CorporateGovernment CorruptionSynergy: The Dangers of Corporatism

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July 2, 2007

"It is not a coincidence that the merger of the USGovt and big industry has occurred while the US Middle Class has suffered a tragic income reduction since the 1970's . . . . A constant income over the past six years would have declined in real terms by 7% to 11% each year. That is roughly a 50% decline in real terms!!!"

-- Financial commentator Jim Willie CB in Absolute Bond Contagion, June 29, 2007

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Around the world, people increasingly sense that corporations influence and benefit from government power. Corporate power over government action is growing at the expense of the poor and the middle class, and while people are uneasy about this, most do not understand how and why the power shift is happening. This lack of understanding benefits both corporate and government interests and is therefore encouraged by both the corporate media and by government itself.

Misunderstanding the connections between corporate power and government power (often called corporatism, although the term is vague) leads many of the same people who worry about corporate control of their own government to support new government programs that will in fact put even more power into the hands of corporations, at the expense of the average person. The misunderstanding goes even further, to the very nature of the two realms, government and the market.

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Coercive government grants itself the right to initiate force against human beings. Everything a government does involves either direct use of coercion against people or, at the very least, funding of the activity via coercive taxation. In contrast, businesses are not allowed to use force to obtain money or for any other purpose.

Unlike government, business creates wealth, but the risk of business failure is high. Globe-spanning airlines TWA and PanAm disappeared years ago; scores of major mortgage lenders are currently foundering or disappearing; American automakers including Ford, General Motors, and Chrysler and major parts-suppliers like Delphi are in serious financial trouble. Ironically, reliance on government hand-outs, protectionism, or other favors tends to make a business or industry less competitive in the long run and to help bring about its downfall, as every one of the examples in this paragraph illustrates.

It is worth repeating that, on their own, non-government organizations must go to the trouble of creating something (a product or service) that people are willing to voluntarily pay for, which makes business and other non-government entities far more benign than government. The creation process is tedious, time-consuming, costly, and involves great risk; many businesses go bankrupt every year. Only two of the businesses in the DOW 30 Industrials from 1929 remain on the list** today: GE (which is doing very well), and GM (which is not). As an aside, GE spent over $19 million in 2006 on lobbying, making it one of the largest lobbyists in the country, while GM spent $8.7 million, according to the Open Secrets database.

Coercive government, in contrast to business, is a tool for using force and getting away with it -- which is exactly what lobbyists are paying for. Your government -- local, county, state, and national -- takes money from its "customers" by force, so customer satisfaction is not much of an issue to those in the government. Any other organization or person taking money from others at gunpoint (or threat of gunpoint, which is enough to get the job done in most cases) would be seen as criminal and treated accordingly. But government not only gets away with using force, that's its job!

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Lack of understanding about the damaging effects of government power clearly extends into corporate boardrooms, in part because the same policies that ultimately make a corporation or industry uncompetitive in the long term can make it more profitable in the short term. Competition is the force for natural selection in the marketplace: a harsh but necessary element for weeding out organizations that do not please customers while rewarding organizations that do please customers. It is not surprising that those in business jump at the chance to be shielded, in whole or in part, from the relentless need to compete. Government coercion can provide that shield. The ultimate such shield is the government-granted and government-enforced monopoly. By definition, a true monopoly has no competition at all.

No competition = no need to care about customer satisfaction.

No competition = no pressure to lower prices for the consumer.

No competition = no need to innovate, to improve, to do better in any way whatsoever. As Lily Tomlin put it in a famous skit decades ago, before we had anything resembling a free market in telephone service: "We don't care. We don't have to. We're the Phone Company."

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You can see the attraction of government help to those in business: who wants to work so hard, really? If government rules can ensure that customers have no other provider to choose from (which means they pay your price or do without), your life is immediately easier. Money you would need to spend on creating better products and service, not to mention on marketing, can be put into your pocket instead. That money is pure windfall profit. Something for nothing: hooray! This attitude is human nature, and it continues to operate when the humans are running large corporations -- or governments, for that matter.

