is a question of welfare economics long ago answered by the "pareto optimum", which asserts that resources are optimally distributed when an individual cannot move into a better position without putting someone else into a worse position. In an unjust society, the pareto optimum will perpetuate injustice in the name of optimum resource allocation. "Should it be implemented? Bob and I agreed it should," writes Reich. Not exactly an earth-shaking liberal position. Rather, it is a classic neo-liberal posture.
And the second question: But suppose the people whose incomes will rise are already wealthier than everyone else. Although no one will lose ground, inequality will widen. Should it still be implemented? "I won't tell you where he and I came out on that second question," writes Reich without explaining why. He allows that "we agreed that people who don't share in such gains feel relatively poorer. Widening inequality also further tips the balance of political power in favor of the wealthy."
Of course, clear thinking would have left the second question mute because it would have invalidated the first question, as the real income of those whose nominal income has not fallen has indeed fallen relative to those whose nominal income has risen. In a macro monetary sense, it is not possible to raise the nominal income of some without lowering the real income of others. All incomes must rise together proportionally or inequality in after-inflation real income will increase.
But for the sake of argument, let's go along with Reich's parable on welfare economics and financial equality. That conversation occurred a decade ago. Reich says in his January 2007 article that "inequality is far more worrisome now", as if it had not been or that the policies he and his colleagues in the Clinton administration, as evidenced by their answer to their own first question, did not cause the now "more worrisome" inequality. "The incomes of the bottom 90% of Americans have increased about 2% in real terms since then, while that of the top 1% has increased over 50%," Reich wrote in the matter of fact tone of an innocent bystander.
It is surprising that a former labor secretary would err even on the record on worker income. The US Internal Revenue Service reports that while incomes have been rising since 2002, the average income in 2005 was $55,238, nearly 1% less than in 2000 after adjusting for inflation. Hourly wage costs (including mandatory welfare contributions and benefits) grew more slowly than hourly productivity from 1993 to late 1997, the years of Reich's tenure as labor secretary. Corporate profit rose until 1997 before declining, meaning what should have gone to workers from productivity improvements went instead to corporate profits. And corporate profit declined after 1997 because of the Asian financial crisis, which reduced offshore income for all transnational companies, while domestic purchasing power remained weak because of sub-par worker income growth.
The break in trends in wages occurred when the unemployment rate sank to 5%, below the 6% threshold of NAIRU (non-accelerating inflation rate of unemployment) as job creation was robust from 1993 onwards. The "reserve army of labor" in the war against inflation disappeared after the 1997 Asian crisis when the Federal Reserve injected liquidity into the US banking system to launch the debt bubble. According to NAIRU, when more than 94% of the labor force is employed, the war on wage-pushed inflation will be on the defensive. Yet while US inflation was held down by low-price imports from low-wage economies, US domestic wages fell behind productivity growth from 1993 onward. US wages could have risen without inflationary effects but did not because of the threat of further outsourcing of US jobs overseas. This caused corporate profit to rise at the expense of labor income during the low-inflation debt bubble years.
Income inequality in the US today has reached extremes not seen since the 1920s, but the trend started three decades earlier. More than $1 trillion a year in relative income is now being shifted annually from roughly 90,000,000 middle and working class families to the wealthiest households and corporations via corporate profits earned from low-wage workers overseas. This is why nearly 60% of Republicans polled support more taxes on the rich.
The policies and practices responsible for today's widening income gap date back to the 1977-1981 period of the Carter administration which is justly known as the administration of deregulation. Carter's deregulation was done in the name of populism but the results were largely anti-populist. Starting with Carter, policies and practices by both corporations and government underwent a fundamental shift to restructure the US economy with an overhaul of job markets. This was achieved through widespread de-unionization, breakup of industry-wide collective bargaining which enabled management to exploit a new international division of labor at the expense of domestic workers.
The frontal assault on worker collective bargaining power was accompanied by a realigning of the progressive federal tax structure to cut taxes on the rich, a brutal neo-liberal global free-trade offensive by transnational corporations and anti-labor government trade policies. The cost shifting of health care and pension plans from corporations to workers was condoned by government policy. A wave of government-assisted compression of wages and overtime pay narrowed the wage gap between the lowest and highest paid workers (which will occur when lower-paid workers receive a relatively larger wage increase than the higher-paid workers with all workers receiving lower pay increases than managers). There was a recurring diversion of inflation-driven social security fund surpluses to the US fiscal budget to offset recurring inflation-adjusted federal deficits. This was accompanied by wholesale anti-trust deregulation and privatization of public sectors; and most egregious of all, financial market deregulation.
Carter deregulated the US oil industry four years after the 1973 oil crisis in the name of national security. His Democratic challenger, Senator Ted Kennedy, advocated outright nationalization. The Carter administration also deregulated the airlines, favoring profitable hub traffic at the expense of traffic to smaller cities. Air fares fell but service fell further. Delays became routine, frequently tripling door-to-door travel time. What consumers save in airfare, they pay dearly in time lost in delay and in in-flight discomfort. The Carter administration also deregulated trucking, which caused the Teamsters Union to support Ronald Reagan in exchange for a promise to delay trucking deregulation.
Railroads were also deregulated by Railroad Revitalization and Regulatory Reform Act of 1976 which eased regulations on rates, line abandonment, and mergers to allow the industry to compete with truck and barge transportation that had caused a financial and physical deterioration of the national rail network railroads. Four years later, Congress followed up with the Staggers Rail Act of 1980 which provided the railroads with greater pricing freedom, streamlined merger timetables, expedited the line abandonment process, and allowed confidential contracts with shippers. Although railroads, like other modes of transportation, must purchase and maintain their own rolling stock and locomotives, they must also, unlike competing modes, construct and maintain their own roadbed, tracks, terminals, and related facilities. Highway construction and maintenance are paid for by gasoline taxes. In the regulated environment, recovering these fixed costs hindered profitability for the rail industry.
