15.

Who Protects the Freedoms that Count?

It’s easy to believe and support the politicians who promise a free ride—without taxes and without government getting involved in our lives. It’s comforting to assume that time and a magical free market, without controls, will cure all ills. Problem is, reality doesn’t work that way and never has.

For example, what do you value: The freedom of moral individuals to compete with each other on the basis of providing the best product or service at the lowest price? Or do you prefer the freedom of the richest, most powerful, and least principled individuals to take over the market and to drive others—who choose to uphold moral principles—out of business?

Do you value the freedom of people to work in a reasonably safe environment? Or do you prefer the freedom of the least principled business owners to risk the lives and health of their employees in order to maximize profits?

Do you value the freedom to breathe fresh air, eat wholesome food, and drink safe water? Or do you prefer the freedom of corporations to destroy the local river, pollute the air you breathe, and sell you tainted food?

Do you value the freedom of the top 20% of our income earners to become merely “rich,” by using the labors of working Americans who receive a fair return for their contributions? Or do you prefer the freedom of the top 20% of our income earners in America and their descendants, to, in effect, become a new class of royalty—by taking ruthless advantage of  working Americans?

These are all “freedoms,” and a society must choose which ones are the true freedoms of a moral society, and which ones are fraudulent shams—acceptable only to a society corrupted by power and greed.

 As is becoming increasingly evident, today’s corporations have the same moral standards as the American Tobacco Institute. If they ever had a sense of moral obligation to their workers, the environment, the consuming public, or the free market itself—they certainly don’t today.

The conservative financial press itself demonstrates that predatory corporations and individuals are capable of doing great harm, both to the public and to the free market itself. Without federally enforced national standards, immoral corporations will always either:

§         Force other corporations who insist on maintaining their moral standards out of business, or,

§         Force other companies to lower their own moral standards, if they are to survive in the marketplace.  

  

Therefore, to create a level playing field for businesses, our federal government must require minimum standards for worker income, working conditions, the environment, consumer safety and health, and equal opportunity. This is the only way that the markets can stay free and function as intended in a morally based capitalistic society.

The excerpts in the last chapter demonstrated, among other things, the eagerness of modern corporate executives to take every advantage they can of any weaknesses in the enforcement of existing governmental regulations. If they are willing to violate the law to gain a competitive advantage or to increase profit—just think of how willing they are to behave unethically when the law doesn’t specifically prohibit it.

In the excerpts to follow, note how modern corporate executives have sacrificed standards of common human decency in their pursuit of profit. You will read how, without minimum standards, even moral executives, if they are to survive in today’s marketplace, must take immoral, although legal, actions.

These actions cover everything from taking cruel advantage of the poor, ignorant, and undisciplined—and creating huge future problems for society to deal with—to callously destroying the environment. For example, Fortune exposed the corporate moral standards of an entire “respectable” industry in its article, “Where Cash Is King”:

Largely unregulated and extremely lucrative, check-cashing companies are booming.… [M]ainstream players are finding this largely unregulated niche hard to resist. Cozying up to the industry are companies such as GE Capital, Chase Manhattan, and Citibank.…

   This is an industry that promotes spending, not saving; one whose products encourage poor money habits among the fiscally frail.… For these often-desperate ranks, the check-cashing industry prescribes its own sort of subprime remedy: small, short-term loans that carry triple-digit effective interest rates. These “payday loans” are so costly that some states have banned check cashers from making them altogether.¹

Scrooge lives, and is alive and well in America’s premier corporations. Note that GE Capital, Chase Manhattan, and Citibank are not fly-by-night operations. Most of their top executives are undoubtedly from “good” families, and are graduates of prestigious universities. If true to type, they publicly and sanctimoniously claim that the moral standards of other Americans are going to hell in a hand basket.

They undoubtedly vote against additional school funding for the public schools that provide them with financially unsophisticated customers, “because you can’t improve education by throwing money at it.” Of course, they pay three to four times as much—as is spent per student in public schools—to send their own kids to private schools. Naturally, they vote solid Republican.  

In the process, they are creating huge future problems that will be extremely costly for our society. What will happen to their naïve victims when the economy crashes? And who will pick up the tab?

Plutocratic vs. Democratic Capitalism

It’s important to distinguish between two kinds of capitalism: plutocratic and democratic.

Plutocratic capitalism is designed to benefit the educated, wealthy, and powerful, at the expense of the uneducated, poor, and powerless. It’s the product of politicians who believe in “class.” Their belief is not simply a recognition of the truth that “the poor will always be with us”—but the belief that their own descendants deserve to inherit the huge advantages that wealth, education and privilege automatically confer. Their attitudes toward those who inherit poverty, illiteracy, and poor health are summed up in the rich man’s classic philosophical refuge: “Whoever said that life is fair?”