Even without granting an actual monopoly, government can weaken an industry by "favoring" it with special treatment (price supports, handouts, high tariffs to ward off foreign competition, etc.). To the extent such favors are granted, an industry has that much less incentive to do a good job serving customers. The drive for efficiency, for lower pricing, for better customer service, for improved products -- all of these are weakened when government steps in to help.

It follows that ending government support can make an industry stronger. One example is the near-total ending of farm subsidies in New Zealand in 1984. The results have been so positive that (quoting the newfarm.org link above) "in 2001 Alistair Poulson, chairman of NZ Federated Farmers, told the BBC News that the average New Zealand farmer's advice to his or her colleagues in other countries would be to 'get off the subsidy gravy train as soon as possible.'"

Unhappily, few protected industries or favored corporations in America , or anywhere else, have lobbied to "get off the subsidy gravy train." Nor is it always as simple as government giving money to business; there are countless ways that governments can interfere in the market to provide some business or industry (or group or individual) an advantage at the expense of others.

Protecting or subsidizing one business often harms another business, and in addition to raising prices, it may cause unexpected harm to consumers in a variety of ways. Such unintended consequences are commonplace. For example, America's artificially high sugar prices made it too costly for soft drink makers to use sugar, so most switched to cheaper (and probably less healthy) high fructose corn syrup (HFCS is also less tasty, in the opinion of many). The higher U.S. cost of sugar was a factor in Life Savers moving its operations to Canada, at a cost of 600 American jobs. Another example: in California, milk consumers pay more than they might otherwise because the state sets a minimum price for milk. That minimum price has gone up by $1/gallon since January 2007 ($1/gal increase in 6 months!), to $3.10/gal, for a number of reasons -- many related to government action, such as the federal government's mandate for ethanol (several states have laws favoring ethanol as well) which has created a huge artificial market for corn. This corn is being taken out of the food chain and used to create ethanol for fuel, with results that include higher prices not only for corn but for animals that use corn as feed (cows, for one, along with their milk). Higher prices for corn (and thus for tortillas) have led to riots in parts of Mexico , where the tortilla is a food staple among the very poor. In addition, ethanol production is apparently responsible for increasing erosion and reducing biodiversity according to researchers at Washington State University.

Business creates wealth, but the examples above show that government interference in the market can warp the efforts of business in ways that create harm or even disaster. The federal ethanol mandate increasingly looks like a financial windfall (and a temporary one at that) for a few agri-business giants and other businesses, at the cost of environmental damage, higher food prices, increased hunger and financial hardship among the poor, and other problems. The rationale for the ethanol mandate is to reduce oil consumption, but it turns out that "making ethanol from corn requires 29 percent more fossil energy than the ethanol fuel itself actually contains," according to a recent scientific paper. (For that and further details on the disaster of our ethanol mandates, see The Stupidist Federal Subsidy by Robert Bryce in Slate).

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It should be no surprise that getting government involved in the actions of business creates disaster, because the coercive nature of government is, itself, a denial of market forces. In contrast to the wealth-creation function of business, government consumes wealth. In contrast to the constant risk imposed on business by market forces, government is largely shielded from market forces by its use of coercion. Government is a forcibly-maintained monopoly, for one thing; for another, government's "customers" must pay even if they don't like or don't even use the services offered. The same factors discussed above thus operate to keep governments from providing much customer satisfaction. There are limits, but governments can survive decades of terrible performance that would destroy any business.

Government has the guns; corporations create the wealth. Because each has something the other wants, government and business tend to become entangled. This gives government more access to the wealth generated by business (and gives government further control over the actions of business), while giving business access to the coercive power that is government's stock-in-trade. The government-business interconnection also gives business increasing control over the actions of government, while giving those in government something to sell. This provides lucrative work for lobbyists (here's a list of the top 20 spenders, by one accounting), but it may not be in your own, personal best interest to have Congress selling favors to corporations and other groups, because the favors necessarily come at the expense of others: "you" for instance.