After deregulation, the railroads sought to enhance their financial situation and improve their operational efficiency with a mix of strategies to reduce cost and maximize profit, rather than providing needed service to passengers around the nation. These strategies included network rationalization by shedding unprofitable capacity, raising equipment and operational efficiencies by new work rules that reduced safety margins and union power, using differential pricing to favor big shippers, and pursuing consolidation, reducing the number of rail companies from 65 to 5 today. The consequence was a significant increase of market power for the merged rail companies, decreasing transportation options for consumers and increasing rates for remote, less dense areas.
In the agricultural sector, rail network rationalization has forced shippers to truck their bulk commodity products greater distances to mainline elevators, resulting in greater pressure on and damage to rural road systems. For inter-modal shippers, profit-based network rationalization has meant reduced access - physically and economically - to Container on Flat Car (COFC) and Trailer on Flat Car (TOFC) facilities and services. Rail deregulation, as is true with most transportation and communication deregulation, produces sector sub-optimization with dubious benefits for the national economy by distorting distributional balance, causing congestion and inefficient use of land, network and lines.
Carter's Federal Communications Commission's (FCC) approach to radio and television regulation began in the mid-1970s as a search for relatively minor "regulatory underbrush" that could be cleared away for more efficient and cost-effective administration of the important rules that would remain. Congress largely went along with this updating trend, and initiated a few deregulatory moves of its own to make regulation more effective and responsive to contemporary conditions.
The Reagan administration under Federal Communications Commission (FCC) chairman Mark Fowler in 1981 shifted deregulation to a fundamental and ideologically-driven reappraisal of regulations away from long-held principles central to national broadcasting policy appropriate for a democratic society. The result was removal of many longstanding rules to permit an overall reduction in FCC oversight of station ownership concentration and network operations. Congress grew increasingly wary of the pace of deregulation, however, and began to slow the pace of FCC deregulation by the late 1980s.
Specific deregulatory moves included (a) extending television licenses to five years from three in 1981; (b) expanding the number of television stations any single entity could own from seven in 1981 to 12 in 1985, with further changes in 1995; (c) abolishing guidelines for minimal amounts of non-entertainment programming in 1985; (d) elimination of the Fairness Doctrine in 1987; (e) dropping, in 1985, FCC license guidelines for how much advertising could be carried; (f) leaving technical standards increasingly in the hands of licensees rather than FCC mandates; and (g) deregulation of television's competition, especially cable which went through several regulatory changes in the decade after 1983.
The 1996 Telecommunications Act eliminated the 40-station ownership cap on radio stations. Since then, the radio industry has experienced unprecedented consolidation. In June 2003, the FCC voted to overhaul limits on media ownership. Despite having held only one hearing on the complex issue of media consolidation over a 20-month review period, the FCC, in a party-line vote, voted 3-2 to overhaul limits on media concentration. The rule would (1) increase the aggregate television ownership cap to enable one company to own stations reaching 45% of our nation's homes (from 35%), (2) lift the ban on newspaper-television cross-ownership, and (3) allow a single company to own three television stations in large media markets and two in medium ones. In the largest markets, the rule would allow a single company to own up to three television stations, eight radio stations, the cable television system, cable television stations, and a daily newspaper. A wide range of public-interest groups filed an appeal with the Third Circuit, which stayed the effective date of the new rules.
According to a BIA Financial Network report released in July 2006, a total of 88 television stations had been sold in the first six months of 2006, generating a transaction value of $15.7 billion. In 2005, the same period saw the sale of just 21 stations at a value of $244 million, with total year transactions of $2.86 billion.
Congress passed a law in 2004 that forbids any network to own a group of stations that reaches more than 39% of the national television audience. That is lower than the 45% limit set in 2003, but more than the original cap of 35% set in 1996 under the Clinton administration - leading public interest groups to argue that the proposed limits lead to a stifling of local voices.
Newspaper-television cross-ownership remains a contentious issue. Currently prohibited, it refers to the "common ownership of a full-service broadcast station and a daily newspaper when the broadcast station's area of coverage (or "contour") encompasses the newspaper's city of publication".
Capping of local radio and television ownership is another issue. While the original rule prohibited it, currently a company can own at least one television and one radio station in a market. In larger markets, "a single entity may own additional radio stations depending on the number of other independently owned media outlets in the market".
Most broadcasters and newspaper publishers are lobbying to ease or end restrictions on cross-ownership; they say it has to be the future of the news business. It allows newsgathering costs to be spread across platforms, and delivers multiple revenue streams in turn. Their argument is also tied to a rapidly changing media consumption market, and to the diversity of opinions available to the consumer with the rise of the Internet and other digital platforms.
The arguments against relaxing media ownership regulations are put forth by consumer unions and other interest groups on the ground that consolidation in any form inevitably leads to a lack of diversity of opinion. Cross-ownership limits the choices for consumers, inhibits localism and gives excessive media power to one entity.
Professional and workers' guilds of the communication industry (the Screen Actors Guild and American Federation of TV and Radio Artists among others) would like the FCC to keep in mind the independent voice, and want a quarter of all prime-time programming to come from independent producers. The Children's Media Policy Coalition suggested that the FCC limit local broadcasters to a single license per market, so that there is enough original programming for children. Other interest groups like the National Association of Black Owned Broadcasters are worried about what impact the rules might have on station ownership by minorities.
Deregulatory proponents see station licensees not as "public trustees" of the public airwaves requiring the provision of a wide variety of services to many different listening groups. Instead, broadcasting has been increasingly seen as just another business operating in a commercial marketplace which did not need its management decisions questioned by government overseers, even though they are granted permission to use public airways. Opponents argue that deregulation violates a key mandate of the Communications Act of 1934 which requires licensees to operate in the public interest. Deregulation allows broadcasters to seek profits with little public service programming.
The Telecommunications Act of 1996 was the first major overhaul of US telecommunications law in nearly 62 years, amending the Communications Act of 1934, and leading to media consolidation. It was approved by Congress on January 3, 1996 and signed into law on February 8, 1996 by President Clinton, a Democrat whom some have labeled as the best president the Republicans ever had. The act claimed to foster competition, but instead it continued the historic industry consolidation begun by Reagan, whose actions reduced the number of major media companies from around 50 in 1983 to 10 in 1996 and 6 in 2005.