On the other hand, democratic capitalism, the kind we had between the 1930s and the 1980s, tries to protect the minimal rights of those who are victimized by the predominant economic system. It’s designed by politicians who believe that all citizens deserve realistic opportunities to live healthy, productive and rewarding lives—regardless of who their parents or guardians were.

In plutocratic capitalism, two qualities always go together: no regulations (no enforced minimum standards of moral behavior) and high profits to the unscrupulous. To illustrate, consider a specific example, and general principle, of plutocratic capitalism. The specific example was provided by Wendy Zeliner in an op-ed piece in Business Week, “How Northwest Gives Competition a Bad Name”:

“Its [Northwest Airlines] tactics in Detroit show how dominant players can drive out rivals and keep airfares high.… Northwest’s average one-way fare when the tiny Spirit [Airline] entered [the market] was more than $170.  Spirit’s introductory unrestricted fare: $49 one way.…  On June 30, 1996, Northwest slashed its fares to Philadelphia to $49 on virtually all seats at all times.… On Sept. 30 Spirit abandoned the route.… By the first quarter of ’97—just a few months after Spirit withdrew—Northwest’s average one-way fare on the route had climbed to more than $230.²

The general principle was provided by The Wall Street Journal in “Air Carriers Face ‘Dumping’ Enforcement”:

After years of regulatory inaction, the federal government is preparing to clamp down on airlines that use unfair tactics to stifle competition from low-fare start-up carriers.… The guidelines were developed amid mounting concern that major air carriers have been using their market clout and deep pockets to crush new competitors and maintain their dominance at so-called hub airports.…

   Transportation Secretary Rodney Slater has found that jawboning major carriers on the issue hasn’t worked. Five small carriers have vanished in the past nine months, and only one new carrier has gotten aloft in the past 18 months.³  

This is the dirty little secret of today’s modern financial conservatives: Size and market dominance do not mean greater efficiencies, lower prices and better service to the public. It means that mega-corporations are able to drive smaller, weaker competitors out of the market. Result: the public gets screwed and the corporate executives and their investors get seriously rich.

At first, everyone seems to benefit from deregulation and destructive competition. Consumers get access, not only to lower fares, but also to a luxurious array of flight-time choices. Naturally, as soon as the competition is crushed, air fares go up even higher than they were before.

A regulatory vacuum is an open invitation for the least principled corporate executives in an industry to exercise their most unethical options. The largest corporations, with the deepest pockets, are free to compete—not on the basis of providing the best product at the best price—but on the basis of their willingness to abandon all moral standards.

The weak-kneed “jawboning” approach of appealing to corporate executives to behave like decent, moral human beings has about as much impact as trying to get Republican bankers to voluntarily give loans at reasonable rates to poor people.

The results speak for themselves: In an unregulated environment, power, greed, money, and political influence win over honest competition every time. The small air carriers never had a chance.

The Need for “Big Government”

Liberals and Democrats didn’t create “big government.” Unethical businesspersons created the undeniable need for a government big enough to do its legitimate job of protecting truly free markets from those who would like to subvert them.

Consider the Savings & Loan scandal of the ’80s, which cost the American taxpayer about $500 billion. The Wall Street Journal pointed out that the “U.S. Finds It Tough To Establish Crimes in Savings & Loan Mess,” and noted that it was the result of “complex loan arrangements,” and poorly designed or badly monitored regulations:

Most failed S&Ls didn’t collapse directly because of criminal activity; egregious mismanagement and feckless regulation were more often the culprits.… 

   The Bush administration’s claim that it has responded sufficiently to the avalanche of S&L cases even has been undercut by the Justice Department’s own calculations. In a study of 59 field offices last year, the FBI concluded it needed 425 new agents to begin work on some 2,300 languishing thrift fraud and embezzlement cases. Attorney General Dick Thornburgh has since deployed 202 additional agents—fewer than half of what the FBI requested.⁴    

The 1980’s S&L fiasco presents us with two major dimensions of the conservative war against sensible regulations: First, they do everything they can to make regulations inadequate in the first place; second, they make sure that funding of the oversight function is inadequate. This article demonstrated several things:

§         Complex financial arrangements of corporations are deliberately designed to deceive. They present huge challenges for anyone who tries to investigate the behaviors of unscrupulous executives. That’s why financial conservatives always support legislation that makes it harder for regulators to do their jobs. When conservatives say they want to get “big government out of your hair,” they really mean out of their hair. The average worker has no reason to fear governmental intrusions into his uncomplicated financial dealings.