Eventually, the line between corporations and government blurs enough that, for all practical purposes, it disappears. This is what we increasingly see today in the United States and in many other nations: a unified power elite consisting of both corporate and government elements, seamlessly and invisibly connected, with ever-more unified goals and interests. I fancifully described the phenomenon like this in last week's column, in a paragraph that provided the title for this column:

"For a limited time (meaning 'forever') we'll throw in the amazing power of our patented CorporateGovernment CorruptionSynergy, whereby the wealth-creating power of the market is molecularly bonded to the legal power to coerce others granted to government by itself. The result is a new alloy of incredible strength we call (well, not when others are around) 'fascist oligarchy,' which retains the appearance of a free society while funneling untold wealth into the hands of those who know what is really best for you! Yes, head to the voting booth and order some CorporateGovernment CorruptionSynergy for yourself today! Act now!"

But here's what you get when you do that: you get screwed.

Take business regulation, for instance.

Regulation itself is important, and Underwriter Labs is an excellent example of how a non-government group can regulate and enforce safety in an industry. UL began testing and certifying electrical products for safety in the 1890s and now tests and certifies products for 71,000 companies in 104 nations. You probably have a dozen or more products in your home that are "UL listed." The service provided by Underwriter Labs is efficient (allowing the price of your kitchen appliances, stereo, and other electrical and electronic gear to remain low), competent and honest (keeping you safe), and works well for both industry and the public. No corruption or other scandals, no constantly-increasing regulatory costs to make product prices escalate, no use of the regulatory process to favor one industry at the expense of another, no massive "lobbying" of UL for special favors. In short, UL has a very long history of doing an excellent job serving the overlapping needs that both businesses and their customers have for safe products.

When government gets into the regulation business, however, things don't go as smoothly, as cheaply, as safely, or as ethically as they have with Underwriter Labs. Take the FDA, for example: for decades, the FDA has been doing such a terrible job that William Falloon of the Life Extension Foundation has called the FDA "the number one cause of death in the United States." Falloon provides much detail for that charge, and summarizes the methods of the FDA's lethality as follows:

"The FDA causes Americans to die by:

  • o Delaying the introduction of life-saving therapies
  • o Suppressing safe methods of preventing disease
  • o Causing the price of drugs to be so high that some Americans do without
  • o Denying Americans access to effective drugs approved in other countries
  • o Intimidating those who develop innovative methods to treat disease
  • o Approving lethal prescription drugs that kill
  • o Censoring medical information that would let consumers protect their health
  • o Censoring medical information that would better educate doctors
  • o Failing to protect the safety of our food
  • o Misleading the public about scientific methods to increase longevity"

The Life Extension Foundation has also undertaken a study of government-regulated supplements in Europe versus the largely free-market situation for supplements in the United States. The European situation is a disaster for consumers, causing much higher prices and thus reducing consumption of life-saving nutrients. Considering the thousands of studies over the years (starting in the 1930s if not earlier) which have shown health benefits from vitamin and other supplements (most recently and spectacularly that "high doses of vitamin D can reduce the risk of developing some common cancers by as much as 50%" and, from a Johns Hopkins study in 2004, that vitamins C and E together can reduce the risk of Alzheimer's by a stunning 78%), the restrictive European regulations (and other efforts to reduce usage of supplements, including efforts to reduce public understanding of their benefits and safety) would seem to represent a form of mass-murder, conducted for the corporate profit of the medical and pharmaceutical industries. That may sound extreme, but I am not the only person to suggest such a thing (Dr. Mathias Roth, for instance, insists that there should be "no amnesty" for the pharmaceutical industry), and the evidence certainly seems to support a finding of "probable cause" at the very least.

The FDA has worked for years to "protect" Americans from over-the-counter supplements, even as it has approved drugs which kill hundreds of thousands every year (Tambocor, Vioxx, Avandia, etc.). If the FDA and the medical/pharmaceutical cartels get their way, European-style regulation of supplements will come to the United States , ASAP. For that matter, see "FDA Seeks to Regulate Your Pantry" for an indication of just how absurd and oppressive the FDA is willing to get.