The Carter administration increased the power of the Federal Reserve through the Depository Institutions and Monetary Control Act (DIDMCA) of 1980 which was a necessary first step in ending the New Deal restrictions placed upon financial institutions, such as Regulation Q put in place by the Glass-Steagall Act of 1933 and other restrictions on banks and financial institutions. The populist Regulation Q imposed limits and ceilings on bank and savings-and-loan (S&L) interest rates to provide funds for low-risk home mortgages. But with financial market deregulation, Regulation Q created incentives for US banks to do business outside the reach of US law, launching finance globalization. London came to dominate this offshore dollar business.
The populist Regulation Q, which regulated for several decades limits and ceilings on bank and S&L interest to serve the home mortgage sector, was phased out completely in March 1986. Banks were allowed to pay interest on checking account - the NOW accounts - to lure depositors back from the money markets. The traditional interest-rate advantage of the S&Ls was removed, to provide a "level playing field", forcing them to take the same risks as commercial banks to survive. Congress also lifted restrictions on S&Ls' commercial lending, which promptly got the whole industry into trouble that would soon required an unprecedented government bailout of depositors, with tax money. But the developers who made billions from easy credit were allowed to keep their profits. State usury laws were unilaterally suspended by an act of Congress in a flagrant intrusion on state rights. Carter, the well-intentioned populist, left a legacy of anti-populist policies. To this day, Greenspan continues to argue disingenuously that subprime mortgages helped the poor toward home ownership, instead of generating obscene profit for the debt securitization industry.
During the Reagan administration, corporate lobbying and electoral strategies allowed the corporate elite to wrest control of the Republican Party, the party of Lincoln, from conservative populists. In the late 1980s, supply-side economics was promoted to allow corporate interests to dominate US politics at the expense of labor by arguing that the only way labor can prosper is to let capital achieve high returns, notwithstanding the contradiction that high returns on capital must come from low wages.
New legislation and laws, executive orders, federal government rule-making, federal agency decisions, and think-tank propaganda, etc, subsequently followed the new political landscape, assisting the implementation of new corporate policies and practices emerging from corporate headquarters rather than from the shop floor. Economists and analysts who challenged this voodoo theory were largely shut out of the media. Workers by the million were persuaded to abandon their institutional collective defender to fend for themselves individually in the name of freedom. It was a freedom to see their job security eroded and wages and benefits fall with no recourse.
1. Das Kapital, Volume One, Part I: Commodities and Money, Chapter One: Commodities, Section I.
Next: PART 2: Global war on labor
Henry C K Liu is chairman of a New York-based private investment group. His website is at http://www.henryckliu.com.
Copyright 2007, Henry C K Liu
Apr 04, 2017 | jessescrossroadscafe.blogspot.com"I believe order is better than chaos, creation better than destruction. I prefer gentleness to violence, forgiveness to vendetta. On the whole I think that knowledge is preferable to ignorance, and I am sure that human sympathy is more valuable than ideology. I believe that in spite of the recent triumphs of science, men haven't changed much in the last two thousand years; and in consequence we must try to learn from history. History is ourselves.Civilisation: A Personal View by Kenneth Clark was a television documentary series outlining the history of Western art, architecture and philosophy since the Dark Ages. The series was produced by the BBC and initially aired in 1969 on BBC2.
I believe in courtesy, the ritual by which we avoid hurting other people's feelings, by satisfying our own egos. And I think we should remember that we are all part of a great whole, which for convenience we call nature. All living things are our brothers and sisters."
Kenneth Clark, Civilisation
"At the root of America's economic crisis lies a moral crisis: the decline of civic virtue among America's political and economic elite. A society of markets, laws, and elections is not enough if the rich and powerful fail to behave with respect, honesty, and compassion toward the rest of society and toward the world."
The summation of the series.
Caelan MacIntyre, 12/05/2015 at 3:13 amContinued from here and here…
"I have a problem with many Social Sciences studies." ~ Javier
You also seem to have a problem with climate change studies. 'u^
"They set a preconceived theory, they build a model, and without any real data they claim their model supports their theory." ~ Javier
From what is understood, the model, at least the initial one, came from NASA.
"For a start they are supposed to be working with collapse, yet they clearly have no idea of the meaning of the word collapse, and have no functional definition of it to work with. They say things as 'The Roman Empire's dramatic collapse.' When exactly did the Roman collapse took place? We have known for centuries that the Roman Empire declined and fell (to put it in Gibbon's words). That is not a collapse. It is more like a long disease that ends in death." ~ Javier
Well they did qualify it in parentheses:
"The Roman Empire's dramatic collapse (followed by many centuries of population decline, economic deterioration, intellectual regression, and the disappearance of literacy)"
"The idea that excessive draw on essential resources breeds collapse is so obvious as to not merit any discussion." ~ Javier
Since it was/is apparently a model or simulation, 'essential resources' seem to be variables that need to be included. But one question is, 'How?'. 'Excessive draw' (or anything else) doesn't happen devoid of context.
Anyway, it seems to be formative, and did they qualified it as a 'thought experiment'? That seems to be how science works, what experiments are in part for; to test hypotheses, etc..
" But the idea that inequality breeds collapse is slightly more original…
If the principal thesis of the work was true, and inequality breeds collapse, then we would have some evidence by now that egalitarian societies should be more resistant to collapse as they don't suffer from 'scarcity of labor'.
Egalitarian societies should be more abundant. They clearly are not."~ Javier
Over time they may be, but to get there currently, such as if we can't manage with the current numbers, we may need a dramatic reduction of the population…
"Bands have a loose organization. Their power structure is often egalitarian and has informal leadership; the older members of the band generally are looked to for guidance and advice, and decisions are often made on a consensus basis, but there are no written laws and none of the specialised coercive roles (e.g., police) typically seen in more complex societies." ~ Wikipedia
"Much to the contrary I believe there is not a single example of a complex egalitarian civilization without an extractive elite. I would like to be proven wrong on this, but even small tribes have a chief, and a chief's family, and if big enough they have a nobility." ~ Javier
Indeed, while there're some significant differences between small-scale tribal or band setups and larger complex civilization setups, if we can't get our acts together with regard to ethics (lack thereof) that can seem to underpin complex civilizations' issues, then we may find this one also going the way of the others.
