Third Party & Independents Archives

Capitalism versus Corporatism, Danger Will Robinson

Steven Pearlstein has an article in yesterday’s WaPo that gives some perspective on the history of capitalism as we know it.

He relates that the first kind of capitalism was that of the robber baron variety. During this era the economy fell prey to a few clever entrepreneurs and financiers who used their economic power to enhance their political power and so on . . .

Following the great depression we embarked on corporate or managerial capitalism where growth and innovation were driven by large national and international firms that were run by trained executives. "Competition tended to be gentlemanly and the power of big business was held in check for the federal government - - -." The gap between rich and poor narrowed, more joined a growing middle class. This worked fairly well until gov't and unions began to "squeeze the competitive vitality out of the economy.

After WWII state capitalism advanced outside the U.S. Gov't owned major corporations many of which were/are operated as gov't monopolies.

By the 1990's state capitalism had given way to 'crony capitalism' as over regulated markets became barriers to growth.

Stateside, three new models were being pursued in replacing the old corporate capitalism. Entrepreneurial capitalism was occurring in Boston, Sanfrancisco and later in Seattle, Austin, Bolder and the Research Triangle Park in NC. Young, educated entrepreneurs, working in airlines, package delivery, long distance telephones, etc, soon served to replace corporate capitalism. While we tout entrepreneurial capitalism we tend to forget the destruction caused by the upheaval in lost wealth, job loss and the loss of communities in some cases.

Worker capitalism caught on in the 1980's. In its purest form employees of the company owned the company. Other strains included companies who participated in profit sharing, employee empowerment, efficient work teams, open-book mgmt geared toward putting accountability on front line workers on the theory that good workers and ingenuity made successful companies.

Also, the 'corporate-raider' pushed 'sharehold capitalism' on to the stage. Workers were seen as interchangeable and expendable. Companies were managed for short term gain and shareholder profit. A 'new' method of financing, 'junk bonds' were used to launch hostile takeovers of 'under performing' companies
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More recently, with even 'newer' financial instruments "financial capitalism" entered the arena where the focus has shifted from running companies to simply buying and selling them for profit. Capital and talent went toward trading and financial engineering while more economic profit and national wealth transferred to a small number of investment bankers, hedge fund and private equity funds.

He believes we should have a presidential debate about what kind of capitalism is desirable. I don't believe a president can sway, in any large measure the type of capitalism implemented to conduct business. That job falls to the 545 through 'regulation'.

Many of us can remember the beginning of the era of 'greed is good' some 30 years ago, where anti-trust law was locked in the closet. The Gramm-Leach-Bliley Financial Services Modernization Act of 2000, The Wendy and Phil Gramm (all by themselves, can u imagine) who worked the loopholes into the Commodities Futures Modernization Act in 2000. "The chairman of the Commodity Futures Trade Commission (CFTC) Brooksley Born issued a first call for her regulatory commission to have power to oversee financial derivatives. While previous legislative attempts had been made earlier, Born's efforts were the most direct and threatening to the financial industry. During an April 1998 meeting of the President's Working Group on Financial Markets, Federal Reserve chairman Alan Greenspan, Clinton Treasury Secretary Robert Rubin (and later Secretary Larry Summers), and Securities and Exchange Commission (SEC) chairman Arthur Levitt opposed Born's efforts and attempted to derail her."
.
Such 'oversight' led us to/thru ENRON, Worldcom and the so-called 'housing crisis'. Then we bailed out the 'too big to fail' when, having shed anti-trust law, corporations raced to risk like a bug to a light. One must believe this regulation thing is an awfully hard job.

Just regulating the setup of a corporation would seem pretty simple. But the Federal gov't seems to want nothing to do with it. Each state gov't registers corporations with Delaware being most active followed by Nevada. Remarkable, in that 'people' from anywhere in the world can, through a law firm or some representing entity, apply for and receive incorporation.. The state takes the money, stamps their approval and never ask the questions as to 'owns' the corporation, tax history, source of income, etc.

Thus, we have some super corrupt people looking to invest in the U.S. A recent CNBC doc relates that Azerbaijan has enough oil wealth to bring their populace out of poverty as does Guinea Equatorial Africa. But, gov't and private citizens in control of the wealth bring much of it to the U.S. to invest, incorporate and live well while the people of those countries remain impoverished. They are getting their ill gotten gains out of those countries and putting it in safe investment havens. At the same time the U.S. taxpayer has put some $300M into foreign aid for Azerbaijan, for example.

IMO, the brand of capitalism is not the big picture. The management and oversight of the capitalists players by the 545 is where the light should be shone. After more than two hundred years of abject failure in trying to 'regulate' corporations should we not abolish corporate personhood law and lay down some new rules for corporations?

Now, we understand that USAID will begin to stand up foreign companies using US taxpayer dollars. What hath globalization wrought? If you ain't in the 1% you are in for big trouble.

Otherwise, we have the Corpocracy we deserve.

Posted by Roy Ellis at May 28, 2012 4:46 PM
Comments
Comment #345499
After WWII state capitalism advanced outside the U.S. Gov’t owned major corporations many of which were/are operated as gov’t monopolies.

Roy which companies are you referring to here?