Nor is it only the FDA which seems intent on using its regulatory power to endanger people: for one horrifying example, the USDA has been preventing cattle producers from testing their own cattle for Mad Cow Disease.

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Conclusion:

Is corporatism really as pervasive and as dangerous as I am suggesting? Yes, it is. If anything, it is worse. Here are three more examples to help make the point:

If you have not given these much thought, consider visiting the links above and doing further research.

The solution to this problem requires that people begin to understand corporatism accurately. That means, for a start, understanding that coercion -- not the market -- is the heart of the problem. It means understanding the true nature of both the market and of coercive government.

Business regulation, which is critically important, works vastly better when not tainted by government; government regulation is quickly captured by industry, which has money to lobby with, jobs to offer regulators after they retire, and other tools for persuasion. As is true in nearly every government undertaking, even the hard work of many competent and honest government employees cannot overcome the corrupt foundation of coercive government itself.

Eventually, as corporations and government grow ever-closer, things get out of hand -- not just in regulatory agencies but everywhere. That is the situation we now face.

This column has covered only the tip of the corporatist iceberg -- only the top molecular layer of that iceberg, really. I urge you do your own research and to give the matter serious thought. For more information, one good place to start (not a source I agree with in every particular, but informative and provocative) is a lengthy video titled Corporatism: Who Owns America? Hint: (Not you).

A world of corporatism will eventually be an Orwellian nightmare where love and freedom are impossible. If we are to reverse the current trends, we must begin soon.

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Notes:

* I will leave to the reader the question of whether "honest government" is necessarily an oxymoron. What I mean in this essay by "honest government" is "government that plays by the rules, and which uses rules that explicitly put most of your rights beyond the reach of government action and thus also beyond the reach of corporate lobbyists." Even a government so constructed, however, will inevitably morph into something very different, because the pressure to use government coercion to provide special favors and advantages to groups able to lobby for such favors is never-ending. Like a river wearing a channel through rock, the desire for wealth and power combined with the coercion of government wears away the people's rights. America's federal government was once a thin stream flowing almost unnoticed across the landscape of American society; today our government is more like the Grand Canyon: vast beyond comprehension, and with many cubic miles of bedrock (our rights, in this case) already washed away.

** See The First 120 Years of the Dow Jones: An Historical Timeline of the DJIA components, 1884 - 2003 for a look at the shifting composition of the DOW over time. Below is the list (as found here) of DOW components from 1929 versus those in 2007. Some of the 1929 components are still in business but no longer on the list; others have vanished.

1929 Dow Components vs. 2007 Dow Components

1929 Dow

Allied Chemical

American Can

American Smelting

American Sugar

American Tobacco

Atlantic Refining

Bethlehem Steel

Chrysler

General Electric Company

General Motors Corporation

General Railway Signal

Goodrich

International Harvester

International Nickel

Mack Truck

Nash Motors

North American Paramount

Publix

Postum Incorporated

Radio Corporation

Sears Roebuck & Company

Standard Oil (N.J.)

Texas Company

Texas Gulf Sulphur

Union Carbide

U.S. Steel

National Cash Register

Westinghouse Electric

Woolworth

Wright Aeronautical

2007 Dow

3M Company

Alcoa

Altria Group

American Express

American International Group

AT&T

Boeing

Caterpillar

Citigroup

Coca-Cola

DuPont

Exxon Mobil

General Electric

General Motors

Hewlett-Packard

Home Depot

Honeywell International Inc.

Intel

International Business Machines

Johnson & Johnson

J.P. Morgan Chase & Company

McDonald's

Merck

Microsoft

Pfizer

Procter & Gamble

United Technologies

Verizon

Wal-Mart Stores

Walt Disney

 

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Glen Allport's picture
Columns on STR: 104

Glen Allport co-authored The User's Guide to OS/2 from Compute! Books and is the author of The Paradise Paradigm: On Creating a World of Compassion, Freedom, and Prosperity. He maintains paradise-paradigm.net. This is one in a series of columns on the human condition.