"To say that we have to develop an egalitarian society without an extractive elite to avoid collapse (which is a statement not supported by evidence) is the same as to say that we have to grow wings on the shoulders to avoid collapse from peak oil. It just is not going to happen." ~ Javier
Maybe this time it's different, what with it being global in scope and therefore, for example, with nowhere else to go/collapse to; no extra planet Earth. Nevertheless, I am sorely tempted to agree.
"We have to be specially skeptical of 'scientific' articles that claim to demonstrate what we believe to be true. It is one of the ways of fighting confirmation bias." ~ Javier
Sure, but it does dovetail with and support, along with other material, a case I've been making.
Just because we might think or suspect that we can't do or change some things doesn't necessarily mean we shouldn't try; be responsible, ethical, and try to change or transcend a system that is not.
Or maybe we are indeed just not smarter as a collective than rats on an island or yeast in a petri-dish in overshoot; that our so-called intelligence, alone, will not be enough to transcend some fundamental law of nature; a parasitic elite; or this planet, to continue to flourish elsewhere.
That appears the real challenge. And this study, among other indicators, seems to suggest that it won't be met through technology like renewables or electric vehicles, at least not alone, but through simple, shared ethics (care of Earth; care of people, etc.) .
Javier, 12/05/2015 at 6:17 amSure I do have a problem with many studies. I am not satisfied with reading something that confirms what I believe to be true. It takes training to reach that point.
Most people here talk about collapse without giving a thought to the word meaning:
"a sudden failure of an institution or undertaking."
They extrapolate to any failure regardless of the time involved.
But science is all about precision in the language. That's why we have our own language called scientific language, and that is why we restrict the definition of common words beyond how non-scientist people use them.
The Roman Empire did not collapse. You cannot set a date for when it went from normal functioning to failure. Depending how you set the last date for normal functioning, the fall of the Roman Empire took from 200 to 450 years and that doesn't fit any definition of sudden. Along that process they had huge crisis and we can point to about a dozen. None of them can be identified as the one that took the Empire from its height to its fall.
We could say that Yugoslavia collapsed as it was a functioning country in early 1991, and completely split and at war by 1992. See the difference?
Even for a thought experiment, if you want any conclusion to have any validity, you need to ground it in evidence. They fail to do that. Clearly history is not their strength as any civilization passing is branded a collapse and tagged a non demonstrated cause, shortage of labor or shortage of resources. And shortage of labor is the most ridiculous cause for a civilization failure that I have ever heard of. Can you seriously defend shortage of labor as a cause for civilization failure without breaking up with laughter?
Maybe this time it's different, but probably it is not. You are tempted to agree with them because you want to avoid civilization failure or collapse as anybody else. Any solution that involves a change in human nature, a global collaboration that sets aside any sort of personal or group interests, is sadly outside our reach. We know by experience that when problems arrive they will be met with beggar thy neighbor policies. We are going down fighting each other exactly as we raised.
Jef, 12/05/2015 at 9:28 amThe Roman empire has nothing to tell us about collapse.
The WORLD is involved in this one.
Finite resources are a reality. The Biosphere is reaching its limits in absorbing our waste stream. The world is connected and more complex by several orders of magnitude.
... ... ...
Caelan MacIntyre, 12/05/2015 at 4:50 pm
"Increasing pressure from 'barbarians' outside Roman culture also contributed greatly to the collapse… The reasons for the collapse are major subjects of the historiography of the ancient world and they inform much modern discourse on state failure" ~ Wikipedia, 'Fall of the Western Roman Empire' entry
1: to fall or shrink together abruptly and completely : fall into a jumbled or flattened mass through the force of external pressure (a blood vessel that collapsed)
2: to break down completely : disintegrate (his case had collapsed in a mass of legal wreckage - Erle Stanley Gardner)
3: to cave or fall in or give way (the bridge collapsed)…
refreshment, rejuvenation, rejuvenescence, revitalization"
~ Merriam Webster online dictionary
Arceus, 12/05/2015 at 2:29 pmWhen people speak of a "collapse" I believe what they are thinking of is not a Rome-style slow disintegration but a Soviet-style collapse in which a seemingly stable superpower disintegrated in only a few short years.
In 1989, also without losing on the battlefield for fifty years, the Soviet Union lost control over Eastern Europe which completely negated the results of WW II – something unthinkable just four years earlier. The collapse of the Soviet Union began September 13, 1985 when the Saudi oil minister announced the country was altering its oil policy. The Saudis stopped supporting oil prices and instead increased production fourfold. Oil prices collapsed and as a result, the Soviet Union lost approximately $20 billion per year, money without which the country simply could not survive.
The former superpower eventually had to go cap in hand to the West, begging for loans to feed its people.
AlexS, 12/05/2015 at 5:40 pmArceus,
You repeat primitive cliches of the western MSM. The collapse of the Soviet Union was caused by much more complex set of factors, mostly internal.
Arceus, 12/05/2015 at 6:22 pmMy short post was not intended as a comprehensive reasons for the collapse of the Soviet Union – it was merely to illustrate how rapidly a "superpower" can fall. The collapse in the price of oil was quite likely the straw that broke the camel's back, but make no mistake the camel was close to death anyway. But without question, the suddenness of the move took the USSR so completely by surprise they were than out of options (options that the politburo would approve anyway).
The parallels to what happened back then and what is happening now are interesting. History will not repeat. The Russia of the late 1980s is not the Russia of today. Putin will not be undone by what worked in the past. It is quite possible that the U.S. will be the superpower to fall this time, and a sudden collapse in the dollar may leave the U.S. going cap in hand to Japan and China.