Posted by: j2t2 at May 28, 2012 6:25 PM
Comment #345501

A poor gist of Pearlstein’s remarks, j2t2. Quoting, he said: “Outside the US most other countries had long embraced some form of ‘state capitalism’ …”.

and

“Back in the US state capitalism never really caught on, …”.

http://www.economist.com/node/21543160

But, it would seem that China, Russia, much of Africa and the middle east fit the model for state capitalism. We hear China’s economy developed around mercantilism but a more proper label would be state capitalism.

Now that we are well globalised we can expect lobbying (funding) to come primarily from other countries/corporations around the world with US companies playing a lesser role, IMO.

Otherwise - - -

Posted by: Roy Ellis at May 28, 2012 8:12 PM
Comment #345504

Pat Choate, “Saving capitalism”, is very well versed in world markets. I’ll gist some of his third chapter. He opens with - - - The recession is seen as a great opportunity for nations of state capitalism to seize markets now being served by US companies. Driven by differing interests and flush in sovereign wealth funds state capitalist states are ready to move.

While China is the most visible other variations exist in Japan, Taiwan, South Korea, and many European countries. State capitalism, whether supported or directly controlled, flexes the power of natl gov’t over the market. With each downturn these foreign corporations know that US companies, basically on their own, will retract, reduce R&D, downsize employees, consequently losing market share and be unprepared for an upturn when it comes.

“America’s market capitalism cannot compete against state capitalism - - .” If the recession deepens and continues for several years the US is certain to lose dozens of its remaining mfctring industries, a good portion of its highend business services, and millions of additional jobs.”

Professor Peter Navarro has identified eight factors that gave China a price advantage in global competition:

Low wages for high-quality work (quality is debatable, IMO). On a 100 point scale this gives China a 39.4% price advantage.

Piracy and counterfeiting with an 8.6% price advantage.

Minimal worker health and safety regs with a 3.4% advantage.

Lax environ regs and enforcement with a 2.4% advantage.

Export subsidies with a 16.7% advantage.

Industrial network clustering with a 16% advantage.

Foreign direct investment with a 3% advantage.

Undervalued currency with an 11.4% advantage.

The fastest way for China’s many state owned companies to become global companies is to buy all or a majority of the stock of well-positioned transnational corporations much as it bought IBM’s personal computer division. Japan and Germany have put up roadblocks while the US is for sale.

And so on …

Otherwise - - -

Posted by: Roy Ellis at May 28, 2012 9:05 PM
Comment #345506

Roy,
Good article & comments. Thanks for the read!

Posted by: phx8 at May 28, 2012 10:12 PM
Comment #345637

As I thought Roy. Why is it Germany and Japan can see through this yet America has these blinders on whenever someone says “Free trade” or “free market”?

Posted by: j2t2 at May 29, 2012 10:51 PM
Comment #345666

Meager writer, phx8, I rely on using other people’s information to make my point.

J2t2, I believe we would have had to have a ticket to bilderberg or a front seat at Davos back in the Carter/Regan era understand how we got here. The Panama Canal giveaway was the first event reflecting their purpose, IMO.

One can imagine that globalization was to entwine countries so closely knit together that it would be hard to impossible for a country to start a major war. And, there is always the idea of bringing all out of poverty.

The rush to ‘one world’ seems a bit ‘one sided’ as you suggest. ‘Our oil is their oil’, our meager supply of uranium is their uranium, and so on … yet, yesterday five Pepsi plants were firebombed in Mexico as Pepsi sought to gain market share there … while the US tax payer supports some millions of poor Mexicans, and so on …
Now, USAID is going to spend tax dollars to stand up foreign companies overseas. The UN is pushing some kind of plan where the US and other wealthy countries would pay some kind of tax that would go to taking care of the world’s poor.

I can imagine USAID standing up some companies in Equatorial Guinea while ‘state capitalist’ companies from around the world help themselves to EG’s oil w/o a dime going to the people. This, while the US taxpayer pays a tax to help the EG poor. Wow, what a plan!!! Let’s go do it!!!

If free market capitalism can’t win against state capitalism then seems logical that we will come to look more like them over time.

And, what has all this ‘harmonization’ and one worlding done for us? Afraid of Iran because of Russia. Afraid of Syria because of Iran, afraid of N. Korea because of China, afraid to stick missiles in the Urals because of Russia and so on …

The left and right column think a little austerity or a little more spending will recover us and globalism will ‘take us to heaven’. C&J seem wildly happy re the future.
Meanwhile, I’m here in the middle column yelling ‘Danger, Will Robinson’.

Ill is $5B in debt, no money and is spending twice their revenue income. Can’t make medicare payments, some legislators evicted from their office as gov’t can’t pay rent, troopers pensions not being paid.

Calif is $15B in debt and still at it. You kicked in $3.5B for a new fast train to cost $16B which went to over $100B and now, a much slower train is down to around $64B.

NJ is $10B in debt, has stopped any major projects as they can’t get funding

State pensions are under funded by $1T.

15 largest states have a bond market of approx $3T and likely will face problems within the next year or so. Student loans are no small issue.

Won’t be long before these states will be looking for ‘you’ to bail them out.

The 99% are going to be pretty well savaged, IMO. Middle class with broken backs and all that entails.

Otherwise - - -

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