§         Think what the FBI could have done if they had had $50 million and four years to do an investigation of almost any failed S&L in the country. Suppose also that they had absolutely no scruples and interviewed the lovers of all the main participants in the failure.

§         Of course, “feckless (ineffective) regulation” is exactly what encourages “egregious mismanagement” to thrive in the first place.

§         The allocation of inadequate funds to investigate the massive S&L scandals throughout the country was typical: To protect the wealthy and the powerful, the government approved the use of only “half the number of investigators needed.”

If the Starr investigation of Clinton proved anything at all, it demonstrated that special investigators with unlimited resources and unlimited time could have thrown one-fifth of the people in the entire Savings and Loan industry into jail (or, for that matter, one-fifth of the current members of your local country club). Naturally, understaffing the FBI in the 1980s fit the conservative mood of the Congress at that time.

There is hope, however, that some financial conservatives are beginning to show faint signs of common sense about the need for regulations. The news division of The Wall Street Journal went against its usual anti-environmental editorial policies when it reported that “Fish Stories These Days Are Tales of Depletion and Growing Rivalry”:

Mr. [Walter] Pereyra [chairman of Arctic Storm Co.] says the best hope for big companies such as American Seafoods is more regulation, not less. “The days of being able to go from one resource to the next are gone,” he says. “There aren’t any uncharted horizons left.”

   Knut Djuve, operations manager for American Seafoods in Argentina, agrees. He sees a clear message in diminishing catches and increasing conflicts between authorities and pirates. “It is just as important for us to have regulated fisheries as for the countries,” he says.  “You don’t want to invest hundreds of millions of dollars just to fish out the waters in a couple of years.”⁵

Business Week also demonstrated common sense when it editorialized about “The Year of the Punctured Myth.” It analyzed the economic disaster in Asia and discovered

Myth No. 2. Less regulation is always better than more  regulation. Just get the government out of the way and the economy will soar. Right? Well, the Asian mess is due in no small measure to the total lack of bank supervision around the Pacific Rim. Banks made nonsense loans to companies making nonsense investments.… A modicum of government oversight is needed to referee markets and make sure they play by the rules.⁶

Unfortunately, for financial conservatives, impending disaster is the only motivation for action:

§         “Depletion and growing rivalry” says it all. As our earth and economy run out of resources, the mad, competitive scramble for a bigger share of what remains can destroy it all for everyone. In the case of natural resources, like fish, the absurdity of unregulated self-interest becomes obvious even to conservatives.

§         Often the only answer to destructive competition is “more regulation, not less.” Even the top executives of private companies recognize that their own survival depends upon protecting responsible corporations from the “pirates”—the unscrupulous competitors who are willing to destroy the entire fishing industry if it gains them short-term wealth.

§         The “Asian mess” adds another dimension to regulation. Interesting, isn’t it, that the Asian mess didn’t become a mess until it caused the stock market to crash. As long as Asian workers were the only ones suffering, there was no need for governmental oversight. Child labor—no problem. Killing union organizers—no problem. All the wealth being siphoned off by the wealthy and powerful—no problem. The loss of buying power for the region’s entire working class—no problem. A declining stock market—humongous problem, and a clarion call for action.

  

Naturally, the only oversight that conservatives want is the oversight that protects the money machine for the wealthy and powerful: the financial markets. Problem is, when all the wealth is in the hands of the top 20% of the world, and the bottom 80% no longer share sufficient buying power, we’re in for a worldwide recession or worse.

Now consider an instructive example of necessary regulation. Think of the air we breathe, the economic benefits of additional gas mileage, and the chronic, paranoid, knee-jerk resistance of Republicans against all attempts to enact anti-pollution regulations. In a Business Week op-ed piece, “Don’t Thank the Free Market for Eco-Friendly Cars,” Robert Kuttner described how government, government regulations, and industry caused Detroit to develop more fuel-efficient engines:  

At last month’s auto show, Detroit congratulated itself for finally getting serious about fuel-efficient engines.…  Isn’t the free market wonderful? Not exactly. This shift in Detroit’s thinking can be credited substantially to the U.S. government, both through its anti-pollution regulations and the Administration’s Partnership for a New Generation of Vehicles. States such as California have also raised standards.…

   Why government involvement? Air pollution is what economists call a “negative externality”—something that market forces price too cheaply because they don’t directly bear the cost.⁷

More fuel efficient engines. Remarkable! The auto industry was dragged kicking and screaming into the effort to improve gas mileage—with Republicans complaining that environmentalists would destroy the auto industry—and our country not only got better air quality but also incredible improvements in engine design as a result.