Caelan MacIntyre, 12/05/2015 at 2:37 pmJavier, I am not even sure we necessarily need scientific models or studies, at least in a way…
I mean, if we have a system that cheats, then anything is game.
Then I can cheat too. (And, along with others, I'll likely be doing it on the 'nitrous oxide' of fury and resentment that some– maybe most– can feel when they wake up and realize that they've been cheated.)
So if sufficient numbers of (livid) people catch on, if they get out from under the cheating system's ideological indoctrinations (that it's not a cheat and that, say, coercive taxation, kid-killing cops and corporate parasites are all well and good and for our benefit), and find out that the game is really one big nasty rig/scam/dupe/hoodwink, what do you think will happen?
Let's run the model/simulation and see.
Ablokeimet, 12/05/2015 at 8:35 amCaelan has it right. Javier is right to be wary of confirmation bias, but that's just as applicable to pessimistic and conservative approaches as to optimistic and progressive ones. I have only a couple more points to make (one longer than the other):
1. Australian Aborignal cultures were complex and egalitarian. There was not a lot in the way of material privileges because there was little to spare. People instead worked within the land's carrying capacity and enjoyed a high-leisure society.
2. Egalitarian societies weren't particularly "abundant" because there was little incentive to save production to invest for expanded future production. Increases in productivity were generally responded to by increased leisure time.
With the development of class society, the ruling class appropriated the production above the levels necessary for subsistence. Some of this surplus was devoted to luxury consumption, which was, after all, the motive for the exercise. Society was producing enough for some to live in comfort, but not enough for all to live in comfort – so, sooner or later, a minority was going to find some method of being the comfortable ones. Some of the surplus was devoted to supporting military forces necessary to keep the ruling class in power. And some of the surplus got put to work in projects which the relevant ruling class people thought would bring them even better benefits in future.
Under class society, therefore, greater inequality has until recently led to greater accumulation of wealth in society. Society gets richer because the rich appropriate a higher proportion of production and prevent it from being consumed. It's also the typical neo-classical economist's justification for inequality.
What's changed is that the increasing domination of society by the money economy* means that, increasingly, production only takes place for sale rather than for use. Inequality, by restricting consumption, increasingly acts to restrict production as well. This phenomenon is aggravated by the financialisation of the economy, so that more social resources are being dragged into unproductive activities like financial speculation, which are about re-distributing claims on production rather than about increasing aggregate real wealth.
There is only one way out of this, although it is unfashionable at the moment. Capitalism has done its historically necessary work in increasing the productive forces of the world and the social productivity of labour to the extent that it is now possible for everybody to live in comfort**. Lenin and the Bolsheviks were premature in their analysis, which is one of the two fundamental reasons things went pear-shaped in Russia (the other reason being their dictatorial predilictions, but analysing that would take us too far away from the topic at hand). Europe, North America and the British White Dominions were ready for a post-scarcity economy, but the majority of the human race wasn't. Now, however, the world as a whole is ready – those parts which aren't yet ready are balanced by regions with a superabundance of productive forces. The consequence of this is that inequality has losts its role as an inescapable tragedy and has become a voluntary crime. We can have a world of freedom and equality, if we want it. At the moment, however, equality has a bad press – particularly in the USA.
* It's not widely realised that, even as late as the 1990s, the US was the only country on Earth where a majority of economically useful production took place in the money economy – and even there, it was a small majority.
** Yes, even in a world of Peak Oil, we have enough for everybody to live comfortably. There's not enough for everybody to drive SUVs, commute 500km per week and be generally extravagant with resources, but there's enough to feed, clothe and house everyone comfortably, with good health care and sufficient leisure, in sustainably designed cities with sustainable transport and energy systems.
William Podmore (London United Kingdom) - See all my reviews
(TOP 500 REVIEWER) (REAL NAME)Hudson is a Wall Street economist who used to work at the Chase Manhattan Bank. In Part One, he describes the rise of the American empire. Part Two describes its institutions: the US-controlled World Bank, the World Trade Organization and the International Monetary Fund, which all benefit the USA. The US has the sole veto power in all three. Part Three describes what Herman Kahn called `the greatest rip-off ever achieved', the way the US's ruling class levies us all to pay for its aggressive wars, just as the Roman Empire levied tribute to pay for its constant wars. Similarly Britain, Germany and Japan all pay for the US's military bases in their countries.
In 1945, as in 1918, Britain led Europe's capitulation to the USA's debt demands. The British ruling class chose dependency on the US ruling class. The USA insisted that Britain ended the sterling bloc, accepted IMF controls, did not impose exchange controls, and did not devalue. As Hudson writes, "The Anglo-American Loan Agreement spelled the end of Britain as a Great Power."
The 1945-51 Labour government's huge spending on unnecessary imperial, counter-revolutionary wars robbed our industry of investment. This excessive military spending meant that we had constantly to borrow from the IMF, increasing our dependence on the USA. Now Britain is the USA's Trojan horse in Europe, against Britain's interests.
Hudson immodestly claims that his analysis supersedes Lenin. He says that the US national government's interests, not the private interests of the capitalist class, drive the system. He claims that the US government subordinates `the interests of its national bourgeoisie to the autonomous interests of the national government'. But is the US government really independent of the capitalist class? How `autonomous' are these interests?...
Joshua Malle (Seattle, WA USA)
Difficult and rewarding, Hudson is the real deal,
May 24, 2006
See all my reviews
This review is from: Super Imperialism - New Edition: The Origin and Fundamentals of U.S. World Dominanc (Paperback)Super-Imperialism is better viewed as a radical alternative to common undergraduate textbooks such as Joan Edelman Spero's, "The Politics of International Economic Relations" than as an update to the theories of Lenin or Hobson. (His background and prose style are similar to Spero's and his book covers similar ground.)
It has three sections, each which could have been a separate book.
Chapters 1-6 are a history of U.S. international economic relations from World War I through Bretton Woods.
Chapters 7-10 are a critique of the "The Institutions of the American Empire" (GATT, the World Bank, the IMF and U.S. foreign aid mechanisms). If you have ever wondered what all of the huge protests of the World Bank and IMF were all about these chapters are for you.
Chapters 11-15 are about the U.S. economic transition in the late 1960s and early 1970s from running consistent balance of payments surpluses to running consistent deficits. (We used to export more than we imported; Now we import more than we export.) At the same time the U.S. stopped backing dollars with gold, which forced other countries to lend the surplus dollars created by our trade deficit back to the U.S. government (i.e. to buy treasury notes), thereby also subsidizing our chronic budget deficits. This is the "super-imperialism" of the book's title. This situation was still new and strange when the first edition was published in 1972, and the book's reputation rests on the light Hudson was able to shed on it.
The 2003 Edition has a new introduction and two new chapters at the end. The rest of the book has occasional new material, but does not appear to have been extensively re-written.
It's a difficult and rewarding book. The difficulty lies partly in the subject matter itself, partly in Hudson's convoluted prose and partly in the numerous typographical errors that mar the 2003 Pluto Press edition.
The book is rewarding because it's honest. Readers educated in the U.S. will initially regard Hudson's account with some skepticism. We can't help it; We've been systematically miseducated by pro-U.S. polemics presented in an "objective" tone.
In contrast Hudson is a strident critic of the U.S. management of the global economy. But so is any reasonably objective person who is apprized of the facts. I much prefer an author who honestly tells you the real story as he understands it to one who conceals the awful truth behind an ostensibly impartial facade. But a "revisionist" has to work twice as hard to make his case, and that is why the book contains the detailed explication of what reviewer Myers calls the "intricacies of events and negotiations that gave rise to the present order."
I think an open-minded reader will be won over by Hudson's thoughtful use of contemporaneous sources (e.g. government publications and articles in the business press) and also biographical sources to illuminate how key decision makers understood the alternatives, and their motives for pursuing the policies that they did when forging the post-war economic order. As he places these choices in context it quickly becomes evident that the motives on the U.S. side have been consistently aggressive and that U.S. policy makers have all along viewed multilateral economic institutions as instruments of national policy--to the world's detriment.
Hudson also has a keen sense of the painfully narrow horizon of human foresight. The historical sections sometimes read like a conspiracy theory in which the conspirators are not very smart. E.g., Franklin Roosevelt's stubborn insistence that World War I debts be repaid prolonged the Great Depression; When J. M. Keynes was negotiating Bretton Woods for the newly elected Labour government, he got them a terrible deal; The U.S. transition to "super-imperialism" which is the main story of the book (chapters 11 through 14) was originally an unintended consequence of the huge budget and trade deficits caused by the Vietnam War.
If you are interested in "globalization" this book is an important piece of the puzzle, but it really only covers up through 1973, and it spends more time on the relationship between the U.S. and Europe than on "North-South" relations. Having said that, Ch. 8 "The Imperialism of U.S. Foreign Aid" is very good, esp. how foreign aid benefits the U.S. balance of payments and the harmful effects of U.S. agricultural exports. China is hardly mentioned.
If you are an economics student and you sense that they aren't telling you the whole story, or just a thoughtful citizen who wants to sharpen your conceptual tools for understanding and resisting the strategies of U.S. imperialism, this book is for you.
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Salty Saltillo (from the road, USA)
An awkward argument with moments of brilliance,See all my reviews
November 3, 2004
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Hudson's historical argument in this book is both brilliant and sometimes a bit rough.
Hudson has always had a great talent for interpreting and sketching out for weaker minds like us what the US government's abandonment of the gold-standard really means. When Hudson came forward with his thesis in the mid 1970's, his thesis was outrageous among orthodox economists: to suggest that the US should be worried about the long-term consequences of running balance of payments deficits year after year, decade after decade was crazy leftist nonsense in the 1970s. As long as people continue to need the US markets more than the US needs any other one country's markets (and people still have faith in the good credit of the US government) there is no reason US could not run balance of payment deficits forever, according to the conventional wisdom.
What amazes me is that now, after having done exactly what Hudson warned the US government not to do in the 1970s, many otherwise relatively orthodox economists are beginning to worry about this. Hudson may be on the more "sky-is-falling" end of things, but his analysis was right on the nail in 1972 and is still there today: worst case scenario - massive recession and massive devaluation of the dollar (by massive I mean, unprecedented). Former US Treasury Secretary, Robert Rubin was quoted in March 16, 2006 WSJ as saying that "The probabilities are extremely high that if we don't address these imbalances, then at some point, and it could be years down the road, we'll pay a very big price." We are in a limbo world where no one really knows how this problem is going to play out, but Hudson should be credited for being one of the first, and longest-running, advocates for addressing this problem. Too bad it has taken so many decades for people to recognize what he has been telling us all along about balance of payments deficits.
The rest of the argument Hudson makes in this book is a bit tough to follow, though. Essentially, Hudson attempts to show how the US has, during this century but especially since WWII, systematically sought to manipulate all of the great economic institution-building opportunities following WWII to advance the interests of the US over other countries. Coming off the gold standard and running up a balance of payments deficit was just one of many ways in which this occurred. The US largely succeeded. The GATT (now WTO), World Bank, IMF, all bear American "fingerprints".
I agree that the mega-institutions of the contemporary world economic and political machine are largely the unilateral creation of the US, imposed on the other great nations at a time when the other nations were particularly vulnerable to US force of will and not particular inclined to be heterodox visionaries. I also agree that the US in general has probably used as much leverage as it could in negotiating all of the defining institutions in which it had any hand in constructing.