Thank heavens for progressive states like California and its stricter air quality standards. Because of its huge market for automobiles, it forced the auto corporations to meet more than just the national standards.

“Negative externality” is the fundamental reason we need regulations for every aspect of corporate activity that impacts the environment. However, the same thing can be said about all other corporate behaviors that transfer what should be their own costs onto workers, the economy, the taxpayers, or the community.

For example, in the past manufacturers didn’t worry about carpal tunnel syndrome because the expense of the disability was shifted to the employees; when the problem made itself known, or they could no longer work, they were “downsized” out of the organization.

If we are to regain control of our own government, we must first discover who sold us out to corporations to begin with. We get a fairly good idea from the following two excerpts. The first is given to us by The Wall Street Journal, which concluded that a “Generic-Drug Scandal at the FDA Is Linked to Deregulation Drive”:

The FDA’s current problems are a legacy of the Reagan administration’s push to deregulate. By scaling back their enforcement actions while publicly embracing the generic-drug industry as a “partner” rather than an adversary, the FDA created “an atmosphere of lawlessness,” says Sidney Wolfe, head of the Public Citizen Health Research Group.⁸

       

The second excerpt comes from Business Week. In noting that “The Workplace Cops Could Use Some Backup,” it described the conflict between the Clinton Administration and the conservative Congress:

Buried in the (Clinton) Administration’s new spending proposals are hefty hikes for regulatory enforcement—especially for workplace issues such as civil rights, safety and health, and labor law.

   Some Republicans and business groups are gearing up to oppose what U.S. Chamber of Commerce Senior Vice-President Bruce Josten calls “the era of Big Government coming back.” But that’s a knee-jerk  reaction. What’s surprising this time is that there are business groups that support the hikes.… Decades of cuts have led to lax oversight, allowing sweatshops to proliferate, for example, and leaving law-abiding companies vulnerable to corner-cutting rivals.⁹

This last pair of articles presents the same cast of knee-jerk conservatives: Republican politicians, fossilized business groups, and the Chamber of Commerce. Except for those few business groups with some semblance of moral standards, conditions for workers and the health and general welfare of the public are irrelevant. Regardless of how much economic power the richest, most powerful, and least scrupulous members of our society have—it’s never enough for them.

Power Abhors a Vacuum

All societies and all markets are always controlled, all the time.  Therefore, the only issues in any society, or market, are:

§         Who’s doing the controlling?

§         How did they get their control?

§         How are they using it? 

§         For whose benefit are they controlling?

Ideally, in a democracy, elected officials do the controlling for the purpose of maximizing genuine freedom for its citizens and businesses. The checks and balances of separated powers ensure that all issues and interests are represented fairly. When done ethically, this kind of control benefits society by ensuring that morally based corporations and businesses can dominate the free market by providing the best products and services at the best prices.

To accomplish this, the government must prevent corrupt special interest groups from subverting the system and its markets with their own controls. If government doesn’t do its job, with monitoring and sensible regulations, then society—and its markets—become controlled by their most powerful and immoral predators.

And that’s exactly what has been happening since Republicans and conservative Democrats began dismantling government.

The great irony is that now—with less “government”—there is more stifling control over the lives of working-class Americans than there was before. Today, in the absence of effective government, wealthy and powerful individuals and their corporations have almost total control of our economy and our markets. It’s as simple as that.

§         They bought off legislators who favored specific individuals, companies, and industries over the interests of the country.

§         They bought unscrupulous lawyers who did whatever it took in court to prevent any lawful attempts to bring about fairness or justice for others.

§         They bought control of markets, regardless of the negative effects on their competitors, consumers and workers.

§         And, to add insult to injury, they not only bought anti-worker legislation in order to keep wages low—but they also paid conservatives in Congress to shift the tax burdens from themselves onto workers.

By now, it’s obvious to almost everyone that wealthy individuals and corporations have purchased the federal government of the United States. They may not own it lock, stock, and barrel yet, but they’re close.

The only mystery left about the corruption of the political process is why the public is so passive about it. A major reason has to be that the public knows that incumbent politicians in our two major political parties want to keep the system and they’re not about to do anything to change it. It seems futile to work toward improving the system because the people who would do the correcting are themselves corrupt. There appear to be no other choices.

A second reason is that the public doesn’t yet realize the magnitude of the damage that these entrenched conservatives have done to our economy and to the long-term welfare of our society—and especially to the long-term welfare of its working-class citizens.

Part 3 should help clarify these issues, as well as present some alternatives that many voters may not have considered.