And yet, how could it have been any different? National governments pursue their self-interest and the interest of their citizens, often at the expense of other national governments and their citizens. The nation-state system is set up to work that way. But is the problem really one of US bad behavior, as Hudson suggests? Isn't the problem really structural? In the nation-state world, wherein the world is divided up into pseudo-autonomous political monopolies, each individually endowed with particular strengths and weaknesses, and all pitted against each other in a laissez-faire system where the only things that keep nation-states from raping and killing each other to oblivion are, good faith and the fact that the balance of power among the nation-states is enough to keep each monopoly contained in its behavior towards the other monopolies, what sort of behavior could we have expected from the US, a nation-state that, at a series of pivotal moments in 20th century history, found itself with "golden opportunities" to take advantage of other nations' weaknesses and advance its own power? Would the French, or the Brits, or the Japanese, or the Italians, or the Germans, or the Russians have behaved any different if they found themselves holding all the cards in 1945 instead of the US?
My point is, the facts Hudson lays out are correct -- there clearly is a problem in the way in which our current world order has been put together and the US is at the middle of that problem. The conclusions Hudson draws from those facts do not go deep enough in understanding what those facts mean, however.
It isn't that the Americans behave or behaved "bad" by the standard of good behavior implicit in the nation-state system, it is that the nation-state system itself to a certain extent reflects 19th century laissez-faire values of autonomy and individuality that pit nation-states against each other in a world where each is out to improve its lot through trade and, when possible and tolerable, violence.
The system itself breaks down when one player becomes too powerful. To blame the US for the systemic problem of massive power imbalances between nation states is simply pushing any hope for correction in the wrong direction.
During the postwar decades up to the early 1970s, the Bretton Woods system of semi-fixed exchange rates worked, after a fashion; and countries seemed able to combine full employment with low inflation and historically rapid growth and diminishing income differences. Reich calls them a "not quite golden age". It was "not quite" because of the treatment of women and minorities and the prevailing conformist and authoritarian atmosphere.
It has been succeeded by what Reich calls supercapitalism, in which the cult of the bottom line has replaced the cosy oligopolies of postwar decades, once-dominant companies shrink or disappear, new ones spring up overnight and the financial sector is (or was until recently) in the driving seat. He rightly dismisses many of the popular scapegoats – or heroes – of the process. The changeover began well before Ronald Reagan or Margaret Thatcher could influence anything. Free-market economists have been preaching essentially the same message since the 18th century. It is extremely unlikely that there has been a radical change in the psychology or morality of business operators. His own candidate is the technologies that have empowered consumers and investors to get ever better deals.
Unfortunately, many of these same consumers have lost in their capacity as citizens. He cites the failure of the political process even to attempt to correct the increasing skewness of US income distribution. In later pronouncements he has attributed the subprime loan disaster in part to the failure of supercapitalism to raise the incomes of the mass of wage earners who have been impelled to resort to borrowing as a substitute. Moreover, Congress has performed abysmally in correcting market failures in environmental and other areas. He has a non-partisan explanation: the staggering increase in business lobbying expenditures affecting Democrats as well as Republicans, as a result of which the political process, far from correcting the distortions of unbridled capitalism, has made them worse.
But for me the novel point of the book is his utter dismissal of the prevailing idea of appealing to the "social responsibility" of business to improve matters. This is a notion that particularly appeals to soft centre politicians such as David Cameron's Conservatives in Britain as a new kind of Third Way. Reich argues that it is the job of the democratic political process by laws, taxes and other interventions to harmonise the pursuit of money-making with the public good. "The job of the businessman is to make profits." He is completely unabashed by the charge that he sounds like Milton Friedman and indeed quotes the late Chicago professor approvingly several times. He argues that the so-called stakeholders who insist on being consulted before legislation is drafted are increasingly companies whose interests might be affected. One result is the "corruption of knowledge". We should beware of claims that a company is doing something for the public good. Corporate executives may donate some of their shareholders' money to a genuinely good cause or forbear from polluting the atmosphere to forestall a greater legal or fiscal burden. But in that case such actions are likely to be limited and temporary, "extending only insofar as the conditions that made such voluntary action pay off continue".
Similarly we should beware of a politician who blames a company for doing something that is legal. Such words are all too often a cover "for taking no action to change the rules of the game". Above all, "corporations are not people. They are legal fictions, nothing more than bundles of contractual agreements ... A company cannot know right from wrong ... Only people know right from wrong and only people act." One example of the "anthropomorphic fallacy" is when companies are held criminally liable for the misdeeds of their executives. Not only are the genuinely guilty let off too lightly but many innocent people get hurt. For instance, "the vast majority of Andersen employees had nothing to do with Enron but lost their jobs nonetheless".
I have two reservations. One is that I cannot share Reich's confidence that a revived and effective "democracy" would be a cure-all. You only have to see where democratic pressures are driving US energy policy. Second, there is a danger that the Friedman-Reich position could inadvertently give sustenance to the "I was only doing my job" defence for evil actions. You do not have to hold shares in a company selling arms to Saudi Arabia, or work for it. But do not deceive yourself that such individual gestures can be a substitute for a change in policy.
Amazon.com Supercapitalism The Transformation of Business, Democracy, and Everyday Life (Vintage) (9780307277992) Robert B. Reich Books5.0 out of 5 stars The Balance of Capitalism and Democracy,
ByIzaak VanGaalen (San Francisco, CA USA) - See all my reviews
This review is from: Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (Hardcover)According to Robert Reich, former Secretary of Labor in the Clinton administration, there was a time when capitalism and democracy where almost perfectly balanced. This was the period of 1945 to 1975, which he calls the "Not Quite Golden Age." During this period there was a three-way social contract among big business, big labor, and big government. Each made sure that they as well as the other two received a fair share of the pie. Unions recieved their wages and benefits, business their profits, and regulatory agencies had their power. It was also a time when the gap between the rich and the poor was the narrowest in our history. It was not quite the golden age because women and minorities were still second class citizens, but at least there was hope.
Fast forward to 2007, capitalism is thriving and democracy is sputtering. Why has capitlism become supercapitalism and democracy become enfeebled? Reich explains that it was a combination of things: deregulation, globe spanning computer networks, better transportation, etc. The changes were mainly a result of technological breakthroughs; unlike many leftists, he is not conspiratorial thinker. The winner of this great transformation was the consumer/investor and the loser was the citizen/wage earner. The consumer has more choices than ever before and at reasonable prices. The investor has unprecedented opportunities to make profits. The citzen, however, is not doing well. The average citizen does not have much voice - other than voting - in the body politic. And on the wage earner has been stagnating for many years. The most salient illustration of this trend is Walmart. Walmart delivers the goods at low prices, but the trade-off is low wages for their employees. We justify this dilemma, as Reich nicely puts it, because "The awkward truth is that most of us are of two minds."
As a left-leaning author, Reich makes some startling pronouncements. One, stop treating corporations as human beings. They are neither moral or immoral, they are merely "bundles of contracts." I couldn't agree more. Stop expecting corporations to be socially responsible, see them for what they are: profit-seeking organizations. Any socially responsible action is a ruse to bolster the bottom line anyway. Don't even encourage them to be socially responsible because it will wrongly lead us to believe that they are solving problems when they are not. Corporations play by the rules that they are given and it is up to citizens and their elected representatives to change the rules.
This is no easy task in the age of supercapitalism. There are currently 38,000 registered lobbyists in Washington DC in a virtual arms race of spending with each other to buy favors from our so-called representatives. The only way citizens can compete with this is not by hiring more lobbyists but advocating through new media outlets such as the internet and cable tv. This, according to Reich, is currently to most effective way to make government more responsive.
The question that remains, after reading this book, is will consumers be willing to sacrifice their low prices to achieve their goals as citizens. If the answer is yes, we can possibly rebalance the equation between democracy and capitalism; if not, we are left to the not so tender mercies of supercapitalism.
Robert Reich makes a compelling argument that supercapitalism has robbed democracy of much of its power. Supercapitalism by the definition presented in the book is simple--the consumer is king and prices ALWAYS go down. What Reich looks at is the cost of low prices to companies, society, the individual and its impact on the workings of democracy. So how is democracy compromised? Reich also points out that the rise of different lobbying groups, the cost of politics and globalization as contributing to this process. This isn't a surprise. It has just become more pronounced with time.
It's not due to some large conspiracy or any hidden political agenda as much as it is driven by consumption. Ultimately Reich argues that it robs the common citizen of any control over democracy. It's not surprising that this is a highly charged issue because the economics of what benefits society (or "the common good" as Reich calls it)often gets tangled up in the web of politics. Reich also points out that the cost of supercompetitiveness, constantly falling prices is a loss to the economic and social health of America. Reich points out that everyone wants to get the lowest price possible but he also suggests that we must balance that with our desire to have decent wages and benefits. He also points out that the move towards regulation was initiated by government and that corporations went along because it kept out competition and guaranteed a top and bottom for prices allowing companies to get a profit without fear of cutting prices so low that it would put them out of business.
I should point out that this is an oversimplification of Reich's points but it does capture some of the concepts. He also makes some suggestions that would help keep the free market afloat without undermining democracy and allowing consumers to still benefit from competitive pricing. Since this is economics we are discussing politics is mixed in and might color whether or not you agree with his points.
Reich's style is breezy for a book that looks at economics, democracy and the erosion of wages, benefits. Reich comes across as fair balanced and thoughtful even as he sells his take on what is undermining American society. Ultimately it's a worthwhile book to read simply because it opens up dialogue on the social cost of constantly lowering prices and how it impacts those who live next door to us
Every middle class American should read this book. Many observations about income disparities have been written up lately but Reich pulls the important points together in a powerful and accessible way.
Reich's main thesis is that the current transition the US economy is under is misunderstood. Many of the policy elite (Geithner, Volcker) have repeated the familiar claim that Americans are living beyond their means. Personally I don't discount that completely but Reich's insight goes much deeper and rings truer:
"The problem was not that American spent beyond their means but that their means had not kept up with what the larger economy could and should have been able to provide them."
"We cannot have a sustained recovery until we address it. ... Until this transformation is made, our economy will continue to experience phantom recoveries and speculative bubbles, each more distressing than the one before."
Anyone looking at the unemployment data since WWII has to wonder why the unemployment component of the last three recessions is so prolonged. Instead of a sharp trend up, there are long slopes of delayed returns to peak employment. (Google "calculated risk blog" and look at Dec. 2010 articles.) I believe Reich has demonstrated the main culprit this. To be clear, he is not describing the detailed mechanics of what triggered the Great Recession. (Nouriel Roubini has a good book that I would recommend for more on the financial fraud, leverage and credit risks involved - Crisis Economics: A Crash Course in the Future of Finance. ) But Reich is taking a long term view and exposes a dysfunctional trait of the US economy that no one can afford to ignore. It is this weakness that will delay the current recovery and continue to create greater risks in the future.
Reich draws the parallels between the Great Depression and the Great Recession, particularly the imbalance of wealth concentrated in fewer hands and middle class workers with less income to convert into consumer demand. One of the fascinating devices he found to do this was the writings of Marriner Eccles (Fed chair between '34 to '48):
"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth - not of existing wealth, but of wealth as it is currently produced - to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."
Reich also shares a couple of powerful and disturbing graphs that show how the middle class has been squeezed and also how since the late 70s, hourly wages have not only not kept up with the rise in productivity but have remained essentially flat.
Another driving theme Reich presents is the "basic bargain" and he evokes Henry Ford, the man that took mass production to new heights and paid his workers well:
"[Henry] Ford understood the basic economic bargain that lay at the heart of a modern, highly productive economy. Workers are also consumers. Their earnings are continuously recycled to buy the goods and services other workers produce. But if earnings are inadequate and this basic bargain is broken, an economy produces more goods and services than its people are capable of purchasing."
I was concerned early in the book that Reich would leave out some of the important complexities of the topic but he covered related finances, politics and even consumer/voter psychology in a succinct yet informative way. His summary of changes to the labor market in the last 30+ years was very good.
His ideas for correcting this were interesting if perhaps difficult to implement politically. My take away however was that this is a strong indicator of how bad he thinks the situation really is. Many Americans may be yearning to return to "normal". Reich is the first to thoroughly convince me that it is not going to happen.
This is a very quick read of 144 pages and is well worth the time.